MARINE DRILLING COMPANIES INC, 424B5, 1996-11-22

MARINE DRILLING COMPANIES INC
424B5, 1996-11-22
DRILLING OIL & GAS WELLS

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<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-6997

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* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. *
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SUBJECT TO COMPLETION, DATED NOVEMBER 22, 1996

PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JULY 12, 1996

5,000,000 SHARES

MARINE DRILLING COMPANIES, INC.

COMMON STOCK
[MARINE DRILLING LOGO] (PAR VALUE $.01 PER SHARE)
----------------------
The last reported sale price of the Common Stock, which is quoted under the
symbol "MDCO," on the Nasdaq National Market on November 21, 1996 was $17 1/4
per share. See "Price Range of Common Stock."

SEE "RISK FACTORS" BEGINNING ON PAGE S-8 FOR CERTAIN CONSIDERATIONS
RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------

<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT (1) COMPANY(2)
---------------- ---------------- -------------
<S> <C> <C> <C>
Per Share................................ $ $ $
Total (3)................................ $ $ $
</TABLE>

- ---------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting estimated expenses of $200,000 payable by the Company.
(3) The Company has granted to the Underwriters an option for 30 days to
purchase up to an additional 750,000 shares of Common Stock at the initial
public offering price per share, less the underwriting discount, solely to
cover over-allotments. If such option is exercised in full, the total
initial public offering price, underwriting discount and proceeds to the
Company will be $ , $ , and $ , respectively. See
"Underwriting."
----------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York on or about
December , 1996, against payment therefor in immediately available funds.

GOLDMAN, SACHS & CO. SALOMON BROTHERS INC

BT SECURITIES CORPORATION
SOUTHCOAST CAPITAL
CORPORATION
----------------------
The date of this Prospectus Supplement is December , 1996.
<PAGE> 2

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."

INCORPORATION OF ADDITIONAL DOCUMENT BY REFERENCE

In addition to the documents referred to under "Incorporation of Certain
Documents by Reference" in the accompanying Prospectus, the Company hereby
incorporates by reference the description of the Company's Preferred Share
Purchase Rights contained in the Registration Statement on Form 8-A dated
November 15, 1996.

S-2
<PAGE> 3

PROSPECTUS SUPPLEMENT SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus Supplement or the accompanying Prospectus or in
documents incorporated herein by reference. Unless otherwise indicated, the
information contained herein assumes that the Underwriters' over-allotment
option will not be exercised. In addition, unless otherwise specified, the
financial data (including share and per share data) in this Prospectus
Supplement have been adjusted to reflect a one-for-twenty-five reverse stock
split effected by the Company on October 29, 1992. References to the "Company"
or "Marine" herein include Marine Drilling Companies, Inc. and its subsidiaries,
unless the context otherwise requires.

THE COMPANY

The Company is engaged in the offshore contract drilling of oil and gas
wells, primarily in the U.S. Gulf of Mexico, for independent and major oil and
gas companies. The Company owns and operates a fleet of 14 mobile offshore
jack-up drilling rigs, consisting of five independent leg units, three of which
have a cantilever feature, and nine mat supported units, four of which have a
cantilever feature. The Company's jack-up rigs are currently capable of drilling
to depths of 20,000 to 30,000 feet in maximum water depths ranging from 200 to
300 feet. Twelve of the Company's rigs are under contract in the U.S. Gulf of
Mexico, one rig is under contract off the east coast of India and one rig is
being refurbished and upgraded.

The Company believes that its primary strengths are its: (i) significant
presence in the Gulf of Mexico market, (ii) low cost structure, (iii) long
standing reputation for quality service and safety and (iv) conservative capital
structure.

While the Company remains committed to maintaining a strong presence in the
Gulf of Mexico, one of the Company's primary objectives is to expand its
business into the deep water and international markets. This expansion should
allow the Company to diversify the source of its revenues to include a balanced
mix of short-term and long-term contracts. Long-term contracts are typically
available in most deep water and international jack-up markets. The Company
believes that a more diversified revenue base will reduce the impact of industry
volatility on the Company. Pursuant to this strategy, the Company recently
purchased the MARINE 305, a 300-foot independent leg, slot rig, for a total
consideration of $8 million. The Company has commenced a program to refurbish
and significantly upgrade the rig's operational capabilities at an expected
investment of approximately $31 million. The Company intends to seek a long-term
international contract for this rig.

Additionally, in November 1996, the Company agreed to acquire the CHRIS
CHENERY (to be renamed the MARINE 500), a second generation semi-submersible rig
for $38 million (the "MARINE 500 Acquisition"). The MARINE 500 Acquisition will
enable the Company to enter the deep water drilling sector and, in furtherance
of its strategy, enhance its ability to obtain longer term contracts. The rig
was built in 1975 and is capable of operating in water depths of up to 600 feet.
The Company is currently evaluating upgrades to the capabilities of this rig and
anticipates that such upgrades could be effected in two phases. The first phase
would involve the near-term upgrade of the rig's water depth capability to a
range of 1,200 to 1,500 feet. The second phase would involve the further
enhancement of the rig to increase its variable deck load and to increase its
water depth capability to a range of 3,500 to 5,000 feet. The Company will make
a decision on these upgrades based upon the timing, availability and pricing of
long-term contracts for the rig. The completion of the MARINE 500 Acquisition is
subject to certain customary conditions.

Beginning in late 1995, the Company experienced a significant increase in
its earnings and net cash flow from operations, primarily as a result of
improvements in utilization and day rates in the U.S. Gulf of Mexico. Earnings
for the nine months ending September 30, 1996 improved to $13.3 million compared
to a net loss of $5.6 million for the comparable period in 1995, while net cash
flow from operations improved to $24.7 million compared to $4.6 million for the
comparable period in 1995.

S-3
<PAGE> 4

MARKET OVERVIEW

Activity in the offshore contract drilling industry has increased
significantly over the last two years. Higher commodity prices combined with
improved exploration and production technology have significantly increased
demand for offshore drilling services. This increased demand combined with a
continuing decline in the number of marketable rigs has led to increasing day
rates. As a result, the worldwide market for jack-up rigs has improved recently
with most major offshore markets showing increasing demand. The total supply of
jack-up rigs has been reduced from a peak of 455 in November 1985, to 358 on
November 19, 1996 and, worldwide jack-up utilization as of such date was 95%.
The utilization rate of jack-up rigs in the U.S. Gulf of Mexico as of November
19, 1996 was 94%, as compared with an average rate of 78% for 1995.

The deep water market for semi-submersible rigs has experienced improved
demand and higher day rates during the past year, due in part to the increasing
impact of technological advances that have broadened opportunities for offshore
exploration and development. Most semi-submersible markets experienced increased
utilization and significantly higher day rates in 1995 and 1996, and customers
increasingly are seeking to contract for rigs serving these markets for a stated
term (as opposed to contracts for the drilling of a single well or a group of
wells). The utilization of semi-submersible rigs worldwide as of November 19,
1996 was 94% (133 rigs working out of a supply of 142 rigs), as compared with an
average rate of 83% for 1995.

The Company's utilization and average day rates in the U.S. Gulf of Mexico
as of November 19, 1996 were 100% and approximately $27,000, respectively, as
compared to an average of 64% and $17,564 for the first nine months of 1995.

BUSINESS STRATEGY

The key elements of the Company's strategy are to:

- Maintain Significant Presence in Gulf of Mexico. With 12 of its 14
jack-up rigs located in the Gulf of Mexico, Marine is well positioned to
benefit from the currently strong Gulf of Mexico market and from any
further improvement in that market. The improved utilization of and day
rates for jack-up rigs in the Gulf of Mexico for the first nine months of
1996 has continued into the fourth quarter of 1996.

- Grow Through Rig Acquisitions and Upgrades. The Company is actively
seeking attractive opportunities for rig acquisitions to increase the size
and capabilities of its fleet. The Company also has an ongoing program to
upgrade and refurbish its fleet in order to enhance its operational
capabilities and competitiveness. The acquisition of the MARINE 305 and
the MARINE 500 Acquisition reflect the Company's strategy to purchase and
upgrade rigs for redeployment on a long-term contractual basis.

- Build a Diversified Revenue Base. To complement its position in the Gulf
of Mexico, the Company's strategy is to build upon and diversify its
revenue base by seeking an appropriate balance of long-term and short-term
contracts. The Company intends to pursue this strategy through increased
exposure to international markets and entrance into the deep water
drilling sector as follows:

Diversify Internationally. The Company intends to expand into
selected international markets that typically offer longer term
contracts. Currently, the Company has chartered the MARINE 201 rig
under a one year, renewable contract to operate off the eastern coast
of India. In addition, the MARINE 305 is currently located in the
Middle East, and upon completion of its upgrade, the Company expects
to operate this rig internationally.

S-4
<PAGE> 5

submersibles and drillships. Although the Company has no history of
operations in the deep water drilling sector, the Company has hired
several key employees in 1996, including the Company's chief
executive officer, who have significant experience in the deep water
drilling sector.

- Maintain a Low Cost Structure. The Company's low cost structure is an
essential element in realizing its goal of maximizing its profit margins.
The Company's incentive plans are designed to maintain a strong employee
and management focus upon this objective.

- Maintain Reputation for Quality Service and Safety. The Company
continually strives to maintain and enhance its reputation for providing
quality service. Crew quality is an important factor that customers
consider when choosing a rig. The Company is focused on retaining trained
and talented employees who are committed to the Company's high standards
of quality service and safety.

- Maintain Conservative Capital Structure. The offshore drilling business
is subject to substantial fluctuations in demand, pricing and
profitability. The Company believes that it is appropriate to maintain
limited levels of debt and significant levels of liquidity to enable it to
better withstand industry cyclicality. The Company is seeking a credit
facility that would increase the Company's flexibility in financing future
rig investments. The Company has received a firm commitment from a money
center bank for a $100 million credit facility. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operation -- Financial Condition -- Liquidity and Capital
Resources -- Other Activities."

The Company's principal executive offices are located at One Sugar Creek
Center Boulevard, Suite 600, Sugar Land, Texas 77478-3556, and its telephone
number at that address is (281) 243-3000.

THE OFFERING

Common Stock offered by the
Company (the
"Offering").............. 5,000,000 shares

Common Stock
Outstanding(1):

Before the Offering...... 45,665,319 shares

After the Offering....... 50,665,319 shares

Use of Proceeds............ To fund the reactivation, upgrade and refurbishment
of the MARINE 305, to either fund all or a portion
of the acquisition and upgrade of the MARINE 500
or, if such acquisition is consummated prior to the
completion of the Offering, to repay indebtedness
incurred to fund such acquisition, and for general
corporate purposes, including the funding of
possible future rig acquisitions.

Risk Factors............... See "Risk Factors" for a discussion of certain
investment considerations to be considered by
potential investors.

Nasdaq National Market
symbol................... "MDCO"
- ---------------

(1) Does not include 1,786,380 shares of Common Stock issuable upon the exercise
of outstanding options, of which 628,880 were exercisable as of November 21,
1996.

S-5
<PAGE> 6

SUMMARY CONSOLIDATED FINANCIAL DATA

The following table sets forth certain historical consolidated financial
data of the Company as of and for each of the periods indicated and certain pro
forma balance sheet data as of September 30, 1996 adjusted to give effect to the
Offering. The financial data for each of the three years in the period ended
December 31, 1995 are derived from the Company's audited consolidated financial
statements. The consolidated historical financial data for the nine-month
periods ended September 30, 1995 and 1996 are derived from the Company's
unaudited consolidated financial statements which, in the opinion of the
Company's management, include all adjustments, which consist only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations of the Company for such interim periods. The
results for the nine months ended September 30, 1996 are not necessarily
indicative of the results for the full year. The information presented below
should be read in conjunction with "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus Supplement.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
YEARS ENDED DECEMBER 31, (UNAUDITED)
--------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $82,998 $70,597 $63,067 $39,860 $78,418
Contract drilling expenses................. 45,330 50,575 55,091 38,335 44,166
General and administrative................. 8,999 4,376 5,460 4,085 5,470
Depreciation and amortization.............. 5,312 7,733 9,377 6,773 8,545
------- ------- ------- ------- -------
Operating income (loss).................... 23,357 7,913 (6,861) (9,333) 20,237
Interest income (expense), net............. (62) 1,280 639 601 133
Other income (expense)..................... 6 (70) 120 130 355
------- ------- ------- ------- -------
Income (loss) before income taxes.......... 23,301 9,123 (6,102) (8,602) 20,725
Income tax expense (benefit)............... 8,278 3,193 (2,080) (3,011) 7,469
------- ------- ------- ------- -------
Net income (loss).......................... $15,023 $ 5,930 $(4,022) $(5,591) $13,256
======= ======= ======= ======= =======
PER SHARE DATA:
Net income (loss) per common share......... $ 0.37 $ 0.14 $ (0.09) $ (0.13) $ 0.30
======= ======= ======= ======= =======
Weighted average common shares
outstanding............................. 40,936 43,819 43,812 43,881 44,393
======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
EBITDA(1).................................. $28,675 $15,576 $ 2,636 $(2,430) $29,137
Capital expenditures....................... 18,329 15,385 21,418 14,867 12,047
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.............. $ 27,311 $109,049
Working capital................................................ 43,202 124,940
Total assets................................................... 163,588 245,326
Long-term debt (net of current maturities)..................... 9,500 9,500
Shareholders' equity........................................... 133,080 214,818
</TABLE>

- ---------------

(1) As used herein, "EBITDA" refers to earnings before interest, taxes,
depreciation and amortization of deferred financing costs. EBITDA should not
be considered by an investor as an alternative to net income (loss) as an
indicator of the Company's operating performance or to cash flows as a
measure of liquidity.

(2) Adjusted to give effect to the Offering (assuming no exercise of the
Underwriters' over-allotment option) and prior to the application of the net
proceeds for the purposes described under "Use of Proceeds."

S-6
<PAGE> 7

SUMMARY OPERATING DATA

The following table sets forth certain industry and Company historical data
comparing the rig utilization of the Company's fleet relative to that of the
offshore jack-up drilling industry as a whole for the years ended December 31,
1993, 1994, 1995, during the nine months ended September 30, 1996 and during
each of the first three quarters of 1996.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED ------------------------------------
--------------------------- SEPTEMBER 30, MARCH 31, JUNE 30, SEPTEMBER 30,
1993 1994 1995 1996 1996 1996 1996
------- ------- ------- ----------------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INDUSTRY(1):
U.S. Gulf of Mexico
Total jack-up rigs......... 116.5 135.8 140.1 136.6 137.2 136.7 135.9
Working jack-up rigs....... 90.5 102.9 104.6 117.2 113.5 118.5 119.6
Utilization................ 78% 76% 75% 86% 83% 87% 88%
All other markets
Total jack-up rigs......... 276.6 255.5 246.7 246.5 246.7 246.8 246.0
Working jack-up rigs....... 216.9 192.5 197.5 206.4 203.3 205.0 210.8
Utilization................ 78% 75% 80% 84% 82% 83% 86%
COMPANY(2):
Fleet totals
Total jack-up rigs......... 11.1 12.1 13.0 13.2 13.0 13.0 13.5
Working jack-up rigs....... 9.9 9.8 8.9 12.3 11.1 12.8 13.0
Utilization of all jack-up
rigs..................... 89% 81% 68% 93% 85% 98% 97%
Non-marketed jack-up
rigs..................... 0.9 0.8 3.0 0.6 1.2 0.2 0.5
Utilization of marketed
jack-up rigs............. 97% 87% 89% 98% 94% 100% 100%
Average day rates(3)......... $23,019 $19,686 $19,289 $23,268 $21,026 $23,505 $24,932
</TABLE>

- ---------------

(1) Averages of weekly data published by Offshore Data Services.

(2) The numbers represent the average number of rigs operated by the Company for
the periods indicated.

(3) "Average day rate" is determined by dividing the total gross revenue earned
by the Company's rigs during a given period by the total number of days that
the Company's rigs were under contract during that period.

S-7
<PAGE> 8

RISK FACTORS

Prospective purchasers of shares of Common Stock should carefully consider
the risk factors set forth below, as well as the other information contained or
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus, before purchasing the shares of Common Stock offered hereby.

FORWARD-LOOKING STATEMENTS

This Prospectus Supplement, particularly this section and the sections
entitled "Prospectus Supplement Summary," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business," contains
certain forward-looking statements and other statements that are not historical
facts concerning, among other things, market conditions, the demand for offshore
drilling services and future capital expenditures. There can be no assurance
that the Company has accurately identified and properly weighed all of the
factors which affect market conditions and demand for the Company's rigs, that
the public information upon which the Company has relied is accurate or complete
or that the Company's analysis of the market and demand for its rigs is correct
and, as a result, the strategy based on such analysis will be successful.

DEPENDENCE ON OIL AND GAS INDUSTRY

The Company's operations are largely dependent upon the levels of activity
in oil and natural gas exploration and development drilling. Such activity
levels are affected by trends in oil and natural gas prices. Historically, the
prices for oil and natural gas have been volatile and are subject to wide
fluctuations in response to changes in the supply of and demand for oil and
natural gas, market uncertainty and a variety of political, economic and other
factors beyond the control of the Company. The Company cannot predict future oil
and natural gas price movements with any certainty. Any prolonged reduction in
oil and natural gas prices, however, will depress the level of exploration,
development and production activity and result in a corresponding decline in the
demand for the Company's services and, therefore, have a material adverse effect
on the Company's revenues and profitability.

OPERATING RISKS

Contract drilling operations are subject to various risks, including
blowouts, cratering, fires and explosions, each of which could result in damage
to or destruction of drilling rigs and oil and gas wells, damage to life and
property, suspension of operations, and environmental damage through oil
spillage and extensive uncontrolled fires. The Company's drilling equipment also
is subject to hazards inherent in marine operations, such as capsizing,
grounding, collision, damage from weather or sea conditions or unsound location.
The Company currently maintains insurance coverage it believes to be customary
in the industry against certain general and marine public liabilities, including
liabilities for personal injuries. Except in limited circumstances, this
insurance does not cover liability for pollution or environmental damage that
originates below the water surface, although the Company is generally
indemnified against such pollution and environmental liabilities by its
customers. There can be no assurance, however, that such insurance or
indemnification will be adequate to protect the Company against liability from
all consequences of well disasters, extensive fire damage or damage to the
environment or that the Company will be able to maintain adequate insurance in
the future at rates it considers reasonable. Such liabilities, if not covered by
insurance or a third party indemnification, could have a material adverse effect
on the Company.

CONCENTRATION OF OPERATIONS IN GULF OF MEXICO

The Company historically has operated its offshore drilling rigs
principally in the U.S. Gulf of Mexico. As of the date of this Prospectus
Supplement, 12 of the Company's 14 rigs were located in the U.S. Gulf of Mexico.
As a result of this geographic concentration, a decrease in the demand for
offshore drilling rigs

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<PAGE> 9

in the U.S. Gulf of Mexico could have a material adverse effect on the Company
even if demand for offshore drilling rigs in other areas of the world was not
adversely affected.

INTERNATIONAL OPERATIONS

The Company currently operates a rig offshore India and has previously
operated three rigs in the Bay of Campeche, offshore Mexico. The Company also
currently intends to market internationally the MARINE 305 and MARINE 500 and to
seek to acquire additional rigs for operation in international markets. In
addition, although the Company does not currently intend to move any of its
jack-ups currently operating in the Gulf of Mexico to international markets,
with the possible exception of the Bay of Campeche, the Company has modified
three of its rigs so that they are suitable for operations in selected
international waters and the Company's other rigs could, with certain
modifications, work in other international markets. Operations in foreign
countries generally are subject to various risks attendant to doing business
outside the United States, including risks of war, general strikes, civil
disturbances, guerilla activity, currency fluctuations and devaluations and
governmental activities that may limit or disrupt markets, restrict payments or
the movement of funds or result in the deprivation of contract rights or the
taking of property without fair compensation. No prediction can be made as to
what foreign governmental regulations may be enacted in the future that could be
applicable to the drilling industry.

NO ASSURANCE MARINE 500 ACQUISITION WILL BE COMPLETED; USE OF PROCEEDS

Unless previously consummated, the Company intends to use a portion of the
net proceeds from the Offering to fund the $38 million purchase price of the
MARINE 500 Acquisition. The completion of the MARINE 500 Acquisition is subject
to certain customary conditions, and there can be no assurance that such
conditions will be satisfied or waived or that the MARINE 500 Acquisition will
be completed. If the MARINE 500 Acquisition is not completed for any reason,
that portion of the net proceeds of the Offering presently intended to be used
in such acquisition will be added to working capital and used for general
corporate purposes. See "Business -- General."

ENTRY INTO DEEP WATER DRILLING MARKET

The Company intends to enter into the deep water drilling market through
the acquisition of a second generation semi-submersible. The Company, however,
has no history of operating in the deep water drilling market although it has
hired several key employees in 1996, including the Company's chief executive
officer, with significant experience in the deep water drilling sector. The deep
water market requires the use of floating rigs which utilize more sophisticated
technologies than those utilized by the jack-up rigs that constitute the
Company's offshore fleet. There can be no assurance that the Company will be
successful in its deep water drilling efforts.

COMPETITION

The contract drilling industry is a highly competitive and cyclical
business characterized by high capital and maintenance costs. Although
conditions in recent years in the oil and gas industry have precipitated
consolidation of offshore drilling industry participants, the Company believes
the competition for drilling contracts will continue to be intense for the
foreseeable future because of contractors' ability to move rigs from areas of
low activity and day rates to areas of greater activity and relatively higher
day rates. In addition, there are a number of inactive non-marketed rigs that
are being reactivated and upgraded, and additional rigs that could be
reactivated and upgraded, and new rigs that could be constructed, to meet an
increase in demand for drilling rigs in any given market. Such movement,
reactivation, new construction or a decrease in drilling activity in any major
market could depress day rates and could adversely affect utilization of the
Company's rigs even in an environment of stronger natural gas prices. Many of
the Company's competitors are larger and have a greater diversity of rigs and
greater financial resources than the Company. These factors may enable those
competitors to better

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<PAGE> 10

withstand industry downturns, compete on the basis of price, build new rigs or
acquire existing rigs that become available for purchase.

RISK OF UPGRADE AND REFURBISHMENT PROJECTS

In connection with its entry into deep water operations and the upgrade and
refurbishment of the MARINE 305 and other rigs that the Company may acquire in
the future, the Company expects to make substantial completion, upgrade and
refurbishment capital expenditures. Such projects are subject to the risks of
delay or cost overruns inherent in any large construction project, including
shortages of materials or skilled labor, unforeseen engineering problems, latent
damage to current equipment, work stoppages, weather interference, unanticipated
cost increases, and inability to obtain any of the requisite permits or
approvals. Significant cost overruns or delays would adversely affect the
Company's financial condition and results of operations.

NET LOSSES AND FUTURE PROFITABILITY

The Company reported net losses before extraordinary items for each of the
years ended December 31, 1991, 1992 and 1995. The Company reported net income,
however, for the years ended December 31, 1993 and 1994 and for the nine months
ended September 30, 1996. The Company's financial results in the future will
depend primarily on the utilization and day rates of the rigs operated by the
Company and the cost of such operations. There can be no assurance that the
Company's operating results will continue to be profitable in future periods.
See "Selected Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus
Supplement.

DEPENDENCE ON KEY PERSONNEL

The Company believes that its operations are dependent to some degree upon
a relatively small group of its management personnel, the loss of any of whom
could have a material adverse effect on the Company. The Company attempts to
minimize this risk through the use of incentive plans designed to retain key
employees.

Crew quality is an important factor considered by the customer in selecting
a rig. Recent increases in worldwide drilling demand and the attendant increase
in the number of rigs operating has resulted in a shortage of qualified rig
personnel in the industry. If the Company is unable to attract and retain
sufficient qualified personnel, its ability to place into service currently
inactive rigs and newly acquired rigs will be restricted. Further, labor
shortages could result in wage increases, which could, without offsetting
increases in revenues, reduce the Company's operating margins.

ENVIRONMENTAL MATTERS

The operations of the Company are subject to numerous federal, state and
local laws and regulations controlling the discharge of materials into the
environment or otherwise relating to the protection of the environment. Such
laws and regulations not only expose the Company to liability for its own
actions but also, under certain circumstances, expose the Company to liability
for the conduct of others or for acts of the Company which were in compliance
with all applicable laws at the time such acts were taken. Laws and regulations
protecting the environment have become more stringent in recent years and may in
certain circumstances impose "strict liability" and render a company liable for
environmental damage without regard to negligence or fault on the part of such
company. In addition, legislative proposals have been introduced which would
materially limit or prohibit offshore drilling in certain environmentally
sensitive areas. Some recent proposals which limit or prohibit drilling in
limited parts of the U.S. Gulf of Mexico and certain other U.S. offshore areas
have been enacted into law and have adversely affected the Company. An Executive
Order declaring a moratorium on oil and gas leasing and exploration until the
year 2000 in certain areas, including the U.S. Gulf of Mexico off southern
Florida, is currently in effect. If additional laws are enacted or other
governmental action is taken that further restrict or prohibit offshore

S-10
<PAGE> 11

drilling in the U.S. Gulf of Mexico or impose environmental protection
requirements that materially increase the costs of offshore exploration,
development or production of oil and gas, then the Company could be further
affected in a materially adverse manner.

GOVERNMENTAL REGULATION

The business of the Company is affected by political developments and by
federal, state, foreign and local laws and regulations that relate directly to
the oil and gas industry. The adoption of laws and regulations curtailing
exploration and developmental drilling for oil and gas for economic,
environmental and other policy reasons adversely affects the operations of the
Company by limiting available drilling opportunities for its customers.
Additionally, laws relating to equipping and operating offshore vessels and
natural gas exploration may add to the cost of operating offshore drilling
equipment.

