<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SUPERIOR ENERGY SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 1503 ENGINEERS ROAD 75-2379388
(STATE OR OTHER P. O. BOX 6220 (I.R.S. EMPLOYER
JURISDICTION NEW ORLEANS, LOUISIANA IDENTIFICATION NO.)
OF INCORPORATION OR 70174
ORGANIZATION) (504) 393-7774
(ADDRESS , INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ROBERT S. TAYLOR
CHIEF FINANCIAL OFFICER
1503 ENGINEERS ROAD
P. O. BOX 6220
NEW ORLEANS, LOUISIANA 70174
(504) 393-7774
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
WILLIAM B. MASTERS, ESQ. THOMAS P. MASON, ESQ.
JONES, WALKER, WAECHTER, POITEVENT, ANDREWS & KURTH, L.L.P.
CARRERE & DENEGRE, L.L.P. 4200 TEXAS COMMERCE TOWER
201 ST. CHARLES AVENUE 600 TRAVIS, SUITE 4200
NEW ORLEANS, LOUISIANA 70170 HOUSTON, TEXAS 77002
(504) 582-8000 (713) 220-4200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registraiton Statement becomes effective.
----------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
[_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED
TITLE OF EACH CLASS OF AGGREGATE MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.001 par 6,900,000
value.................. shares $11.1875 $77,193,750 $23,393
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</TABLE>
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(1) Includes 900,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, solely for the purpose of calculating the registration fee.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 31, 1997
PROSPECTUS
6,000,000 SHARES
[LOGO]
SUPERIOR ENERGY SERVICES, INC.
COMMON STOCK
-----------
Of the 6,000,000 shares of common stock, $0.001 par value per share (the
"Common Stock"), of Superior Energy Services, Inc. (the "Company") offered
hereby (the "Offering"), 3,900,000 shares are being sold by the Company and
2,100,000 shares are being sold by the Selling Stockholders. See "Principal and
Selling Stockholders." The Common Stock is traded on the Nasdaq National Market
under the symbol "SESI." On October 30, 1997, the last reported sales price of
the Common Stock as reported by the Nasdaq National Market was $11.25.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING 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. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------
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<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share.......... $ $ $ $
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Total (3).......... $ $ $ $
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</TABLE>
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(1) The Company and the Selling Stockholders have agreed separately to
indemnify the several Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $400,000.
(3) The Selling Stockholders have granted to the Underwriters an option for 30
days to purchase up to an additional 900,000 shares of Common Stock at the
Price to Public, less Underwriting Discount, solely to cover over-
allotments, if any. If such option is exercised in full, the Price to
Public, Underwriting Discount, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ , respectively. See
"Underwriting."
-----------
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, and subject to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made at the offices of Johnson
Rice & Company L.L.C., New Orleans, Louisiana on or about , 1997.
-----------
JOINT LEAD MANAGERS
JOHNSON RICE & COMPANY L.L.C.__________________________JEFFERIES & COMPANY, INC.
-----------
GAINES, BERLAND INC.
The date of this Prospectus is 1997.
<PAGE>
[MAP OF THE COMPANY'S LOCATIONS THROUGHOUT THE GULF COAST REGION]
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING
THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON
STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
This following summary is qualified in its entirety by the more detailed
information and the historical and pro forma financial statements and other
information included elsewhere in this Prospectus and incorporated herein by
reference. Unless otherwise indicated, the information in this Prospectus
assumes that there will be no exercise of the Underwriters' over-allotment
option. Unless the context indicates otherwise, references in this Prospectus
to the "Company" mean Superior Energy Services, Inc. and its subsidiaries and
predecessors. Unless otherwise indicated, the information contained herein
gives effect to the acquisitions of Fastorq, Inc., Stabil Drill Specialties,
Inc. and Sub-Surface Tools, Inc. (collectively, the "Recent Acquisitions"),
which are described herein.
THE COMPANY
GENERAL
Superior Energy Services, Inc. provides a broad range of specialized oilfield
services and equipment primarily to major and independent oil and gas companies
engaged in the exploration, production and development of oil and gas
properties offshore in the Gulf of Mexico and throughout the Gulf Coast region.
These services and equipment include the rental of specialized oilfield
equipment, oil and gas well plug and abandonment ("P&A") services, electric and
mechanical wireline services, the manufacture, sale and rental of drilling
instrumentation and the manufacture and sale of oil spill containment
equipment. Over the last two years, the Company has significantly expanded its
operations through both internal growth and strategic acquisitions. This
expansion has enabled the Company to broaden the range of products and services
that it offers to its customers and to expand its operations geographically
throughout the Gulf Coast region.
As a result of its expansion and increased demand for its services and
products, the Company has experienced significant growth in revenue, EBITDA (as
defined herein) and net income. For the nine months ended September 30, 1997,
the Company generated revenue of $33.3 million, EBITDA of $11.0 million and net
income of $5.7 million. These amounts represent increases of approximately
119%, 142% and 119%, respectively, over the comparable period in 1996. On a pro
forma basis for the nine months ended September 30, 1997, assuming all the
acquisitions completed in 1997, including the Recent Acquisitions, were
completed on January 1, 1996, the Company would have generated revenue, EBITDA
and net income of $59.1 million, $20.4 million and $8.3 million, respectively.
BUSINESS
Rental Tools. The Company manufactures, sells and rents specialized equipment
for use with offshore and onshore oil and gas well drilling, completion,
production and workover activities. The Company's rental tool inventory
includes tubulars, blowout preventers, pipe handling equipment, mills, hole
openers, stabilizers, power swivels and tongs, gauges, hoses, pumps and spools.
The Company has aggressively pursued a strategy of expansion in its rental tool
operations, both geographically and in terms of product lines. As a result of
this expansion and the Recent Acquisitions, the Company currently offers a
broad range of rental tools from 19 rental tool facilities strategically
located along the Gulf Coast from Corpus Christi, Texas to Venice, Louisiana.
On a pro forma basis for the nine months ended September 30, 1997, assuming all
the acquisitions completed in 1997, including the Recent Acquisitions, were
completed on January 1, 1996, approximately $33.3 million of revenue was
generated by the Company's rental tool operations, representing 56% of total
pro forma revenue for the period.
Plug and Abandonment Services. Oil and gas wells that are no longer producing
commercially are required by governmental authorities to be plugged and
abandoned. The Company is the leading provider of P&A services in the Gulf of
Mexico. The Company uses custom-built, skid-mounted P&A spreads that allow the
Company to
3
<PAGE>
plug and abandon a well without the presence of a drilling rig ("rig-less
P&A"). Rig-less P&A offers a cost advantage over P&A methods that require a
drilling rig, and management believes that the large majority of the wells in
the Gulf of Mexico can be plugged and abandoned using the rig-less P&A method.
In delivering its P&A services, the Company has combined both wireline and
pumping expertise, which traditionally have been provided separately, and
believes that this combined expertise gives it a competitive advantage over
many of its competitors. The Company currently operates 14 P&A crews, each of
which is comprised of four to five members, and intends to expand its number of
P&A crews to as many as 20 during 1998. On a pro forma basis for the nine
months ended September 30, 1997, assuming all the acquisitions completed in
1997, including the Recent Acquisitions, were completed on January 1, 1996,
approximately $16.7 million of revenue was generated by the Company's P&A
operations, representing 28% of total pro forma revenue for the period.
Wireline Services. The Company provides electric and mechanical wireline
services to its customer base. While the Company provides these services
primarily in connection with P&A jobs, it also provides wireline services for
non-P&A jobs such as logging and pipe recovery. The Company's wireline
personnel are trained to perform both P&A and wireline services. In the third
quarter of 1997, the Company began expanding its electric wireline capacity by
purchasing four electric wireline units that will be dedicated solely to non-
P&A operations. On a pro forma basis for the nine months ended September 30,
1997, assuming all the acquisitions completed in 1997, including the Recent
Acquisitions, were completed on January 1, 1996, approximately $3.1 million of
revenue was generated by the Company's non-P&A wireline operations,
representing 5% of total pro forma revenue for the period.
Other Services. The Company designs, manufactures and sells specialized
drilling rig instrumentation and data acquisition systems and computerized
electronic torque and pressure control equipment. The Company's torque and
pressure control equipment is used in drilling and workover operations, as well
as in the manufacture of oilfield tubular goods. The Company also sells, rents
and licenses oil spill containment equipment, including its patented inflatable
boom, to domestic and foreign oil companies, oil spill response companies and
cooperatives, the United States Coast Guard and foreign governments and their
agencies. On a pro forma basis for the nine months ended September 30, 1997,
assuming all the acquisitions completed in 1997, including the Recent
Acquisitions, were completed on January 1, 1996, approximately $5.9 million of
revenue was generated from these operations, representing 10% of total pro
forma revenue for the period.
INDUSTRY
Demand for the Company's rental tools and wireline services is primarily a
function of oil and gas exploration and workover activity in the Gulf of Mexico
and along the Gulf Coast. Over the past several years, improvements in
production techniques and seismic and drilling technology, together with
relatively stable oil and gas prices, have resulted in increased drilling
activity in the Gulf of Mexico and along the Gulf Coast. According to reports
published by Offshore Data Services, the number of offshore drilling rigs under
contract in the Gulf of Mexico has increased from approximately 130 in January
1995 to approximately 170 in October 1997. In addition, the Minerals Management
Service ("MMS") has reported that the number of offshore leases in the Gulf of
Mexico awarded to operators increased from 835 in 1995, covering approximately
4.3 million acres, to 1,836 in 1997, covering approximately 10.0 million acres.
Lease sales often serve as a precursor to drilling and exploration activity in
the Gulf of Mexico.
Demand for the Company's P&A services is primarily a function of the number
of offshore producing wells that have ceased to be commercially productive,
increased environmental awareness and the desire of oil and gas companies to
minimize abandonment liabilities. The number of depleted wells in the Gulf of
Mexico that were plugged and abandoned has grown significantly in the last two
years. According to an independent industry report, approximately 560 depleted
wells were plugged and abandoned in 1995 compared to approximately 855 in 1996.
The MMS estimated that as of September 1997, there had been approximately
34,850 well bores drilled in the Gulf of Mexico, approximately 15,800 of which
have not yet been plugged and abandoned due to the existence of oil and gas
production or other factors. The Company believes that strong demand will
continue for its P&A services as many of these wells are approaching the end of
their productive lives.
4
<PAGE>
BUSINESS STRATEGY
The Company's business strategy is to combine internal growth and strategic
acquisitions to expand the scope of the services and equipment that the Company
provides for its customers. Key elements of the Company's business strategy are
as follows:
Continue Expansion of Rental Tool Operations. The Company intends to continue
to expand its rental tool operations to meet the increased demand for its
rental tool products in the Gulf Coast region. The Company plans to increase
the amount and types of equipment available to its customers by expanding its
rental tool inventory. Management believes that an expanded rental tool
inventory will enable the Company to further expand its existing customer
relationships within the consolidating rental tool industry. Management also
believes that growth in this segment is not subject to the personnel
constraints that are currently present in other segments of the oilfield
services industry.
Capitalize on Leading Position in P&A Services. The Company intends to
capitalize on its leading position in, and the increased demand for, P&A
services in the Gulf of Mexico by significantly increasing the number of crews
dedicated to P&A services. The Company plans to purchase or manufacture the
equipment necessary to operate as many as six new P&A crews. The Company
intends to base these crews out of its Houston, Texas and Lafayette, Louisiana
locations, further expanding the geographic scope of its P&A operations, which
are currently conducted from Belle Chasse, Louisiana.
Expand Electric Wireline Services. Historically, the Company primarily
offered its electric wireline services as a complement to its P&A services. The
Company's customers, however, are increasingly seeking electric wireline
services from the Company independent of P&A operations. The Company intends to
purchase or manufacture additional electric wireline units that will be
dedicated solely to non-P&A operations, which management believes will offer
another avenue of growth for the Company.
Acquire Complementary Businesses. The Company continually evaluates
opportunities to acquire businesses which offer products and services
complementary to the Company's existing operations. Management believes that
acquisition candidates are available that will allow the Company to increase
both market share in its existing lines of business and the geographic scope of
its operations. The Company intends to continue to seek acquisition candidates
with strong existing management and to structure the acquisitions to create
incentives for the key personnel of the acquired businesses to remain with the
Company and expand their operations.
RECENT ACQUISITIONS
Since September 30, 1997, the Company has closed one acquisition and has
entered into agreements to acquire two other businesses, each of which will
expand the size and geographic scope of the Company's rental tool operations.
. Sub-Surface. In October 1997, the Company signed a letter of intent with
respect to the purchase of Sub-Surface Tools, Inc. ("Sub-Surface") for
$17.5 million in cash and a contingent payment of up to $7.5 million plus
interest, the amount of which is dependent upon Sub-Surface's financial
performance over the next three years. Sub-Surface rents specialized
equipment including tubulars, tubular handling tools and pressure control
equipment for drilling, completion and workover operations that it
provides through four facilities along the Gulf Coast.