LIMITED FOREIGN OWNERSHIP

The Company's Restated Articles of Incorporation contain limitations upon
the percentage of outstanding Common Stock that can be owned by persons who are
not United States citizens within the meaning of certain U.S. statutes relating
to the ownership of U.S. flag vessels. At present, applying the statutory
requirements, the Restated Articles of Incorporation would prohibit more than
48% of the outstanding Common Stock from being owned by non-U.S. citizens. These
restrictions may, at times, preclude the transfer or issuance of Common Stock to
non-U.S. citizens and thus restrict the available market for resales of shares
of Common Stock and for the issuance of shares by the Company.

USE OF PROCEEDS

The net proceeds to be received by the Company from the Offering (assuming
a public offering price of $17.25 per share and after deducting the estimated
underwriting discount and offering expenses) are estimated to be approximately
$81.7 million (approximately $94 million if the Underwriters' over-allotment
option is exercised in full). The Company intends to use approximately $31
million of the net proceeds to fund the cost of upgrading, refurbishing and
reactivating the MARINE 305. In addition, if the MARINE 500 Acquisition has not
been consummated prior to the completion of the Offering, the Company intends to
use approximately $38 million of the net proceeds to fund the MARINE 500
Acquisition. If the MARINE 500 Acquisition is consummated prior to the
completion of the Offering, the Company intends to repay any additional
indebtedness incurred under the Company's current loan agreement to fund the
MARINE 500 Acquisition. A portion of the net proceeds may also be used for
upgrades to the MARINE 500. Any remaining net proceeds, including proceeds that
would be available if the Company does not consummate the MARINE 500
Acquisition, will be used for general corporate purposes, including future rig
investments.

S-11
<PAGE> 12

CAPITALIZATION

The following table sets forth the capitalization of the Company, as well
as its cash, cash equivalents and short-term investments position, as of
September 30, 1996 and as adjusted to give effect to the Offering, prior to the
application of the net proceeds as set forth under "Use of Proceeds." This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus Supplement.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS................... $ 27,311 $ 109,049
========= ==========
DEBT:
Current portion of long-term debt................................. $ 500 $ 500
Long-term debt (net of current maturities) (1).................... 9,500 9,500
-------- -----------
Total debt................................................ 10,000 10,000
SHAREHOLDERS' EQUITY:
Common Stock, par value $.01; 200,000,000 shares authorized;
45,518,651 shares issued and outstanding as of September 30,
1996; 50,518,651 issued and outstanding, as adjusted........... 455 505
Common stock restricted........................................... (557) (557)
Additional paid-in capital........................................ 103,740 185,428
Retained earnings, from January 1, 1993........................... 29,442 29,442
-------- -----------
Total shareholders' equity................................ 133,080 214,818
-------- -----------
TOTAL CAPITALIZATION...................................... $143,080 $ 224,818
========= ==========
</TABLE>

- ---------------

(1) For a description of long-term debt, see Note 4 to the Consolidated
Financial Statements included elsewhere in this Prospectus Supplement.

S-12
<PAGE> 13

MARKET PRICE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock trades on the Nasdaq National Market under the symbol
"MDCO." The following table sets forth the range of high and low sale prices per
share of the Common Stock as reported by the Nasdaq National Market for the
periods indicated.

<TABLE>
<CAPTION>
HIGH LOW
------ ----
<S> <C> <C>
1994:
First Quarter.................................... $ 6 3/4 $4 5/8
Second Quarter................................... 6 1/8 4 3/8
Third Quarter.................................... 6 1/8 4 1/2
Fourth Quarter................................... 4 3/4 2 5/8
1995:
First Quarter.................................... 3 1/4 2 1/2
Second Quarter................................... 4 1/2 3 3/8
Third Quarter.................................... 4 7/8 3 3/8
Fourth Quarter................................... 5 1/8 3 1/2
1996:
First Quarter.................................... 8 3/4 4 7/8
Second Quarter................................... 10 11/16 7 7/8
Third Quarter.................................... 10 7/8 8 3/8
Fourth Quarter (through November 21, 1996)....... 18 3/8 9 1/8
</TABLE>

The last sale price of the Common Stock as reported by the Nasdaq National
Market on November 21, 1996 was $17.25 per share. As of November 15, 1996, there
were approximately 470 holders of record of the Common Stock.

The Company has not paid cash dividends on its Common Stock in the past and
does not intend to pay dividends on the Common Stock in the foreseeable future.
In addition, the payment of cash dividends is prohibited by the terms of the
Company's $35 million credit facility to the extent such dividends would cause
the Company to fail to meet certain financial ratio tests. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto included elsewhere in
this Prospectus Supplement.

S-13
<PAGE> 14

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated financial data of the
Company as of and for each of the periods indicated. The selected financial data
for each of the five years in the period ended December 31, 1995 are derived
from the Company's audited consolidated financial statements. The selected
consolidated financial data for the nine-month periods ended September 30, 1995
and 1996 are derived from the Company's unaudited consolidated financial
statements which, in the opinion of the Company's management, include all
adjustments, which consist only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations of the
Company for such interim periods. The results for the nine months ended
September 30, 1996 are not necessarily indicative of the results for the full
year. The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus Supplement.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
YEARS ENDED DECEMBER 31, (UNAUDITED)
----------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
-------- --------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues....................... $ 66,686 $ 31,621 $ 82,998 $ 70,597 $ 63,067 $ 39,860 $ 78,418
Contract drilling expenses..... 58,117 29,189 45,330 50,575 55,091 38,335 44,166
General and administrative..... 9,786 6,903 8,999 4,376 5,460 4,085 5,470
Depreciation and
amortization................. 17,240 12,315 5,312 7,733 9,377 6,773 8,545
Rig writedown.................. -- 68,320(2) -- -- -- -- --
-------- --------- -------- -------- -------- -------- --------
Operating income (loss)........ (18,457) (85,106) 23,357 7,913 (6,861) (9,333) 20,237
Interest income (expense),
net.......................... (13,291) (9,628) (62) 1,280 639 601 133
Other income (expense)......... (2,714) 3,407 6 (70) 120 130 355
-------- --------- -------- -------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
items........................ (34,462) (91,327) 23,301 9,123 (6,102) (8,602) 20,725
Income tax expense (benefit)... -- 40 8,278 3,193 (2,080) (3,011) 7,469
-------- --------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary items.......... (34,462) (91,367) 15,023 5,930 (4,022) (5,591) 13,256
Extraordinary items -- gains on
early extinguishments of
debt......................... -- 104,523(3) -- -- -- -- --
-------- --------- -------- -------- -------- -------- --------
Net income (loss).............. $(34,462) $ 13,156 $ 15,023 $ 5,930 $ (4,022) $ (5,591) $ 13,256
======== ========= ======== ======== ======== ======== ========
PER SHARE DATA(1):
Income (loss) per common
share before extraordinary
items(4)..................... $ (56.29) $ (16.84) $ 0.37 $ 0.14 $ (0.09) $ (0.13) $ 0.30
Extraordinary gains per common
share........................ -- 17.95 -- -- -- -- --
-------- --------- -------- -------- -------- -------- --------
Net income (loss) per common
share(4)..................... $ (56.29) $ 1.11 $ 0.37 $ 0.14 $ (0.09) $ (0.13) $ 0.30
======== ========= ======== ======== ======== ======== ========
Weighted average common shares
outstanding.................. 753 5,823 40,936 43,819 43,812 43,881 44,393
======== ========= ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(5)...................... $ (3,931) $ (1,064) $ 28,675 $ 15,576 $ 2,636 $ (2,430) $ 29,137
Capital expenditures........... 3,938 80 18,329 15,385 21,418 14,867 12,047
BALANCE SHEET DATA(1):
Cash, cash equivalents and
short-term investments(6).... $ 11,740 $ 9,423 $ 21,969 $ 37,009 $ 12,260 $ 19,711 $ 27,311
Working capital (deficit)(7)... (77,063) (846) 32,089 48,529 23,316 25,141 43,202
Total assets................... 247,788 92,228 124,171 143,215 134,545 130,877 163,588
Long-term debt
(net of current
maturities)(7)............... 59,702 5,123 -- 15,000 9,000 9,500 9,500
Preferred stock................ 57,233 -- -- -- -- -- --
Shareholders' equity........... 26,741 60,695 106,417 112,731 107,572 105,682 133,080
</TABLE>

S-14
<PAGE> 15

NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- The Recapitalization" for a discussion of the Company's
1992 recapitalization and the effect of quasi-reorganization accounting
procedures adopted on December 31, 1992.

(2) In connection with the Company's 1992 recapitalization, the Company recorded
a rig writedown of $68,320 related to the transfer of seven rigs to a lender
and a writedown of four other rigs to net realizable value.

(3) The Company restructured significant portions of its debt pursuant to a
recapitalization in 1992. In connection with this event, it recorded debt
extinguishments of $117,967 and extraordinary gains of $104,523.

(4) For the years ended December 31, 1991 and 1992, net income (loss) per share
includes $10.54 and $1.15, respectively, per share of Common Stock
attributable to dividends and discount accretion related to preferred stock
outstanding during all or part of those years.

(5) As used herein, "EBITDA" refers to earnings before interest, taxes,
depreciation, amortization of deferred financing costs, extraordinary items
and writedown of rigs. EBITDA should not be considered by an investor as an
alternative to net income (loss) as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity.

(6) For the years ended December 31, 1991 and 1992, cash, cash equivalents and
short-term investments include restricted cash investments of $7,237 and
$250, respectively.

(7) The working capital deficit as of December 31, 1992 included $16,157
representing current portions of long-term debt. The working capital deficit
as of December 31, 1991 included long-term debt due of $88,593 which was in
default subsequent to December 31, 1991. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- The
Recapitalization."

S-15
<PAGE> 16

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following is a discussion of the Company's financial condition, results
of operations, financial resources and working capital. This discussion and
analysis should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus Supplement.

OVERVIEW

Demand for offshore drilling services is primarily driven by the economics
of oil and gas exploration, development and production, which, in turn, are
closely linked to current and projected oil and gas prices. Since the
mid-1980's, oil and gas prices have been volatile and generally lower than
prices experienced during the early 1980's, resulting in volatile and generally
reduced demand for offshore drilling services. In addition, during the early
1980's, the industry built a substantial number of new offshore drilling rigs.
Since 1993, the worldwide jack-up market has shown general improvement compared
to the 1986-1992 period. This improvement can be generally attributed to
improved jack-up rig demand and a continuing reduction in jack-up rig supply.
Although this period can be characterized as showing general improvement,
certain significant jack-up markets have experienced short periods of reduced
rig demand and/or excess rig supply. During those periods of low rig
utilization, day rates were adversely impacted and drilling contractors
competing in those markets suffered poorer financial results until rig demand
improved or rigs left those markets for other markets.

DRILLING MARKETS AND UTILIZATION

General

Most of the world's significant jack-up drilling markets have recently
experienced improved rig utilization and day rates. According to Offshore Data
Services, as of November 19, 1996, worldwide jack-up utilization was 95% (358
rigs contracted out of a supply of 379 rigs) compared to 78% average utilization
(302 rigs working out of a supply of 387 rigs) experienced during 1995.

Prior to 1996, the Company derived substantially all of its revenues from
offshore drilling in the U.S. Gulf of Mexico and the Bay of Campeche (Mexico).
Three of the Company's rigs, MARINE 300, MARINE 304 and MARINE 201, are
configured to work in international markets outside the Gulf of Mexico. In
August 1995, the Company deployed the MARINE 201 to offshore India where it is
working under a one year contract with extension options. In addition, the
Company has recently fabricated quarters for the MARINE 303 in order to
facilitate that rig's use in certain international markets. These upgrades could
be added to the rig in a relatively short time frame to allow that rig to obtain
an international contract. The Company's other rigs could, if applicable
modifications were made and certifications obtained, operate in certain areas
outside of the Gulf of Mexico. The Company's rigs are not, however, suitable for
areas, such as the North Sea, that require enhanced environmental operating
capabilities.

Due to the highly cyclical nature of the offshore drilling business, the
Company seeks longer term contracts for the employment of its rigs, both
domestically and internationally. Such contracts help mitigate the volatility of
the Company's results. Historically, most longer term contracts have been
available primarily in international markets. Thus far this year, the Company
has obtained six intermediate term contracts for its U.S. Gulf of Mexico rigs
with terms ranging from three months to one year. Most of these contracts
include repricing mechanisms allowing the Company to periodically adjust day
rates during the terms of the contracts. The Company also has one rig in India
(the MARINE 201) which began operating in November 1995 under a one year
contract with eight three-month extension options. The Company's customer has
recently elected to exercise the first four options which will keep the rig
employed in India at least through November 1997.

S-16
<PAGE> 17

U.S. Gulf of Mexico

The jack-up drilling market in the U.S. Gulf of Mexico is highly
competitive. A significant number of offshore drilling companies have rigs in
this market and, as a result, no one contractor is able to materially affect
pricing levels. Day rates can and have fluctuated significantly on relatively
small changes in the rig supply and demand situation in this market.

Throughout the period from late 1992 through 1994, jack-up operations in
the U.S. Gulf of Mexico were characterized by improving rig demand. In late 1994
and early 1995, however, the combination of reduced jack-up demand and increased
rig supply had a depressing effect on U.S. Gulf of Mexico operations. During
this period of reduced utilization, day rate levels fell and contractors
experienced reduced levels of earnings.

Since mid-1995, a combination of improved jack-up rig demand and rig
mobilizations to other markets has resulted in improved jack-up utilization and
day rates. Improved utilization of jack-up rigs in the U.S. Gulf of Mexico
during the third and fourth quarters of 1995 continued into the first nine
months of 1996. Utilization of jack-up rigs in this market as of November 19,
1996 was 94% (126 rigs contracted out of a supply of 134 rigs) as compared with
an average of 75% (105 rigs contracted out of a supply of 141 rigs) for 1995.
With 12 of its 14 rigs located in the U.S. Gulf of Mexico, the Company is well
positioned to benefit from the improved rig demand in this market.

Bay of Campeche

During most of 1993 and early 1994, demand for jack-up rigs was strong in
the Bay of Campeche, offshore Mexico in the southern Gulf of Mexico. The Bay of
Campeche drilling market, however, generally deteriorated in late 1994 and early
1995. The Company contracted two of its rigs (the MARINE 301 and the MARINE 303)
into this market in late 1992 and another (the MARINE 300) in mid-1993. The
first two rigs completed their contracts in late 1993 and early 1994,
respectively, and subsequently returned to the U.S. Gulf of Mexico. The third
rig completed its contract and returned to the U.S. Gulf of Mexico in May 1995.
The Company is continuing to actively market its fleet in this area. Demand for
rigs in the Bay of Campeche dropped from a high of 22 rigs in 1993 to 7 rigs in
1995 and has increased to an average of 8 rigs for the first three quarters of
1996. Jack-up utilization in the Bay of Campeche at the end of 1995 was
approximately 64% compared to 92% as of November 19, 1996.

India

In August 1995, the Company entered into a one-year term contract for the
MARINE 201 to operate off the east coast of India. That rig commenced operations
under this contract in mid-November 1995. Under the contract, the customer has
options to extend the contract for up to eight three-month periods, four of
which have already been exercised. Annual demand for jack-ups in India has
generally averaged between 20 to 26 rigs during the past few years. During this
time, jack-up utilization has been stable in the range of 89% to 93%. The
government of India recently approved investment in the oil and gas sector by
non-Indian energy companies. As a result of these actions, jack-up rig demand
has recently increased, and most industry analysts expect that demand could
increase further in the near term.

S-17
<PAGE> 18

The following table sets forth certain industry and Company historical data
for the periods indicated. Industry data includes many rigs that are dissimilar
to the Company's rigs in terms of performance capabilities, age, operational
criteria and environmental capabilities. Certain of the Company's competitors
have fleets that include rigs other than jack-up rigs that can compete with
jack-up rigs under certain circumstances.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
INDUSTRY(1):
U.S. Gulf of Mexico
Total jack-up rigs.................. 116.5 135.8 140.1 140.8 136.6
Working jack-up rigs................ 90.5 102.9 104.6 101.4 117.2
Utilization......................... 78% 76% 75% 72% 86%
All other markets
Total jack-up rigs.................. 276.6 255.5 246.7 246.5 246.5
Working jack-up rigs................ 216.9 192.5 197.5 195.2 206.4
Utilization......................... 78% 75% 80% 79% 84%
COMPANY(2):
Fleet totals
Total rigs.......................... 11.1 12.1 13.0 13.0 13.2
Working jack-up rigs................ 9.9 9.8 8.9 8.3 12.3
Utilization of all rigs............. 89% 81% 68% 64% 93%
Non-marketed rigs................... 0.9 0.8 3.0 3.5 0.6
Utilization of marketed rigs........ 97% 87% 89% 88% 98%
Average day rates(3)................ $23,019 $19,686 $19,289 $17,564 $23,268
</TABLE>

- ---------------

(1) Averages of weekly data published by Offshore Data Services.

(2) The numbers represent the average number of rigs operated by the Company for
the periods indicated.

RESULTS OF OPERATIONS -- NINE MONTHS ENDED SEPTEMBER 30, 1996
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995

General

During the nine months ended September 30, 1996, the Company derived all of
its revenues from the U.S. Gulf of Mexico and offshore India. During the same
period in 1995, the Company derived all of its revenues from the U.S. Gulf of
Mexico and offshore Mexico in the Bay of Campeche.

Revenues

Revenues for the nine months ended September 30, 1996 increased $38,558,000
(97%) from $39,860,000 to $78,418,000 compared to the same period in 1995. The
increase in revenues was the result of three factors: (i) a 32% increase in
average day rates from $17,564 in 1995 to $23,268 in 1996, (ii) an increase in
the number of marketed rigs from 10 in 1995 to 13 in 1996 and (iii) an increase
in utilization of marketed rigs from 88% in 1995 to 98% in 1996. The increases
in utilization and average day rates resulted from increased drilling activity
in the U.S. Gulf of Mexico due to improved natural gas prices.

S-18
<PAGE> 19

Costs and Expenses

Contract drilling expenses for the nine months ended September 30, 1996
increased $5,831,000 (15%) from $38,335,000 to $44,166,000 compared to the same
period in 1995. This increase is primarily the result of an increase in the
average number of working rigs from 8 in the 1995 period to 12 in the 1996
period. Specifically, labor expense increased by $3,363,000, repair and
maintenance expenses increased by $1,605,000 and insurance premiums increased by
$428,000 in the 1996 period compared to the 1995 period.

Depreciation and amortization expense for the nine months ended September
30, 1996 increased $1,772,000 (26%) from $6,773,000 to $8,545,000 compared to
the same period in 1995. The increase resulted primarily from the addition of
top drives and equipment upgrades on the MARINE 15, MARINE 16, MARINE 300 and
MARINE 303, the acquisition and upgrade of the MARINE 201, and drill string
purchases.

General and administrative expenses increased $1,385,000 (34%) from
$4,085,000 for the first nine months of 1995 to $5,470,000 for the same period
in 1996. The increase was attributed to an increase in labor due to additional
personnel and an increase in professional services.

Interest Expense

Interest expense for the nine months ended September 30, 1996 was $593,000
and consisted of the following: (i) interest of $601,000 based upon an average
interest rate of 8.0% on average borrowings of $10,000,000; (ii) credit facility
fees of $47,000, less (iii) capitalized interest of approximately $55,000.
Interest expense for the first nine months of 1995 was $657,000.

Interest Income

Interest income decreased $532,000 from $1,258,000 for the first nine
months of 1995 to $726,000 for the same period in 1996. The decrease was related
primarily to decreases in cash balances which were partially offset by higher
interest rates.

Income Taxes

Income taxes for the nine months ended September 30, 1996 consisted of (i)
a refund of prior year alternative minimum tax of ($64,000), (ii) current
portion of U.S. federal alternative minimum tax of $157,000, (iii) current
foreign taxes of $215,000, (iv) deferred U.S. federal tax expense of $5,069,000
and (v) tax benefits related to common stock issued pursuant to the long term
incentive plan of $2,092,000.

RESULTS OF OPERATIONS -- 1995 COMPARED WITH 1994

General

During 1995, the number of marketed rigs decreased as well as day rates due
primarily from a general decline in U.S. Gulf of Mexico jack-up rig demand
during the first five months of the year and reduced levels of drilling activity
in Mexico's Bay of Campeche.

Revenues

During 1995, the Company generated drilling revenues of $63,067,000 which
represented a decrease of $7,530,000 or 11% compared to 1994 drilling revenues
of $70,597,000. The change in revenues reflected the net effect of the following
factors: (i) a decrease in the number of marketed rigs from 11 during 1994 to 10
rigs during 1995 due to softer business conditions as previously discussed; (ii)
an increase in utilization of marketed rigs from 87% during the 1994 period to
89% during 1995; and (iii) a 2% decrease in average day rates from $19,686
during the 1994 period to $19,289 in 1995. The decrease in average day rates and
number of marketed rigs resulted primarily from the factors discussed

S-19
<PAGE> 20

above. The reduction in revenues derived by the Company from the Bay of Campeche
for 1995 was a result of the MARINE 300 completing its contract in May 1995. The
Company has had no rigs in the Bay of Campeche since that time. During November
1995, the MARINE 201 completed its mobilization to India and commenced
operations under a twelve-month term contract.

Costs and Expenses

Contract drilling expenses of $55,091,000 in 1995 represented an increase
of $4,516,000 or 9% compared to contract drilling expenses of $50,575,000 in
1994. The increase was primarily the result of costs of approximately $2,500,000
(reimbursed by its customer and included as drilling revenues) incurred to
mobilize the MARINE 201 to India, the MARINE 225 returning to work in 1995 and
the MARINE 300 returning to the U.S. Gulf of Mexico with a full crew compliment.
The increase was partially offset by a reduction in the number of marketed rigs
due to soft market conditions.

Depreciation and amortization expense increased $1,644,000 or 21% from
$7,733,000 in 1994 to $9,377,000 in 1995. The increase resulted primarily from
the acquisition of the MARINE 3 in the fourth quarter of 1994, expenditures for
the acquisition and refurbishment of the MARINE 201, expenditures to upgrade the
MARINE 16 and the MARINE 303, purchases of drill string and amortization of
deferred loan costs.

General and administrative expenses in 1995 increased $1,084,000 or 25%
from $4,376,000 in 1994 to $5,460,000 in 1995. The increase was primarily
related to an increase in benefit-related expenses of $480,000 due to credits
received in 1994 which were not received in 1995, an increase of $301,000
related to increased marketing activities and other general increased expenses.

Interest Expense

Interest expense in 1995 was $855,000 and consisted of the following: (i)
interest of $920,000 based on an average interest rate of 8.5% on an average
borrowed balance of approximately $10,800,000, (ii) credit facility fees of
$61,000 and (iii) a capitalized interest credit of approximately $126,000. The
Company had interest expense of $70,000 during 1994.

Interest Income

Interest income increased $144,000 or 11% from $1,350,000 in 1994 to
$1,494,000 in 1995. The increase was related primarily to increased cash
balances during 1995, as well as improved interest rates on invested balances
during the first ten months of 1995.

Income Taxes

Income tax benefits of $2,080,000 for the year ended December 31, 1995,
consisted of current state and federal income taxes of $56,000, tax benefits
related to Common Stock issued pursuant to the Marine Drilling 1992 Long Term
Incentive Plan of $85,000 and deferred federal income taxes of $2,221,000.

RESULTS OF OPERATIONS -- 1994 COMPARED WITH 1993

General

The Company's results in 1994 reflected the impact of an increased supply
of jack-up rigs in the U.S. Gulf of Mexico and reduced activity levels in
Mexico's Bay of Campeche. Increased competition in the U.S. Gulf of Mexico
resulted from (a) an influx of jack-up rigs into that market from other markets,
(b) an increased supply of marketed rigs due to reactivations of previously
nonmarketed rigs and (c) lower than expected growth in jack-up demand because of
generally lower natural gas prices. Although demand for jack-ups in the U.S.
Gulf of Mexico increased by approximately 14% from 1993, the supply of marketed
jack-ups grew by 26% during that period. The effects of this increased
competition in that market included generally lower utilization and day rates
experienced by the Company.

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<PAGE> 21

Revenues

During 1994, the Company generated drilling revenues of $70,597,000 which
represented a decrease of $12,401,000 or 15% from the 1993 drilling revenues of
$82,998,000. The change in revenues reflected the net effect of the following
factors: (a) an increase in the number of marketed rigs from 10 during the 1993
period to 11 rigs during 1994; (b) a decrease in utilization of marketed rigs
from 97% during the 1993 period to 87% during 1994; and (c) a 14% decrease in
average day rates from $23,019 during the 1993 period to $19,686 in 1994. The
decreases in utilization and average day rates resulted principally from
increased competition in the U.S. Gulf of Mexico and reduced activity levels in
Mexico's Bay of Campeche. Revenues from the Bay of Campeche market accounted for
28% ($23,459,000) and 10% ($7,306,000) of the Company's revenues in 1993 and
1994, respectively, and 37% ($8,538,000) and 34% ($2,698,000) of the Company's
operating income for 1993 and 1994, respectively.

Costs and Expenses

Contract drilling expenses of $50,575,000 in 1994 represented an increase
of $5,245,000 or 12% compared to contract drilling expenses of $45,330,000 in
1993. This increase was primarily the result of the addition of two rigs to the
Company's active fleet in late 1993 and through most of 1994. The MARINE 225
(formerly the MARINE 1) was refurbished and operated from October 1993 to May
1994 and again in November and December 1994. The MARINE 304 was purchased,
refurbished and activated in late 1993.