. Stabil Drill. In October 1997, the Company signed a letter of intent with
respect to the purchase of Stabil Drill Specialties, Inc. ("Stabil
Drill") for $17.5 million in cash and a contingent payment of up to $7.5
million plus interest, the amount of which is dependent upon Stabil
Drill's financial performance over the next three years. Stabil Drill
specializes in the sale and rental of drilling stabilizers along with a
full range of tools used in bottom hole assemblies that it provides
through five facilities located throughout the Gulf Coast.
5
<PAGE>
. Fastorq. In October 1997, the Company completed its acquisition of
Fastorq, Inc. ("Fastorq") for $4.8 million in cash and a contingent
payment of up to $2.6 million plus interest, the amount of which is
dependent upon Fastorq's financial performance over the next three years.
Fastorq provides hydraulic nipple up, wrench bolting, bolt turning, nut
splitting, bolt removal and mechanical pipe cutting services along with
hydrostatic test pump rentals to the Gulf Coast region from its two
Louisiana facilities.
The Company is incorporated under the laws of the State of Delaware, its
principal executive offices are located at 1503 Engineers Road, P. O. Box 6220,
New Orleans, Louisiana 70174, and its telephone number is (504) 393-7774.
6
<PAGE>
THE OFFERING
Common Stock offered:
By the Company.............. 3,900,000 shares
By the Selling 2,100,000 shares
Stockholders................
Total.................... 6,000,000 shares
Common Stock to be outstanding
after the Offering(/1/).........
29,156,190 shares
Nasdaq National Market Symbol... SESI
Use of Proceeds................. The Company intends to use the net proceeds
of the Offering to repay indebtedness
incurred to fund the Recent Acquisitions. Any
remaining proceeds will be used to increase
its rental tool inventory and to acquire
additional P&A and electric wireline
equipment. See "Use of Proceeds."
The Company will not receive any proceeds
from the sale of Common Stock by the Selling
Stockholders.
- --------
(1) Excludes approximately 1,575,000 shares of Common Stock issuable upon the
exercise of outstanding stock options and 8,333 shares of Common Stock
issuable upon the exercise of outstanding warrants.
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. In particular, prospective investors should be aware of the effect on the
Company of the risks presented by the factors listed under "Risk Factors."
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
The summary financial data for the two years ended December 31, 1996 are
derived from the Company's financial statements which have been audited by KPMG
Peat Marwick LLP. The summary financial data as of September 30, 1997 and for
the nine month periods ended September 30, 1996 and 1997, respectively, are
derived from the unaudited consolidated financial statements of the Company for
such periods. In the opinion of management, the unaudited financial statements
of the Company reflect all adjustments (consisting only of normal recurring
adjustments) necessary for the fair presentation of the financial condition and
results of operations for these periods. The pro forma financial data set forth
below does not purport to represent what the Company's financial condition or
results of operations actually would have been had the acquisitions that are
given pro forma effect in fact occurred on the assumed dates or to project the
Company's financial condition or results of operations for any future period or
date. The following information should be read in conjunction with "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical and pro forma financial
statements and notes thereto included elsewhere in this Prospectus and
incorporated herein by reference.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------------- -----------------------------
PRO FORMA PRO FORMA
1995 1996 1996(1) 1996 1997 1997(1)
------- ------- ----------- ------- ---------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue................. $12,338 $23,638 $64,163 $15,240 $33,309 $59,059
Costs of services....... 7,487 11,040 28,471 7,129 14,735 24,930
Depreciation and
amortization........... 259 1,323 5,483 936 1,992 4,301
Impairment of long-lived
assets(2).............. 4,042 -- -- -- -- --
General and
administrative expense. 3,258 5,737 17,085 3,548 7,556 13,749
------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (2,708) 5,538 13,124 3,627 9,026 16,079
Other income (expense).. (7) 79 (3,455) 114 (463) (2,963)
------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... (2,715) 5,617 9,669 3,741 8,563 13,116
Provision for income
taxes.................. 131 1,685 3,674 1,122 2,826 4,859
------- ------- ------- ------- ------- -------
Net income (loss)....... $(2,846) $ 3,932 $ 5,995 $ 2,619 $ 5,737 $ 8,257
======= ======= ======= ======= ======= =======
Net income (loss) per
common share and common
share equivalent....... $ (0.38)(3) $ 0.22 $ 0.30 $ 0.15 $ 0.28 $ 0.39
======= ======= ======= ======= ======= =======
Weighted average common
shares and common share
equivalents
outstanding............ 8,848 17,619 20,167 17,259 20,259 20,958
OTHER FINANCIAL DATA(4):
EBITDA.................. $ 1,593 $ 6,861 $18,607 $ 4,563 $11,018 $20,380
EBITDA margin........... 12.9% 29.0% 29.0% 30.0% 33.1% 34.5%
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
----------------------------------
PRO FORMA
ACTUAL PRO FORMA(5) AS ADJUSTED(6)
------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................ $11,551 $15,811 $ 15,811
Property, plant and equipment, net......... 23,193 45,114 45,114
Total assets............................... 58,374 108,826 108,826
Long-term debt, excluding current
maturities................................ 1,412 42,631 1,350
Stockholders' equity....................... 48,161 48,161 89,442
</TABLE>
8
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(1) Gives effect to all of the acquisitions completed by the Company in 1996
and 1997, including the Recent Acquisitions, each as if consummated on
January 1, 1996.
(2) On December 31, 1995, the Company elected the early adoption of Statement
of Financial Accounting Standards (FAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The undiscounted net cash flows from a joint venture were less than
the carrying value of the fixed assets devoted to the joint venture and
associated goodwill, indicating that an impairment had taken place. This
resulted in the Company recognizing a non-cash charge in 1995 for the
impairment of long-lived assets of $4.0 million, consisting of the write-
off of $3.5 million of goodwill and $0.5 million of property, plant and
equipment. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview -- Revenue Recognition."
(3) Gives pro forma effect to income taxes for the full year. Prior to the
Share Exchange (as defined herein), the Company was an S corporation and,
as a result, paid no federal or state income taxes at the corporate level.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations."
(4) The Company calculates EBITDA (earnings before interest expense, income
taxes, depreciation and amortization) as operating income plus depreciation
and amortization and impairment of long-lived assets. EBITDA margin is
calculated by dividing EBITDA by revenue. Neither EBITDA nor EBITDA margin
should be considered as an alternative to net income or any other measure
of operating performance calculated in accordance with generally accepted
accounting principles. EBITDA and EBITDA margin are widely used by
financial analysts as a measure of financial performance. The Company's
measurement of EBITDA and EBITDA margin may not be comparable to similarly
titled measures reported by other companies.
(5) Gives pro forma effect to the completion of the Recent Acquisitions, as if
each was consummated on September 30, 1997.
(6) Gives pro forma effect to the completion of the Recent Acquisitions, as if
each was completed on September 30, 1997, and as adjusted to give effect to
the Offering (at an assumed offering price of $11.25 per share) and the
application of the net proceeds therefrom as described in "Use of
Proceeds."
9
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors, in
addition to other information contained in or incorporated by reference in this
Prospectus, regarding an investment in the Common Stock offered hereby.
DEPENDENCE ON OIL AND GAS INDUSTRY; INDUSTRY VOLATILITY
The Company's business depends in large part on the conditions of the oil and
gas industry, and specifically on the capital expenditures of the Company's
customers. The demand for oilfield services has traditionally been cyclical, as
purchases of products and services such as those provided by the Company are,
to a substantial extent, deferrable in the event oil and gas companies reduce
capital expenditures as a result of conditions existing in the oil and gas
industry or general economic downturns.
Demand for the Company's P&A services is primarily a function of the number
of offshore producing wells that have ceased to be commercially productive, the
level of environmental awareness and the desire of oil and gas companies to
minimize future P&A liabilities. Demand for the Company's rental tool and
wireline services is primarily a function of oil and gas exploration and
workover activity in the Gulf of Mexico and along the Gulf Coast. The level of
oilfield activity is affected in turn by the willingness of oil and gas
companies to make capital expenditures for the exploration, development and
production of oil and natural gas. The levels of such capital expenditures are
influenced by oil and gas prices, the cost of exploring for, producing and
delivering oil and gas, the sale and expiration dates of leases in the United
States, the discovery rate of new oil and gas reserves, local and international
political and economic conditions and the ability of oil and gas companies to
generate capital. Although the production sector of the oil and gas industry is
less immediately affected by changing prices, and, therefore, less volatile
than the exploration sector, producers would likely react to declining oil and
gas prices by reducing expenditures, which could adversely affect the business
of the Company. No assurance can be given as to the future price of oil and
natural gas, the level of oil and gas industry activity, the perceived level of
enforcement of laws requiring the P&A of wells or levels of environmental
awareness. Fluctuations in demand for the Company's products and services may
have a material adverse effect on the Company's business and operations.
RISKS OF RAPID GROWTH
The Company has grown rapidly over the last two years through internal growth
and acquisitions of other companies. Managing the rapid growth experienced by
the Company will be important for the Company's future success and will demand
increased responsibility for management personnel. Several factors, including
the lack of sufficient executive-level personnel, increased administrative
burdens and the increased logistical problems of large, expansive operations,
could present difficulties to the Company, which if not managed successfully,
could have a material adverse effect on the Company's financial condition and
results of operations. Neither the historical nor the pro forma financial
information included herein is necessarily indicative of the results that would
have been achieved had the Company been operated on a fully integrated basis or
the results that may be realized in the future.
RISKS OF ACQUISITION STRATEGY
Acquisitions have been and may continue to be a key element of the Company's
business strategy. There can be no assurance that the Company will be able to
identify and acquire acceptable acquisition candidates on terms favorable to
the Company. Although the Company will be substantially debt free after the
application of the net proceeds of the Offering, the Company may be required to
incur substantial indebtedness to finance future acquisitions and also may
issue equity securities in connection with such acquisitions. Such additional
debt service requirements may represent a significant burden on the Company's
results of operations and financial condition. The issuance of additional
equity securities could result in significant dilution to stockholders. There
also can be no assurance that the Company will successfully consolidate the
operations and assets of any acquired
10
<PAGE>
business with its own or that the Company's management will be able to
effectively manage the increased size of the Company or operate a new line of
business. Any inability on the part of the Company to consolidate and manage
acquired businesses could have a material adverse effect on the Company's
results of operations and financial condition.
SEASONALITY AND ADVERSE WEATHER CONDITIONS
The Company's P&A operations are directly affected by the weather conditions
in the Gulf of Mexico. Due to seasonal differences in weather patterns, the
Company's P&A crews may operate more days in the spring, summer and fall
periods and less in the winter months. The Company's rental tool operations
and sales of equipment are affected by the seasonality of oil and gas drilling
activity in the Gulf Coast region. Due to exposure to weather, higher drilling
activity is generally experienced in the spring, summer and fall months with
the lowest activity experienced in winter months. Operations may also be
affected by the rainy weather, hurricanes and other storms prevalent in the
Gulf of Mexico and along the Gulf Coast throughout the year. Accordingly, the
Company's operating results may vary from quarter to quarter, depending upon
factors outside of its control, and full year results are not likely to be a
direct multiple of any particular quarter or combination of quarters. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--General."
ABILITY TO ATTRACT AND RETAIN SKILLED WORKERS
The Company's ability to remain productive and profitable will depend
substantially on its ability to attract and retain skilled workers. The
Company's ability to expand its operations is in part impacted by its ability
to increase its labor force. The demand for skilled workers in the Gulf Coast
region is high and the supply is limited. A significant increase in the wages
paid by competing employers could result in a reduction in the Company's
skilled labor force, increases in the wage rates paid by the Company, or both.
If either of these events occurred, the capacity and profitability of the
Company could be diminished and the growth potential of the Company could be
impaired.
DEPENDENCE UPON SIGNIFICANT CUSTOMERS
The Company derives a significant amount of its revenue from a small number
of major and independent oil and gas companies. In 1995 and 1996, Chevron USA
accounted for 23.7% and 34.5%, respectively, of the Company's revenue and
Conoco, Inc. accounted for 16.4% and 8.9%, respectively. On a pro forma basis,
giving effect to all of the acquisitions completed by the Company in 1997,
including the Recent Acquisitions, Chevron USA and Shell Oil Company accounted
for 20.3% and 14.0%, respectively, of the Company's pro forma revenue for the
nine months ended September 30, 1997. The inability of the Company to continue
to perform services for a number of its large existing customers, if not
offset by sales to new or other existing customers, could have a material
adverse effect on the Company's business and operations. See "Business--
Customers."
DEPENDENCE ON KEY PERSONNEL
The Company depends to a large extent on the abilities and continued active
participation of its President and Chief Executive Officer, Terence E. Hall,
and the key employees of its operating subsidiaries. The loss of the services
of any of these persons could have a material adverse effect on the Company's
business and operations. See "Management."
OPERATING RISKS AND INSURANCE
The operations of the Company involve the use of heavy equipment and
exposure to inherent risks, including blowouts, explosions and fire, with
attendant significant risks of liability for personal injury and property
damage, pollution or other environmental hazards or loss of production. In
addition, certain of the
11
<PAGE>
Company's employees who perform services on offshore platforms and vessels are
covered by provisions of the Jones Act, the Death on the High Seas Act and
general maritime law. These laws operate to make the liability limits
established by state workers' compensation laws inapplicable to these
employees and, instead, permit them or their representatives to pursue actions
against the Company for damages on job-related injuries, with generally no
limitations on the Company's potential liability.
Failure of the Company's equipment could result in property damage, personal
injury, environmental pollution and resulting damage for which the Company
could be liable. Litigation arising from a catastrophic occurrence at a
location where the Company's equipment and services are used may in the future
result in large claims. The frequency and severity of such incidents affect
the Company's operating costs, insurability and relationships with customers,
employees and regulators. Any increase in the frequency or severity of such
incidents, or the general level of compensation awards with respect thereto,
could affect the ability of the Company to obtain projects from oil and gas
companies or insurance and could have a material adverse effect on the
Company. In addition, no assurance can be given that the Company will be able
to maintain adequate insurance in the future at rates it considers reasonable.
See "Business--Insurance."
INTENSE COMPETITION
The Company competes in highly competitive areas of the oilfield business.
The volatility of oil and gas prices has led to a consolidation of the number
of companies providing services similar to the Company. This reduced number of
companies competes intensely for available projects. Many of the Company's
competitors are larger and have greater marketing, distribution, financial and
other resources than the Company. There can be no assurance that the Company's
operations will continue at current volumes or prices if its current
competitors or new market entrants introduce new products or services with
better features, performance, prices or other characteristics than the
Company's products and services. Competitive pressures or other factors also
may result in significant price competition that could have a material adverse
effect on the Company's results of operations and financial condition.
Furthermore, competition among oilfield service and equipment providers is
also based on a provider's reputation for safety and quality. Although the
Company believes that its reputation for safety and quality service is good,
there can be no assurance that the Company will be able to maintain its
competitive position. See "Business--Competition."
REGULATORY AND ENVIRONMENTAL MATTERS
The Company's business is significantly affected by state and federal laws
and other regulations relating to the oil and gas industry, by changes in such
laws and by changing administrative regulations and the level of enforcement
thereof. The Company cannot predict the level of enforcement of existing laws
and regulations or how such laws and regulations may be interpreted by
enforcement agencies or court rulings, whether additional laws and regulations
will be adopted, or the effect such changes may have on it, its businesses or
financial condition.
Demand for the Company's P&A services is substantially dependent upon
federal and state laws that require owners of non-producing wells to plug the
well and remove all exposed piping and rigging before the well is permanently
abandoned. The timing and need for P&A services for wells situated on the
federal outer continental shelf are regulated by the MMS. The MMS generally
requires wells to be permanently plugged and abandoned within one year of
lease expiration. State regulatory agencies similarly regulate P&A services
within state coastal waters. State regulatory timeframes for P&A can be as
long as one year for wells in Texas coastal waters or as short as 90 days
after the drilling or production operations cease in Louisiana coastal waters.
The MMS and state regulatory agencies will routinely grant extensions of time
for P&A requirements when a well has future leasehold potential or when it is
consistent with prudent operating practices, economic considerations or other
special circumstances. A decrease in the level of enforcement of such laws and
regulations in the future would adversely affect the demand for the Company's
services and products. Numerous state and federal laws and regulations also
affect the level of purchasing activity of oil spill containment equipment and
consequently the
12
<PAGE>
Company's business. There can be no assurance that a decrease in the level of
enforcement of state and federal laws and regulations in the future would not
adversely affect the demand for the Company's products. In addition, the
Company depends on the demand for its services from the oil and gas industry,
and such demand is affected by changing taxes, price controls and other laws
and regulations relating to the oil and gas industry generally. The adoption of
laws and regulations curtailing exploration and development drilling for oil
and gas in the Company's areas of operations for economic, environmental or
other policy reasons would adversely affect the Company's operations by
limiting demand for its services.
In addition to the importance of environmental regulations on demand for the
Company's services, the Company also has potential environmental liabilities
with respect to its offshore and onshore operations. Certain environmental laws
provide for joint and several strict liabilities for remediation of spills and
releases of hazardous substances. In addition, companies may be subject to
claims alleging personal injury or property damage as a result of alleged
exposure to hazardous substances. The Company believes that its present
operations substantially comply with applicable federal and state pollution
control, and environmental protection laws and regulations and that compliance
with such laws has had no material adverse effect upon its operations to date.
Sanctions for noncompliance may include revocation of permits, corrective
action orders, administrative or civil penalties and criminal prosecution. No
assurance can be given that environmental laws will not, in the future,
materially adversely affect the Company's operations and financial condition.
Some environmental statutes impose strict liability, rendering a person liable
for environmental damage without regard to negligence or fault on the part of
such person. See "Business--Governmental Regulation."
TECHNOLOGY RISKS
Sales of certain of the Company's products, primarily its oil spill
containment equipment, are based primarily on its proprietary technology. The
Company's success in the sales of these products depends to a significant
extent on the development and implementation of new product designs and
technologies. Whether the Company can continue to develop products and
technology to meet evolving industry standards at levels of capability and
price acceptable to its customers will be a significant factor in determining
the Company's ability to complete. Many of the Company's competitors have
greater resources devoted to research and development of new products and
technologies than does the Company. While the Company has patents on certain of
its technologies and products, there is no assurance that any patents secured
by the Company will not be successfully challenged by others or will protect it
from the development of similar products by others. See "Business--Properties."
CONCENTRATION OF COMMON STOCK OWNERSHIP
Upon completion of the Offering, the Company's directors and executive
officers and certain of their affiliates will beneficially own approximately
24.3% (21.3% if the over-allotment option is exercised in full) of the
outstanding shares of Common Stock. Accordingly, these stockholders will have
the ability to influence the election of the Company's directors and the
outcome of most other matters submitted to a vote of the Company's
stockholders, which may have the effect of delaying or preventing a change of
control of the Company. See "Principal and Selling Stockholders."
POSSIBLE VOLATILITY OF SECURITIES PRICES
The market price of the Common Stock has in the past been, and may in the
future continue to be, volatile. A variety of events, including quarter to
quarter variations in operating results, news announcements by the Company or
its competitors, as well as market conditions in the oil and gas industry, or
changes in earnings estimates by securities analysts may cause the market price
of the Common Stock to fluctuate significantly. In addition, the stock market
in recent years has experienced significant price and volume fluctuations which
have particularly affected the market prices of equity securities of many
companies that service the oil and gas industry and which often have been
unrelated to the operating performance of such companies. These market
fluctuations may adversely affect the price of the Common Stock. See "Dividends
and Price Range of the Common Stock."
13
<PAGE>
DIVIDENDS
The Company has not declared or paid cash dividends on its Common Stock in
the past and currently intends to retain earnings, if any, to meet its working
capital requirements and to finance the future operation and growth of the
Company. The Company does not plan to declare or pay cash dividends to holders
of its Common Stock in the foreseeable future. In addition, the terms of the
Company's Bank Credit Facility (as defined herein) prohibit the payment of
dividends or other distributions by the Company to its stockholders. The
Company's ability to declare or pay cash dividends is also affected by the
ability of the Company's present and future subsidiaries to declare and pay
dividends or otherwise transfer funds to the Company since the Company
conducts its operations entirely through subsidiaries. See "Dividends and
Price Range of Common Stock."
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION, BY-LAWS AND THE DELAWARE GENERAL CORPORATION LAW
Certain provisions of the Company's Certificate of Incorporation and By-laws
and of the Delaware General Corporation Law (the "DGCL"), may tend to deter
potential unsolicited offers or other efforts to obtain control of the Company
that are not approved by the Board of Directors. In particular, the Company's
Certificate of Incorporation authorizes the issuance of up to 5,000,000 shares
of preferred stock, with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which
could adversely affect the voting power or other rights of the holders of the
Common Stock and, in certain circumstances, depress the market price of the
Common Stock. In the event of issuance, the preferred stock could be utilized
under certain circumstances as a method of discouraging, delaying or
preventing a change in control of the Company. There can be no assurance that
the Company will not issue shares of preferred stock in the future. The
ability of the Board of Directors to issue preferred stock together with other
provisions of the Company's Certificate of Incorporation, By-laws and of the
DGCL may deprive the holders of the Common Stock of opportunities to sell
shares of Common Stock at a premium to then prevailing market prices in
connection with a takeover attempt. See "Description of Capital Stock--
Preferred Stock" and "--Certain Charter and By-law Provisions."
FORWARD-LOOKING STATEMENTS
This Prospectus contains, or incorporates by reference, certain statements
that may be deemed "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). All statements, other than statements
of historical fact included or incorporated by reference in this Prospectus
that address activities, events or developments that the Company intends,
expects, projects, believes or anticipates will or may occur in the future,
including, without limitation, statements regarding the Company's business
strategy, plans and objectives; statements expressing beliefs and expectations
regarding future demand for the Company's products and services and other
events and conditions that may influence the oilfield services market and the
Company's performance in the future; statements concerning future expansion
plans, including the anticipated level of capital expenditures for, and the
nature and scheduling of, purchases or manufacture of rental tool inventory
and P&A or wireline equipment and other such matters are forward-looking
statements. Such statements are based on certain assumptions and analyses made
by management of the Company in light of its experience and its perception of
historical trends, current conditions, expected future developments and other
factors it believes to be appropriate. The forward-looking statements included
in this Prospectus are also subject to a number of material risks and
uncertainties. Important factors that could cause actual results to differ
materially from the Company's expectations are discussed herein under the
captions "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Prospective investors are cautioned that
such forward-looking statements are not guarantees of future performance and
that actual results, developments and business decisions may differ from those
envisaged by such forward-looking statements.
14
<PAGE>
USE OF PROCEEDS
The estimated net proceeds to the Company from the Offering (assuming an
offering price of $11.25 per share), after deducting underwriting discounts
and estimated offering expenses, will be approximately $41.3 million. The
Company intends to use the net proceeds of the Offering to repay indebtedness
under its revolving credit facility with Whitney National Bank (the "Bank
Credit Facility"), which was incurred to fund the Recent Acquisitions. Any
remaining proceeds will be used to increase the Company's inventory of rental
tools and to fund the acquisition of additional P&A and electric wireline
equipment.
The Company's Bank Credit Facility provides a revolving line of credit up to
$45.0 million, matures on March 31, 1999, and bears interest at LIBOR (London
Interbank Offered Rate) plus a margin that depends on the Company's debt
coverage ratio (currently 7.75%). Upon completion of the Offering and the
application of the net proceeds therefrom as described herein, the Company
anticipates that there will be approximately $3.1 million of indebtedness
outstanding under the Bank Credit Facility. The remainder of the Bank Credit
Facility will be available to the Company for possible future acquisitions,
working capital and general corporate purposes. Although the Company is
continually evaluating potential acquisitions, it does not have any contracts,
understandings or arrangements with respect to any material acquisitions,
other than those described herein.
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders.
15
<PAGE>
DIVIDENDS AND PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"SESI." The following table sets forth the high and low closing bid prices per
share of the Common Stock as reported by the Nasdaq National Market for each
fiscal quarter during the past three calendar years. Quotes represent "inter-
dealer" prices without adjustments for mark-ups, mark-downs or commissions and
may not represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1995
First Quarter.................................................. $3.500 $2.500
Second Quarter................................................. 2.750 2.000
Third Quarter.................................................. 2.750 1.750
Fourth Quarter................................................. 2.500 1.750
1996
First Quarter.................................................. $2.563 $2.125
Second Quarter................................................. 2.813 2.063
Third Quarter.................................................. 2.688 2.000
Fourth Quarter................................................. 3.375 2.625
1997
First Quarter.................................................. $4.875 $2.875
Second Quarter................................................. 5.188 4.375
Third Quarter.................................................. 9.125 5.000
Fourth Quarter (through October 30, 1997)...................... 14.313 8.875
</TABLE>
On October 30, 1997, the last reported bid price of the Common Stock on the
Nasdaq National Market was $11.25 per share. At October 30, 1997, there were
approximately 115 record holders of the Common Stock.