Depreciation and amortization expense increased $2,421,000 or 46% from
$5,312,000 in 1993 to $7,733,000 in 1994. The increase was primarily caused by
the MARINE 304 and the MARINE 225 having a full year of depreciation in 1994
and, to a lesser extent, the MARINE 303 upgrade and the MARINE 3 acquisition in
November 1994.

General and administrative expenses decreased from $8,999,000 in 1993 to
$4,376,000 in 1994, a $4,623,000 or 51% decrease. General and administrative
expenses were higher in 1993 primarily as a result of executive bonuses of
$4,436,000 paid pursuant to bonus agreements which were based upon the price of
the Company's stock in November 1993. Excluding these bonuses, 1994's general
and administrative expenses decreased 4% or $187,000 from the 1993 expenses.

Interest Expense

Interest expense decreased $510,000 or 88% from $580,000 in 1993 to $70,000
in 1994. The decrease was related primarily to a reduction in outstanding
indebtedness as a result of the Company's recapitalization that was completed in
1993.

Interest Income

Interest income increased $832,000 or 161% from $518,000 in 1993 to
$1,350,000 in 1994. The increase was related primarily to increased cash
balances during 1994, as well as higher interest rates on short-term
investments.

Income Taxes

Income taxes of $3,193,000 for the year ended December 31, 1994, consisted
of current state and federal income taxes of $154,000, tax benefits related to
Common Stock issued pursuant to the Incentive Plan of $50,000 and deferred
federal income taxes of $2,989,000.

THE RECAPITALIZATION

During 1992 and the first quarter of 1993, the Company completed a series
of related transactions that constituted a restructuring and recapitalization of
the Company (the "Recapitalization"). Primarily as a result of the
Recapitalization, between January 1, 1992 and early 1993, the Company eliminated

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preferred stock obligations of approximately $64,000,000 and indebtedness of
approximately $148,000,000. As a part of the Recapitalization, the Company
adopted quasi-reorganization accounting procedures which allowed the Company to
eliminate its accumulated deficit against paid-in capital and to revalue its
assets and liabilities to estimated fair values. The Company's rig fleet was
also reduced from 21 rigs to 11 rigs.

The Company has taken the position that the Recapitalization did not cause
an ownership change under Section 382 of the Code based on the applicability of
Section 382(l)(3)(C) and Regulation Section 1.382-2T(h)(4)(i)(B). Since neither
the Internal Revenue Service nor the Department of Treasury has established any
rules or guidance on Section 382(l)(3)(C), there can be no assurance that an
ownership change will not be deemed to have occurred. If an ownership change
were deemed to have occurred, the utilization of the Company's net operating
losses and investment tax credit carryforwards, would be substantially limited.

Regardless of a change in ownership, the Recapitalization and certain
transactions related thereto have resulted in substantial reductions of the
Company's tax net operating loss carryforwards. Moreover, if the Company fails
to prevail on certain of the tax positions it has taken with respect to the tax
effects of those transactions, the Company's net operating loss carryforwards
could be further reduced in a substantial manner. Appropriate valuation
allowances for deferred tax assets have been established in the consolidated
financial statements based on management's consideration of whether it is more
likely than not that some portion or all of the net operating losses and
investment tax credit carryforwards will not be realized.

FINANCIAL CONDITION -- LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Capital Resources

The Company had working capital at September 30, 1996 of $43,202,000 as
compared to working capital of $23,316,000 at December 31, 1995. Net cash
provided by operating activities was $24,683,000 for the nine months ended
September 30, 1996 compared to $4,634,000 for the nine months ended September
30, 1995, an increase of $20,049,000 or 433%. Cash used in investing activities
was $21,183,000 for the nine months ended September 30, 1996 resulting primarily
from capital expenditures of $12,047,000 compared to cash used in investing
activities of $1,899,000 for the nine months ended September 30, 1995. Capital
expenditures for the nine months ended September 30, 1996 consisted of (i) drill
pipe purchases, (ii) the addition of a top drive drilling system and other
upgrades to the MARINE 15, (iii) the installation of a top drive drilling system
and the fabrication of additional leg sections for the MARINE 300, (iv) the
fabrication of international quarters for the MARINE 303, and (v) the
acquisition of the MARINE 305. Net cash provided by financing activities was
$1,700,000 consisting primarily of the proceeds from the exercise of common
stock options.

Other Activities

In November 1996, the Company agreed to acquire a second generation
semi-submersible rig for $38 million. If the MARINE 500 Acquisition has not been
consummated prior to the completion of the Offering, the Company intends to use
approximately $38 million of the net proceeds to fund the MARINE 500
Acquisition. If the MARINE 500 Acquisition has been consummated prior to the
completion of the Offering, the Company intends to repay any additional
indebtedness incurred under the Company's current loan agreement to fund the
MARINE 500 Acquisition. The MARINE 500 Acquisition reflects the Company's
strategic focus of acquiring assets capable of obtaining long-term contracts in
the deep water sector. The rig was built in 1975 and is capable of operating in
water depths of up to 600 feet. At this time, the rig is idle in Singapore and
the Company is considering various upgrade options. The completion of the MARINE
500 Acquisition is subject to certain customary conditions.

In August 1996, the Company purchased the ODIN PRINCESS, a 300 foot
independent leg slot rig, for approximately $500,000 in cash and 882,352 shares
of Common Stock. The rig, which was renamed

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<PAGE> 23

the MARINE 305, is currently located in the Middle East and will require
investment of approximately $31 million, funded from the net proceeds of the
Offering, for upgrading and refurbishment.

On December 1, 1994, Keyes Holding Corporation ("KHC"), a wholly-owned
subsidiary of the Company, entered into a revolving credit/term loan agreement
(the "Loan Agreement") with a U.S. financial institution pursuant to which KHC
may, subject to the conditions stated in the agreement, borrow up to the lesser
of (i) $35 million, or (ii) 50% of the appraised value of MARINE 300, 301 and
303. The agreement included an 18-month revolving credit facility which was
convertible on June 1, 1996 into a three-year term loan.

On May 31, 1996, the Loan Agreement was amended to extend the revolving
loan facility for one year to June 1, 1997; to extend the maturity date of the
term loan to June 1, 2002; and to lower the amount of available borrowing during
the revolver period. The amended amount available during the revolving loan
availability period will be permanently reduced through four consecutive
quarterly reductions of $1,750,000 each on September 1, 1996; December 1, 1996;
March 1, 1997 and June 1, 1997. If converted, the term loan will be amortized
over sixty equal monthly installments ending June 1, 2002. The agreement
provides that the amounts borrowed will bear interest at floating rates equal to
LIBOR + 2.5%. The minimum borrowing under the revolving credit facility is
$10,000,000. If, on June 1, 1997, KHC elects to convert less than $10,000,000
into a term loan, it will be required to pay a non-utilization fee equal to 1
1/2% of the excess of $10,000,000 over the amount converted.

As of September 30, 1996, the debt outstanding under the Loan Agreement was
$10,000,000 and the amount available under the line of credit was $23,250,000.
Loan proceeds may be used to purchase additional jack-up drilling rigs or to
make capital improvements to the Company's drilling rig fleet. The Company has
guaranteed up to $8,312,500 of the borrowings under the Loan Agreement. The
borrowings under the agreement are secured by a mortgage on the MARINE 300,
MARINE 301 and MARINE 303.

Reduced rig demand in the U.S. Gulf of Mexico drilling market in early 1995
adversely affected the Company's operations and cash flow. As a result, the
Company elected to suspend the marketing of two rigs. These rigs were
deactivated in a common offshore location and, after preparation for extended
idle time, were maintained periodically by a small maintenance crew. One rig was
reactivated during September 1995 and the remaining rig was reactivated during
April 1996.

On March 7, 1995, the Company announced that its Board of Directors had
authorized the repurchase of up to 4,000,000 shares of the Company's Common
Stock. The action reflected the Company's view that its shareholders would
benefit from such repurchases. The repurchases may be effected, from time to
time, in accordance with applicable securities laws, through solicited or
unsolicited transactions in the market or in privately negotiated transactions.
No limit was placed on the duration of the repurchase program. Subject to
applicable securities laws, such repurchases shall be at such times and in such
amounts as the Company deems appropriate. The Company will fund such repurchases
from working capital. During 1995, the Company purchased 735,633 shares of its
Common Stock at an average price of $3.61 per share (aggregate value $2,659,000)
pursuant to the repurchase program. A portion of these shares (201,423 shares)
were subsequently reissued (i) to fund the Company's contributions to its 401(k)
plan, (ii) in connection with stock option exercises pursuant to its employees
long term incentive plan and (iii) to remunerate certain non-employee directors
pursuant to the Company's directors compensation plan. During the first nine
months of 1996, no shares were repurchased by the Company; however, 534,210
shares were reissued to fund the Company's contributions to its 401(k) plan and
in connection with stock option exercises pursuant to the employee long term
incentive plan.

The Company is currently seeking to obtain a new $100 million credit
facility. The Company would intend to use the proceeds from this facility to
repay all amounts under the current Loan Agreement and to provide the Company
additional financing flexibility primarily for future rig acquisitions and
upgrades. The Company has received a firm commitment letter for a three-year
revolving credit facility that converts to a four-year term loan from a money
center bank with proposed terms that the Company believes to

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<PAGE> 24

be generally acceptable. The credit facility would, among other things, require
the Company to satisfy certain financial ratio tests on an ongoing basis. The
Company intends to negotiate a definitive credit agreement for such a facility
with such bank or other banks, although no assurance can be given that the
Company will be successful in obtaining such facility.

Outlook

The Company will continue to pursue direct or indirect acquisitions of
additional drilling rigs and related equipment and/or businesses. Future
acquisitions, if any, would likely be funded from the Company's working capital,
a credit facility or through the issuance of debt and/or equity securities. The
Company cannot predict whether it will be successful in acquiring additional
rigs, and obtaining financing therefor, on acceptable terms. In addition, it is
currently anticipated that the Company will continue the upgrading of rigs to
enhance their capability to obtain longer term contracts including, among other
things, certain upgrades to the MARINE 305 and the MARINE 500. The timing and
actual amounts expended by the Company in connection with its plans to upgrade
and refurbish selected rigs, as well as the type of rig modification comprising
each program, is subject to the discretion of the Company and will depend on the
Company's view of market conditions, the Company's cash flow, whether other rig
acquisitions are made, and other factors. It is expected, however, that such
programs will involve adding top drive drilling systems, converting power
systems, increasing water-depth capabilities, adding a cantilever feature or
making other modifications to selected rigs.

With regard to fleet expansion, the Company believes that segments of the
offshore drilling market are continuing to undergo consolidation and such
consolidation may present acquisition opportunities. While the Company continues
to explore rig acquisition opportunities, including opportunities in the deep
water drilling sector, the Company currently has no agreement with respect to
any rig acquisitions other than the MARINE 500 Acquisition, and there can be no
assurance as to the timing of any such acquisitions or that any acquisitions
will be made.

The Company believes that its available funds, together with cash generated
from operations, the net proceeds from the Offering and amounts that may be
borrowed under the Loan Agreement, will be sufficient to fund its required
capital expenditures, working capital and debt service requirements for the
foreseeable future. Future cash flows, however, are subject to a number of
uncertainties, particularly the condition of the oil and gas industry.
Accordingly, there can be no assurance that these resources will be sufficient
to fund the Company's cash requirements.

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BUSINESS

GENERAL

Additionally, in November 1996, the Company agreed to acquire the CHRIS
CHENERY (to be renamed the MARINE 500), a second generation semi-submersible rig
for $38 million. The MARINE 500 Acquisition will enable the Company to enter the
deep water drilling sector and, in furtherance of its strategy, enhance its
ability to obtain longer term contracts. The rig was built in 1975 and is
capable of operating in water depths of up to 600 feet. The Company is currently
evaluating upgrades to the capabilities of this rig and anticipates that such
upgrades could be effected in two phases. The first phase would involve the
near-term upgrade of the rig's water depth capability to a range of 1,200 to
1,500 feet. The second phase would involve the further enhancement of the rig to
increase its variable deck load and to increase its water depth capability to a
range of 3,500 to 5,000 feet. The Company will make a decision on these upgrades
based upon the timing, availability and pricing of long-term contracts for the
rig. The completion of the MARINE 500 Acquisition is subject to certain
customary conditions.

MARKET OVERVIEW

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<PAGE> 26

The Company conducts most of its operations through wholly-owned
subsidiaries. The principal subsidiaries are Marine Drilling Management Company,
which owns 11 rigs, and Keyes Holding Corporation, which owns the remaining
three rigs.

BUSINESS STRATEGY

The key elements of Company's strategy are to:

Enter Deep Water Drilling Sector. The Company intends to enter the
deep water drilling sector through its pending acquisition of the
MARINE 500, a second generation semi-submersible, and expects to
expand in this sector through additional acquisitions of semi-
submersibles and drillships. Although the Company has no history of
operations in the deep water drilling sector, the Company has hired
several key employees in 1996, including the Company's chief
executive officer, who have significant experience in the deep water
drilling sector.

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<PAGE> 27

RIG FLEET

Jack-up Rigs.

The Company owned 14 jack-up rigs as of November 21, 1996. Jack-up rigs are
mobile self-elevating drilling platforms equipped with legs that can be lowered
to the ocean floor until a foundation is established to support the drilling
platform. An offshore jack-up rig consists of a hull, which supports the
drilling equipment, jacking system, crew quarters, loading and unloading
facilities, storage areas for bulk and liquid materials, helicopter landing deck
and other related equipment. The rig legs may operate independently or have a
lower hull or mat attached to the lower portion of the legs in order to provide
a more stable foundation in soft bottom areas. Nine of the Company's rigs are
mat supported rigs and five are of independent leg design. Five of the mat
supported rigs and two of the independent leg rigs are of slot type design,
which are configured for the drilling operations to take place through a slot in
the hull. The Company's other four mat supported rigs and three of the
independent leg rigs have a cantilever feature, which allows the extension of
the drilling equipment over a customer's platform to perform development
drilling or workover operations. The Company's rigs are capable of drilling to
depths of 20,000 to 30,000 feet in maximum water depths ranging from 200 to 300
feet.

There are several factors that determine the type of jack-up rig most
suitable for a particular job, the most significant of which include the water
depth and bottom conditions at the proposed drilling location, whether the
drilling is being done over a platform or other structure, and the intended well
depth. Independent leg jack-up rigs typically have greater water depth
capability and are advantageous in offshore areas where uneven bottom conditions
or obstructions, such as pipelines, exist. Mat-supported rigs are advantageous
in offshore areas with soft bottom conditions. A slot design is appropriate for
drilling exploratory wells in the absence of any existing permanent structure,
such as a production platform, although some slot design rigs are capable of
drilling over certain production platforms. A cantilevered jack-up can extend
its drill floor and derrick over an existing, fixed structure, thereby
permitting the rig to drill or work over a well located on such a structure.
Jack-up rigs with the cantilever feature historically have achieved higher
utilization and day rates.

The Company has top drive drilling systems installed on seven of its rigs
and plans to install such systems on several of its other rigs as a part of its
rig upgrading program. A top drive drilling system allows drilling with 90-foot
lengths of drill pipe rather than 30-foot lengths, thus reducing the number of
required connections. A top drive drilling system also permits rotation of the
drill string while tripping in or out of the hole. These characteristics
increase drilling speed, personnel safety and drilling efficiency and reduce the
risk of the drill string sticking during operations.

In addition, although the Company does not currently intend to move any of
its jack-ups currently operating in the Gulf of Mexico to international markets,
with the possible exception of the Bay of Campeche, the Company has modified
three of its rigs so that they are suitable for operations in selected

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international waters and the Company's other rigs could, with certain
modifications, work in other international markets. The Company's jack-ups,
however, are not suitable for those areas that require hostile environment
capabilities, such as the North Sea, or in deep waters in excess of 200 to 300
feet.

Semi-submersible Rig.

The Company anticipates acquiring its first semi-submersible rig pursuant
to the MARINE 500 Acquisition. Semi-submersibles operate in various market areas
around the world in water depths where jack-up rigs are incapable of working.
Semi-submersible rigs consist of an upper working and living deck resting on
vertical columns connected to lower hull members. Such rigs operate in a
"semi-submerged" position, remaining afloat, off bottom, in a position in which
the lower hull is from about 55 to 90 feet below the water line and the upper
deck protrudes well above the surface. The rig is typically anchored in position
and remains stable for drilling in the semi-submerged floating position due in
part to its wave transparency characteristics at the water line. The MARINE 500
is designed to work in water depths of up to 600 feet and can drill in many
areas where the Company's jack-up rigs can also drill. However, semi-submersible
rigs normally require water depth of at least 200 feet in order to conduct
operations. Semi-submersible rigs are typically more expensive to construct and
operate than jack-up rigs.

Company's Rigs.

The following table describes the Company's drilling rigs and their
locations as of the date of this Prospectus Supplement.

<TABLE>
<CAPTION>
YEAR OF
CONSTRUCTION RATED RATED
OR MAJOR WATER DRILLING
NAME OF RIG MAKE/DESIGN TYPE REFURBISHMENT DEPTH DEPTH LOCATION
- ---------------------- ----------------- ----------------- ------------- ----- -------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Independent Leg
Jack-up Rigs:
MARINE 300 T(a)(b)(c) F&G*/L780 MOD II Cantilever 1981 250(#) 30,000(#) U.S. Gulf of Mexico
MARINE 301 T F&G*/L780 MOD II Cantilever 1981 300(#) 25,000(#) U.S. Gulf of Mexico
MARINE 303 T F&G*/L780 MOD II Cantilever 1982 300(#) 30,000(#) U.S. Gulf of Mexico
MARINE 304 T(c) MLT**/84S Slot 1993(d) 300(#) 30,000(#) U.S. Gulf of Mexico
MARINE 305(c)(e) Levingston III-S Slot 1975 300(#) 30,000(#) Middle East
Mat Supported Jack-up
Rigs:
MARINE 3 Bethlehem/262 Slot 1974 262(#) 25,000(#) U.S. Gulf of Mexico
MARINE 4 Bethlehem/250 Slot 1975 250(#) 25,000(#) U.S. Gulf of Mexico
MARINE 15 T Baker Marine/250 Slot 1981 250(#) 25,000(#) U.S. Gulf of Mexico
MARINE 16 T Bethlehem/250 Slot 1995(f) 250(#) 20,000(#) U.S. Gulf of Mexico
MARINE 17 Bethlehem/200 Cantilever 1981 200(#) 20,000(#) U.S. Gulf of Mexico
MARINE 18 Bethlehem/250 Cantilever 1982 250(#) 20,000(#) U.S. Gulf of Mexico
MARINE 200 Bethlehem/200 Cantilever 1981 200(#) 20,000(#) U.S. Gulf of Mexico
MARINE 201 T(c) Bethlehem/200 Cantilever 1995(f) 200(#) 20,000(#) India
MARINE 225 Bethlehem/225 Slot 1993(g) 225(#) 20,000(#) U.S. Gulf of Mexico
Pending Acquisition
(Semi-Submersible):
MARINE 500 T, SP(c) Offshore Co. Semi-Submersible 1975 600(#) 30,000(#) Singapore
(CHRIS CHENERY)
</TABLE>

- ---------------

(a) Can be modified to provide for 300 foot water depth capacity.
(b) Designed to operate in environmentally sensitive areas such as Mobile Bay.
(c) Configured for international operations.
(d) Year of construction -- 1976
(e) Currently being upgraded with cantilever and top drive drilling systems
(f) Year of construction -- 1981
(g) Year of construction -- 1969
T Equipped with top drive drilling system
SP Self-propelled/Conventionally moored
* Friede & Goldman
** Marathon LeTourneau

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<PAGE> 29

[Graphic-Independent Leg Rig]

Independent Leg Jack-up Rig -- This type of rig consists of a floating hull
with three independent elevated legs. After being towed to the drilling
location, the legs are lowered until they penetrate the seabed and the hull is
jacked to the desired elevation above sea level. The rig depicted in the diagram
has a cantilever feature that permits the rig to operate over an existing, fixed
platform or other structure.

[Graphic-Mat Supported Rig]

Mat Supported Jack-up Rig -- This type of rig consists of a floating upper
hull with three legs which are attached to a lower hull commonly referred to as
a mat. After being towed to the drilling location, the legs are lowered until
the mat contacts the seabed and the upper hull is jacked to the desired
elevation above sea level. One advantage of mat supported rigs is the ability to
operate in areas having soft seabed conditions where independent leg rigs are
prone to have excessive penetration and subject to leg damage. The rig depicted
is cantilevered.

[Graphic-Semi-submersible Rig]

Semi-submersible Rig -- This type of rig consists of an upper working and
living deck resting on vertical columns connected to lower hull members. Such
rigs operate in a "semi-submerged" position, remaining afloat, off bottom, in a
position in which the lower hull is from about 55 to 90 feet below the water
line and the upper deck protrudes well above the surface. The rig is typically
anchored in position and remains stable for drilling in the semi-submerged
floating position due in part to its wave transparency characteristics at the
water line.

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COMPETITION

The offshore contract drilling market is highly competitive with a large
number of contractors competing for available work. Drilling contracts are
generally awarded on a competitive bid basis. Pricing and rig water depth
capabilities are generally the most important competitive factors in the
drilling industry. Other competitive factors include the technical capabilities
of specialized drilling equipment and personnel, operational experience, rig
suitability, efficiency, equipment condition, safety record, reputation and
customer relations.

The Company seeks to capitalize on customer recognition of the Company's
safety record, crew quality and the quality of its service and equipment. Many
of the Company's competitors, however, are larger, or are subsidiaries of larger
companies, and have greater financial resources and more diverse fleets than the
Company, which may enable them to better withstand industry downturns, to
compete more effectively on the basis of price, to build new rigs or to acquire
existing rigs that become available for purchase.

DRILLING OPERATIONS AND CUSTOMERS

The Company's existing drilling contracts provide for compensation on a
"daywork" basis. Under daywork contracts, the Company receives a fixed amount
per day for providing drilling services using the rigs it operates. Under most
daywork contracts, the customer also pays the cost of moving the rig and related
equipment to the job site and the costs of drilling the well (other than the
costs of operating the rig, which are borne by the drilling contractor). Daywork
contracts may provide for lower rates during periods when drilling operations
are interrupted or restricted by equipment breakdowns, adverse weather or water
conditions or other conditions beyond the control of the Company. Historically,
the Company has not marketed its rigs under fixed price or turnkey contracts.

A daywork contract generally extends over a period of time covering either
the drilling of a single well, a group of wells or a stated term. The customer
may terminate the contract if the drilling rig is destroyed or lost, or if
drilling operations are suspended for a specified period of time as a result of
breakdown of major equipment or other specific events. The duration of drilling
contracts is generally determined by market demand and competitive conditions.
Historically, domestic drilling contracts have tended to be on a well-by-well
basis, while contracts in the international markets typically have tended to be
on a term basis. The Company's experience during recent years has been
consistent with this general rule, with the Company's rigs operating in the Gulf
of Mexico generally having been contracted on a well-to-well basis and its rig
operating offshore India operating under a term contract. As a result of the
substantial improvement in the Gulf of Mexico drilling market, however, the
Company has recently been able to obtain term contracts on its domestic rigs,
although the terms have been of relatively short duration. To the extent
available, the Company will continue to focus upon obtaining additional term
contracts, both foreign and domestic, in the future.

The Company obtains most of its contracts through competitive bidding
against other contractors in response to oil companies' solicitations of bids.
The Company's current drilling contracts, both foreign and domestic, provide for
payment in U.S. Dollars.

The Company provides drilling services to a customer base which includes
independent and major oil and gas companies. As is typical in the industry, the
Company does business with a relatively small number of customers at any given
time. During 1995, the Company performed services for approximately 40 different
customers. For the year ended December 31, 1995, one customer accounted for
approximately 14% of the Company's annual total consolidated revenues. The loss
of any one of the Company's customers could, at least on a short-term basis,
have a material adverse effect on the Company's profitability. Management
believes, however, that at current levels of activity, the Company would have
alternative customers for its services if it lost any single customer and that
the loss of any one customer would not have a material adverse effect on the
Company on a long-term basis. See Note 8 of audited Consolidated Financial
Statements included in this Prospectus Supplement for further information
regarding the Company's major customers.

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ENVIRONMENTAL MATTERS

General

The Company is subject to numerous domestic and foreign governmental
regulations that relate directly or indirectly to its operations, including
certain regulations (a) controlling the discharge of materials into the
environment, (b) requiring removal and cleanup under certain circumstances, (c)
requiring the proper handling and disposal of waste materials, or (d) otherwise
relating to the protection of the environment. For example, the Company, as an
operator of mobile offshore drilling rigs in waters of the United States and
certain offshore areas, may be liable for damages and for the cost of removing
oil spills for which it is held responsible, subject to certain limitations.
Laws and regulations protecting the environment have become more stringent in
recent years and may, in certain circumstances, impose "strict liability,"
rendering a company liable for environmental damage without regard to negligence
or fault on the part of such company. Such laws and regulations may expose the
Company to liability for the conduct of or conditions caused by others or for
acts of the Company that were in compliance with all applicable laws at the time
such acts were performed. The application of these requirements or the adoption
of new requirements could have a material adverse effect on the Company. The
Company believes that it has conducted its operations in substantial compliance
with all applicable environmental laws and regulations.

The Company has generally been able to obtain contractual indemnification
in its drilling contracts against pollution and environmental damages that are
not caused by the gross negligence or willful misconduct of the Company, but
there can be no assurance that such indemnification will be enforceable in all
instances, that the customer will be financially able in all cases to comply
with its indemnity obligations, or that the Company will be able to obtain such
indemnification agreements in the future.

The Company maintains insurance coverage against certain environmental
liabilities, but there can be no assurance that such insurance will continue to
be available or carried by the Company or, if available and carried, will be
adequate to cover the Company's liability in the event of a catastrophic
occurrence.

U.S. Oil Pollution Act of 1990

The U.S. Oil Pollution Act of 1990 ("OPA '90") and regulations promulgated
pursuant thereto impose a variety of regulations on "responsible parties"
related to the prevention of oil spills and liability for damages resulting from
such spills. A "responsible party" includes the owner or operator of an onshore
facility or vessel, or the lessee or permittee of the area in which an offshore
facility is located. OPA '90 assigns liability to each responsible party for oil
removal costs and a variety of public and private damages. While liability
limits apply in some circumstances, a responsible party for an Outer Continental
Shelf facility must pay all spill removal costs incurred by a federal, state or
local government. OPA '90 establishes liability limits (subject to indexing) for
mobile offshore drilling rigs. If functioning as an offshore facility, the
mobile offshore drilling rigs are considered "tank vessels" for spills of oil on
or above the water surface, with the owner, operator or demise charter
considered the responsible party, subject to liability limits of the greater of
$1,200 per gross ton or $10 million. To the extent damages and removal costs
exceed this amount or spills occur below the water surface, the mobile offshore
drilling rigs will be treated as an offshore facility and the offshore lessee
will be responsible up to higher liability limits of all removal costs plus $75
million. A party cannot take advantage of liability limits if the spill was
caused by gross negligence or willful misconduct or resulted from violation of a
federal safety, construction, or operating regulation. If the party fails to
report a spill or to cooperate fully in the cleanup, liability limits likewise
do not apply. Few defenses exist to the liability imposed by OPA '90.

OPA '90 also imposes ongoing requirements on a responsible party. A failure
to comply with ongoing requirements or inadequate cooperation in a spill event
may subject a responsible party to civil or criminal enforcement action. In
short, OPA '90 places a burden on drilling rig owners or operators to conduct
safe operations and take other measures to prevent oil spills. If a spill
occurs, OPA '90 then imposes liability for resulting damages.

S-31
<PAGE> 32

The ongoing requirements of OPA '90 include proof of financial
responsibility (to cover at least some costs in a potential spill), and
preparation of an oil spill contingency plan. Vessel financial responsibility
and contingency plan requirements have been promulgated by the United States
Coast Guard. On August 23, 1993, the Minerals Management Service ("MMS")
published an advance notice of its intention to adopt a rule under OPA '90 that
would require responsible parties for offshore facilities to demonstrate
$150,000,000 in financial responsibility, an amount set by the statute. This
notice generated significant controversy and opposition throughout the oil and
gas industry, and on October 19, 1996, the Coast Guard Authorization Act of 1996
was signed into law, which lowered the financial responsibility requirements to
$35 million (the current requirement under the Outer Continental Shelf Lands
Act) for offshore facilities seaward of the boundary of State waters, and to $10
million for offshore facilities landward of the boundary of State waters. The
impact of any financial responsibility requirement ultimately imposed by the MMS
should be no more burdensome on the Company than on similarly situated or less
capitalized drilling contractors operating in U.S. waters.

Outer Continental Shelf Lands Act (U.S.)

The Outer Continental Shelf Lands Act authorizes regulations relating to
safety and environmental protection applicable to lessees and permittees
operating on the Outer Continental Shelf. Specific design and operational
standards may apply to Outer Continental Shelf vessels, rigs, platforms,
vehicles and structures. Violations of lease terms relating to environmental
matters or regulations issued pursuant to the Outer Continental Shelf Lands Act
can result in substantial civil and criminal penalties as well as potential
court injunctions curtailing operations and the cancellation of leases. Such
enforcement liabilities can result from either governmental or citizen
prosecution.

CERCLA and RCRA (U.S.)

The Comprehensive Environmental Response, Compensation, and Liability Act
of 1980 ("CERCLA"), as amended, currently exempts crude oil, and the Resource
Conservation and Recovery Act ("RCRA"), as amended, currently exempts certain
exploration and production wastes, such as drilling fluids and produced water,
from the definitions of hazardous substances and hazardous wastes, respectively,
for purposes of these statutes. The Company's operations, however, may involve
the use or handling of other material that may be classified as environmentally
hazardous substances or wastes. There can be no assurances that these exemptions
will be preserved in future amendments of such acts, if any, or that more
stringent federal or state laws and regulations protecting the environment will
not be adopted. CERCLA assigns strict liability to each responsible party for
all response and remediation costs, as well as natural resource damage. Few
defenses exist to the liability imposed by CERCLA.

GOVERNMENTAL REGULATION

The Company's business is affected by political developments and by
federal, state, foreign and local laws and regulations that relate directly to
the oil and gas industry. The adoption of laws and regulations curtailing
exploration and developmental drilling for oil and gas for economic,
environmental or other policy reasons would and have adversely affected the
operations of the Company by limiting available drilling opportunities for its
customers and/or increasing the costs of such activities to the Company or its
customers. The Company believes that it has conducted its operations in
substantial compliance with applicable governmental laws and regulations.

OPERATIONAL RISKS AND INSURANCE

Contract drilling operations are subject to various risks including
blowouts, cratering, fires and explosions, each of which could result in damage
to or destruction of drilling rigs and oil and gas wells, damage to life and
property, suspension of operations, and environmental damage through oil
spillage and extensive uncontrolled fires. The Company insures its drilling rigs
and plant assets for amounts it believes to be prudent and also insures against
catastrophic losses resulting from employer's liability and other risks
customary in the energy service industry. The Company currently maintains
insurance

S-32
<PAGE> 33

coverage it believes to be within the range of customary limits in the industry
against certain general and marine public liabilities, including liabilities for
personal injuries. Except in limited circumstances, this insurance does not
cover liability for pollution or environmental damage that originates below the
water surface, although the Company is generally indemnified against such
pollution and environmental liabilities by its customers. There is no assurance
that such insurance or indemnification will be adequate to protect the Company
against liability from all consequences of well disasters, extensive fire damage
or damage to the environment. Recognizing these risks, the Company has programs
that are designed to promote a safe environment for its personnel and equipment.

EMPLOYEES

As of November 21, 1996, the Company had approximately 760 employees. The
number of employees varies throughout the year depending on the level of
drilling activity. None of the Company's employees is presently represented by
labor unions.

Crew quality is an important factor considered by the customer in selecting
a rig. Accordingly, the Company seeks experienced personnel when selecting crews
from among the available applicants and the Company maintains a safety and
personal training program.

LEASED REAL PROPERTY

The Company leases approximately 19,000 square feet in an office building
in Sugar Land, Texas for its headquarters. In addition, the Company leases a
warehouse, storage and repair facility, including approximately 31 acres of land
and 60,000 square feet of buildings, in Rosharon, Texas.

LITIGATION

Various claims have been filed against the Company and its subsidiaries in
the ordinary course of business, most of which involve claims alleging personal
injuries. Management believes that the Company has established adequate reserves
for any liabilities which may reasonably be expected to result from these
personal injury claims. In the opinion of management, no pending claims, actions
or proceedings against the Company or its subsidiaries are expected to have a
material adverse effect on its financial position or results of operations.

S-33
<PAGE> 34

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information concerning the current members
of the Board of Directors and certain executive officers of the Company. All of
the directors have been elected to serve, subject to the Bylaws of the Company,
until the next annual meeting of shareholders or until the election and
qualification of their successors.

<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION WITH THE COMPANY SINCE
- -------------------------- --- --------------------------------------------------- --------
<S> <C> <C> <C>
Jan Rask.................. 41 President, Chief Executive Officer and Director 1996
William H. Flores......... 42 Executive Vice President, Chief Financial Officer, 1990
Assistant Secretary and Director
Gerald T. Greak........... 56 Senior Vice President -- Engineering --
Hugh L. Adkins............ 49 Senior Vice President -- Operations Manager --
Danny Richardson.......... 50 Vice President -- Marketing --
Robert L. Barbanell....... 66 Director and Chairman of the Board 1995
David A. B. Brown......... 53 Director 1995
Howard I. Bull............ 56 Director 1995
Nathaniel A. Gregory...... 48 Director 1995
Christopher M. Linneman... 37 Director 1994
</TABLE>

Jan Rask has been President, Chief Executive Officer and Director since
June 1996. Mr. Rask served as President and Chief Executive Officer of Arethusa
(Off-Shore) Limited from May 1993 until the acquisition of Arethusa by Diamond
Offshore Drilling, Inc. in April 1996. Mr. Rask joined Arethusa's principal
operating subsidiary in 1990 as its President and Chief Executive Officer.

William H. Flores has been Executive Vice President, Chief Financial
Officer, Assistant Secretary and Director since June 1996 and served as Senior
Vice President, Chief Financial Officer, Assistant Secretary and Director since
March 1990. Prior thereto, Mr. Flores served as Vice President -- Finance for
Keyes Offshore, Inc. since December 1986. Mr. Flores is a director of Great
Western Resources Inc.

Gerald T. Greak has served as Senior Vice President -- Engineering of the
Company since October 1994, as Senior Vice President -- Marketing from July 1991
to October 1994 and as Vice President from March 1990 to July 1991. Before
joining the Company, he served as Vice President -- Engineering of Keyes
Offshore, Inc. from 1980 to March 1990.

Hugh L. Adkins has served as Senior Vice President and Operations Manager
of the Company since March 1994, as Vice President and Operations Manager of the
Company from February 1992 to March 1994 and as Safety Manager of the Company
from August 1990 to February 1992. Prior thereto, he was employed by Norton
Drilling Company as Drilling Superintendent and Division Manager from May 1989
to August 1990 and by M. A. Hanna Company, Midland South West Division, as Vice
President -- Drilling and Production from May 1984 to May 1989. Mr. Adkins is a
director of DSI Industries, Inc.

Danny Richardson has served as Vice President -- Marketing since July 1996.
Mr. Richardson formerly served as Vice President -- Marketing and Contract
Administration of Arethusa (Off-Shore) Limited from October 1992 until the
acquisition of Arethusa by Diamond Offshore Drilling, Inc. in April 1996. He
served in the same position with Zapata Offshore Company from July 1989 to
September 1992.

Robert L. Barbanell has been a Director of the Company since June 1995 and
Chairman of the Board since May 1996. Mr. Barbanell has served as President of
Robert L. Barbanell Associates, Inc., a financial consultant firm since July
1994. Mr. Barbanell was employed by Bankers Trust New York Corporation from June
1986 to June 1994 as Managing Director and from December 1981 to June 1986 as
Senior Vice President. He is also a Director of Cantel Industries, Inc. and Kaye
Group, Inc.

S-34
<PAGE> 35

David A. B. Brown has been a Director of the Company since June 1995. Mr.
Brown has served as President of The Windsor Group, Inc., a strategy consulting
firm, since 1984. Prior thereto, Mr. Brown was a partner of the Braxton Group, a
strategy consulting firm. He also served as Chairman of the Board of the
Comstock Group from 1988 to 1990. Mr. Brown is a Director of BTU International
and EMCOR Group Inc.

Howard I. Bull has been a Director of the Company since June 1995. Mr. Bull
has served as President, Director and Chief Executive Officer of Dal-Tile, a
manufacturer and distributor of ceramic tile, since February 1994. Prior
thereto, Mr. Bull served as President of the Air Conditioning Business Group of
York International Corporation ("York") from May 1992 to February 1993 and as
the President of the York Applied Systems Division of York from January 1990 to
May 1992. From February 1979 to November 1990, Mr. Bull was employed by Baker
Hughes, Inc. in several executive positions.

Nathaniel A. Gregory has been a Director of the Company since June 1995.
Mr. Gregory has served as Chairman and Chief Executive Officer of National Tank
Company since April 1993. Prior thereto, Mr. Gregory served as a Managing
Director of Smith Barney from September 1991 to April 1993. Prior thereto, he
served as Chief Executive Officer of WillBros. Company from January to May 1990.

Christopher M. Linneman has been a Director of the Company since 1994. Mr.
Linneman has served as Managing Director of Chemical Securities Inc. since May
1994. Prior thereto, he served as a Vice President of E. M. Warburg, Pincus &
Co., Inc. from January 1992 to April 1994, and as an Associate thereof from
April 1990 to December 1991.

DESCRIPTION OF PREFERRED SHARE PURCHASE RIGHTS

On November 8, 1996, the Board of Directors of the Company, authorized the
issuance of one preferred share purchase right (a "Right") with respect to each
outstanding share of Common Stock. The rights were issued on November 20, 1996
to the holders of record of Common Stock on that date. Each Right entitles the
registered holder under the circumstances described below to purchase from the
Company one one-thousandth of a share of Junior Participating Preferred Stock,
$.01 par value per share (the "Preferred Shares"), of the Company at a price of
$56.00 per one one-thousandth of a Preferred Share (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement (the "Rights Agreement") dated as of November 15, 1996,
between the Company and American Stock Transfer & Trust Company, as Rights Agent
(the "Rights Agent") and this description of the Rights is qualified in its
entirety by reference to the Rights Agreement.

Until the Distribution Date (as defined below), the Rights will attach to
all Common Stock certificates representing outstanding shares and no separate
Right Certificate will be distributed. Accordingly, a right will be issued for
each share of Common Stock issued hereunder. The Rights will separate from the
Common Stock and a Distribution Date will occur upon the earlier of (i) 10
business days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired beneficial
ownership of 15% or more of the outstanding Voting Shares (as defined in the
Rights Agreement) of the Company, or (ii) 10 business days following the
commencement or announcement of an intention to commence a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of such outstanding Voting Shares.

Until the Distribution Date (or earlier redemption or expiration of the
Rights) the Rights will be evidenced by the certificates representing such
Common Stock. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights (the "Right Certificates") will be mailed to
holders of record of the Common Stock as of the close of business on the
Distribution Date and such separate Right Certificates alone will thereafter
evidence the Rights.

The Rights are not exercisable until the Distribution Date. The Rights will
expire on November 19, 2006 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or the Rights are earlier redeemed or exchanged by
the Company as described below.

S-35
<PAGE> 36

If a person or group were to acquire 15% or more of the Voting Shares of
the Company, each Right then outstanding (other than Rights beneficially owned
by the Acquiring Person which would become null and void) would become a right
to buy that number of shares of Common Stock (or under certain circumstances,
the equivalent number of one one-thousandths of a Preferred Share) that at the
time of such acquisition would have a market value of two times the Purchase
Price of the Right.

If the Company were acquired in a merger or other business combination
transaction or assets constituting more than 50% of its consolidated assets or
producing more than 50% of its earning power or cash flow were sold, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current Purchase Price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction would have a market value of two times the
Purchase Price of the Right.

The dividend and liquidation rights, and the non-redemption feature, of the
Preferred Shares are designed so that the value of one one-thousandth of a
Preferred Share purchasable upon exercise of each Right will approximate the
value of one share of Common Stock. The Preferred Shares issuable upon exercise
of the Rights will be non-redeemable and rank junior to all other series of the
Company's preferred stock. Each whole Preferred Share will be entitled to
receive a quarterly preferential dividend in an amount per share equal to the
greater of (i) $1.00 in cash, or (ii) in the aggregate, 1,000 times the dividend
declared on the Common Stock. In the event of liquidation, the holders of the
Preferred Shares will be entitled to receive a preferential liquidation payment
equal to the greater of (i) $1,000 per share, or (ii) in the aggregate, 1,000
times the payment made on the shares of Common Stock. In the event of any
merger, consolidation or other transaction in which shares of Common Stock are
exchanged for or changed into other stock or securities, cash or other property,
each whole Preferred Share will be entitled to receive 1,000 times the amount
received per share of Common Stock. Each whole Preferred Share shall be entitled
to 1,000 votes on all matters submitted to a vote of the shareholders of the
Company, and Preferred Shares shall generally vote together as one class with
the Common Stock and any other capital stock on all matters submitted to a vote
of shareholders of the Company.

The offer and sale of the Preferred Shares issuable upon exercise of the
Rights will be registered with Commission and such registration will not be
effective until the Rights become exercisable.

The number of one one-thousandths of a Preferred Share or other securities
or property issuable upon exercise of the Rights, and the Purchase Price
payable, are subject to customary adjustments from time to time to prevent
dilution.

The number of outstanding Rights and the number of one one-thousandths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Stock or a stock dividend
on the Common Stock payable in Common Stock or subdivisions, consolidations or
combinations of the Common Stock occurring, in any such case, prior to the
Distribution Date.

At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
Voting Shares of the Company and before the acquisition by a person or group of
50% or more of the outstanding Voting Shares of the Company, the Board of
Directors may, at its option, issue Common Stock in mandatory redemption of, and
in exchange for, all or part of the then outstanding and exercisable Rights
(other than Rights owned by such person or group which would become null and
void) at an exchange ratio of one share of Common Stock (or one one-thousandth
of a Preferred Share) for each two shares of Common Stock for which each Right
is then exercisable, subject to adjustment.

At any time prior to the first public announcement that a person or group
has become the beneficial owner of 15% or more of the outstanding Voting Shares,
the Board of Directors of the Company may redeem all but not less than all the
then outstanding Rights at a price of $0.01 per Right (the "Redemption Price").
The redemption of the Rights may be made effective at such time, on such basis
and with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon

S-36
<PAGE> 37

the action of the Board of Directors ordering redemption of the Rights, the
right to exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the Redemption Price.

Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends.

The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an amendment
to extend the Final Expiration Date, and, provided a Distribution Date has not
occurred, to extend the period during which the Rights may be redeemed, except
that after the first public announcement that a person or group has become the
beneficial owner of 15% or more of the outstanding Voting Shares, no such
amendment may materially and adversely affect the interests of the holders of
the Rights.

The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not determined by the Board of Directors to be in the best interests of
all shareholders. The Rights will not interfere with a merger or other business
combination approved by the Board of Directors, prior to the time that a person
or group has acquired beneficial ownership of 15% or more of the Common Stock,
since the rights may be redeemed by the Company prior to that time.

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters, for whom Goldman, Sachs & Co., Salomon Brothers Inc, BT
Securities Corporation and Southcoast Capital Corporation are acting as
representatives, has severally agreed to purchase from the Company, the
respective number of shares of Common Stock set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
------------------------------------------------------------------------- ---------
<S> <C>
Goldman, Sachs & Co. ....................................................
Salomon Brothers Inc ....................................................
BT Securities Corporation................................................
Southcoast Capital Corporation...........................................

---------
Total.......................................................... 5,000,000
=========
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.

The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement and in part to certain securities
dealers at such price less a concession of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain brokers and dealers. After the shares of
Common Stock are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the representatives.

The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus Supplement to purchase up to an aggregate of
750,000 additional shares of Common Stock

S-37
<PAGE> 38

solely to cover over-allotments, if any, at the public offering price per share,
less the underwriting discount, shown on the cover page of this Prospectus
Supplement. If the Underwriters exercise their over-allotment option, the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
5,000,000 shares of Common Stock offered.

The Company and its executive officers and directors have agreed that,
during the period beginning from the date of this Prospectus Supplement and
continuing to and including the date 90 days after the date of this Prospectus
Supplement, they will not offer, sell, contract to sell or otherwise dispose of
any securities of the Company (other than pursuant to director or employee stock
option plans existing, or on the conversion or exchange of convertible or
exchangeable securities outstanding, on the date of this Prospectus Supplement
or pursuant to the acquisition of stock or assets of another entity) which are
substantially similar to the shares of Common Stock or which are convertible
into or exchangeable for securities which are substantially similar to the
shares of Common Stock without the prior written consent of the representatives,
except for the shares of Common Stock offered in connection with the offering.

In connection with this offering, the Underwriters may engage in passive
market making transactions in the Common Stock of the Company on the Nasdaq
National Market in accordance with Rule 10b-6A under the Exchange Act during the
two business day period before commencement of offers or sales of the Common
Stock. The passive market making transactions must comply with applicable volume
and price limits and be identified as such. In general, a passive market maker
may display its bid at a price not in excess of the highest independent bid for
the security; if all independent bids are lowered below the passive market
maker's bid, however, such bid must then be lowered when certain purchase limits
are exceeded.

The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act.

EXPERTS

The financial statements of the Company as of December 31, 1995 and 1994,
and for each of the years in the three-year period ended December 31, 1995, have
been included and incorporated by reference herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein and incorporated by
reference, and upon the authority of such firm as experts in accounting and
auditing.

With respect to the unaudited interim financial information for the periods
ended March 31, June 30 and September 30, 1996 and 1995, included and/or
incorporated by reference herein, the independent certified public accountants
have reported that they applied limited procedures in accordance with
professional standards for a review of such information. However, their separate
reports included in the Company's quarterly reports on Form 10-Q for the
quarters ended March 31, June 30 and September 30, 1996, and included and/or
incorporated herein, state that they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their reports on such information should be restricted in light of
the limited nature of the review procedures applied. The accountants are not
subject to the liability provisions of Section 11 of the Securities Act for
their reports on the unaudited interim financial information because the reports
are not a "report" or a "part" of the registration statement prepared or
certified by the accountants within the meaning of Sections 7 and 11 of the
Securities Act.

S-38
<PAGE> 39

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Financial Statements:
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets --
December 31, 1994 and 1995....................................................... F-3
Consolidated Statements of Operations --
for the years ended December 31, 1993, 1994 and 1995............................. F-4
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1993, 1994 and 1995............................. F-5
Consolidated Statements of Cash Flows --
for the years ended December 31, 1993, 1994 and 1995............................. F-6
Notes to Consolidated Financial Statements.......................................... F-7
Independent Accountants' Review Report.............................................. F-18
Consolidated Balance Sheets --
December 31, 1995 and September 30, 1996 (unaudited)............................. F-19
Consolidated Statements of Operations --
Three and Nine Months Ended September 30, 1995 and 1996 (unaudited).............. F-20
Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 1995 and 1996 (unaudited)........................ F-21
Notes to Consolidated Financial Statements (unaudited).............................. F-22
</TABLE>

F-1
<PAGE> 40

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Marine Drilling Companies, Inc.:

We have audited the consolidated financial statements of Marine Drilling
Companies, Inc. and subsidiaries as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Marine
Drilling Companies, Inc. and subsidiaries as of December 31, 1994 and 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.