The Company has not declared or paid cash dividends on its Common Stock in
the past and currently intends to retain earnings, if any, to meet its working
capital requirements and to finance the future operation and growth of the
Company. The Company does not plan to declare or pay cash dividends to holders
of its Common Stock in the foreseeable future. In addition, the terms of the
Company's Bank Credit Facility prohibit the payment of dividends or other
distributions by the Company to its stockholders. The Company's ability to
declare or pay cash dividends is also affected by the ability of the Company's
subsidiaries to declare and pay dividends or otherwise transfer funds to the
Company since the Company conducts its operations entirely through its
subsidiaries. Subject to such limitations, the payment of cash dividends on
the Common Stock will be within the discretion of the Company's Board of
Directors and will depend upon the earnings of the Company, the Company's
capital requirements, the requirements of the Company's credit arrangements,
applicable laws and other factors that are considered relevant by the
Company's Board of Directors. See "Risk Factors--Dividends."
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, on a pro forma basis giving effect to the Recent
Acquisitions as if each of them had been completed on September 30, 1997, and
pro forma as adjusted to reflect the Offering (at an assumed offering price of
$11.25 per share) and the application of the net proceeds therefrom as
described 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 historical and pro forma financial statements and the
notes thereto included elsewhere in this Prospectus and incorporated herein by
reference.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
---------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, including current maturities....... $ 1,412 $44,351 $ 3,070
------- ------- -------
Stockholders' equity:
Preferred Stock, $.01 par value per share,
5,000,000 shares authorized; no shares
outstanding..................................... -- -- --
Common Stock, $.001 par value per share,
40,000,000 shares authorized; 25,143,985 shares
issued and outstanding (actual and pro forma);
29,043,985 shares issued and outstanding (pro
forma as adjusted)(1)........................... 25 25 29
Additional paid-in capital....................... 41,620 41,620 82,897
Retained earnings................................ 6,516 6,516 6,516
------- ------- -------
Total stockholders' equity..................... $48,161 $48,161 $89,442
------- ------- -------
Total capitalization........................... $49,573 $92,512 $92,512
======= ======= =======
</TABLE>
- --------
(1) Excludes approximately 1,575,000 shares of Common Stock issuable upon the
exercise of outstanding stock options and 8,333 shares of Common Stock
issuable upon the exercise of outstanding warrants.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data for the two years ended December 31, 1996 and as
of December 31, 1995 and 1996 are derived from the Company's financial
statements which have been audited by KPMG Peat Marwick LLP. The selected
financial data as of September 30, 1997 and for the nine month periods ended
September 30, 1996 and 1997, respectively, are derived from the unaudited
consolidated financial statements of the Company for such periods. In the
opinion of management, the unaudited financial statements of the Company
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for the fair presentation of the financial condition and results of
operations for these periods. The pro forma financial data set forth below does
not purport to represent what the Company's financial condition or results of
operations actually would have been had the acquisitions that are given pro
forma effect in fact occurred on the assumed dates or to project the Company's
financial condition or results of operations for any future period or date. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical and pro forma financial statements and notes thereto included
elsewhere in this Prospectus and incorporated herein by reference.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------------
PRO FORMA PRO FORMA
1995 1996 1996(1) 1996 1997 1997(1)
------- ------- ----------- ------- ------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................ $12,338 $23,638 $64,163 $15,240 $33,309 $59,059
Costs of services...... 7,487 11,040 28,471 7,129 14,735 24,930
Depreciation and
amortization.......... 259 1,323 5,483 936 1,992 4,301
Impairment of long-
lived assets(2)....... 4,042 -- -- -- -- --
General and
administrative
expense............... 3,258 5,737 17,085 3,548 7,556 13,749
------- ------- ------- ------- ------- -------
Income (loss) from
operations............ (2,708) 5,538 13,124 3,627 9,026 16,079
Other income (expense). (7) 79 (3,455) 114 (463) (2,963)
------- ------- ------- ------- ------- -------
Income (loss) before
income taxes.......... (2,715) 5,617 9,669 3,741 8,563 13,116
Provision for income
taxes................. 131 1,685 $ 3,674 1,122 2,826 4,859
------- ------- ------- ------- ------- -------
Net income (loss)...... $(2,846) $ 3,932 $ 5,995 $ 2,619 $ 5,737 $ 8,257
======= ======= ======= ======= ======= =======
Net income (loss) per
common share and
common share
equivalent............ $ (0.38)(3) $ 0.22 $ 0.30 $ 0.15 $ 0.28 $ 0.39
======= ======= ======= ======= ======= =======
Weighted average common
shares and common
share equivalents
outstanding........... 8,848 17,619 20,167 17,259 20,259 20,958
OTHER FINANCIAL DATA(4):
EBITDA................. $ 1,593 $ 6,861 $18,607 $ 4,563 $11,018 $20,380
EBITDA margin.......... 12.9% 29.0% 29.0% 30.0% 33.1% 34.5%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................. $ 976 $ 2,594 $11,551
Property, plant and equipment, net.......... 6,904 9,894 23,193
Total assets................................ 22,984 28,337 58,374
Long-term debt, excluding current
maturities................................. -- 250 1,412
Stockholders' equity........................ 13,094 20,349 48,161
</TABLE>
18
<PAGE>
- --------
(1) Gives effect to all of the acquisitions completed by the Company in 1996
and 1997, including the Recent Acquisitions, each as if consummated on
January 1, 1996.
(2) On December 31, 1995, the Company elected the early adoption of Statement
of Financial Accounting Standards (FAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The undiscounted net cash flows from a joint venture were less than
the carrying value of the fixed assets devoted to the joint venture and
associated goodwill, indicating that an impairment had taken place. This
resulted in the Company recognizing a non-cash change in 1995 for the
impairment of long-lived assets of $4.0 million, consisting of the write-
off of $3.5 million of goodwill and $0.5 million of property, plant and
equipment. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview--Revenue Recognition."
(3) Gives pro forma effect to income taxes for the full year. Prior to the
Share Exchange (as defined herein), the Company was an S corporation and,
as a result, paid no federal or state income taxes at the corporate level.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations."
(4) The Company calculates EBITDA (earnings before interest expense, income
taxes, depreciation and amortization) as operating income plus
depreciation and amortization and impairment of long-lived assets. EBITDA
margin is calculated by dividing EBITDA by revenue. Neither EBITDA nor
EBITDA margin should be considered as an alternative to net income or any
other measure of operating performance calculated in accordance with
generally accepted accounting principles. EBITDA and EBITDA margin are
widely used by financial analysts as measures of financial performance.
The Company's measurement of EBITDA and EBITDA margin may not be
comparable to similarly titled measures reported by other companies.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Background. In December 1995, the Company completed a share exchange (the
"Share Exchange"), pursuant to which the Company acquired the stock of (i)
several private companies owned by the Company's current management team (the
"Superior Companies") and (ii) Oil Stop, Inc. ("Oil Stop") in exchange for an
aggregate of 10,200,000 shares of the Company's Common Stock and $2.0 million
in cash. Upon completion of the Share Exchange, the stockholders of the
Superior Companies received a controlling interest in the Company, and the
Company's current management team assumed control of the Company. As a result,
the Share Exchange was accounted for as a reverse acquisition (i.e., a
purchase of the Company by the Superior Companies) under the purchase method
of accounting. Accordingly, the Company's financial statements and other
financial information, including the information in this section, reflect the
historical operations of the Superior Companies for periods and dates prior to
the Share Exchange. Pursuant to the purchase method of accounting, the value
of the net assets of the Company and Oil Stop were adjusted to their estimated
fair value at the time of the Share Exchange, and the net assets of the
Superior Companies were reflected at their historical book values.
General. Over the past several years, improvements in production techniques
and seismic and drilling technology, together with relatively stable oil and
gas prices, have resulted in increased drilling activity in the Gulf of Mexico
and along the Gulf Coast. According to reports published by Offshore Data
Services, the number of offshore drilling rigs under contract in the Gulf of
Mexico has increased from approximately 130 in January 1995 to approximately
170 in October 1997. In addition, the MMS reported that the number of offshore
leases in the Gulf of Mexico awarded to operators increased from 835 in 1995,
covering approximately 4.3 million acres, to 1,836 in 1997, covering
approximately 10.0 million acres. Lease sales often serve as a precursor to
drilling and exploration activity in the Gulf of Mexico. If oil and gas
companies commit the resources necessary to explore these leases and develop
the fields which may be discovered thereon, there should be increased demand
for the Company's products and services over the next few years. However,
there can be no assurance that drilling activity will continue at such levels
or that oil and gas companies will actively explore and develop the fields
recently leased. Whether these trends continue and the resulting increase in
demand for the Company's products and services actually occurs, is dependent
in large part on the factors listed above.
Demand for the Company's rental tools and wireline services is primarily a
function of oil and gas exploration and workover activity in the Gulf of
Mexico and along the Gulf Coast. The level of oilfield activity is affected in
turn by the willingness of oil and gas companies to make capital expenditures
for the exploration, development and production of oil and natural gas. The
levels of such capital expenditures are influenced by oil and gas prices, the
cost of exploring for, producing and delivering oil and gas, the sale and
expiration dates of leases in the United States, the discovery rate of new oil
and gas reserves, local and international political and economic conditions
and the ability of oil and gas companies to generate capital. See "Risk
Factors--Dependence on Oil and Gas industry; Industry Volatility."
Demand for the Company's P&A services is primarily a function of the number
of offshore producing wells that have ceased to be commercially productive,
increased environmental awareness and the desire of oil and gas companies to
minimize abandonment liabilities. The number of depleted wells in the Gulf of
Mexico that were plugged and abandoned has grown significantly in the last two
years. According to an independent industry report, approximately 560 depleted
wells were plugged and abandoned in 1995 compared to approximately 855 in
1996. The MMS estimated that as of September 1997, there had been
approximately 34,850 well bores drilled in the Gulf of Mexico, approximately
15,800 of which had not yet been plugged and abandoned due to the existence of
oil and gas production or other factors. The Company believes that strong
demand will continue for its P&A services as many of these wells are
approaching the end of their productive lives. Even though P&A projects
represent non-revenue producing expenditures for oil and gas companies,
management believes that the large number of wells in the Gulf of Mexico will
present a steady stream of P&A projects for the Company, provided the current
level of regulatory enforcement continues.
Revenue Recognition. For the Company's P&A, wireline and rental tool
operations, revenue is recognized when services or equipment are provided. The
Company contracts for P&A and wireline projects either on a day
20
<PAGE>
rate or turnkey basis, with the majority of its projects conducted on a day
rate basis. The Company's rental tools are leased on a day rate basis, and
revenue from the sale of equipment is recognized when the equipment is
shipped. Reimbursement from customers for the cost of rental tools that are
damaged or lost downhole are reflected as revenue at the time of the incident.
See "Business--Customers and Contracting."
In January 1996, the Company's unprofitable fishing and rental tool business
in West Texas was placed into a joint venture with G&L Tool Company, Inc. (the
"Joint Venture"). In consideration for the contribution of assets to the Joint
Venture, the Joint Venture is required to make monthly payments of $110,000 to
the Company, which the Company recognizes as revenue when received. The Joint
Venture has made all required payments to the Company through September 30,
1997. After 1997, the monthly payments will be reduced to $80,000 for the life
of the Joint Venture, which survives until the end of 2000. Upon termination
of the Joint Venture, G&L Tool Company, Inc. has the option to purchase all of
the assets contributed by the Company to the Joint Venture for $2.0 million.
The Company recognizes no expenses with respect to the operations of the Joint
Venture other than depreciation on the assets originally contributed to the
Joint Venture.
Seasonality. The Company's P&A operations are directly affected by the
weather conditions in the Gulf of Mexico. Due to the seasonal differences in
weather patterns, the Company's P&A crews may operate more days in the spring,
summer and fall periods and less in the winter months. The Company's rental
tool operations and sales of equipment are affected by the seasonality of oil
and gas drilling activity in the Gulf Coast region. Due to exposure to
weather, higher drilling activity is generally experienced in the spring,
summer and fall with the lowest activity experienced in the winter months.
Operations may also be affected by the rainy weather, hurricanes, and other
storms prevalent in the Gulf of Mexico and along the Gulf Coast throughout the
year. Accordingly, the Company's operating results may vary from quarter to
quarter, depending on factors outside of its control, and full year results
for the Company are not likely to be a direct multiple of any particular
quarter or combination of quarters. See "Risk Factors--Seasonality and Adverse
Weather Conditions."
RESULTS OF OPERATIONS
Comparison of Results of Operations for the Nine Months Ended September 30,
1996 and 1997
The Company experienced significant growth in revenue and net income in the
first nine months of 1997 as compared to the same period in 1996 due to
continued strong demand for its products and services, internal growth and
growth through acquisitions.
The Company's revenue increased 119% from $15.2 million for the nine months
ended September 30, 1996, to $33.3 million for the same period in 1997. Of
this increase, approximately 39% was the result of internal growth of the
Company's operations and approximately 61% was the result of the acquisitions
that the Company completed since July 1996.