KPMG PEAT MARWICK LLP

Houston, Texas
January 26, 1996

F-2
<PAGE> 41

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.......................................... $ 18,872 $ 12,260
Short-term investments............................................. 18,137 --
Accounts receivable -- trade and other, net........................ 15,353 18,078
Inventory.......................................................... 116 1,272
Prepaid expenses and other......................................... 1,020 1,380
-------- --------
Total current assets....................................... 53,498 32,990
Property and Equipment............................................... 102,431 123,442
Less accumulated depreciation...................................... 13,010 22,090
-------- --------
Property and equipment, net................................ 89,421 101,352
Other................................................................ 296 203
-------- --------
$143,215 $134,545
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.................................. $ -- $ 1,000
Accounts payable................................................... 2,283 5,721
Accrued Expenses................................................... 1,854 1,927
Employer's liability claims, current............................... 832 1,026
-------- --------
Total current liabilities.................................. 4,969 9,674
Long-Term Debt....................................................... 15,000 9,000
Employer's Liability Claims, non-current............................. 2,150 2,155
Deferred Income Taxes................................................ 8,365 6,144
Shareholders' Equity:
Common stock, par value $.01. Authorized 200,000,000 shares; issued
and outstanding 43,917,766 shares in 1994 and issued 44,169,643
and outstanding 43,635,433 shares in 1995....................... 439 442
Common stock restricted............................................ (804) (505)
Treasury stock, at cost (534,210 shares in 1995)................... -- (2,016)
Additional paid-in capital......................................... 92,143 92,720
Retained earnings from January 1, 1993............................. 20,953 16,931
-------- --------
Total shareholders' equity................................. 112,731 107,572
-------- --------
Commitments and contingencies........................................ -- --
-------- --------
$143,215 $134,545
======== ========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 42

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues........................................... $ 82,998 $ 70,597 $ 63,067
Costs and Expenses:
Contract drilling................................ 45,330 50,575 55,091
Depreciation and amortization.................... 5,312 7,733 9,377
General and administrative....................... 8,999 4,376 5,460
---------- ---------- ----------
59,641 62,684 69,928
---------- ---------- ----------
Operating income (loss).......................... 23,357 7,913 (6,861)
---------- ---------- ----------
Other Income (Expense):
Interest expense................................. (580) (70) (855)
Interest income.................................. 518 1,350 1,494
Other income (expense)........................... 6 (70) 120
---------- ---------- ----------
(56) 1,210 759
---------- ---------- ----------
Income (Loss) Before Income Taxes.................. 23,301 9,123 (6,102)
Income Tax Expense (Benefit)....................... 8,278 3,193 (2,080)
---------- ---------- ----------
Net Income (Loss).................................. $ 15,023 $ 5,930 $ (4,022)
========== ========== ==========
Net Income (Loss) Per Common Share................. $ 0.37 $ 0.14 $ (0.09)
========== ========== ==========
Weighted Average Common Shares Outstanding......... 40,936,209 43,819,049 43,812,161
========== ========== ==========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE> 43

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------
ISSUED IN TREASURY ADDITIONAL
-------------------- ------------------- PAID-IN RESTRICTED RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK EARNINGS
---------- ------ -------- ------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992....... 38,026,459 $380 -- $ -- $ 60,315 $ -- $ --
Net income........................ -- -- -- -- -- -- 15,023
Issuance of common stock related
to stock offering............... 5,000,000 50 -- -- 28,150 -- --
Common stock offering expenses.... -- -- -- -- (422) -- --
Issuance of restricted common
stock........................... 385,000 4 -- -- 1,122 (1,126) --
Accrual of compensation expense... -- -- -- -- -- 233 --
Forfeitures of restricted common
stock........................... (30,000) -- -- -- (49) 49 --
Common stock options exercised.... 261,030 3 -- -- 324 -- --
Issuance of common stock for
401(k) stock plan............... 40,105 -- -- -- 199 -- --
Pre-quasi-reorganization net
operating loss carryforwards.... -- -- -- -- 1,612 -- --
Tax benefits related to common
stock issued pursuant to long
term incentive plan............. -- -- -- -- 490 -- --
Other............................. 74 -- -- -- 60 -- --
---------- ---- -------- ------- ------- ------- -------
Balances at December 31, 1993....... 43,682,668 437 -- -- 91,801 (844) 15,023
Net income........................ -- -- -- -- -- -- 5,930
Issuance of restricted common
stock........................... 83,000 1 -- -- 414 (415) --
Accrual of compensation expense... -- -- -- -- -- 318 --
Forfeitures of restricted common
stock........................... (31,250) -- -- -- (137) 137 --
Common stock options exercised.... 10,000 -- -- -- 13 -- --
Issuance of common stock for
401(k) stock plan............... 173,348 1 -- -- 815 -- --
Tax benefits related to common
stock issued pursuant to long
term incentive plan............. -- -- -- -- 50 -- --
Other............................. -- -- -- -- (813) -- --
---------- ---- -------- ------- ------- ------- -------
Balances at December 31, 1994....... 43,917,766 439 -- -- 92,143 (804) 20,953
Net loss.......................... -- -- -- -- -- -- (4,022 )
Purchases of stock................ -- -- 735,633 (2,659) -- -- --
Issuance of restricted common
stock........................... 53,500 1 -- -- 147 (148) --
Accrual of compensation expense... -- -- -- -- -- 333 --
Forfeitures of restricted common
stock........................... (20,000) -- -- -- (114) 114 --
Common stock options exercised.... 130,000 1 (20,000) 61 125 -- --
Issuance of common stock for
401(k) stock plan............... 88,377 1 (166,528) 531 325 -- --
Tax benefits related to common
stock issued pursuant to long
term incentive plan............. -- -- -- -- 85 -- --
Issuance of stock for Non-Employee
Director's Plan................. -- -- (14,895) 51 9 -- --
---------- ---- -------- ------- ------- ------- -------
Balances at December 31, 1995....... 44,169,643 $442 534,210 $(2,016) $ 92,720 $ (505) $16,931
========== ==== ======== ======= ======= ======= =======
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE> 44

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
------- -------- -------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)........................................ $15,023 $ 5,930 $(4,022)
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Deferred income taxes................................. 5,376 2,989 (2,221)
Pre-quasi-reorganization net operating loss
carry-forwards...................................... 1,612 -- --
Tax benefits related to common stock issued pursuant
to long term incentive plan......................... 490 50 85
Depreciation and amortization......................... 5,312 7,733 9,377
Gain on disposition of equipment...................... (462) (453) (153)
Accrual of compensation expense....................... 233 318 333
Issuance of common stock to the employee retirement
plan and the Non-Employee Director's Plan........... 199 816 917
(Increase) decrease in receivables.................... (7,397) 4,003 (2,725)
Increase in prepaid expenses, other, and inventory.... (94) (191) (1,516)
Increase (decrease) in payables, accrued expenses and
employer's liability claims......................... 2,125 (5,259) 3,710
Other................................................. 1,076 (1,078) 42
------- -------- --------
Net cash provided by operating activities........ 23,493 14,858 3,827
------- -------- --------
Cash Flows From Investing Activities:
Purchase of short-term investments....................... -- (29,537) --
Proceeds from matured short-term investments............. -- 11,400 18,137
Purchase of equipment.................................... (18,329) (15,385) (21,418)
Proceeds from disposition of equipment................... 557 554 314
------- -------- --------
Net cash used in investing activities............ (17,772) (32,968) (2,967)
------- -------- --------
Cash Flows From Financing Activities:
Proceeds from long-term debt............................. -- 15,000 --
Proceeds from sale of common stock....................... 28,200 -- --
Proceeds from exercise of stock options.................. 327 13 187
Issuance cost of sale of common stock.................... (422) -- --
Payments of debt......................................... (21,280) -- (5,000)
Purchase of treasury stock............................... -- -- (2,659)
------- -------- --------
Net cash provided by (used in) financing
activities..................................... 6,825 15,013 (7,472)
------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................... 12,546 (3,097) (6,612)
Cash and cash equivalents at beginning of period........... 9,423 21,969 18,872
------- -------- --------
Cash and cash equivalents at end of period................. $21,969 $ 18,872 $12,260
======= ======== ========
Supplemental Disclosure of Cash Flow Information:
Interest paid............................................ $ 580 $ 70 $ 981
Income taxes paid........................................ 513 441 55
Supplemental Schedule of Non-Cash Investing and Financing
Activities:
Issuance of 385,000, 83,000, and 53,500 shares in 1993,
1994, and 1995, respectively, of restricted common
stock................................................. $ 1,126 $ 415 $ 148
Forfeiture of 30,000, 31,250, and 20,000 shares in 1993,
1994, and 1995 respectively, of restricted common
stock................................................. $ (49) $ (137) $ (114)
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE> 45

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS

Basis of Presentation and Principles of Consolidation -- References herein
to the "Company" refer to Marine Drilling Companies, Inc. ("Parent") and its
wholly-owned subsidiaries, Marine Drilling Management Company ("MDMC"), Keyes
Holding Corporation ("KHC") and Marine Drilling International, Inc. unless the
context otherwise requires a reference only to the Parent. The consolidated
financial statements include the accounts of the Company and its wholly-owned
subsidiaries. Intercompany balances and transactions have been eliminated in
consolidation.

Description of Business -- The Company is engaged in the offshore contract
drilling of oil and gas wells, primarily in the U.S. Gulf of Mexico, for
independent and major oil and gas companies. The Company owns and operates a
fleet of thirteen mobile offshore jack-up drilling rigs, consisting of four
independent leg units, three of which have a cantilever feature, and nine mat
supported units, four of which have a cantilever feature. The Company's rigs are
currently capable of drilling to depths of 20,000 to 30,000 feet in maximum
water depths ranging from 200 to 300 feet. As of the date of this report, twelve
of the Company's thirteen rigs were located in the U.S. Gulf of Mexico and one
was located offshore India. The Company currently derives substantially all of
its revenues from offshore drilling in the U.S. Gulf of Mexico and in India. The
Company's rigs could, with certain modifications, work in other areas, however,
the Company's rigs are not suitable for those areas, such as the North Sea, that
require hostile environment operating capabilities.

Inventory -- Inventory consists of operating supplies primarily for the
Company's India operations and are carried at the lower of cost or market.

Property and Equipment -- Effective December 31, 1995, the Company adopted
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"). This statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes indicate the carrying amount of an asset
may not be recoverable. The adoption of SFAS 121 had no effect on the 1995
consolidated financial statements.

Property and equipment are stated at historical cost or the cost assigned
to the assets at December 31, 1992 in connection with the adoption of
quasi-reorganization accounting procedures. Depreciation is provided on the
straight-line method over the estimated remaining useful lives of the assets
which are as follows:

<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Jack-up rigs............................................... 5 to 15
Drill string............................................... 4
Other equipment............................................ 5
</TABLE>

Maintenance and repairs amounted to $8,030, $8,600 and $8,219 in 1993, 1994
and 1995, respectively. Expenditures for major renewals and betterments are
capitalized. Expenditures for normal maintenance and repairs are charged to
expense as incurred. When property or equipment is retired, the related assets
and accumulated depreciation are removed from the accounts and a gain or loss is
reflected in other income (expense). The Company continues to depreciate idle
drilling equipment using the same rates as while operating. The Company
capitalizes interest expense related to certain capital expenditure projects.
Capitalized interest was approximately $126 for 1995.

F-7
<PAGE> 46

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Employer's Liability Claims -- Employer's liability claims, principally
arising from actual or alleged personal injuries, are estimates of the Company's
liabilities for such occurrences. These claims are classified as current or
long-term based upon the periods in which such claims are expected to be funded.

Deferred Financing Costs -- Deferred financing costs are amortized over the
life of the related debt. Deferred financing costs, net of accumulated
amortization were $228 and $183, respectively, at December 31, 1994 and 1995.

Income Taxes -- Deferred tax assets and liabilities are recorded to reflect
the future tax consequences of differences between the financial statement and
tax bases of existing assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

Revenue Recognition -- Drilling revenues are recorded pursuant to day rate
contracts, under which the Company receives a fixed amount per day for providing
drilling services using the rigs it operates.

Cash and Cash Equivalents -- The Company generally considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.

Short-Term Investments -- Short-term investments consist of corporate debt
securities, mortgage-backed securities and corporate paper. The Company
classifies its short-term investments as held-to-maturity securities.
Held-to-maturity securities are those securities in which the Company has the
ability and intent to hold the security until maturity. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Premiums and discounts are amortized or
accreted over the life of the related held-to-maturity security as an adjustment
to yield using the effective interest method. Dividend and interest income are
recognized when earned. The fair value of the short-term investments at December
31, 1994 was $18,133. There were no short-term investments at December 31, 1995.

Treasury Stock -- Treasury stock is acquired under the cost method and
valued upon reissuance using the first-in, first-out method. During 1995, the
Company purchased 735,633 shares of common stock at an aggregate cost of $2,659.
In addition, during 1995, the Company reissued 201,423 shares at an aggregate
cost of $643 for the employee and non-employee benefit plans. No shares were
purchased in 1994. At December 31, 1995, the Company had remaining authorization
under the stock purchase program to acquire an additional 3,465,790 shares.

Income (Loss) Per Common Share -- Income (loss) per common share is based
on the weighted average number of common shares outstanding and common stock
equivalents, if dilutive. Net income per common share for the years ended
December 31, 1993, 1994 and 1995 do not include the effect of outstanding stock
options since they are either antidilutive or the potential dilution from their
exercise is less than three percent.

Reclassification of Accounts -- Certain reclassifications have been made to
the 1993 and 1994 consolidated financial statements to conform with the current
presentation.

Concentrations of Credit Risk -- The market for the Company's services and
products is the offshore oil and gas industry, and the Company's customers
consist primarily of independent and major oil and gas companies. The Company
performs ongoing credit evaluations of its customers and obtains collateral
security as deemed prudent. The Company has established an adequate allowance
for bad debts, and such losses have been within management's expectations (see
Note 8). At December 31, 1994 and 1995, the Company had cash deposits
concentrated primarily in one major bank. In addition, the

F-8
<PAGE> 47

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company had certificates of deposits, commercial paper and Eurodollar time
deposits with a variety of companies and financial institutions with strong
credit ratings, and such securities are held until maturity. The Company
believes that credit and market risk in such instruments is minimal.

Fair Values of Financial Instruments -- The fair values of the Company's
cash equivalents, trade receivables and trade payables approximated their
carrying values due to the short-term maturities of these instruments. The
estimated fair value of long-term debt is equivalent to its carrying value due
to the floating interest rate (see note 4).

Use of Estimates -- Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.

(2) PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Jack-up rigs................................................. $ 97,618 $100,811
Drill string................................................. 2,634 4,725
Other equipment.............................................. 345 730
Construction in progress..................................... 1,834 17,176
-------- --------
$102,431 $123,442
======== ========
</TABLE>

Depreciation expense was $5,312, $7,733 and $9,326 for the years ended
December 31, 1993, 1994 and 1995, respectively. The Company rents drilling rigs,
certain equipment and other property under operating leases. Rental expense was
$936, $1,707 and $2,066 in 1993, 1994 and 1995, respectively.

(3) ACCRUED EXPENSES

Accrued expenses are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Accrued payroll and related taxes................................ $1,085 $ 884
Accrued health benefit plan claims............................... 300 462
Other accrued expenses........................................... 469 581
------ ------
$1,854 $1,927
====== ======
</TABLE>

F-9
<PAGE> 48

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(4) LONG-TERM DEBT

Long-term debt is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
KHC note payable to lender due 1999............................ $15,000 $10,000
Less:
Current portion of long-term debt............................ -- 1,000
------- -------
Long-term debt, non-current.................................. $15,000 $ 9,000
======= =======
</TABLE>

KHC -- Note Payable to Lender -- On December 1, 1994, KHC entered into a
$35,000 revolving/term loan agreement (the "Loan") with a U.S. financial
institution ("Lender"). As of December 31, 1995, the related debt outstanding
was $10,000 and the amount of unused line of credit subject to the Loan was
$25,000. Loan proceeds may be used to purchase additional jack-up drilling rigs
or to make capital improvements to the Company's existing drilling rig fleet.
The Company is a guarantor for up to an aggregate of $8,750 under the Loan. On
June 1, 1996, all amounts borrowed under the Loan may be converted to a term
loan.

If converted, the term loan will be due in thirty-six (36) consecutive
monthly installments, beginning July 1, 1996 and ending June 1, 1999 amortizing
at the rate of 20% of the term loan balance per year with the remaining 40%
principal balance due and payable concurrently with the last payment. KHC must
maintain a minimum borrowing of $10,000 (the "minimum borrowing") on the Loan
after June 1, 1996. If the Company's average borrowings under the revolving loan
or the term loan are less than the minimum borrowing, KHC will be required to
pay a non-utilization fee of 2% of the difference between the actual average
borrowed balance and the minimum borrowing. The term loan may be prepaid at any
time after the eighteenth payment (December 1, 1997). A prepayment premium of 1%
of the prepaid principal amount will be due with each such prepayment.
Repayments may not be re-borrowed during the term loan period.

Interest is due monthly on the outstanding principal balance at the London
Interbank Offered Rate ("LIBOR") plus 2.5%. The interest rate as of December 31,
1995 was 8.3%. A revolving loan fee is due quarterly during the revolving loan
period based on the unused credit facility at .25%.

The note is secured by a first preferred fleet mortgage on the MARINE 300,
301 and 303 drilling rigs. The three drilling rigs must be appraised on the term
loan conversion date, June 1, 1996. The term loan will be limited to 50% of the
appraised value of the rigs. The Company and KHC are required to comply with
various covenants, including, but not limited to, the maintenance of financial
ratios related to (i) debt to total equity and (ii) working capital to fixed
expenses and projected debt services.

Interest payments on the loan amounted to $70 and $981 for the years ended
December 31, 1994 and 1995, including revolving loan fees of $5 and $60,
respectively. A facility fee of $175 was paid to the Lender during the fourth
quarter 1994 and will be amortized over the life of the loan.

The scheduled repayment of long-term debt as of December 31, 1995 is as
follows:

<TABLE>
<CAPTION>
1996 1997 1998 1999 TOTAL
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Annual maturities................. $1,000 $2,000 $2,000 $5,000 $10,000
====== ====== ====== ====== =======
</TABLE>

F-10
<PAGE> 49

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) INCOME TAXES

Income taxes consist of the following:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
------ ------ -------
<S> <C> <C> <C>
Current:
U.S. federal........................................ $ 408 $ 153 $ --
State............................................... 12 1 1
Foreign............................................. 380 -- 55
------ ------ -------
800 154 56
------ ------ -------
Other:
U.S. federal -- deferred............................ 5,376 2,989 (2,221)
Pre-quasi-reorganization net operating loss
carryforwards.................................... 1,612 -- --
Tax benefits related to common stock issued pursuant
to long-term incentive plan...................... 490 50 85
------ ------ -------
7,478 3,039 (2,136)
------ ------ -------
Total tax provision (benefit)............... $8,278 $3,193 $(2,080)
====== ====== =======
</TABLE>

As a result of the adoption of quasi-reorganization accounting procedures
on December 31, 1992, the tax effect of the realization of tax attributes
generated prior thereto are recorded directly to shareholders' equity and are
not reflected as a reduction of income tax expense.

For the years ended December 31, 1993, 1994 and 1995, the effective tax
rate for financial reporting purposes approximates the U.S. federal statutory
rate of 35%.

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1994 and 1995 are presented below.

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $ 28,804 $ 31,361
Investment tax, general business and foreign tax credit
carryforwards........................................... 13,410 11,356
Employer's liability claims................................ 1,044 1,113
Allowance for bad debts.................................... 1 45
-------- --------
Total gross deferred tax assets............................ 43,259 43,875
Less valuation allowance................................... (38,649) (36,738)
-------- --------
Net deferred tax assets.................................... 4,610 7,137
-------- --------
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation............................................ 11,273 11,896
Deferred intercompany gains and losses..................... 1,702 1,385
-------- --------
Total gross deferred tax liabilities....................... 12,975 13,281
-------- --------
Net deferred tax liability................................. $ 8,365 $ 6,144
======== ========
</TABLE>

F-11
<PAGE> 50

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The valuation allowance for deferred tax assets as of December 31, 1994 and
1995 was $38,649 and $36,738, respectively. The net change in the total
valuation allowance for the years ended December 31, 1994 and 1995 was a
decrease of $3,560 and $1,911, respectively. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. Based upon projections for future taxable income over the periods
which the deferred tax assets are deductible and the Section 382 limitation as
discussed below, management believes it is more likely than not that the Company
will realize the benefits of these deductible differences, net of the existing
valuation allowances at December 31, 1995.

At December 31, 1995, the Company had net operating loss carryforwards for
federal income tax purposes of $89,602 which are available to offset future
federal taxable income, if any, through 2007. The Company also had investment
tax credit and general business credit carryforwards for federal income tax
purposes of approximately $11,356 (including $1,844 which are subject to the
limitation as to their use imposed in connection with the 1989 Ownership Change
as discussed below) at December 31, 1995 which are available to reduce future
federal income taxes, if any, through 2000.

The Company has taken the position that its recapitalization in 1992 (the
"Recapitalization") did not cause an ownership change under Section 382 of the
Internal Revenue Code of 1986, as amended ("Code"). The Company's position is
based on the applicability of Section 382(l)(3)(C) of the Code, which provides
generally that any change in the proportionate ownership attributable solely to
fluctuations in relative fair market value of different classes of stock are not
to be taken into account for purposes of Section 382. To date, neither the
Internal Revenue Service nor the United States Department of Treasury has
established any rules or guidance as to how such Section will be interpreted or
applied to situations similar to the Recapitalization. Accordingly, there can be
no assurance that an ownership change for purposes of Section 382 will not be
deemed to have occurred as a result of the Recapitalization. If an ownership
change were deemed to have occurred, the utilization of the Company's net
operating losses, against its future income, if any, would be limited annually
to approximately $1,500. Since such limitation would be less than the Section
382 limitation (approximately $9,000) imposed as a result of the Company's 1989
sale of Common Stock which resulted in an ownership change ("1989 Ownership
Change") pursuant to Section 382 of the Code, the Section 382 limitation imposed
in connection with the Recapitalization would apply to all net operating losses
applicable to the period before the Recapitalization.

(6) BENEFIT PLANS

Long Term Incentive Plans -- In late 1992, the Company adopted the Marine
Drilling 1992 Long Term Incentive Plan ("1992 Plan"). Pursuant to the terms of
the 1992 Plan, an aggregate of 10,000,000 shares (subject to the restrictions
described herein) of common stock are available for distribution pursuant to
stock options, SARs and restricted stock. The number of shares of common stock
available for distribution as described above is further limited in that no
stock options, SARs or restricted stock may be issued if, immediately after such
issuance, the number of shares subject to outstanding stock options, SARs and
restricted stock awards would exceed 5% of the common stock then outstanding.
The shares of common stock subject to any stock option or SAR that terminates
without a payment being made in the form of common stock would again become
available for distribution pursuant to the 1992 Plan.

Restricted Common Stock -- During 1993, 1994 and 1995, the Company issued
restricted stock grants consisting of 385,000, 83,000 and 53,500 shares,
respectively, of common stock. These grants generally lapse over four-year
periods and the values of the grants are based on the respective closing prices
on the day preceding each grant and are recognized as compensation expense over
the periods

F-12
<PAGE> 51

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

during which the restrictions lapse. Compensation expense related to the
issuance of restricted common stock for the years ended December 31, 1993, 1994
and 1995 was $233, $318 and $333, respectively.

During 1993, 1994 and 1995, respectively, 30,000, 31,250 and 20,000 shares
of restricted common stock were forfeited.

Common Stock Options -- The following table summarizes stock option
transactions pursuant to the 1992 Plan:

<TABLE>
<S> <C>
Options outstanding -- December 31, 1992................................. 1,613,080
Granted -- June 29, 1993 ($6.00 per share)............................. 190,000
Exercised ($1.25 per share)............................................ (261,030)
Forfeited ($1.25 per share)............................................ (1,400)
---------
Options outstanding -- December 31, 1993................................. 1,540,650
Granted -- October 12, 1994 ($4.25 per share).......................... 75,000
Exercised ($1.25 per share)............................................ (10,000)
Forfeited ($1.25 per share)............................................ (30,000)
---------
Options outstanding -- December 31, 1994................................. 1,575,650
Granted -- February 28, 1995 ($2.50 per share)......................... 530,000
Exercised ($1.25 per share)............................................ (150,000)
Forfeited ($4.25 per share)............................................ (75,000)
---------
Options outstanding -- December 31, 1995................................. 1,880,650
=========
</TABLE>

The following table sets forth the shares subject to options outstanding
under the 1992 Plan at December 31, 1995:

<TABLE>
<CAPTION>
EXERCISE EXERCISE EXERCISE
PRICE/SHARE PRICE/SHARE PRICE/SHARE
@ $1.25 @ $2.50 @ $6.00 TOTAL
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Fully vested and exercisable........... 793,150 -- 95,000 888,150
Vesting during 1996.................... 367,500 132,500 47,500 547,500
Vesting during 1997.................... -- 132,500 47,500 180,000
Vesting during 1998.................... -- 132,500 -- 132,500
Vesting during 1999.................... -- 132,500 -- 132,500
--------- ------- ------- ---------
Total........................ 1,160,650 530,000 190,000 1,880,650
========= ======= ======= =========
</TABLE>

Based upon Common Stock outstanding as of December 31, 1994 and 1995 and
shares reserved for issuance as set forth above, the number of shares then
available for future stock options, SARs and restricted stock grants was 432,721
and 180,332 shares, respectively.

Employee 401(k) Profit Sharing Plan -- The Company has a 401(k) Profit
Sharing Plan (the "401(k) Plan") covering substantially all of its employees who
have been employed at least three months. The Company matches employees'
contributions to the Plan on a dollar-for-dollar basis, in the form of Company
common stock, up to 5% of their eligible compensation. During 1993, 1994 and
1995, the Company made matching contributions with the Company's common stock
totaling $354, $744 and $843, respectively.

Executive Deferred Compensation Plan -- The Company adopted the Executive
Deferred Compensation Plan (the "Executive Plan") effective December 31, 1994.
Employees who participate in the Executive Plan are selected by an
Administrative Committee. Under the Executive Plan, the participating executives
may elect (i) to defer up to 15% of compensation after reaching the limitations
applicable to

F-13
<PAGE> 52

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Company's 401(k) Plan and (ii) to defer any excess contributions refunded by
the 401(k) Plan. As of December 31, 1995, the amount deferred under the
Executive Plan was $63.

Non-Employee Directors' Plan -- The Company adopted the 1995 Non-Employee
Directors' Plan (the "Directors' Plan") effective June 29, 1995. The Directors'
Plan provides for the grant of shares and options to acquire common stock to
each director who is not an employee of the Company. A maximum of 350,000 shares
may be issued pursuant to stock awards or options. Each option granted will vest
and become exercisable one year after its grant and will expire ten years from
the date the option is granted.

The following table sets forth the shares subject to options outstanding
under the Directors' Plan at December 31, 1995:

<TABLE>
<CAPTION>
EXERCISE
PRICE/SHARE
@$4.00
-----------
<S> <C>
Fully vested and exercisable............................................. --
Vesting during 1996...................................................... 50,000
------
Total.......................................................... 50,000
======
</TABLE>

During 1995, 14,895 shares were issued as stock awards and related
compensation expense of $60 was recognized in 1995.

(7) RELATED PARTY TRANSACTIONS

The Company has performed services directly (or indirectly through third
party contractors) for Newfield Exploration Company ("Newfield"). Amounts
received directly or indirectly from Newfield were approximately $526 during
1993. One of the Company's directors is also a director of Newfield.

F-14
<PAGE> 53

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(8) GEOGRAPHIC AREA ANALYSIS AND MAJOR CUSTOMERS

The following table summarizes geographic area operating revenues and
operating income for the years ended December 31, 1993, 1994 and 1995, and
identifiable assets by geographic area at year-end 1993, 1994 and 1995:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues
United States................................... $ 59,539 $ 63,291 $ 57,293
India........................................... -- -- 3,260
Mexico.......................................... 23,459 7,306 2,514
-------- -------- --------
Total Revenues.......................... $ 82,998 $ 70,597 $ 63,067
======== ======== ========
Operating income (loss)
United States................................... $ 14,819 $ 5,215 $ (7,444)
India........................................... -- -- 441
Mexico.......................................... 8,538 2,698 142
-------- -------- --------
Operating income (loss)................. $ 23,357 $ 7,913 $ (6,861)
======== ======== ========
Identifiable assets
United States................................... $ 65,248 $ 87,290 $100,469
India........................................... -- -- 18,357
Mexico.......................................... 35,905 16,024 --
-------- -------- --------
Total assets............................ $101,153 $103,314 $118,826
======== ======== ========
</TABLE>

The Company conducts business in one industry segment, oil and gas well
contract drilling. The Company negotiates drilling contracts with a number of
customers for varying terms, and management believes it is not dependent upon
any single customer. For the years 1993, 1994 and 1995, sales to customers that
represented 10% or more of consolidated drilling revenues were as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Customer A.................................................... * 11% *
Customer B.................................................... * 10% *
Customer C.................................................... * 10% *
Customer D.................................................... 23% * *
Customer E.................................................... 21% * 14%
</TABLE>

- ---------------

* Less than 10%

As is typical in the industry, the Company does business with a relatively
small number of customers at any given time. The loss of any one of such
customers could, at least on a short-term basis, have a material adverse effect
on the Company's profitability. Management believes, however, that at current
levels of drilling activity, the Company would have alternative customers for
its services if it lost any single customer and that the loss of any one
customer would not have a material adverse effect on the Company on a long-term
basis.