The Company's gross margin increased from 53.2% for the nine months ended
September 30, 1996, to 55.8% for the nine months ended September 30, 1997.
This increase was primarily due to the increase in the percentage of the
Company's revenue that was generated by its rental tool and data acquisition
businesses, which tend to have higher gross margins than the Company's other
businesses.
Depreciation and amortization increased 113%, from $936,600 for the nine
months ended September 30, 1996, to $2.0 million for the nine months ended
September 30, 1997. Most of the increase resulted from the larger asset base
that has resulted from the Company's acquisitions. General and administrative
expenses as a percentage of revenue decreased slightly from 23.3% of revenue
for the nine months ended September 30, 1996 to 22.7% for the nine months
ended September 30, 1997.
Net income increased 119% from $2.6 million for the nine months ended
September 30, 1996 to $5.7 million for the comparable period in 1997, while
earnings per share increased 87% from $0.15 to $0.28. The strong earnings
growth experienced by the Company is a result of both increased revenue and
higher profit margins. The increase in earnings per share during the period
was not commensurate with the increase in net
21
<PAGE>
income for the period as the average number of shares outstanding during the
first nine months of 1997 increased primarily as a result of the issuance of
approximately 4.5 million shares upon the exercise of the Company's Class B
Warrants, which were redeemed on September 25, 1997.
Comparison of Results of Operations for the Years Ended December 31, 1995 and
1996
The year ended December 31, 1996 was the first full year the Company had
under new management since the Share Exchange. The Company's 1996 results were
impacted by three main factors: an increase in the Company's internal growth
as a result of increased levels of activity in the Gulf of Mexico; the
creation of the Joint Venture, which resulted in the realization of profits by
the Company in 1996 from its fishing and rental tool business in West Texas as
compared to losses in 1995; and the acquisitions the Company completed in the
second half of the year.
The Company's revenue increased 92% from $12.3 million for the year ended
December 31, 1995 as compared to $23.6 million for the year ended December 31,
1996. In comparing 1995 to 1996, without giving effect to acquisitions or the
Joint Venture, revenue increased 36% as a result of increased levels of
activity in the Gulf of Mexico. Of the increase in revenue, $5.8 million was
generated by businesses acquired by the Company in late 1995 and 1996, and
$1.3 million from the Joint Venture.
The Company's gross margin increased from 39.3% for the year ended December
31, 1995 to 53.3% for the year ended December 31, 1996. In comparing 1995 to
1996, without giving effect to acquisitions or the Joint Venture, gross
margins increased from 37.8% in 1995 to 46.3% in 1996. The significant
increase in gross margins was primarily the result of a decrease in the amount
of marine equipment rented by the Company for its P&A operations during the
period, the cost of which is billed to the customer without the usual mark-up
and collected as revenue, as well as an increase in the percentage of the
Company's revenue attributable to the rental tool and data acquisition
businesses, which tend to have higher margins than the Company's other
businesses.
Depreciation and amortization increased 402%, from $259,000 for the year
ended December 31, 1995 compared to $1.3 million for the year ended December
31, 1996. The increase was due primarily to the inclusion of Oil Stop and the
assets contributed to the Joint Venture for a full year in 1996 as compared to
only two weeks in 1995 and, to a lesser extent, the increase in the Company's
asset base as a result of the acquisitions completed in 1996. General and
administrative expenses were 26.4% of revenue for the year ended December 31,
1995 as compared to 24.3% of revenue for the year ended December 31, 1996.
Effective as of December 31, 1995, the Company elected the early adoption of
Statement of Financial Accounting Standards (FAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The undiscounted net cash flows from the Joint Venture were less than the
carrying value of the fixed assets devoted to the joint venture and associated
goodwill, indicating that an impairment had taken place. As a result, the
Company recognized a non-cash charge in 1995 for the impairment of long-lived
assets of $4.0 million, consisting of the write-off of $3.5 million of
goodwill and $0.5 million of property, plant and equipment.
Net income for the year ended December 31, 1996 was $3.9 million resulting
in earnings of $0.22 per share. This compares to a net loss, as adjusted for
pro forma income taxes, of $3.4 million or a loss per share of $0.38 for the
year ended December 31, 1995. Prior to the Share Exchange, the Superior
Companies were S corporations for federal income tax purposes and thus paid no
federal income tax at the corporate level. Results for the year ended December
31, 1995, also include a one-time charge of $4.0 million for the impairment of
long-lived assets discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had $11.6 million in working capital as
compared to $2.6 million at December 31, 1996. For the nine months ended
September 30, 1997, the Company had net income of $5.7
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<PAGE>
million and net cash provided by operating activities of $696,000, compared to
$2.6 million and $2.0 million, respectively, for the same period in 1996. The
Company's EBITDA increased from $4.6 million for the nine months ended
September 30, 1996 to $11.0 million for the same period in 1997. The increase
in working capital, net income, cash flow and EBITDA was the result of the
Company's internal growth as well as the impact of the acquisitions completed
in 1996 and during the first nine months of 1997. Other sources of cash
included approximately $14.7 million from the issuance of shares of Common
Stock in connection with the exercise of the Company's Class B Warrants, which
were redeemed on September 25, 1997, and stock option exercises.
In the first nine months of 1997, the Company's capital expenditures have
been primarily for acquisitions. During this period, the Company completed
three acquisitions for an aggregate of $10.4 million in cash, 1,520,000 shares
of Common Stock and promissory notes providing for contingent payments of up
to $3.0 million plus interest. The amounts due under the promissory notes, if
any, will be payable on December 31, 1999, and are contingent upon the
achievement of certain financial goals by the acquired companies during the
period from their acquisition until December 31, 1999. These acquisitions were
funded through borrowings of approximately $9.5 million which were repaid with
a portion of the proceeds from the warrant exercise described above. In
connection with the Recent Acquisitions, the Company has issued or will issue
additional promissory notes that provide for contingent payments of up to
$17.6 million, which are payable in 2000 and contingent upon the achievement
of financial goals by the acquired companies.
In October 1997, the Company established the Bank Credit Facility with
Whitney National Bank. The Bank Credit Facility provides for a revolving line
of credit up to $45.0 million, matures on March 31, 1999 and bears interest at
an annual rate of LIBOR plus a margin that depends on the Company's debt
coverage ratio (currently 7.75%). Borrowings under the Bank Credit Facility
are available for letters of credit, working capital, general corporate
purposes and certain acquisitions. Indebtedness under the Bank Credit Facility
is guaranteed by the Company's subsidiaries and collateralized by accounts
receivable, equipment, inventory and contract rights of the Company and its
subsidiaries. Pursuant to the Bank Credit Facility, the Company has agreed to
maintain certain financial ratios. The Bank Credit Facility also imposes
certain limitations on the ability of the Company to make capital
expenditures, pay dividends or other distributions to its stockholders, make
acquisitions funded through indebtedness or incur indebtedness outside of the
Bank Credit Facility.
As of October 24, 1997, there was approximately $5.8 million outstanding
under the Bank Credit Facility. Amounts outstanding under the Bank Credit
Facility were used to repay indebtedness incurred to fund the acquisitions
completed during the first nine months of 1997 and to fund the acquisitions of
Fastorq. Prior to completion of the Offering, the Company also expects to
complete the acquisitions of Stabil Drill and Sub-Surface and to fund $35
million of the aggregate purchase price of these two acquisitions with
additional borrowings under the Bank Credit Facility. The Company intends to
use the net proceeds of the Offering to repay outstanding indebtedness under
the Bank Credit Facility. Upon completion of the Offering, the Company
anticipates that there will be approximately $3.1 million of indebtedness
outstanding under the Bank Credit Facility. The remainder of the Bank Credit
Facility will be available to the Company to fund future acquisitions, if any,
working capital requirements and general corporate purposes. Although the
Company is continually evaluating potential acquisitions, it does not have any
contracts, understandings or arrangements with respect to any material
acquisitions, other than those described herein.
Management currently believes that the Company will have capital
expenditures, excluding acquisitions, of approximately $15 to $20 million
during the remainder of 1997 and in 1998, primarily for additional P&A and
electric wireline equipment and for increased rental tool inventory. The
Company believes that cash generated from operations and availability under
the Bank Credit Facility will provide sufficient funds for the Company's
identified capital projects and working capital requirements. However, part of
the Company's strategy involves the acquisition of companies which have
products and services complementary to the Company's existing base of
operations. Depending on the size of any future acquisitions, the Company may
require additional debt financing, possibly in excess of the limits of the
Bank Credit Facility, or additional equity financing.
23
<PAGE>
BUSINESS
THE COMPANY
General. The Company provides a broad range of specialized oilfield services
and equipment primarily to major and independent oil and gas companies engaged
in the exploration, production and development of oil and gas properties
offshore in the Gulf of Mexico and throughout the Gulf Coast region. These
services and equipment include the rental of specialized oilfield equipment,
oil and gas well P&A services, electric and mechanical wireline services, the
manufacture, sale and rental of drilling instrumentation and the manufacture
and sale of oil spill containment equipment. Over the last two years, the
Company has significantly expanded its operations through both internal growth
and strategic acquisitions. This expansion has enabled the Company to broaden
the range of products and services that it offers to its customers and to
expand its operations geographically throughout the Gulf Coast region.
As a result of its expansion and increased demand for its services and
products, the Company has experienced significant growth in revenue, EBITDA
and net income. For the nine months ended September 30, 1997, the Company
generated revenue of $33.3 million, EBITDA of $11.0 million and net income of
$5.7 million. These amounts represent increases of approximately 119%, 142%
and 119%, respectively, over the comparable period in 1996. On a pro forma
basis for the nine months ended September 30, 1997, assuming all the
acquisitions completed in 1997, including the Recent Acquisitions, were
completed on January 1, 1996, the Company would have generated revenue, EBITDA
and net income of $59.1 million, $20.4 million and $8.3 million, respectively.
Background. In 1989, the Company's management started Superior Well
Services, Inc. and began offering P&A services offshore in the Gulf of Mexico.
As the Company's P&A business grew, the Company also expanded into wireline
services and rental tool operations and continued the data acquisition and
monitoring business that its founders had started in the mid-1980s. In
December 1995, the Company completed the Share Exchange, pursuant to which the
stock of (i) the Superior Companies and (ii) Oil Stop was acquired by the
Company in exchange for an aggregate of 10,200,000 shares of Common Stock and
$2.0 million in cash. Upon completion of the Share Exchange, the Company's
current management team assumed control of the Company, and in January 1996
the assets related to the Company's unprofitable fishing and rental tool
business in West Texas were placed into the Joint Venture.
Acquisition Growth. The Company has completed several acquisitions of
companies with products and services similar or complementary to those already
offered by the Company. These acquisitions have allowed the Company to expand
its P&A, wireline, rental tool and data monitoring operations both in terms of
size and geographic scope. The Company completed a total of five acquisitions
during 1996 and the first nine months of 1997.
<TABLE>
<CAPTION>
DATE OF
ACQUIRED COMPANY ACQUISITION BUSINESS
- ------------------------------------- -------------- -----------------------------
<S> <C> <C>
Baytron, Inc. July 1996 Data Acquisition
Dimensional Oilfield Services, Inc. September 1996 P&A Services
Concentric (Nautilus) Pipe & Tool
Rentals February 1997 Rental Tools
F.&F. Wireline Services, Inc. April 1997 Wireline Services (Mechanical)
Tong Rentals and Supply Company, Inc. May 1997 Rental Tools
</TABLE>
Recent Acquisitions. Since September 30, 1997, the Company has closed one
additional acquisition and has entered into agreements to acquire two other
businesses, each of which will expand the size and geographic scope of the
Company's rental tool operations.
. Sub-Surface. In October 1997, the Company signed a letter of intent with
respect to the purchase of Sub-Surface for $17.5 million in cash and a
contingent payment of up to $7.5 million plus interest, the amount of which
is dependent upon Sub-Surface's financial performance over the next three
years. Sub-Surface rents specialized equipment including tubulars, tubular
handling tools and pressure control equipment for drilling, completion and
workover operations that it provides through four facilities along the Gulf
Coast.
24
<PAGE>
. Stabil Drill. In October 1997, the Company signed a letter of intent with
respect to the purchase of Stabil Drill for $17.5 million in cash and a
contingent payment of up to $7.5 million plus interest, the amount of which
is dependent upon Stabil Drill's financial performance over the next three
years. Stabil Drill specializes in the sale and rental of drilling
stabilizers along with a full range of tools used in bottom hole assemblies
that it provides through five facilities located throughout the Gulf Coast.
. Fastorq. In October 1997, the Company completed its acquisition of Fastorq
for $4.8 million in cash and a contingent payment of up to $2.6 million
plus interest, the amount of which is dependent upon Fastorq's financial
performance over the next three years. Fastorq provides hydraulic nipple
up, wrench bolting, bolt turning, nut splitting, bolt removal and
mechanical pipe cutting services along with hydrostatic test pump rentals
to the Gulf Coast region from its two Louisiana facilities.
BUSINESS STRATEGY
The Company's business strategy is to combine internal growth and strategic
acquisitions to expand the scope of the services and equipment that the
Company provides for its customers. Key elements of the Company's business
strategy are as follows:
Continue Expansion of Rental Tool Operations. The Company intends to
expand its rental tool operations to meet the increased demand for its
rental tool products in the Gulf Coast region. The Company plans to
increase the amount and types of equipment available to its customers by
expanding its rental tool inventory. Management believes that an expanded
rental tool inventory will enable the Company to further expand its
existing customer relationships within the consolidating rental tool
industry. Management also believes that growth in this segment is not
subject to the personnel constraints that are currently present in other
segments of the oilfield services industry.
Capitalize on Leading Position in P&A Services. The Company intends to
capitalize on its leading position in, and the increased demand for, P&A
services in the Gulf of Mexico by significantly increasing the number of
crews dedicated to P&A services. The Company plans to purchase or
manufacture the equipment necessary to operate as many as six new P&A
crews. The Company intends to base these crews out of its Houston, Texas
and Lafayette, Louisiana locations, further expanding the geographic scope
of its P&A operations, which are currently conducted from Belle Chasse,
Louisiana.
Expand Electric Wireline Services. Historically, the Company primarily
offered its electric wireline services as a complement to its P&A services.
The Company's customers, however, are increasingly seeking electric
wireline services from the Company independent of P&A operations. The
Company intends to purchase or manufacture additional electric wireline
units that will be dedicated solely to non-P&A operations, which management
believes will offer another avenue of growth for the Company.
Acquire Complementary Business. The Company continually evaluates
opportunities to acquire businesses which offer products and services
complementary to the Company's existing operations. Management believes
that acquisition candidates are available that will allow the Company to
increase both market share in its existing lines of business and the
geographic scope of its operations. The Company intends to continue to seek
acquisition candidates with strong existing management and to structure the
acquisitions to create incentives for the key personnel of the acquired
businesses to remain with the Company and expand their operations.
OPERATIONS
Rental Tools. The Company sells and rents specialized equipment for use with
onshore and offshore oil and gas well drilling, completion, production and
workover activities. Certain specialized tools are also manufactured by the
Company. Operators and drilling contractors generally find it more economical
to supplement their inventories with rental tools instead of maintaining a
complete inventory of tools, due to the variety of equipment required by the
different wells the operator may have in operation. The equipment needed for a
well is in large part determined by the geological features of the well area
and the size of the well itself.
25
<PAGE>
Through its internal growth and through acquisitions, the Company has
increased the size and breadth of its rental tool inventory and now has 19
locations throughout the Gulf Coast from Corpus Christi, Texas to Venice,
Louisiana, which serve all of the major staging points for oil and gas
activities along the Gulf Coast. The Company has recently initiated rental
tool operations in Venezuela and currently has a limited inventory of rental
tools in this market. Management believes that this region may represent an
active market for the Company in the future; however, there can be no
assurance that the Company will maintain or expand its operations in
Venezuela. The Company's broad range of rental tools includes, but is not
limited to the following:
<TABLE>
<S> <C>
Blowout
Preventers Hydraulic Torque Wrenches
Casing Jacks Power Swivels
Casing Saws Power Tongs
Coflexip Hoses Pressure Control Equipment
Drill Collars Stabilizers
Drill Pipe Test Pumps
Gravel Pack
Equipment Tubulars
Handling Tools Tubular Handling Tools
Hole Openers
</TABLE>
Plug and Abandonment Services. The Company is the leading provider of P&A
services in the Gulf of Mexico. The Company currently operates 14 P&A crews,
each of which is comprised of four to five members, and intends to expand its
number of P&A crews to as many as 20 during 1998.
The Company performs both permanent and temporary P&A services. The basic
steps in the permanent P&A process include: (i) entering the well and pulling
the safety plug using wireline; (ii) running wireline through production
tubing in order to identify any obstructions; (iii) rigging up pumps and
pumping salt water into the bottom zone to confirm that cement injection is
possible; (iv) pumping cement through tubing into the bottom zone; (v) re-
entering the well with wireline and perforating the tubing midway in the well
bore; (vi) pumping cement through tubing to establish a balanced plug at the
point of perforation to create an intermediate plug; (vii) re-entering the
well with wireline, cutting the tubing at 300 feet and pulling that portion of
the tubing from the well; (viii) setting a cast iron bridge plug at 300 feet;
(ix) pumping 150 feet of cement on top of the cast iron bridge plug; (x)
cutting and removing all casing 20 feet from surface or mudline. A temporary
abandonment typically involves steps (i) through (vi), with the upper half of
the well bore left intact to be re-entered or for a side track well to be
drilled at some future date.
The Company constructs all of its P&A spreads and thus has the flexibility
to build its spreads to satisfy market demand. Its custom-built, skid-mounted
P&A spreads are generally smaller than those used by many of its competitors
and allow the P&A process to be completed from liftboats and other work
platforms with low-lift capacities. Rig-less P&A offers a cost advantage over
P&A methods that require a drilling rig, and management believes that the
large majority of the wells in the Gulf of Mexico can be plugged and abandoned
using the rig-less P&A method. In delivering its P&A services, the Company has
combined both wireline and pumping expertise, which traditionally have been
provided separately, and believes that this combined expertise gives it a
competitive advantage over many of its competitors.
Wireline Services. The Company also provides electric and mechanical
wireline services to its customer base. These services are used to access a
well to assist in data acquisition, fishing tool operations, pipe recovery and
remedial activities. While the Company provides these services in connection
with P&A jobs, it also provides wireline services for non-P&A jobs, such as
logging and pipe recovery. The Company's wireline personnel are trained to
perform both P&A jobs and wireline services. In the third quarter of 1997, the
Company began expanding its electric wireline capacity by purchasing four
electric wireline units that will be dedicated solely to non-P&A operations.
Other Services. Other services provided by the Company include (i) data
acquisition and monitoring for the oil and gas industry and (ii) the
manufacture, sale and rental of oil spill containment equipment.
26
<PAGE>
The Company designs, manufactures and sells specialized drilling rig
instrumentation and data acquisition systems and computerized electronic
torque and pressure control equipment. The Company's data acquisition systems
are offered in connection with the use of a dispatcher to gather and record
data and maintain equipment on drilling rigs. The Company's torque and
pressure control equipment is used in connection with drilling and workover
operations, as well as the manufacture of oilfield tubular goods. The torque
control equipment monitors the relationship between size, weight, grade, rate
of makeup, torque and penetration of tubular goods to ensure a leak-free
connection within the pipe manufacturer's specification. The electronic
pressure control equipment monitors and documents internal and external
pressure testing of tubular connections.
The Company also, through third-party manufacturers who work on a
contractual basis pursuant to the Company's specifications, manufactures and
sells oil spill containment inflatable boom and ancillary
storage/deployment/retrieval equipment. The Company's inflatable boom utilizes
continuous single-point inflation technology with air feeder sleeves in
combination with mechanical check valves to permit continuous inflation of the
boom material. The Company sells, rents and licenses oil spill containment
technology to domestic and foreign oil companies, oil spill response companies
and cooperatives, the United States Coast Guard and to foreign governments and
their agencies.
CUSTOMERS; CONTRACTING AND MARKETING
The Company's P&A and wireline services are contracted for specific projects
on either a day rate or turnkey basis. Rental tools are leased to customers on
an as-needed basis pursuant to a day rate. The Company derives a significant
amount of its revenue from a small number of major and independent oil and gas
companies, in particular, Chevron USA and Conoco, Inc. In 1995 and 1996,
Chevron USA accounted for 23.7% and 34.5% of the Company's revenue,
respectively, and Conoco, Inc. accounted for 16.4% and 8.9%, respectively. On
a pro forma basis, giving effect to all of the acquisitions completed in 1997,
including the Recent Acquisitions, Chevron USA and Shell Oil Company accounted
for 20.3% and 14.0%, respectively, of the Company's pro forma revenue for the
nine months ended September 30, 1997. The inability of the Company to continue
to perform services for a number of its large existing customers, if not
offset by sales to new or existing customers, could have a material adverse
effect on the Company's business and financial condition. See "Risk Factors--
Dependence Upon Significant Customers."
Marketing for the Company's rental tools operations is conducted by the
Company's sales force which operates out of Belle Chasse, Lafayette and Houma,
Louisiana, as well as Houston, Texas. The Company's primary customers are oil
and gas companies, well operators and drilling contractors. Marketing for the
company's other activities is primarily conducted by personnel located at the
Company's facilities in Belle Chasse and Harvey, Louisiana.
COMPETITION
The Company competes in highly competitive areas of the oilfield services
industry. The volatility of oil and gas prices has led to a consolidation of
the number of companies providing services similar to the Company. This
reduced number of companies competes intensely for available projects. Many of
the Company's competitors are larger and have greater marketing, distribution,
financial and other resources than the Company. In the rental tool market, the
Company faces competition from a number of companies that have larger
inventories of equipment than the Company and many more facilities than the
Company.
There can be no assurance that the Company's operations will continue at
current volumes or prices if its current competitors or new market entrants
introduce new products or services with better features, performance, prices
or other characteristics than the Company's products and services. Competitive
pressures or other factors also may result in significant price competition
that could have a material adverse effect on the Company's results of
operations and financial condition. Furthermore, competition among oilfield
service and equipment providers is also based on provider's reputation for
safety and quality. Although the Company believes that its reputation for
safety and quality service is good, there can be no assurance that the Company
will be able to maintain its competitive position. See "Risk Factors--Intense
Competition."
27
<PAGE>
POTENTIAL LIABILITIES AND INSURANCE
The Company's operations involve a high degree of operational risk,
particularly of personal injuries and damage to equipment. Failure of the
Company's equipment could result in property damages, personal injury,
environmental pollution and resulting damage for which the Company could be
liable. Litigation arising from a catastrophic occurrence at a location where
the Company's equipment and services are used may in the future result in case
claims. The Company maintains insurance against risks that are consistent with
industry standards and required by its customers. Although management believes
that the Company's insurance protection is adequate, and that the Company has
not experienced a loss in excess of policy limits, there can be no assurance
that the Company will be able to maintain adequate insurance at rates which
management considers commercially reasonable, nor can there be any assurance
such coverage will be adequate to cover all claims that may arise. See "Risk
Factors--Operating Risks and Insurance."
GOVERNMENTAL REGULATION
The Company's business is significantly affected by state and federal laws
and other regulations relating to the oil and gas industry, by changes in such
laws and by changing administrative regulations and the level of enforcement
thereof. The Company cannot predict the level of enforcement of existing laws
and regulations or how such laws and regulations may be interpreted by
enforcement agencies or court rulings, whether additional laws and regulations
will be adopted, or the effect such changes may have on it, its businesses or
financial condition.
Federal and state laws require owners of non-producing wells to plug the
well and remove all exposed piping and rigging before the well is permanently
abandoned. The timing and need for P&A services for wells situated on the
federal outer continental shelf are regulated by the MMS. The MMS generally
requires wells to be permanently plugged and abandoned within one year of
lease expiration. State regulatory agencies similarly regulate P&A services
within state coastal waters. State regulatory timeframes for P&A can be as
long as one year for wells in Texas coastal waters or as short as 90 days
after the drilling or production operations cease in Louisiana coastal waters.
The MMS and state regulatory agencies will routinely grant extensions of time
for P&A requirements when a well has future leasehold potential or when it is
consistent with prudent operating practices, economic considerations or other
special circumstances. A decrease in the level of enforcement of such laws and
regulations in the future would adversely affect the demand for the Company's
services and products. Numerous state and federal laws and regulations also
affect the level of purchasing activity of oil containment equipment and
consequently the Company's business. There can be no assurance that a decrease
in the level of enforcement of laws and regulations in the future would not
adversely affect the demand for the Company's products. In addition, the
Company depends on the demand for its services from the oil and gas industry,
and such demand is affected by changing taxes, price controls and other laws
and regulations relating to the oil and gas industry generally. The adoption
of laws and regulations curtailing exploration and development drilling for
oil and gas in the Company's areas of operations for economic, environmental
or other policy reasons would adversely affect the Company's operations by
limiting demand for its services.
Certain of the Company's employees who perform services on offshore
platforms and vessels are covered by the provisions of the Jones Act, the
Death on the High Seas Act and general maritime law. These laws operate to
make the liability limits established under state workers' compensation laws
inapplicable to these employees and, instead, permit them or their
representatives to pursue actions against the Company for damages or job
related injuries, with generally no limitations on the Company's potential
liability. See "Risk Factors--Operating Risks and Insurance."