F-15
<PAGE> 54

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) COMMITMENTS AND CONTINGENCIES

Legal Proceedings -- The Company is involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity.

Operating Leases -- Aggregate future minimum rental payments relating to
operating leases are as follows:

<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Office and equipment leases............. $583 $537 $377 $375 $276 $269
==== ==== ==== ==== ==== ====
</TABLE>

(10) UNAUDITED QUARTERLY FINANCIAL DATA

A summary of unaudited quarterly consolidated financial information for
1994 and 1995 is as follows:

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER
----------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues........................... $ 18,814 $ 16,231 $ 17,393 $ 18,159
Operating income................... 2,912 1,564 1,366 2,071
Income before income taxes......... 3,214 1,697 1,733 2,479
Income taxes....................... 1,126 593 606 868
Net income......................... 2,088 1,104 1,127 1,611
Net income per common share(1)..... $ 0.05 $ 0.03 $ 0.03 $ 0.04
Weighted average shares
outstanding...................... 43,749,623 43,810,863 43,829,717 43,884,394
Average day rates(2)............... $ 22,791 $ 19,212 $ 18,616 $ 18,501
Marketed rigs (weighted average)... 12.0 11.2 11.0 10.7
Utilization of marketed rigs....... 76% 82% 92% 97%
</TABLE>

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER
----------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues........................... $ 12,545 $ 11,825 $ 15,490 $ 23,207
Operating income (loss)............ (5,226) (3,032) (1,075) 2,472
Income (loss) before income
taxes............................ (4,981) (2,704) (917) 2,500
Income tax expense (benefit)....... (1,744) (947) (320) 931
Net income (loss).................. (3,237) (1,757) (597) 1,569
Net income (loss) per common
share(1)......................... $ (.07) $ (.04) $ (.01) $ .04
Weighted average shares
outstanding...................... 44,033,448 43,959,172 43,656,282 43,608,078
Average day rates(2)............... $ 18,357 $ 16,621 $ 17,712 $ 22,679
Marketed rigs (weighted average)... 10.1 9.1 9.9 11.5
Utilization of marketed rigs....... 75% 86% 95% 97%
</TABLE>

- ---------------

(1) Quarterly net income per common share may not total to annual results due to
rounding.

(2) "Average day rate" is determined by dividing the total gross revenue earned
by the Company's rigs during a given period by the total number of days that
the Company's rigs were under contract during that period.

F-16
<PAGE> 55

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's results in 1994 reflected the impact of increased competition
in the U.S. Gulf of Mexico and reduced activity levels in Mexico's Bay of
Campeche. Increased competition in the U.S. Gulf of Mexico resulted from (i) an
influx of jack-up rigs into that market from other markets, (ii) an increased
supply of marketed rigs due to reactivations of previously nonmarketed rigs and
(iii) lower than expected growth in jack-up demand because of generally lower
natural gas prices. Although demand for jack-ups in the U.S. Gulf of Mexico
increased by approximately 14% from 1993, the supply of marketed jack-ups grew
by 26% during that period. The effects of this increased competition in that
market included generally lower utilization and day rates experienced by the
Company.

During 1995, the Company's average marketed rigs and day rates decreased
due primarily to a general decline in U.S. Gulf of Mexico market conditions
during the first five months of the year and reduced levels of drilling activity
in Mexico's Bay of Campeche. The fourth quarter of 1995 includes the
mobilization and contract start-up costs of the MARINE 201 in India. Excluding
the mobilization to India, the average day rate was approximately $20,200.

F-17
<PAGE> 56

INDEPENDENT ACCOUNTANTS' REVIEW REPORT

The Board of Directors and Shareholders
Marine Drilling Companies, Inc.:

We have reviewed the accompanying consolidated balance sheet of Marine
Drilling Companies, Inc. and subsidiaries as of September 30, 1996, and the
related consolidated statements of operations and cash flows for the three month
and nine month periods ended September 30, 1996 and 1995. These consolidated
financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Marine Drilling Companies, Inc. and
subsidiaries as of December 31, 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year then ended (not
presented here); and in our report dated January 26, 1996, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 1995, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.

KPMG PEAT MARWICK LLP

Houston, Texas
October 16, 1996,
except for Note 6
which is as of
November 20, 1996.

F-18
<PAGE> 57

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents..................................... $ 12,260 $ 17,460
Short-term investments........................................ -- 9,851
Accounts receivable -- trade and other, net................... 18,078 20,669
Inventory..................................................... 1,272 973
Prepaid Expenses and other.................................... 1,380 2,205
-------- --------
Total current assets.................................. 32,990 51,158
Property and Equipment.......................................... 123,442 142,633
Less accumulated depreciation................................. 22,090 30,478
-------- --------
Property and equipment, net........................... 101,352 112,155
Other........................................................... 203 275
-------- --------
$134,545 $ 163,588
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt............................. $ 1,000 $ 500
Accounts payable.............................................. 5,721 3,287
Accrued Expenses.............................................. 1,927 3,026
Employer's liability claims, current.......................... 1,026 1,143
-------- --------
Total current liabilities............................. 9,674 7,956
Long-Term Debt.................................................. 9,000 9,500
Employer's Liability Claims, non-current........................ 2,155 1,839
Deferred Income Taxes........................................... 6,144 11,213
Shareholders' Equity:
Common stock, par value $.01. Authorized 200,000,000 shares;
issued 44,169,643 and outstanding 43,635,433 shares as of
December 31, 1995; issued and outstanding 45,518,651 shares
as of September 30, 1996................................... 442 455
Common stock.................................................. (505) (557)
Treasury stock, at cost (534,210 shares in 1995).............. (2,016) --
Additional paid-in capital.................................... 92,720 103,740
Retained earnings from January 1, 1993........................ 16,931 29,442
-------- --------
Total shareholders' equity............................ 107,572 133,080
-------- --------
Commitments and contingencies................................. -- --
-------- --------
$134,545 $ 163,588
======== ========
</TABLE>

See notes to consolidated financial statements and accompanying accountants'
review report.

F-19
<PAGE> 58

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
THREE MONTHS ENDED SEPTEMBER 30,
------------------------- -------------------------
1995 1996 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues............................. $ 15,490 $ 29,819 $ 39,860 $ 78,418
Costs and Expenses:
Contract drilling.................. 12,893 14,955 38,335 44,166
Depreciation and amortization...... 2,471 2,975 6,773 8,545
General and administrative......... 1,201 1,857 4,085 5,470
---------- ---------- ---------- ----------
16,565 19,787 49,193 58,181
---------- ---------- ---------- ----------
Operating income (loss)......... (1,075) 10,032 (9,333) 20,237
---------- ---------- ---------- ----------
Other Income (Expense):
Interest expense................... (199) (209) (657) (593)
Interest income.................... 321 312 1,258 726
Other income....................... 36 269 130 355
---------- ---------- ---------- ----------
158 372 731 488
---------- ---------- ---------- ----------
Income (loss) before income taxes.... (917) 10,404 (8,602) 20,725
Income tax expense (benefit)......... (320) 3,714 (3,011) 7,469
---------- ---------- ---------- ----------
Net income (loss).................... $ (597) $ 6,690 $ (5,591) $ 13,256
========== ========== ========== ==========
Income (loss) per common share....... $ (0.01) $ 0.15 $ (0.13) $ 0.30
========== ========== ========== ==========
Weighted average common shares
outstanding........................ 43,656,282 45,028,616 43,880,936 44,392,776
========== ========== ========== ==========
</TABLE>

See notes to consolidated financial statements and accompanying accountants'
review report.

F-20
<PAGE> 59

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss).................................................... $ (5,591) $ 13,256
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization................................... 6,773 8,545
Deferred income taxes........................................... (3,096) 5,069
Tax benefits related to common stock issued pursuant to
long-term incentive plan....................................... 85 2,092
Gain on disposition of equipment................................ (163) (358)
Accrual of compensation expense, net............................ 270 317
Issuance of common stock to Employee 401(k) Plan and the
Non-Employee Director's Plan.................................. 667 725
Amortization of interest income................................. (131) (122)
Changes in operating assets and liabilities:
Receivables................................................... 5,377 (2,591)
Other current assets.......................................... (2,522) (607)
Payables, accrued expenses and employer's liability claims.... 2,807 (1,534)
Other......................................................... 158 (109)
-------- --------
Net cash provided by operating activities.................. 4,634 24,683
-------- --------
Cash Flows From Investing Activities:
Purchase of short-term investments................................. (5,466) (9,729)
Maturity of short-term investments................................. 18,150 --
Purchase of equipment.............................................. (14,867) (12,047)
Proceeds from disposition of equipment............................. 284 593
-------- --------
Net cash used in investing activities...................... (1,899) (21,183)
-------- --------
Cash Flows From Financing Activities:
Payments of debt................................................... (5,000) --
Proceeds from exercise of stock options............................ 177 1,835
Purchase of treasury stock......................................... (2,657) --
Costs associated with shelf registration statements................ -- (135)
-------- --------
Net cash provided by (used in) financing activities........ (7,480) 1,700
-------- --------
Net increase (decrease) in cash and cash equivalents....... (4,745) 5,200
Cash and cash equivalents at beginning of period..................... 18,872 12,260
-------- --------
Cash and cash equivalents at end of period........................... $ 14,127 $ 17,460
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid...................................................... $ 743 $ 649
Income taxes paid (refunded)....................................... $ (1) $ 309
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Issuance of 882,352 shares in 1996 for MARINE 305 rig
acquisition..................................................... $ -- $ 7,500
Issuance of 43,500 and 60,833 shares in 1995 and 1996,
respectively,
of restricted common stock...................................... $ 148 $ 368
Forfeitures of restricted common stock of 7,500 shares in 1995..... $ 44 $ --
</TABLE>

See notes to consolidated financial statements and accompanying accountants'
review report.

F-21
<PAGE> 60

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)

(1) INTERIM FINANCIAL INFORMATION

The consolidated interim financial statements of Marine Drilling Companies,
Inc. (the "Company" or the "Registrant") presented herein have been prepared
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and notes required by
generally accepted accounting principles for complete financial statements have
been condensed or omitted. In the opinion of management, these statements
include all adjustments (all of which consist of normal recurring adjustments
except as otherwise noted herein) necessary to present fairly the Company's
financial position and results of operations for the interim periods presented.
The financial data for the nine months ended September 30, 1996 included herein
has been subjected to a limited review by KPMG Peat Marwick LLP, the
Registrant's independent public accountants, whose report is included herein.
These statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995. The results of operations for the
nine months ended September 30, 1996 are not necessarily indicative of the
results of operations that may be expected for the year.

(2) RECLASSIFICATION OF ACCOUNTS

Certain reclassifications have been made to the 1995 consolidated financial
statements to conform with the 1996 presentation.

(3) INCOME TAXES

Income taxes consist of the following:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ------------------
1995 1996 1995 1996
----- ------ ------- ------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Current:
U.S. federal.............................. $ -- $ 92 $ -- $ 93
State..................................... 1 -- -- --
Foreign................................... -- 72 -- 215
----- ------ ------- ------
1 164 -- 308
----- ------ ------- ------
Other:
U.S. federal -- deferred.................. (321) 3,312 (3,096) 5,069
Tax benefits related to common stock
issued pursuant to long-term incentive
plan................................... -- 238 85 2,092
----- ------ ------- ------
(321) 3,550 (3,011) 7,161
----- ------ ------- ------
Total tax provision (benefits).... $(320) $3,714 $(3,011) $7,469
===== ====== ======= ======
</TABLE>

For the nine months ended September 30, 1996, the effective tax rate of 36%
for financial reporting purposes approximates the U.S. federal statutory rate of
35%, plus the effect of foreign taxes.

F-22
<PAGE> 61

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and September 30, 1996 are presented below.

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 31,361 $ 26,169
Investment tax, general business and alternative tax
credit carryforwards............................... 11,356 10,465
Employer's liability claims........................... 1,113 1,044
Allowance for bad debts............................... 45 53
-------- --------
Total gross deferred tax assets....................... 43,875 37,731
Less valuation allowance.............................. (36,738) (35,703)
-------- --------
Net deferred tax assets............................... 7,137 2,028
-------- --------
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation....................................... 11,896 12,096
Deferred intercompany gains and losses................ 1,385 1,145
-------- --------
Total gross deferred tax liabilities.................. 13,281 13,241
-------- --------
Net deferred tax liability............................ $ 6,144 $ 11,213
======== ========
</TABLE>

(4) NET INCOME (LOSS) PER COMMON SHARE

Net income (loss) per common share for the nine months ended September 30,
1995 and 1996 excludes the effect of outstanding stock options inasmuch as the
potential dilution from their exercise is less than three percent.

(5) COMMITMENTS AND CONTINGENCIES

The Company is a defendant in certain claims and litigation arising out of
operations in the normal course of business. In the opinion of management,
uninsured losses, if any, will not be material to the Company's financial
position or results of operations.

(6) SUBSEQUENT EVENT

The Company adopted a shareholder rights plan on November 8, 1996, designed
to assure that the Company's shareholders receive fair and equal treatment in
the event of any proposed takeover of the Company and to guard against partial
tender offers and other abusive takeover tactics to gain control of the Company
without paying all shareholders a fair price. The rights plan was not adopted in
response to any specific takeover proposal. Under the rights plan, the Company
issued one preferred share purchase right (a "Right") with respect to each
outstanding share of Common Stock outstanding on November 20, 1996. Each Right
entitles the registered holder to purchase from the Company one one-thousandth
of a share of Junior Participating Preferred Stock, $.01 par value per share
(the "Preferred Shares"), of the Company at a price of $56.00 per one
one-thousandth of a Preferred Share, subject to adjustment. The Rights are not
currently exercisable and will become exercisable only in the event a person or
group acquires beneficial ownership of 15% or more of the Company's Common
Stock. Each whole Preferred Share will be entitled to receive a quarterly
preferential dividend in an amount per share equal to the greater of (i) $1.00
in cash, or (ii) in the aggregate, 1,000 times the dividend declared on the
Common Stock. In the event of liquidation, the holders of the Preferred Shares
will be entitled to receive a

F-23
<PAGE> 62

MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

preferential liquidation payment equal to the greater of (i) $1,000 per share,
or (ii) in the aggregate, 1,000 times the payment made on the shares of Common
Stock. In the event of any merger, consolidation or other transaction in which
shares of Common Stock are exchanged for or changed into other stock or
securities, cash or other property, each whole Preferred Share will be entitled
to receive 1,000 times the amount received per share of Common Stock. Each whole
Preferred Share shall be entitled to 1,000 votes on all matters submitted to a
vote of the shareholders of the Company, and Preferred Shares shall generally
vote together as one class with the Common Stock and any other capital stock on
all matters submitted to a vote of shareholders of the Company. The Rights will
expire on November 19, 2006 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or the Rights are earlier redeemed or exchanged by
the Company.

F-24
<PAGE> 63
PROSPECTUS

[MARINE DRILLING MARINE DRILLING COMPANIES, INC.
LOGO]
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
WARRANTS
---------------------
Marine Drilling Companies, Inc. ("Marine" or the "Company") may offer and
sell from time to time, (i) unsecured debt securities, in one or more series,
consisting of notes, debentures or other evidences of indebtedness (the "Debt
Securities"), (ii) shares of preferred stock, par value $.01 per share of the
Company, in one or more series (the "Preferred Stock"), (iii) shares of common
stock of the Company, par value $.01 per share (the "Common Stock") and (iv)
warrants (the "Warrants") to purchase Common Stock. The Company may offer and
sell up to $150,000,000 aggregate public offering price of Debt Securities,
Preferred Stock, Common Stock and Warrants (collectively, the "Securities"). The
Securities may be offered in separate series in amounts, and prices, and on
terms to be determined at or prior to the time of sale.

The specific terms of the particular Securities to be issued will be set
forth in a supplement to this Prospectus (a "Prospectus Supplement"), which will
be delivered together with this Prospectus, including, where applicable, (i) in
the case of Debt Securities, the specific designation, aggregate principal
amount, ranking as senior or subordinated Debt Securities, maturity, rate or
rates (or method of determining the same) and time or times for the payment of
interest, if any, any exchangeability or conversion terms, any terms for
optional or mandatory redemption or repurchase, or payment of additional amounts
or any sinking fund provisions, the designation of the trustee acting under the
applicable indenture, and any other specific terms of such Debt Securities, (ii)
in the case of Preferred Stock, the specific designation, number of shares and
liquidation value thereof and the dividend, liquidation, redemption, voting and
other rights, including conversion or exchange rights, if any, and any other
special terms, (iii) in the case of Common Stock, the number of shares, and (iv)
in the case of Warrants, the number and terms thereof, the number of shares of
Common Stock issuable upon their exercise, the exercise price, the terms of the
offering and sale thereof and, where applicable, the duration and detachability
thereof. The Prospectus Supplement will also contain information regarding the
initial public offering price, the net proceeds to the Company and, where
applicable, the United States Federal income tax considerations relating to the
Securities covered by the Prospectus Supplement and a description of certain
factors that should be considered in connection with an investment in the
Securities covered by the Prospectus Supplement.

The Securities may be sold directly by the Company to investors, through
agents designated from time to time or to or through underwriters or dealers.
See "Plan of Distribution." If any agents of the Company or any underwriters are
involved in the sale of any Securities in respect of which the Prospectus is
being delivered, the names of such agents or underwriters and any applicable
commissions or discounts will be set forth in the Prospectus Supplement.

The Common Stock is listed on the Nasdaq Stock Market under the symbol
"MDCO." The Prospectus Supplement will contain information about any listing on
a securities exchange of the Securities covered by the Prospectus Supplement.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF THE SECURITIES
UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.

July 12, 1996
<PAGE> 64

AVAILABLE INFORMATION

The Company is subject to the informational filing requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the
Commission's Regional Offices located at Seven World Trade Center, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained by mail from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Such material may also be inspected at the offices
of the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006. The
Commission maintains a World Wide Website on the Internet at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.

The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all the information
contained in the Registration Statement, certain portions of which are omitted
as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statement, including the exhibits thereto,
which may be inspected at the Commission's offices, without charge or copies of
which may be obtained from the Commission upon payment of prescribed fees.
Statements contained in this Prospectus as to the contents of any contract or
other document filed as an exhibit to the Registration Statement are not
necessarily complete, and in each instance reference is hereby made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
---------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission (File No.
0-18309) pursuant to the Exchange Act are incorporated herein by reference:

1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.

2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1996.

3. The Company's Reports on Form 8-K, dated March 18, 1996, April 26, 1996
and June 3, 1996.

4. The description of the Common Stock contained in the Registration
Statement on Form 8-B filed with the Commission on February 21, 1990, as
amended by Form 8 filed with the Commission on November 9, 1992, and any
subsequent amendment thereto filed for the purpose of updating such
description.

All other documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Securities pursuant hereto shall
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document all or a portion of which is incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified shall not be deemed to constitute a part of this Prospectus except as
so modified, and any statement so superseded shall not be deemed to constitute
part of this Prospectus.

The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents which are incorporated herein by reference, other than exhibits to
such documents (unless such

2
<PAGE> 65

exhibits are specifically incorporated by reference into such documents).
Requests should be directed to the Company, One Sugar Creek Center Blvd., Suite
600, Sugar Land, Texas 77478-3556, Attention: Investor Relations (telephone:
713/243-3000).
---------------------

IN CONNECTION WITH AN OFFERING OF OFFERED SECURITIES, THE UNDERWRITERS, IF
ANY, FOR SUCH OFFERING MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR
MAINTAIN THE MARKET PRICES OF THE OFFERED SECURITIES AT LEVELS ABOVE THOSE WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.

THE COMPANY

The Company is engaged in the offshore contract drilling of oil and gas
wells, primarily in the U.S. Gulf of Mexico, for independent and major oil and
gas companies. As of the date of this Prospectus, the Company owns and operates
a fleet of 13 mobile offshore jack-up drilling rigs, consisting of four
independent leg units, three of which have a cantilever feature that allows the
extension of the drilling equipment over a platform, and nine mat supported
units, four of which have a cantilever feature. The Company's rigs are currently
capable of drilling to depths of 20,000 to 30,000 feet in maximum water depths
ranging from 200 feet to 300 feet.

The Company conducts substantially all of its operations through
wholly-owned subsidiaries. The principal subsidiaries are Marine Drilling
Management Company, which owns ten rigs, and Keyes Holding Corporation, which
owns the remaining three rigs.

The Company was incorporated in Texas in January, 1990 but, through its
predecessors, has been engaged in offshore contract drilling since 1966. The
Company's principal executive offices are located at One Sugar Creek Center
Boulevard, Suite 600, Sugar Land, Texas 77478-3556 and the Company's telephone
number is (713) 243-3000. The "Company" or "Marine" refers to Marine Drilling
Companies, Inc. and its consolidated subsidiaries, unless otherwise indicated or
the context otherwise suggests.

USE OF PROCEEDS

Unless otherwise provided in the Prospectus Supplement, the net proceeds
from the sale of the Securities offered by this Prospectus and the Prospectus
Supplement (the "Offered Securities") will be used for general corporate
purposes, which may include repayment of indebtedness, acquisitions, additions
to working capital, and capital expenditures. Until so utilized, it is expected
that such net proceeds will be invested in interest bearing time deposits or
short-term marketable securities.

RATIO OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

The following table sets forth the ratio of earnings to fixed charges and
combined ratio of earnings to fixed charges and preferred stock dividend
requirements for the Company for the periods indicated:

<TABLE>
<CAPTION>
THREE
YEAR ENDED DECEMBER 31, MONTHS ENDED
----------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
---- ---- ---- ----- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges......... -- -- 41.2 131.3 -- 16.7
Ratio of earnings to combined fixed charges
and preferred stock dividend
requirements............................. -- -- 41.2 131.3 -- 16.7
</TABLE>

3
<PAGE> 66

For purposes of computing the ratio of earnings to fixed charges: (i)
earnings consist of income before provision for income taxes plus fixed charges
as described below, excluding capitalized interest for the period and (ii) fixed
charges consist of interest expensed and capitalized, amortization of debt
discount and expense relating to indebtedness and the portion of rental expense
representative of the interest factor attributable to leases for rental
property. For purposes of computing the ratio of earnings to combined fixed
charges and preferred stock dividend requirements: (a) earnings consist of
income before provision for income taxes plus fixed charges and preferred stock
dividend requirements, excluding capitalized interest for the period and (b)
fixed charges and preferred stock dividend requirements consist of interest
expensed and capitalized, amortization of debt discount and expense relating to
indebtedness, the portion of rental expense representative of the interest
factor attributable to leases for rental property and preferred stock dividends.

Because of losses, fixed charges were not covered by $34,462,000,
$91,327,000 and $6,228,000 respectively, for December 31, 1991, 1992 and 1995.
As a result of a recapitalization effected in 1992, the Company eliminated
preferred stock obligations of approximately $64,000,000. There have been no
shares of Preferred Stock outstanding from the recapitalization to the date of
this Prospectus.

DESCRIPTION OF DEBT SECURITIES

The Debt Securities will be unsecured senior or senior subordinated debt of
the Company and will be issued, in the case of Debt Securities that will be
senior debt ("Senior Debt Securities"), under a Senior Indenture (the "Senior
Debt Indenture") between the Company and Marine Midland Bank, as trustee, and,
in the case of Debt Securities that will be subordinated debt ("Subordinated
Debt Securities"), under a Senior Subordinated Indenture (the "Subordinated Debt
Indenture") between the Company and Bankers Trust Company, as trustee. The
Senior Debt Indenture and the Subordinated Debt Indenture are sometimes
hereinafter referred to individually as an "Indenture" and collectively as the
"Indentures." When used in this Prospectus, the term "Trustee" means, when used
with respect to the Senior Indenture, Marine Midland Bank and any successor
trustee under the Senior Debt Indenture and, when used with respect to the
Subordinated Debt Indenture, means Bankers Trust Company and any successor
thereto as trustee under the Subordinated Debt Indenture. The Indentures are
filed as exhibits to the Registration Statement of which this Prospectus is a
part. The following summaries of certain provisions of the Indentures and the
Debt Securities do not purport to be complete and such summaries are subject to
the detailed provisions of the applicable Indenture to which reference is hereby
made for a full description of such provisions, including the definition of
certain terms used herein. Section references in parentheses below are to
sections in both Indentures unless otherwise indicated. Wherever particular
sections or defined terms of the applicable Indenture are referred to, such
sections or defined terms are incorporated herein by reference as part of the
statement made, and the statement is qualified in its entirety by such
reference. The Indentures are substantially identical, except for provisions
relating to subordination.