The Company believes that its present operations substantially comply with
applicable federal and state pollution control, and environmental protection
laws and regulations and that compliance with such laws has had no material
adverse effect upon its operations to date. Sanctions for noncompliance may
include revocation of permits, corrective action orders, administrative or
civil penalties and criminal prosecution. Certain
28
<PAGE>
environmental laws provide for joint and several strict liabilities for
remediation of spills and releases of hazardous substances. In addition,
companies may be subject to claims alleging personal injury or property damage
as a result of alleged exposure to hazardous substances. No assurance can be
given that environmental laws will not, in the future, materially adversely
affect the Company's operations and financial condition. Some environmental
statements impose strict liability, rendering a person liable for
environmental damage without regard to negligence or fault on the part of such
person. See "Risk Factors--Regulatory and Environmental Matters."
EMPLOYEES
As of September 30, 1997, the Company had approximately 290 employees. None
of the Company's employees is represented by a union or covered by a
collective bargaining agreement. The Company believes that its relations with
its employees is good.
PROPERTIES
Facilities. The Company owns certain facilities and leases other office,
service and assembly facilities under various operating leases, including 19
rental tool facilities located throughout the Gulf Coast from Corpus Christi,
Texas to Venice, Louisiana. The Company believes that all of its leases are at
competitive or market rates and does not anticipate any difficulty in leasing
suitable additional space upon expiration of its current lease terms.
The Company has recently purchased an approximately 26,000 square-foot
office building in Harvey, Louisiana. The Company is currently renovating this
facility and expects to consolidate all of its New Orleans-area sales and
administrative functions in this office by the end of the second quarter of
1998.
Intellectual Property. The Company uses several patented items in its
operations, which management believes are important but are not indispensable
to the Company's business. Although the Company anticipates seeking patent
protection when possible, it relies to a greater extent on the technical
expertise and know-how of its personnel to maintain its competitive position.
See "Risk Factors--Technology Risks."
LEGAL PROCEEDINGS
The Company is a party to various routine legal proceedings primarily
involving commercial claims, workers' compensation claims and claims for
personal injury under the General Maritime Laws of the United States and the
Jones Act. While the outcome of these lawsuits, legal proceedings and claims
cannot be predicted with certainty, management believes that the outcome of
all such proceedings, even if determined already, would not have a material
adverse effect on the Company's business or financial condition.
29
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of September 30, 1997
with respect to the directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Terence E. Hall.............. 52 Chairman of the Board, Chief Executive Officer
and President
Ernest J. Yancey, Jr......... 48 Director and Vice President
James E. Ravannack........... 37 Director and Vice President
Richard J. Lazes............. 49 President of Oil Stop, Inc. and Director
Robert S. Taylor............. 43 Chief Financial Officer
Kenneth C. Boothe............ 52 Director
Bradford Small............... 35 Director
Justin L. Sullivan........... 58 Director
</TABLE>
Terence E. Hall has served as the Chairman of the Board, Chief Executive
Officer and President of the Company since December 1995. Since 1989, he has
served as President and Chief Executive Officer of Superior Well Service, Inc.
Ernest J. Yancey, Jr. has served as a Vice President and Director of the
Company since December 1995. Since 1989, he has served as Vice President--
Operations of Superior Well Service, Inc.
James E. Ravannack has served as a Vice President and Director of the
Company since December 1995. Since 1989, he has served as Vice President--
Sales of Superior Well Service, Inc.
Richard J. Lazes has served as a Director of the Company since December
1995, Mr. Lazes founded Oil Stop, Inc. in May 1990 and has served as its
President since its founding.
Robert S. Taylor has served as Chief Financial Officer of the Company since
January 1996. From May 1994 to January 1996, he served as Chief Financial
Officer of Kenneth Gordon (New Orleans), Ltd., an apparel manufacturer. From
November of 1989 to May 1994, he served as Chief Financial Officer of Plywood
Panels, Inc., a manufacturer and distributor of plywood paneling and related
wood products.
Kenneth C. Boothe has served as a director since 1991. Mr. Boothe served as
Chief Executive Officer and President of the Company from October 1993 until
December 1995 and as President of the Company's operating subsidiary, Superior
Fishing and Rental Tools, Inc. until May 1996. Mr. Boothe is now the senior
partner with Boothe, Vassar, Fox & Fox, certified public accountants, Big
Spring, Texas.
Bradford Small has served as a Director of the Company since December 1993.
From May 1996 to the present, Mr. Small has been a minister of Amarillo South
Church of Christ in Amarillo, Texas. From May 1995 to May 1996 he served as
minister of Highlands Church of Christ in Lakeland, Florida. From January 1991
until May 1995 he served as minister of Western Hills Church of Christ in
Amarillo, Texas.
Justin L. Sullivan has served as a Director of the Company since December
1995. Mr. Sullivan has been a business consultant to various companies since
May 1993. From October 1992 to May 1993, Mr. Sullivan served as President of
Plywood Panels, Inc., a manufacturer and distributor of plywood paneling and
related wood products. From 1967 to September 1992, he served as Vice
President, Treasurer and Director of Plywood Panels, Inc. and its predecessor
entities.
30
<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Certificate of Incorporation and the Bylaws of the Company contain
provisions to indemnify the directors, officers, employees or other agents to
the fullest extent permitted by the DGCL. In addition, the Company has entered
into indemnity contracts with its directors and executive officers, which
provide for indemnification of such officers and directors in certain
circumstances, including for liabilities under the Securities Act. The Company
believes that these provisions and contracts are necessary to attract and
retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act,
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth as of October 30, 1997 certain information
regarding beneficial ownership (determined in accordance with Rule 13d-3 under
the Exchange Act) of the Common Stock by (i) each stockholder known by the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock, (ii) each director of the Company, (iii) each executive officer of the
Company, (iv) each Selling Stockholder and (v) all of the Company's directors
and executive officers as a group. Unless otherwise indicated, the Company
believes that the stockholders listed below have sole investment and voting
power with respect to their shares based on information furnished to the
Company by such owners.
<TABLE>
<CAPTION>
PERCENT OF OUTSTANDING
COMMON STOCK
SHARES TO BE --------------------------
NAME OF BENEFICIAL NUMBER OF SHARES SOLD IN THE BEFORE AFTER
OWNER(1) BENEFICIALLY OWNED OFFERING(2) OFFERING OFFERING
- ------------------ ------------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
Terence E. Hall......... 3,019,065(3) 618,902 12.0% 8.2%
Ernest J. Yancey, Jr.... 2,039,377(3)(4) 418,068 8.1% 5.6%
James E. Ravannack...... 2,047,377(3) 419,708 8.1% 5.6%
Richard J. Lazes........ 1,618,181 331,724 6.4% 4.4%
Rufus L. Patin.......... 1,100,000 225,498 4.4% 3.0%
John C. Gordon.......... 420,000 86,100 1.7% 1.1%
Justin L. Sullivan...... -- -- -- --
Kenneth C. Boothe....... 157,385(5) -- * *
Bradford Small.......... 16,441(6) * *
Robert S. Taylor........ 25,000(7) * *
All Directors and
Executive Officers as a
group
(8 persons)............ 8,922,826(8) 1,788,402 35.1% 24.3%
</TABLE>
- --------
* Less than 1%.
(1) The address of Messrs. Hall, Yancey and Ravannack is 1503 Engineers Road,
Belle Chasse, Louisiana 70037. Mr. Lazes' address is 804 First Avenue,
Harvey, Louisiana 70058. Mr. Patin's address is 101 W. Saul Drive, Scott,
Louisiana, 70583.
(2) If the Underwriters' over-allotment is exercised in full, Mr. Hall will
sell an additional 800,648 shares, Mr. Yancey, 28,044 shares, Mr.
Ravannack, 28,154 shares, Mr. Lazes, 22,252 shares, Mr. Patin, 15,126
shares and Mr. Gordon, 5,776 shares.
(3) Includes 44,000 shares of Common Stock that may be acquired upon the
exercise of options granted under the Incentive Plan.
(4) Includes 24,000 shares of Common Stock held by Mr. Yancey's children, of
which Mr. Yancey is deemed to be the beneficial owner, and 1,823,377 held
by a limited liability company controlled by Mr. Yancey.
(5) Represents 58,441 shares of Common Stock held of record by Mr. Boothe,
41,926 shares of Common Stock held in a trust, of which Mr. Boothe is the
sole voting trustee, 57,018 shares of Common Stock held in a corporation
for the benefit of Mr. Boothe, Bradford Small and Darnell Small with
respect to which Mr. Boothe has sole voting discretion.
(6) Does not include 41,926 shares of Common Stock held in trust for the
benefit of Mr. Small and his siblings, of which Mr. Boothe is the sole
voting trustee, or 57,018 shares of Common Stock held in a corporation for
the benefit of Mr. Booth, Bradford Small and Darnell Small with respect to
which Mr. Boothe has sole voting discretion.
(7) Includes 25,000 shares of Common Stock that may be acquired upon the
exercise of options.
(8) Includes 157,000 shares of Common Stock that may be acquired upon exercise
of options.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 40,000,000 shares of
common stock, $.001 par value per share (the "Common Stock"), and 5,000,000
shares of preferred stock, $.01 par value per share, issuable in series (the
"Preferred Stock"). As of October 30, 1997, 25,256,190 shares of Common Stock
were outstanding and held of record by approximately 115 persons, and no
shares of Preferred Stock were outstanding. The following description of the
capital stock of the Company is qualified in its entirety by reference to the
Company's Certificate and Bylaws, copies of which are incorporated herein by
reference as exhibits to the registration statement of which this Prospectus
forms a part.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share of Common
Stock held of record on all matters on which stockholders are entitled to
vote; stockholders may not cumulate votes for the election of directors.
Stockholders may act upon any matter at a duly called meeting or by written
consent. Subject to the preferences accorded to the holders of the Preferred
Stock, if and when issued by the Board of Directors, holders of Common Stock
are entitled to dividends at such times and in such amounts as the Board of
Directors may determine. The Company has never paid cash dividends on its
Common Stock and does not intend to pay dividends for the foreseeable future.
In addition, the Company's Bank Credit Facility contains provisions that
prohibit the Company from paying dividends on its Common Stock. See "Risk
Factors--No Dividends" and "Dividends and Price Range of Common Stock." Upon
the dissolution, liquidation or winding up of the Company, after payment of
debts and expenses and payment of the liquidation preference plus any accrued
dividends on any outstanding shares of Preferred Stock, the holders of Common
Stock will be entitled to receive all remaining assets of the Company ratably
in proportion to the number of shares held by them. Holders of shares of
Common Stock have no preemptive, subscription, conversion or redemption rights
and are not subject to further calls or assessments, or rights of redemption
by the Company. The outstanding shares of Common Stock are, and the shares of
Common Stock being sold in the Offering will be, validly issued, fully paid
and nonassessable.
PREFERRED STOCK
The Company's Board of Directors has the authority, without approval of the
stockholders, to issue shares of Preferred Stock in one or more series and to
fix the number of shares and rights, preferences and limitations of each
series. Among the specific matters that may be determined by the Board of
Directors are the dividend rights, the redemption price, if any, the terms of
a sinking fund, if any, the amount payable in the event of any voluntary
liquidation, dissolution or winding up of the affairs of the Company's
conversion rights, if any, and voting powers, if any.
One of the effects of the existence of authorized but unissued Common Stock
and undesignated Preferred Stock may be to enable the Board of Directors to
make more difficult or to discourage an attempt to obtain control of the
Company by means of a merger, tender offer, proxy contest or otherwise, and
thereby to protect the continuity of the Company's management. If, in the
exercise of its fiduciary obligations, the Board of Directors were to
determine that a takeover proposal was not in the Company's best interest,
such shares could be issued by the Board of Directors without stockholder
approval in one or more transactions that might prevent or make more difficult
or costly the completion of the takeover transaction by diluting the voting or
other rights of the proposed acquiror or insurgent stockholder group, by
creating a substantial voting block in institutional or other hands that might
undertake to support the position of the incumbent Board of Directors, by
effecting an acquisition that might complicate or preclude the takeover, or
otherwise. In this regard, the Company's Certificate grants the Board of
Directors broad power to establish the rights and preferences of the
authorized and unissued Preferred Stock, one or more series of which could be
issued entitling holders (i) to vote separately as a class on any proposed
merger or consolidation, (ii) to cast a proportionately larger vote together
with the Common Stock on any such transaction or for all purposes, (iii) to
elect directors having terms of office or voting
33
<PAGE>
rights greater than those of other directors, (iv) to convert Preferred Stock
into a greater number of shares of Common Stock or other securities, (v) to
demand redemption at a specified price under prescribed circumstances related
to a change of control or (vi) to exercise other rights designated to impede a
takeover. The issuance of shares of Preferred Stock pursuant to the Board of
Directors' authority described above may adversely effect the rights of
holders of the Common Stock.