PROVISIONS APPLICABLE TO BOTH SENIOR AND SUBORDINATED DEBT SECURITIES

General. The Debt Securities will be unsecured senior or subordinated
obligations of the Company and may be issued from time to time in one or more
series. Neither of the Indentures limits the amount of Debt Securities that may
be issued thereunder nor does either limit the aggregate indebtedness of the
Company, secured or unsecured, or any subsidiary thereof or, except to the
extent, if any, set forth in any Prospectus Supplement, limit the imposition of
liens on the Company's property, the payment of dividends or the acquisition of
stock of the Company. The Company currently conducts a substantial portion of
its operations through subsidiaries. Consequently, the rights of the Company to
receive assets of any subsidiary (and thus the ability of holders of Debt
Securities to benefit indirectly from such assets) are subject to the prior
claims of creditors of that subsidiary. Except to the extent set forth in any
Prospectus Supplement, the Indentures do not, and the Debt Securities will not,
contain any covenants or other provisions that are intended to afford holders of
the Debt Securities special protection in the event of either a change of
control of the Company or a highly leveraged transaction by the Company.

4
<PAGE> 67

Reference is made to the Prospectus Supplement for the following terms of
and information relating to the Debt Securities offered by such Prospectus
Supplement ("Offered Debt Securities") to the extent such terms are applicable
to such Offered Debt Securities:

(i) the title of the Offered Debt Securities;

(ii) the classification as Senior Debt Securities or Subordinated Debt
Securities, aggregate principal amount, purchase price and denomination;

(iii) the date or dates on which the Offered Debt Securities will
mature;

(iv) the method by which amounts payable in respect of principal of,
and premium, if any, or interest, if any, on or upon the redemption of such
Offered Debt Securities may be calculated;

(v) the interest rate or rates (or the method by which such will be
determined), and the date or dates from which such interest, if any, will
accrue;

(vi) the date or dates on which such interest, if any, will be
payable;

(vii) the place or places where and the manner in which the principal
of, premium, if any, and interest, if any, on the Offered Debt Securities
will be payable and the place or places where the Offered Debt Securities
may be presented for transfer;

(viii) the right, if any, or obligation, if any, of the Company to
redeem, repay or purchase the Offered Debt Securities pursuant to any
sinking fund or analogous provisions or at the option of a holder thereof
and the period or periods within which, the price or prices (or the method
by which such price or prices will be determined, or both) at which, the
form or method of payment therefor if other than in cash and the terms and
conditions upon which the Offered Debt Securities will be redeemed, repaid
or purchased pursuant to any such obligation;

(ix) any provision relating to the issuance of the Offered Debt
Securities at an original issue discount;

(x) if the amounts of payments of principal of, premium, if any, and
interest on the Offered Debt Securities are to be determined with reference
to an index, the manner in which such amounts shall be determined;

(xi) the terms and conditions, if any, upon which the Offered Debt
Securities may be convertible into or exchanged for Common Stock or other
securities;

(xii) any applicable United States federal income tax consequences;

(xiii) any deletions from, modification of or additions to the Events
of Default or covenants of the Company with respect to such Offered Debt
Securities; and

(xiv) any other specific terms of the Offered Debt Securities.

Unless otherwise specified in any Prospectus Supplement, the Debt
Securities will be issuable in registered form and in denominations of $1,000
and any integral multiple thereof (Section 2.7). No service charge will be made
for any transfer or exchange of any Debt Securities but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith (Section 2.8).

Debt Securities may bear interest at a fixed rate or a floating rate. Debt
Securities bearing no interest or interest at a rate that at the time of
issuance is below the prevailing market rate may be sold at a discount below
their stated principal amount. Special United States federal income tax
considerations applicable to any such discounted Debt Securities or to certain
Debt Securities issued at par that are treated as having been issued at a
discount for United States federal income tax purposes will be described in the
applicable Prospectus Supplement.

5
<PAGE> 68

In determining whether the holders of the requisite aggregate principal
amount of outstanding Debt Securities of any series have given any request,
demand, authorization, direction, notice, consent or waiver under the
Indentures, the principal amount of any series of Debt Securities originally
issued at a discount from their stated principal amount that will be deemed to
be outstanding for such purposes will be the amount of the principal thereof
that would be due and payable as of the date of such determination upon a
declaration of acceleration of the maturity thereof.

Conversion or Exchange Rights. The Prospectus Supplement for any Offered
Debt Securities offered thereby will state the terms, if any, on which shares of
such Offered Debt Securities are convertible into, or exchangeable for,
securities of the Company or another person.

Global Securities. The Debt Securities of a series may be issued in whole
or in part in the form of one or more global securities ("Global Securities")
that will be deposited with, or on behalf of, a depositary (the "Depositary")
identified in the Prospectus Supplement relating to such series. Global
Securities may be issued only in fully registered form and in either temporary
or permanent form. Unless and until it is exchanged in whole or in part for the
individual Debt Securities represented thereby, a Global Security (i) may not be
transferred except as a whole and (ii) may only be transferred (a) by the
Depositary for such Global Security to its nominee, (b) by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or (c) by
such Depositary or any such nominee to a successor Depositary or nominee of such
successor Depositary (Section 2.8).

The specific terms of the depositary arrangement with respect to a series
of Debt Securities will be described in the Prospectus Supplement relating to
such series. The Company anticipates that the following provisions will
generally apply to depositary arrangements.

Upon the issuance of a Global Security, the Depositary for such Global
Security or its nominee will credit, on its book-entry registration and transfer
system, the respective principal amounts of the individual Debt Securities
represented by such Global Security to the accounts of persons that have
accounts with such Depositary. Such accounts shall be designated by the dealers,
underwriters or agents with respect to such Debt Securities or by the Company if
such Debt Securities are offered and sold directly by the Company. Ownership of
beneficial interests in a Global Security will be limited to persons that have
accounts with the applicable Depositary ("participants") or persons that may
hold interests through participants. Ownership of beneficial interests in such
Global Security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the applicable Depositary or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants). The
laws of some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Security.

So long as the Depositary for a Global Security or its nominee is the
registered owner of such Global Security, such Depositary or its nominee, as the
case may be, will be considered the sole owner or holder of the Debt Securities
of the series represented by such Global Security for all purposes under the
Indenture governing such Debt Securities. Except as provided below, owners of
beneficial interests in a Global Security will not be entitled to have any of
the individual Debt Securities of the series represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of any such Debt Securities in definitive form and will not be
considered the owners or holders thereof under the Indenture governing such Debt
Securities.

Payment of principal of, and premium, if any, and interest, if any, on,
individual Debt Securities represented by a Global Security registered in the
name of a Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner of the Global Security
representing such Debt Securities. The Company expects that the Depositary for a
series of Debt Securities or its nominee, upon receipt of any payment of
principal of, and premium, if any, and interest, if any, in respect of a Global
Security representing any such Debt Securities, immediately will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Security
for such Debt Securities as shown on the records of such Depositary or its
nominee. The Company

6
<PAGE> 69

also expects that payments by participants to owners of beneficial interests in
such Global Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name."
Such payments will be the responsibility of such participants. Neither the
Company, the Trustee for such Debt Securities, any paying agent nor the
registrar for such Debt Securities will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests of the Global Security for such Debt Securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.

If the Depositary for a series of Debt Securities is at any time unwilling,
unable or ineligible to continue as depositary and a successor depositary is not
appointed by the Company within 90 days, the Company will issue individual Debt
Securities of such series in exchange for the Global Security representing such
series of Debt Securities. In addition, the Company may at any time and in its
sole discretion, subject to any limitations described in the Prospectus
Supplement relating to such Debt Securities, determine not to have any Debt
Securities of a series represented by one or more Global Securities and, in such
event, will issue individual Debt Securities of such series in exchange for the
Global Security or Securities representing such series of Debt Securities.
Further, if the Company so specifies with respect to the Debt Securities of a
series, an owner of a beneficial interest in a Global Security representing Debt
Securities of such series may, on terms acceptable to the Company, the Trustee
and the Depositary for such Global Security, receive individual Debt Securities
of such series in exchange for such beneficial interests, subject to any
limitations described in the Prospectus Supplement relating to such Debt
Securities. In any such instance, an owner of a beneficial interest in a Global
Security will be entitled to physical delivery of individual Debt Securities of
the series represented by such Global Security equal in principal amount to such
beneficial interest and to have such Debt Securities registered in its name.
Individual Debt Securities of such series so issued will be issued in registered
form and in denominations, unless otherwise specified by the Company, of $1,000
and integral multiples thereof.

Merger and Consolidation. Unless additional limitations are described in a
Prospectus Supplement with respect to a series of Debt Securities, the Company
may consolidate or merge with or into any other corporation or entity, and the
Company may sell, lease or convey all or substantially all of its assets to
another corporation or entity, provided that (a)(i) in the case of a merger, the
Company is the surviving company in the merger, or (ii) the entity surviving the
merger, formed by such consolidation or which acquires such assets shall be an
entity organized and existing under the laws of the United States of America or
a state thereof and shall expressly assume payment of the principal of and any
premium and interest on the Debt Securities and the performance and observance
of all of the covenants and conditions of the Indentures to be performed or
observed by the Company and (b) the Company or such successor entity, as the
case may be, shall not immediately thereafter be in default in the performance
of any such covenant or condition. (Section 9.1).

Events of Default. Unless otherwise specified in the Prospectus Supplement,
an Event of Default is defined under each Indenture with respect to the Debt
Securities of any series issued under such Indenture as being: (i) default in
the payment of any installment of interest upon any of the Debt Securities of
such series when due, continued for 30 days; (ii) default in the payment of
principal of or premium, if any, with respect to Debt Securities of such series
when due; (iii) default in the payment or satisfaction of any sinking fund or
other purchase obligation with respect to Debt Securities of such series when
due; (iv) default in the performance of any other covenant of the Company
applicable to Debt Securities of such series, continued for 60 days after
written notice to the Company by the Trustee or to the Company and the Trustee
by the holders of at least 25% in aggregate principal amount of the Debt
Securities of such series then outstanding; (v) certain events of bankruptcy,
insolvency or reorganization; (vi) default under any bond, debenture, note or
other evidence of indebtedness for money borrowed by the Company or under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any indebtedness for money borrowed of the
Company resulting in the acceleration of such indebtedness, or any default in
payment of such indebtedness (after expiration of any applicable grace periods
and presentation of any debt instruments, if required), if the aggregate amount
of all such indebtedness that has been so accelerated and with respect to which
there has been such a default in payment shall exceed $5,000,000 and there shall
have been a failure to obtain rescission or annulment of all such accelerations
or to discharge all such defaulted

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<PAGE> 70

Indebtedness within 10 days after written notice of the type specified in the
foregoing clause (iv); and (vii) any other Event of Default provided with
respect to the Debt Securities of such series (Section 5.1).

If any Event of Default with respect to any Debt Securities of any series
shall occur and be continuing, the Trustee or the holders of not less than 25%
in aggregate principal amount of the Debt Securities of such series then
outstanding, by notice in writing to the Company (and to the Trustee, if given
by the holders), may declare the principal (or, in the case of any series of
Debt Securities originally issued at a discount from their stated principal
amount, such portion of the principal amount as may be specified in the terms of
such series) of all of the Debt Securities of such series and the interest, if
any, accrued thereon to be due and payable immediately, but the holders of a
majority in aggregate principal amount of the Debt Securities of such series
then outstanding, by notice in writing to the Company and the Trustee, may
rescind and annul such declaration and its consequences if all defaults under
such Indenture are cured or waived (Section 5.1).

Each Indenture provides that no holder of any series of Debt Securities
then outstanding may institute any suit, action or proceeding with respect to,
or otherwise attempt to enforce, such Indenture, unless (i) such holder
previously shall have given to the Trustee written notice of default and of the
continuance thereof, (ii) the holders of not less than 25% in aggregate
principal amount of such series of Debt Securities then outstanding shall have
made written request to the Trustee to institute such suit, action or proceeding
and shall have offered to the Trustee such reasonable indemnity as it may
require with respect thereto and (iii) the Trustee for 60 days after its receipt
of such notice, request and offer of indemnity, shall have neglected or refused
to institute any such action, suit or proceeding; provided that, subject to the
subordination provisions applicable to the Subordinated Debt Securities, the
right of any holder of any Debt Security to receive payment of the principal of,
premium, if any, or interest, if any, on such Debt Security, on or after the
respective due dates, or to institute suit for the enforcement of any such
payment shall not be impaired or affected without the consent of such holder
(Section 5.4). The holders of a majority in aggregate principal amount of the
Debt Securities of such series then outstanding may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee with respect to the Debt
Securities of such series, provided that the Trustee may decline to follow such
direction if the Trustee determines that such action or proceeding is unlawful
or would involve the Trustee in personal liability (Section 5.7).

The Company is required to furnish to the Trustee annually a certificate as
to the compliance by the Company with all conditions and covenants under each
Indenture (Section 4.3).

Discharge and Defeasance. Unless otherwise specified in the applicable
Prospectus Supplement, the Company can discharge or defease its obligations with
respect to each series of Debt Securities as set forth below (Article Ten).

The Company may discharge all of its obligations (except those set forth
below) to holders of any series of Debt Securities issued under either Indenture
that have not already been delivered to the Trustee for cancellation and that
have either become due and payable or are by their terms due and payable within
one year (or scheduled for redemption within one year) by irrevocably depositing
with the Trustee cash or U.S. Government Obligations (as defined in such
Indenture), or a combination thereof, as trust funds in an amount certified to
be sufficient to pay when due the principal of and interest, if any, on all
outstanding Debt Securities of such series and to make any mandatory sinking
fund payments thereon when due.

Unless otherwise provided in the applicable Prospectus Supplement, the
Company may also discharge at any time all of its obligations (except those set
forth below) to holders of any series of Debt Securities issued under either
Indenture ("defeasance") if, among other things: (i) the Company irrevocably
deposits with the Trustee cash or U.S. Government Obligations, or a combination
thereof, as trust funds in an amount certified to be sufficient to pay when due
the principal of and interest, if any, on all outstanding Debt Securities of
such series and to make any mandatory sinking fund payments thereon when due and
such funds have been so deposited for 91 days; (ii) such deposit will not result
in a breach or violation of, or cause a default under, any agreement or
instrument to which the Company is a party or by which it is bound involving
payment by the Company or a subsidiary of the Company of more than $1,000,000;
(iii) no Event of Default shall have occurred and be continuing on the date of
such deposit, (iv) no Event of Default resulting from certain events

8
<PAGE> 71

of bankruptcy, insolvency or reorganization shall have occurred during the
period ending on the 91st day after the date of such deposit; and (v) the
Company delivers to the Trustee an opinion of counsel to the effect that the
holders of such series of Debt Securities will not recognize income, gain or
loss for United States federal income tax purposes as a result of such deposit
and defeasance and that defeasance will not otherwise alter the United States
federal income tax treatment of such holders' principal and interest payments on
such series of Debt Securities. Such opinion must be based on a ruling of the
Internal Revenue Service or a change in United States federal income tax law
occurring after the date of the Indenture relating to the Debt Securities of
such series, since such a result would not occur under current tax law. In the
event of any such defeasance and discharge of Debt Securities of such series,
holders of such Debt Securities would be entitled to look only to such trust
fund for payment of principal of and premium, if any, and interest, if any, on
their Debt Securities. (Section 10.1)

Additionally, if provided in the applicable Prospectus Supplement, the
Company may omit to comply with any condition or covenant specified in the
applicable Prospectus Supplement if, among other things: (i) the Company
irrevocably deposits with the Trustee cash or U.S. Government Obligations, or a
combination thereof, in an amount sufficient to pay the principal of, and
premium, if any, and interest, if any, on all Outstanding Debt Securities,
including any sinking fund obligations, of such series when due; and (ii) the
Company delivers to the Trustee an opinion of counsel to the effect that the
holders of such series of Debt Securities will not recognize income, gain or
loss for United States federal income tax purposes as a result of such deposit
and defeasance and that such deposit and defeasance will not otherwise alter the
United States federal income tax treatment of such holders' principal and
interest payments on such series of Debt Securities

Notwithstanding the foregoing, no discharge or defeasance described above
shall affect the following obligations to or rights of the holders of any series
of Debt Securities: (i) rights of registration of transfer and exchange of Debt
Securities of such series, (ii) rights of substitution of mutilated, defaced,
destroyed, lost or stolen Debt Securities of such series, (iii) rights of
holders of Debt Securities of such series to receive payments of principal
thereof and premium, if any, and interest, if any, thereon, upon the original
due dates therefor (but not upon acceleration), and to receive mandatory sinking
fund payments thereon when due, if any, (iv) rights, obligations, duties and
immunities of the Trustee, (v) rights of holders of Debt Securities of such
series as beneficiaries with respect to property so deposited with the Trustee
payable to all or any of them and (vi) obligations of the Company to maintain an
office or agency in respect of Debt Securities of such series (Section 10.1).

Modification of the Indenture. Each Indenture provides that the Company and
the Trustee may enter into supplemental indentures without the consent of the
holders of the Debt Securities (i) to secure any series of Securities, (ii) to
evidence the assumption by a successor entity of the obligations of the Company
under such Indenture, (iii) to add covenants or new events of default for the
protection of the holders of such Debt Securities or a series thereof, (iv) to
establish the form and terms of Debt Securities of any series, (v) to modify the
provisions relating to global Debt Securities, or to permit the issuance of Debt
Securities in uncertificated form, provided any such action does not adversely
affect the interests of the Holders of the Debt Securities of any series in any
material respect, (vi) to add to, change or eliminate any provision of the
Indentures, provided that such amendment shall become effective only if there is
no Outstanding Debt Security of any series then entitled to the benefit of such
provision or such amendment does not apply to any then Outstanding Debt
Security, (vii) to evidence and provide for the acceptance of appointment by a
successor Trustee with respect to the Debt Securities of one or more series and
to add to or change any of the provisions as shall be necessary to provide for
or facilitate the administration of the trusts under the Indentures by more than
one Trustee, (viii) in the case of the Subordinated Debt Indenture, to limit or
terminate the benefits to the holders of Senior Indebtedness of the
subordination provisions contained in the Subordinated Debt Indenture, or (ix)
to cure any ambiguity, defect or inconsistency in the Indentures or to make any
other provisions with respect to matters or questions arising under the
Indentures, provided such action does not adversely affect the interests of the
holders of the Debt Securities of any series (Section 8.1).

Each Indenture also contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of Debt Securities of each series then

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outstanding and affected, to add any provisions to, or change in any manner or
eliminate any of the provisions of, such Indenture or of any supplemental
indenture or modify in any manner the rights of the holders of the Debt
Securities of such series; provided that the Company and the Trustee may not,
without the consent of the holder of each outstanding Debt Security affected
thereby, (i) extend the stated final maturity of any Debt Security, reduce the
principal amount thereof, reduce the rate or extend the time of payment of
interest, if any, thereon, reduce or alter the method of computation of any
amount payable on redemption, repayment or purchase by the Company, change the
coin or currency in which principal, premium, if any, and interest, if any, are
payable, reduce the amount of the principal of any original issue discount
security payable upon acceleration or provable in bankruptcy, impair or affect
the right to institute suit for the enforcement of any payment or repayment
thereof or, if applicable, adversely affect any right of prepayment at the
option of the holder or (ii) reduce the aforesaid percentage in aggregate
principal amount of Debt Securities of any series issued under such Indenture,
the consent of the holders of which is required for any such modification
(Section 8.2).

The Subordinated Debt Indenture may not be amended to alter the
subordination of any outstanding Subordinated Debt Securities without the
written consent of each holder of Senior Indebtedness then outstanding that
would be adversely affected thereby (Section 8.6 of the Subordinated Debt
Indenture).

PROVISIONS APPLICABLE SOLELY TO SUBORDINATED DEBT SECURITIES

Subordination. The Subordinated Debt Securities will be subordinate and
junior in right of payment, to the extent set forth in the Subordinated Debt
Indenture, to all Senior Indebtedness of the Company. Senior Indebtedness is
defined in the Subordinated Debt Indenture as the principal of, and premium, if
any, and interest on, and any other payment due pursuant to, any of the
following, whether outstanding at the date of execution of the Subordinated Debt
Indenture or thereafter incurred, created or assumed:

(a) all obligations of the Company for money borrowed;

(b) all obligations of the Company evidenced by notes, debentures,
bonds or other securities, including obligations incurred, created or
assumed in connection with the acquisition of property, assets or
businesses;

(c) all obligations of the Company or a subsidiary of the Company
pursuant to the Loan Agreement, dated as of December 1, 1994, among the
Company, Keyes Holding Corporation, and CIT Group/Equipment Financing, Inc.
and the related guaranty, in each case as amended and as amended from time
to time;

(d) all capitalized lease obligations of the Company;

(e) all reimbursement obligations of the Company with respect to
letters of credit, bankers acceptance or similar facilities issued for the
account of the Company;

(f) all obligations of the Company issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of business);

(g) all payment obligations of the Company under any interest rate,
currency or commodity swap agreement, option agreement, hedge agreement,
forward contract, or similar agreement designed to protect the Company or
another person against fluctuations in interest rates, exchange rates or
commodity prices;

(h) all obligations of the type referred to in clauses (a) through (g)
above, of another person and all dividends of another person, the payment
of which, in either case, the Company has assumed or guaranteed, or for
which the Company is responsible or liable, directly or indirectly, jointly
or severally, as obligor, guarantor or otherwise; and

(i) all amendments, modifications, renewals, extensions, refinancings,
replacements and refundings by the Company of any such indebtedness
referred to in clauses (a) through (h) above (and of any such

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amended, modified, renewed, extended, refinanced, refunded or replaced
indebtedness or obligations); other than (i) any indebtedness, renewal,
extension, refinancing, replacement, refunding, assumption, guarantee or
other obligation that expressly provides, or in the instrument creating or
evidencing the same or the assumption or guarantee of the same it is
expressly provided, that such indebtedness, renewal, extension,
refinancing, replacement, refunding, assumption, guarantee or other
obligation is junior in right of payment to or is pari passu with the
Subordinated Debt Securities or is subordinate in right of payment to all
other indebtedness of the Company not expressly subordinated to such
indebtedness or obligation; and (ii) any indebtedness or obligation of the
Company in respect of the Subordinated Debt Securities (Section 1.1 of the
Subordinated Debt Indenture).

If (i) the Company should default in the payment of any principal of,
premium, if any, or interest, if any, on any Senior Indebtedness when the same
becomes due and payable, whether at maturity or at a date fixed for prepayment
or by declaration of acceleration or otherwise or (ii) any other default with
respect to Senior Indebtedness shall occur and the maturity of such Senior
Indebtedness has been accelerated in accordance with its terms, then, upon
written notice of such default to the Company by the holders of such Senior
Indebtedness or any trustee therefor, unless and until such default shall have
been cured or waived or shall have ceased to exist or such acceleration shall
have been rescinded, no direct or indirect payment (in cash, property,
securities, by set-off or otherwise) will be made or agreed to be made for
principal of, premium, if any, or interest, if any, on any of the Subordinated
Debt Securities, or in respect of any redemption, retirement, purchase or other
acquisition of the Subordinated Debt Securities other than those made in capital
stock of the Company (or cash in lieu of fractional shares thereof) (Section
12.1(b) of the Subordinated Debt Indenture).

If any default (other than a default described in the preceding paragraph)
under the Senior Indebtedness, pursuant to which the maturity thereof may be
accelerated immediately or the expiration of any applicable grace periods occurs
(a "Senior Nonmonetary Default"), then, upon the receipt by the Company and the
Trustee under the Subordinated Debt Indenture of written notice thereof (a
"Payment Notice") from or on behalf of holders of such Senior Indebtedness
specifying an election to prohibit such payment and other action by the Company
in accordance with the following provisions of this paragraph, the Company may
not make any payment or take any other action that would be prohibited by the
immediately preceding paragraph during the period (the "Payment Blockage
Period") commencing on the date of receipt of such Payment Notice and ending on
the earlier of (i) the date, if any, on which the holders of such Senior
Indebtedness or their representative notify the Trustee that such Senior
Nonmonetary Default is cured or waived or ceases to exist or the Senior
Indebtedness to which such Senior Nonmonetary Default relates is discharged or
(ii) the 179th day after the date of receipt of such Payment Notice.
Notwithstanding the provisions described in the immediately preceding sentence,
the Company may resume payments on the Subordinated Debt Securities after such
Payment Blockage Period (Section 12.1(c) of the Subordinated Debt Indenture).

If (i)(a) without the consent of the Company, a receiver, conservator,
liquidator or trustee of the Company or of any of its property is appointed by
the order or decree of any court or agency or supervisory authority having
jurisdiction, and such decree or order remains in effect for more than 60 days
or (b) the Company is adjudicated bankrupt or insolvent or (c) any of its
property is sequestered by court order and such order remains in effect for more
than 60 days or a petition is filed against the Company under any state or
federal bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution, liquidation or receivership law of any jurisdiction whether
now or hereafter in effect, and is not dismissed within 60 days after such
filing; or (ii) the Company (a) commences a voluntary case or other proceeding
seeking liquidation, reorganization, arrangement, insolvency, readjustment of
debt, dissolution, liquidation or other relief with respect to itself or its
debt or other liabilities under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, or (b) consents to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or (c) fails generally to, or cannot, pay its
debts generally as they become due or (d) takes any corporate action to
authorize or effect any of the foregoing; or (iii) any subsidiary of the Company
takes, suffers or permits to exist any of the events or conditions referred to
in the foregoing clause

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(i) or (ii), then all Senior Indebtedness (including any interest thereon
accruing after the commencement of any such proceedings) will first be paid in
full before any payment or distribution, whether in cash, securities or other
property, is made to any holder of Subordinated Debt Securities on account of
the principal of, premium, if any, or interest, if any, on such Subordinated
Debt Securities. Any payment or distribution, whether in cash, securities or
other property (other than securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment the payment of which is
subordinate, at least to the extent provided in the subordination provisions
with respect to the indebtedness evidenced by the Subordinated Debt Securities,
to the payment of all Senior Indebtedness then outstanding and to any securities
issued in respect thereof under any such plan of reorganization or readjustment)
that would otherwise (but for the subordination provisions) be payable or
deliverable in respect of the Subordinated Debt Securities of any series will be
paid or delivered directly to the holders of Senior Indebtedness in accordance
with the priorities then existing among such holders until all Senior
Indebtedness (including any interest thereon accruing after the commencement of
any such proceedings) has been paid in full. In the event of any such
proceeding, after payment in full of all sums owing with respect to Senior
Indebtedness, the holders of Subordinated Debt Securities, together with the
holders of any obligations of the Company ranking on a parity with the
Subordinated Debt Securities, will be entitled to be repaid from the remaining
assets of the Company the amounts at that time due and owing on account of
unpaid principal of, premium, if any, or interest, if any, on the Subordinated
Debt Securities and such other obligations before any payment or other
distribution, whether in cash, property or otherwise, shall be made on account
of any capital stock or obligations of the Company ranking junior to the
Subordinated Debt Securities and such other obligations (Section 12.1(d) of the
Subordinated Debt Indenture).

If any payment or distribution of any character, whether in cash,
securities or other property (other than securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment the payment
of which is subordinate, at least to the extent provided in the subordination
provisions with respect to the Subordinated Debt Securities, to the payment of
all Senior Indebtedness then outstanding and to any securities issued in respect
thereof under any such plan of reorganization or readjustment), shall be
received by the Trustee or any holder of any Subordinated Debt Securities in
contravention of any of the terms of the Subordinated Debt Indenture, such
payment or distribution of securities will be received in trust for the benefit
of, and will be paid over or delivered and transferred to, the holders of the
Senior Indebtedness then outstanding in accordance with the priorities then
existing among such holders for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all such Senior
Indebtedness in full (Section 12.1(e) of the Subordinated Debt Indenture).

By reason of such subordination, in the event of the insolvency of the
Company, holders of Senior Indebtedness may receive more, ratably, than holders
of the Subordinated Debt Securities. Such subordination will not prevent the
occurrence of any Event of Default (as defined in the Indentures) or limit the
right of acceleration in respect of the Subordinated Debt Securities, but the
payment of any amount due upon such acceleration shall be limited in accordance
with the foregoing provisions. Payment from money or the proceeds of U.S.
Government Obligations deposited to defease the Subordinated Debt Indenture
shall not be subordinated to the prior payment of any Senior Indebtedness
(Section 12.11 of the Subordinated Debt Indenture).

CONCERNING THE TRUSTEES

The Company, its officers and directors, and certain of its or their
affiliates may maintain banking, borrowing, consulting and other relations with
Bankers Trust Company, Marine Midland Bank and certain of their respective
affiliates.

The Indentures provide that an alternative Trustee may be appointed by the
Company with respect to any particular series of Debt Securities. Any such
appointment will be described in the Prospectus Supplement relating to such
series of Debt Securities.

The Trustee under an Indenture, prior to default, undertakes to perform
only such duties as are specifically set forth in the Indenture and, after
default, is required to exercise the same degree of care as a

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prudent individual would exercise in the conduct of his or her own affairs
(Section 6.1). Subject to such provision, the Trustee under an Indenture is
under no obligation to exercise any of the powers vested in it by an Indenture
at the request of any holder of Debt Securities, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which might
be incurred thereby. The Trustee under an Indenture is not required to expend or
risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Trustee reasonably believes that repayment or
adequate indemnity is not reasonably assured to it. Each Indenture contains
other provisions limiting the responsibilities and liabilities of the Trustee
thereunder.

DESCRIPTION OF COMMON STOCK AND PREFERRED STOCK

The Company's authorized capital stock consists of 200,000,000 shares of
Common Stock, par value $.01 per share, and 20,000,000 shares of Preferred
Stock, par value $.01 per share, each of which is described below. The summary
description of the capital stock of the Company contained herein is necessarily
general and reference should be made in each case to the Company's Restated
Articles of Incorporation and Bylaws, which are exhibits to the Registration
Statement of which this Prospectus is a part.

COMMON STOCK

Each share of Common Stock is subject to all rights, privileges,
preferences and priorities of any class of preferred stock of the Company. Each
share of Common Stock has an equal and ratable right to receive dividends as and
when declared by the Board of Directors out of any funds of the corporation
legally available for the payment thereof. The Company currently has no
intention to pay dividends on the shares of Common Stock in the foreseeable
future.

In the event of a liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to share equally and ratably in the
assets available for distribution after payment of all liabilities, including
any liquidation preferences payable to the holders of Preferred Stock that may
at the time be outstanding.

Each share of Common Stock is entitled to one vote in the election of
directors and on all other matters submitted to a vote of shareholders. Holders
of Common Stock have no right to cumulate their vote in the election of
directors.

American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005, acts as the transfer agent and registrar of the Common Stock.

PREFERRED STOCK

The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which an
applicable Prospectus Supplement may relate. Certain other terms of any series
of Preferred Stock offered by an applicable Prospectus Supplement will be
specified in such Prospectus Supplement. If so specified in the applicable
Prospectus Supplement, the terms of any series of Preferred Stock may differ
from the terms set forth below. The description of the terms of the Preferred
Stock set forth below and in an applicable Prospectus Supplement does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Statement of Resolution relating to the applicable series of
Preferred Stock, which will be filed as an exhibit to, or incorporated by
reference in, the Registration Statement of which this Prospectus forms a part.

General. The Preferred Stock may be divided into and issued in one or more
series, each series to be so designated as to distinguish the shares thereof
from the shares of all other series and classes. The Board of Directors is
vested with the authority to establish and designate such series from time to
time, and within the limitations prescribed by law or set forth in the Company's
Restated Articles of Incorporation, to fix and determine the number,
preferences, limitations and relative rights, including voting rights, of the
authorized shares within each such series; provided, however, that the Board of
Directors may not decrease the number of

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shares within a series below the number of shares within such series that is
then issued. The Board of Directors shall exercise such authority by the
adoption of a resolution or resolutions as prescribed by law.

The terms of any series of Preferred Stock may be amended without the
consent of the holders of any other series of Preferred Stock or of any class of
junior stock, provided such amendment does not adversely affect the holders of
such other series of Preferred Stock or class of junior stock. Shares of any
class of Preferred Stock which have been issued and reacquired in any manner and
are not held as treasury shares, including shares redeemed by purchase (whether
through the operation of a retirement or sinking fund or otherwise), will have
the status of authorized and unissued Preferred Stock and may be reissued as a
part of the series of which they were originally a part or may be reclassified
into and reissued as part of a new series.

No shares of Preferred Stock are, as of the date of this Prospectus,
issued, outstanding or designated as to series. It is not possible to state the
actual effect of the authorization and issuance of a new series of Preferred
Stock upon the rights of holders of the Common Stock and other series of
Preferred Stock unless and until the Board of Directors determines the
attributes of such new series of Preferred Stock and the specific rights of its
holders. Such effects might include, however, (i) restrictions on dividends on
Common Stock and other series of Preferred Stock if dividends on such new series
of Preferred Stock have not been paid; (ii) dilution of the voting power of
Common Stock and other series of Preferred Stock to the extent that such new
series of Preferred Stock has voting rights, or to the extent that any such new
series of Preferred Stock is convertible into Common Stock; (iii) dilution of
the equity interest of Common Stock and other series of Preferred Stock; and
(iv) limitation on the right of holders of Common Stock and other series of
Preferred Stock to share in the Company's assets upon liquidation until
satisfaction of any liquidation preference attributable to such new series of
Preferred Stock. While the ability of the Company to issue Preferred Stock
provides flexibility in connection with possible acquisitions and other
corporate purposes, its issuance could be used to impede an attempt by a third
party to acquire a majority of the outstanding voting stock of the Company.

The Preferred Stock will have the dividend, liquidation, redemption and
voting rights set forth below unless otherwise provided in the Prospectus
Supplement relating to a particular series of the Preferred Stock. Reference is
made to the Prospectus Supplement relating to the particular series of the
Preferred Stock offered thereby for specific terms, including: (i) the
designation of such Preferred Stock, the number of shares offered and the
liquidation value thereof; (ii) the price at which such Preferred Stock will be
issued; (iii) the dividend rate (or method of calculation), the dates on which
dividends shall be payable, whether such dividends shall be cumulative or
noncumulative and, if cumulative, the dates from which dividends shall commence
to accumulate; (iv) the liquidation preference thereof; (v) any redemption or
sinking fund provisions; (vi) any conversion or exchange provisions of such
Preferred Stock; and (vii) any additional dividend, liquidation, redemption,
sinking fund and other rights, preferences, limitations and restrictions of such
Preferred Stock.

The Preferred Stock will, when issued, be fully paid and nonassessable.
Unless otherwise specified in the Prospectus Supplement relating to a particular
series of the Preferred Stock, each series of the Preferred Stock will rank on a
parity as to dividends and distributions in the event of a liquidation with each
other series of the Preferred Stock, if any. Holders of Preferred Stock will
have no preemptive rights to subscribe for or purchase shares of capital stock.

Dividend Rights. Holders of the Preferred Stock of each series will be
entitled to receive, when, as and if declared by the Board of Directors, out of
assets of the Company legally available therefor, cash dividends at such rates
and on such dates as are set forth in the Prospectus Supplement relating to such
series of the Preferred Stock. Such rate may be fixed or variable or both. Each
such dividend will be payable to the holders of record as they appear on the
stock books of the Company on such record dates as will be fixed by the Board of
Directors or a duly authorized committee thereof. Dividends on any series of the
Preferred Stock may be cumulative or noncumulative, as provided in the
Prospectus Supplement relating thereto. If the Board of Directors fails to
declare a dividend payable on a dividend payment date on any series of Preferred
Stock for which dividends are noncumulative, then the right to receive a
dividend in respect of the dividend period ending on such dividend payment date
will be lost, and the Company shall have no obligation to pay the dividend
accrued for that period, whether or not dividends are declared for any future
period.

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Unless otherwise indicated in an applicable Prospectus Supplement, all
series of Preferred Stock will be senior in right as to dividends and in
liquidation to the Common Stock and any other class of stock of the Company
ranking junior to the Preferred Stock.

Rights Upon Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of each
series of Preferred Stock will be entitled to receive out of assets of the
Company available for distribution to stockholders, before any distribution of
assets is made to holders of Common Stock or any other class of stock ranking
junior to such series of the Preferred Stock upon liquidation, liquidating
distributions in the amount set forth in the Prospectus Supplement relating to
such series of the Preferred Stock plus an amount equal to accrued and unpaid
dividends for the then-current dividend period and, if such series of the
Preferred Stock is cumulative, for all dividend periods prior thereto. If, upon
any voluntary or involuntary liquidation, dissolution or winding up of the
Company, the amounts payable with respect to the Preferred Stock of any series
and any other shares of stock of the Company ranking as to any such distribution
on a parity with such series of the Preferred Stock are not paid in full, the
holders of the Preferred Stock of such series and of such other shares will
share ratably in any such distribution of assets of the Company in proportion to
the full respective preferential amounts to which they are entitled. After
payment of the full amount of the liquidating distribution to which they are
entitled, the holders of such series of Preferred Stock will have no right or
claim to any of the remaining assets of the Company. Neither the sale of all or
substantially all the property or business of the Company nor the merger or
consolidation of the Company into or with any other corporation shall be deemed
to be a dissolution, liquidation or winding up, voluntary or involuntary, of the
Company.

Redemption. A series of the Preferred Stock may be redeemable, in whole or
in part, at the option of the Company, and may be subject to mandatory
redemption pursuant to a sinking fund, in each case upon terms, at the times and
at the redemption prices set forth in the Prospectus Supplement relating to such
series.

The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such series
of Preferred Stock that will be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to any accrued and unpaid dividends thereon to the
date of redemption. The redemption price may be payable in cash, capital stock
or in cash received from the net proceeds of the issuance of capital stock of
the Company, as specified in the Prospectus Supplement relating to such series
of Preferred Stock.

If fewer than all the outstanding shares of any series of the Preferred
Stock are to be redeemed, whether by mandatory or optional redemption, the
selection of the shares to be redeemed will be determined by lot or pro rata as
may be determined by the Board of Directors or a duly authorized committee
thereof, or by any other method which may be determined by the Board of
Directors or such committee to be equitable. From and after the date of
redemption (unless default shall be made by the Company in providing for the
payment of the redemption price), dividends shall cease to accrue on the shares
of Preferred Stock called for redemption and all rights of the holders thereof
(except the right to receive the redemption price) shall cease.

In the event that full dividends, including accumulations in the case of
cumulative Preferred Stock, on any series of the Preferred Stock have not been
paid, such series of the Preferred Stock may not be redeemed in part and the
Company may not purchase or acquire any shares of such series of the Preferred
Stock otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of such series of the Preferred Stock.

Conversion or Exchange Rights. The Prospectus Supplement for any series of
the Preferred Stock will state the terms, if any, on which shares of such series
are convertible into, or exchangeable for, securities of the Company or another
person.

Voting Rights. Unless otherwise determined by the Board of Directors and
indicated in the Prospectus Supplement relating to a particular series of
Preferred Stock, the holders of the Preferred Stock will not be entitled to
vote, except as expressly required by applicable law. In the event the Company
issues share of any series of Preferred Stock with voting rights, including any
voting rights in the case of dividend arrearages,

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<PAGE> 78

unless otherwise specified in the Prospectus Supplement relating to a particular
series of Preferred Stock, each such share will be entitled to one vote on
matters on which holders of such series of the Preferred Stock are entitled to
vote. In the case of any series of Preferred Stock having one vote per share on
matters on which holders of such series are entitled to vote, the voting power
of such series, on matters on which holders of such series and holders of other
series of preferred stock are entitled to vote as a single class, will depend on
the number of shares in such series, not on the aggregate liquidation preference
or initial offering price of the shares of such series of Preferred Stock.

Conditions and Restrictions Upon the Company. The Prospectus Supplement
relating to a series of the Preferred Stock will describe any conditions or
restrictions upon the Company which are for the benefit of such series,
including restrictions upon the creation of debt or other series of Preferred
Stock; payment of dividends; or distributions, acquisitions or redemptions of
shares ranking junior to such series.

VOTING

The Company's Restated Articles of Incorporation provide that (a) action
may be taken without a meeting, without prior notice, and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall have
been signed by the holder or holders of shares having not less than the minimum
number of votes that would be necessary to take such action at a meeting of the
shareholders, and (b) the vote required to approve a merger, share exchange,
certain sales of assets, charter amendment or dissolution involving the Company
shall be a majority of each outstanding class of capital stock entitled to vote
thereon.

NO PREEMPTIVE RIGHTS

No holder of shares of the Company, including shares of Common Stock or
Preferred Stock, shall have any preemptive right or other right to purchase or
subscribe for or receive any shares of any class, or series thereof, of stock of
the Company, whether now or hereafter authorized, or any warrants, options,
bonds, debentures or other securities convertible into, exchangeable for or
carrying any right to purchase any shares of any class, or series thereof, of
stock.

FOREIGN OWNERSHIP

The Restated Articles of Incorporation of the Company contain provisions
limiting foreign ownership of the capital stock of the Company. These provisions
were originally intended to, among other things, protect the Company's ability
to be deemed a United States citizen under Section 2 ("U.S. citizen") of the
Shipping Act, 1916, as amended (the "Shipping Act") which allowed the Company to
avail itself of certain types of U.S. government guaranteed financings
previously available only for U.S. flag vessels owned by U.S. citizens. Although
being a U.S. citizen is not currently necessary to obtain such financings, the
ability to be a U.S. citizen may be beneficial in the future should the Company
desire to obtain certain types of U.S. flag vessels. One of the conditions that
must be satisfied in order that a corporation may be deemed to be a U.S. citizen
is that a controlling interest therein is owned by citizens of the United
States. Thus, a transfer of Common Stock which would result in more than 50% of
the outstanding Common Stock being held by non-U.S. citizens would cause the
Company to then be ineligible to be a U.S. citizen. Under the provisions of the
Company's Restated Articles of Incorporation, (i) shares of any class of capital
stock of the Company are not issuable to and are not registrable upon transfer
in the name of any person who cannot demonstrate to the satisfaction of the
Company that such person is a U.S. citizen and is not holding such shares for
the account of any non-U.S. citizen, if as a result of such issuance or
registration of transfer the percentage of such class owned by non-U.S. citizens
would exceed a fixed percentage (the "Permitted Percentage"), which is equal to
2% less than the percentage that would prevent the Company from being a U.S.
citizen (currently 50%, thus resulting in a Permitted Percentage of 48%), and
any such transfer shall be void and ineffective as against the Company, and (ii)
if at any time non-U.S. ownership of any such class (either record or
beneficial) exceeds the Permitted Percentage, the Company may withhold payment
of dividends on such shares deemed to be in excess of the Permitted Percentage
and may suspend the voting rights of such shares.

16
<PAGE> 79

In addition to the foregoing, Section 9 of the Shipping Act provides that a
controlling interest in the Company may not be acquired by a non-U.S. citizen
without the consent of the U.S. Secretary of Transportation, acting through the
United States Maritime Administration ("MARAD"). Notwithstanding the provisions
of Section 9, current MARAD regulations authorize the transfer of a controlling
interest in a company as long as the United States is not at war, the transferee
is not a national of a country to which the transfer would be contrary to the
foreign policy of the United States and the Company's U.S. flag vessels remain
documented under the U.S. flag after the transfer. In the absence of MARAD
consent (either by the current regulations or otherwise) the transfer of a
controlling interest in the Company to non-U.S. citizens would enable MARAD to
exercise various remedies under the Shipping Act including seizure of vessels,
civil penalties and, in certain cases, criminal penalties.

Certificates representing the capital stock of the Company bear legends
concerning the restrictions on non-U.S. ownership. In addition, the Board of
Directors is authorized to adopt a bylaw provision for the establishment of a
dual stock certificate systems under which different forms of certificates may
be used to indicate whether or not the owner thereof is a U.S. citizen. To date,
the Board of Directors has not deemed it necessary to adopt such a system.

The restrictions imposed by the Company's Restated Articles of
Incorporation may at times preclude U.S. citizens from transferring their shares
of Common Stock to non-U.S. citizens. This may restrict the available market for
resales of shares of Common Stock and for the issuance of shares by the Company.

DESCRIPTION OF WARRANTS

The Company may issue Warrants for the purchase of Common Stock. Warrants
may be issued independently or together with Debt Securities, Preferred Stock or
Common Stock offered by any Prospectus Supplement and may be attached to or
separate from any such offered Securities. Each series of Warrants will be
issued under a separate warrant agreement (a "Warrant Agreement") to be entered
into between the Company and a bank or trust company, as warrant agent (the
"Warrant Agent"), all as set forth in the Prospectus Supplement relating to the
particular issue of Warrants. The Warrant Agent will act solely as an agent of
the Company in connection with the Warrants and will not assume any obligation
or relationship of agency or trust for or with any holders of Warrants or
beneficial owners of Warrants. The following summary of certain provisions of
the Warrants does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all provisions of the Warrant Agreements.

Reference is made to the Prospectus Supplement relating to the particular
issue of Warrants offered thereby for the terms of such Warrants, including,
where applicable: (i) the number of shares of Common Stock purchasable upon the
exercise of Warrants and the price at which such number of shares of Common
Stock may be purchased upon such exercise; (ii) the date on which the right to
exercise such Warrants shall commence and the date on which such right shall
expire (the "Expiration Date"); (iii) United States Federal income tax
consequences applicable to such Warrants; and (iv) any other terms of such
Warrants. Warrants will be offered and exercisable for U.S. dollars only.
Warrants will be issued in registered form only. The exercise price for Warrants
will be subject to adjustment in accordance with the applicable Prospectus
Supplement.

Each Warrant will entitle the holder thereof to purchase such number of
shares of Common Stock at such exercise price as shall in each case be set forth
in, or calculable from, the Prospectus Supplement relating to the Warrants,
which exercise price may be subject to adjustment upon the occurrence of certain
events as set forth in such Prospectus Supplement. After the close of business
on the Expiration Date (or such later date to which such Expiration Date may be
extended by the Company), unexercised Warrants will become void. The place or
places where, and the manner in which, Warrants may be exercised shall be
specified in the Prospectus Supplement relating to such Warrants.

Prior to the exercise of any Warrants, holders of such Warrants will not
have any of the rights of holders of Common Stock purchasable upon such
exercise, including the right to receive payments of dividends, if any, on the
Common Stock purchasable upon such exercise, or to exercise any applicable right
to vote.

17
<PAGE> 80

PLAN OF DISTRIBUTION

GENERAL

The Company may sell Securities to or through underwriters or dealers, and
also may sell Securities directly to one or more other purchasers or through
agents. The Prospectus Supplement sets forth the names of any underwriters or
agents involved in the sale of the Offered Securities and any applicable
commissions or discounts.

Underwriters, dealers or agents may offer and sell the Offered Securities
at a fixed price or prices, which may be changed, or from time to time at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. In connection with the sale of the
Securities, underwriters or agents may be deemed to have received compensation
from the Company in the form of underwriting discounts or commissions and may
also receive commissions from purchasers of the Securities for whom they may act
as agent. Underwriters or agents may sell the Securities to or through dealers,
and such dealers may receive compensation in the form of discounts, concessions
or commissions from the underwriters or commissions from the purchasers for whom
they may act as agent.

The Securities (other than the Common Stock), when first issued, will have
no established trading market. Any underwriters or agents to or through whom
Securities are sold by the Company for public offering and sale may make a
market in such Securities, but such underwriters or agents will not be obligated
to do so and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of the trading market for any such
Securities.

Any underwriters, dealers or agents participating in the distribution of
the Securities may be deemed to be underwriters, and any discounts and
commissions received by them and any profit realized by them on resale of the
Securities may be deemed to be underwriting discounts and commissions under the
Securities Act of 1933, as amended (the "1933 Act"). Underwriters, dealers or
agents may be entitled, under agreements entered into with the Company, to
indemnification against or contribution toward certain civil liabilities,
including liabilities under the 1933 Act.

LEGAL MATTERS

Unless otherwise specified in a Prospectus Supplement relating to
particular Securities, certain legal matters with respect to the validity of the
Securities will be passed upon for the Company by Vinson & Elkins L.L.P.,
Houston, Texas, and for the underwriters, dealers or agents, if any, of a
particular issue of Securities, by Fulbright & Jaworski L.L.P., Houston, Texas.

18
<PAGE> 81

EXPERTS

The financial statements of the Company as of December 31, 1995 and 1994,
and for each of the years in the three-year period ended December 31, 1995, have
been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of such
firm as experts in accounting and auditing.

With respect to the unaudited interim financial information for the periods
ended March 31, 1996 and 1995, incorporated by reference herein, the independent
certified public accountants have reported that they applied limited procedures
in accordance with professional standards for a review of such information.
However, their separate reports included in the Company's quarterly reports on
Form 10-Q for the quarter ended March 31, 1996, and included and/or incorporated
herein, state that they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their reports on such
information should be restricted in light of the limited nature of the review
procedures applied. The accountants are not subject to the liability provisions
of Section 11 of the Securities Act for their report on the unaudited interim
financial information because that report is not a "report" or a "part" of the
registration statement prepared or certified by the accountants within the
meaning of Sections 7 and 11 of the Securities Act.

19
<PAGE> 82

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- ------------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.

------------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Incorporation of Additional Document by
Reference............................... S-2
Prospectus Supplement Summary............. S-3
Risk Factors.............................. S-8
Use of Proceeds........................... S-11
Capitalization............................ S-12
Market Price of Common Stock and Dividend
Policy.................................. S-13
Selected Consolidated Financial Data...... S-14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. S-16
Business.................................. S-25
Management................................ S-34
Description of Preferred Share Purchase
Rights.................................. S-35
Underwriting.............................. S-37
Experts................................... S-38
Index to Financial Statements............. F-1
PROSPECTUS
Available Information..................... 2
Incorporation of Certain Documents by
Reference............................... 2
The Company............................... 3
Use of Proceeds........................... 3
Ratio of Earnings to Fixed Charges and
Earnings to Fixed Charges and Preferred
Stock Dividends......................... 3
Description of Debt Securities............ 4
Description of Common Stock and Preferred
Stock................................... 13
Description of Warrants................... 17
Plan of Distribution...................... 18
Legal Matters............................. 18
Experts................................... 19
</TABLE>

- ------------------------------------------------------------
- ------------------------------------------------------------

5,000,000 SHARES

MARINE DRILLING
COMPANIES, INC.

COMMON STOCK
(PAR VALUE $.01 PER SHARE)
----------------------

[MARINE LOGO]

----------------------

GOLDMAN, SACHS & CO.

SALOMON BROTHERS INC
BT SECURITIES CORPORATION
SOUTHCOAST CAPITAL
CORPORATION

REPRESENTATIVES OF THE UNDERWRITERS

- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 83

EXHIBIT INDEX

Exhibit 23.1 -- Consent of KPMG Peat Marwick LLP

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

The Board of Directors
Marine Drilling Companies, Inc.:

We consent to the use of our report dated January 26, 1996, on the audited
consolidated financial statements included herein and to the reference to our
firm under the heading "Experts" in the prospectus.

With respect to the subject registration statement, we acknowledge our
awareness of the use therein of our report dated October 16, 1996, except for
Note (6), which is as of November 20, 1996, and to the incorporation by
reference of our reports dated April 26, 1996, and July 26, 1996, related to our
reviews of interim financial information. Pursuant to Rule 436(c) under the
Securities Act of 1933, such reports are not considered part of a registration
statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of sections 7 and 11 of the Act.

KPMG Peat Marwick LLP

Houston, Texas
November 22, 1996