In addition, certain other charter provisions that are described below may
have the effect of either alone, in combination with each other or with the
existence of authorized but unissued capital stock of making more difficult or
discouraging an acquisition of the Company deemed undesirable by the Board of
Directors.
CERTAIN CHARTER AND BYLAW PROVISIONS
Size of the Board of Directors; Removal of Directors; Filling of Vacancies
on the Board of Directors. The Company's Bylaws provide that the number of
directors shall be fixed from time to time by the Board of Directors but shall
not be less than three nor more than eleven. The Company's Bylaws also provide
that a newly created directorship resulting from an increase in the number of
directors and any vacancies on the Board of Directors resulting from death,
resignation, removal or other cause may be filled by the affirmative vote of
the majority of the remaining directors then in office, although less than a
quorum, or by a sole remaining director. In addition, these provisions specify
that directors elected to fill a vacancy or a newly created directorship on
the Board of Directors will serve until the next annual meeting of
stockholders and until their successors are elected and qualified, or until
their earlier resignation or removal.
Amendment of the Bylaws. Under the DGCL, the power to adopt, amend or repeal
bylaws is conferred upon the stockholders; however, a corporation may in its
certificate of incorporation also confer upon the board of directors the power
to adopt, amend or repeal its bylaws. The Company's Certificate and Bylaws
grant the Board of Directors the power to adopt, amend and repeal the Bylaws.
Delaware Anti-Takeover Statute. The Company is also subject to Section 203
of the DGCL, which prohibits Delaware corporations from engaging in a wide
range of specified transactions with any interested stockholder, defined to
include, among others, any person other than such corporation and any of its
majority-owned subsidiaries who own 15% or more of any class or series of
stock entitled to vote generally in the election of directors, unless, among
other exceptions, the transaction is approved by (i) the Board of Directors
prior to the date the interested stockholder obtained such status, or (ii) the
holders of two-thirds of the outstanding shares of each class or series of
stock entitled to vote generally in the election of directors, not including
those shares owned by the interested stockholder.
The provisions described above may tend to deter any potential unfriendly
offers or other efforts to obtain control of the Company that are not approved
by the Board of Directors and thereby deprive the stockholders of
opportunities to sell shares of Common Stock at prices higher than the
prevailing market price. On the other hand, these provisions will tend to
assure continuity of management and corporate policies and to induce any
person seeking control of the Company or a business combination with the
Company to negotiate or terms acceptable to the then elected Board of
Directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer & Trust Company, 40 Wall Street, 46th Floor, New York, New York
10005.
34
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Johnson Rice
& Company L.L.C., Jefferies & Company, Inc. and Gaines, Berland Inc., are
acting as representatives (the "Representatives"), has severally agreed to
purchase from the Company and the Selling Stockholders, the respective number
of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Johnson Rice & Company L.L.C.................................
Jefferies & Company, Inc.....................................
Gaines, Berland Inc..........................................
Total...................................................... 6,000,000
=========
</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 initially at the public offering price set forth on the
cover page of this Prospectus, 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.
In connection with the Offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions, "passive" market making and purchases to cover
syndicate short positions created in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Common Stock and
syndicate short positions involve the sale by the Underwriters of a greater
number of shares of Common Stock than they are required to purchase from the
Company and the Selling Shareholders in the Offering. The Underwriters also
may impose a penalty bid, whereby selling concessions allowed to syndicate
members or other broker-dealers in respect of the shares of Common Stock sold
in the Offering for their account may be reclaimed by the syndicate if such
shares of Common Stock are repurchased by the syndicate in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the Common Stock, which may be higher than the
price that might otherwise prevail in the open market; and these activities,
if commenced, may be discontinued at any time. These transactions may be
effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.
As permitted by Rule 103 under the Exchange Act, certain Underwriters (and
selling group members, if any) that are market makers ("passive market
makers") in the Common Stock may make bids for or purchases of the Common
Stock in the Nasdaq National Market until such time, if any, when a
stabilizing bid for such securities has been made. Rule 103 generally provides
that (i) a passive market maker's net daily purchases of the Common Stock may
not exceed 30% of its average daily trading volume in such securities for the
two full consecutive calendar months (or any 60 consecutive days ending within
the 10 days) immediately preceding the filing date of the registration
statement of which this Prospectus forms a part, (ii) a passive market maker
may not effect transactions or display bids for the Common Stock at a price
that exceeds the highest independent bid
35
<PAGE>
for the Common Stock by persons who are not passive market makers and (iii)
bids made by passive market makers must be identified as such.
The Selling Stockholders have granted to the Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 900,000 additional shares of Common Stock solely to cover over-
allotments, if any. 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
6,000,000 shares of Common Stock offered.
The Company and the Selling Stockholders have agreed not to offer to sell,
sell, grant any option to purchase or otherwise dispose of any shares of any
capital stock of the Company (or securities convertible into, or exchangeable
for capital stock of the Company), directly or indirectly, for a period of 120
days after the date of this Prospectus, without the prior written consent of
Johnson Rice & Company L.L.C., except for grants of stock options by the
Company to its officers, directors and employees and issuance of stock upon
exercise of options held by such persons, and except for shares of capital
stock issued by the Company in connection with the acquisition of assets or
capital stock of any company engaged in the oil and gas service business.
Certain of the Underwriters have from time to time provided investment
banking and financial advisory services to the Company, and such firms may in
the future provide similar services to the Company, for which they have
received or are expected to receive customary fees.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., New
Orleans, Louisiana. Certain legal matters in connection with the shares of
Common Stock offered hereby are being passed upon for the Underwriters by
Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1995
and 1996, and for the two years ended December 31, 1996 have been included in
this Prospectus and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein and upon the authority of said firm as experts in accounting
and auditing. The report of KPMG Peat Marwick LLP covering the Company's
consolidated financial statements refers to the adoption in 1995 of the method
of accounting for the impairment of long-lived assets and long-lived assets to
be disposed of prescribed by Statement of Financial Accounting Standards No.
121.
The financial statements of Nautilus (Concentric) Pipe and Rental Tool, Inc.
and Tong Rentals & Supply Co., Inc. as of December 31, 1996, and for the year
then ended have been incorporated by reference into this Registration Statement
in reliance upon the reports, of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated herein by reference and upon the authority of
said firm as experts in accounting and auditing.
The financial statements of Stabil Drill as of August 31, 1996 and 1997 and
for the two years then ended, and of Sub-Surface as of July 31, 1997, and for
the year then ended have been included in this Prospectus and in the
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein and upon
the authority of said firm as experts in accounting and auditing.
36
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
documents with the Securities and Exchange Commission (the "Commission").
Documents filed by the Company with the Commission pursuant to the
informational requirements of the Exchange Act 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, DC 20549, and at the
regional offices of the Commission at the following locations: New York
Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048
and Chicago Regional Office, Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, DC 20549, at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information statements
and other information regarding issuers that file electronically with the
Commission (http://www.sec.gov). The Company's Common Stock is traded on the
Nasdaq National Market. Reports, proxy statements and other information may
also be inspected at the offices of the National Association of Securities
Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
The Prospectus constitutes a part of a Registration Statement filed by the
Company with the Commission under the Securities Act. This Prospectus omits
certain of the information contained in the Registration Statement in
accordance with the rules and regulations of the Commission. Reference is
hereby made to the Registration Statement and related exhibits for further
information with respect to the Company and the Common Stock. Statements
contained herein concerning the provisions of any document are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed or incorporated by reference as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement is qualified in
its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are incorporated herein by reference:
(i) the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996; (ii) the Company's Quarterly Reports on Form 10-QSB for the
fiscal quarters ended March 31, 1997, June 30, 1997 and September 30, 1997;
(iii) the description of the Company's Common Stock set forth in its
registration statement under the Exchange Act on Form 8-A/A dated October 29,
1997; and (iv) the Company's Current Reports on Form 8-K dated May 31, 1997
(as amended on Form 8-K/A dated June 13, 1997), February 28, 1997 (as amended
on Form 8-K/A dated March 14, 1997) and October 3, 1997.
All documents filed by the Company with the Commission pursuant to Sections
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 made hereby shall be
deemed to be incorporated by reference herein and to be made a part hereof
from their respective dates of filing. Information appearing herein or in any
particular document incorporated herein by reference is not necessarily
complete and is qualified in its entirety by the information and financial
statements appearing in all of the documents incorporated herein by reference
and should be read together therewith. Any statements contained in a document
incorporated or deemed to be incorporated by reference shall be deemed to be
modified or superseded to the extent that a statement contained herein or in
any other document subsequently filed or incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of any
such person, a copy of any of the documents incorporated herein by reference,
other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents. Requests for such copies should
be directed to Superior Energy Services, Inc., 1503 Engineers Road, Attention:
Investor Relations, P.O. Box 6220, New Orleans, Louisiana 70174, telephone
(504) 393-7774.
37
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pro Forma Condensed Financial Statements
Unaudited Pro Forma Condensed Balance Sheet as of September 30, 1997.... F-3
Unaudited Pro Forma Condensed Statement of Earnings for the nine months
ended September 30, 1997............................................... F-4
Unaudited Pro Forma Condensed Statement of Earnings for the year ended
December 31, 1996...................................................... F-5
Notes to Unaudited Pro Forma Condensed Financial Statements............. F-6
Superior Energy Services, Inc.
Independent Auditors' Report............................................ F-8
Consolidated Balance Sheets at December 31, 1995 and 1996............... F-9
Consolidated Statements of Operations for the years ended December 31,
1995 and 1996.......................................................... F-10
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1995 and 1996....................................... F-11
Consolidated Statements of Cash Flows for the years ended December 31,
1995 and 1996.......................................................... F-12
Notes to Consolidated Financial Statements.............................. F-13
Condensed Consolidated Balance Sheet as of September 30, 1997
(unaudited)............................................................ F-23
Condensed Consolidated Statements of Operations for the three months and
nine months ended September 30, 1996 and 1997 (unaudited).............. F-24
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996 and 1997 (unaudited).......................... F-25
Notes to Condensed Consolidated Financial Statements.................... F-26
Stabil Drill Specialties, Inc.
Independent Auditors' Report............................................ F-28
Balance Sheets at August 31, 1996 and 1997.............................. F-29
Statements of Income and Retained Earnings for the years ended August
31, 1996 and 1997...................................................... F-30
Statements of Cash Flows for the years ended August 31, 1996 and 1997... F-31
Notes to Financial Statements........................................... F-32
Sub-Surface Tools, Inc.
Independent Auditors' Report............................................ F-38
Balance Sheet at July 31, 1997.......................................... F-39
Statement of Income and Retained Earnings for the year ended July 31,
1997................................................................... F-40
Statement of Cash Flows for the year ended July 31, 1997................ F-41
Notes to Financial Statements........................................... F-42
</TABLE>
F-1
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed financial information has been
prepared by management utilizing the historical financial statements of
Superior Energy Services, Inc. (Superior), Baytron, Inc. (Baytron) through
July 31, 1996, Dimensional Oilfield Services, Inc. (Dimensional) through
September 15, 1996, Nautilus Pipe and Rental Tools, Inc. (Nautilus) through
February 28, 1997, F.&F. Wireline Services, Inc. (F.&F.) through April 30,
1997, Tong Rentals and Supply Co., Inc. (Tong) through May 31, 1997, Fastorq,
Stabil Drill and Sub-Surface. Adjustments have been made to reflect the
financial impact of purchase accounting and other items had the acquisitions
taken place on January 1, 1996 with respect to operating data and September
30, 1997 with respect to balance sheet data. The pro forma adjustments are
described in the accompanying notes and are based upon preliminary estimates
and certain assumptions that management of the companies believe reasonable
under the circumstances.
The unaudited pro forma condensed financial information is for comparative
purposes only and does not purport to be indicative of the results which would
actually have been obtained had the acquisitions been effected on the pro
forma dates, or of the results which may be obtained in the future. The
unaudited pro forma condensed financial information in the opinion of
management reflect all adjustments necessary to present fairly the data for
such periods.
With respect to the unaudited pro forma condensed financial information
prepared for the nine months ended September 30, 1997, for purposes of
simplicity, and as permitted by the rules and regulations of the Commission,
the financial information for Stabil Drill is as of and for the nine months
ended August 31, 1997 and the financial information for Sub-Surface is as of
and for the nine months ended July 31, 1997.
The unaudited pro forma condensed financial information should be read in
conjunction with the historical financial statements appearing elsewhere in
this Prospectus or incorporated herein by reference.
F-2
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
HISTORICAL STABIL SUB- ---------------
ASSETS SUPERIOR FASTORQ DRILL SURFACE DR. CR. PRO FORMA
------ ---------- ------- ------ ------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash.................... $ 1,103 760 749 627 3,239
Accounts receivable--
net.................... 13,183 1,349 4,250 2,143 20,925
Inventories............. 1,474 -- -- -- 1,474
Deferred income taxes... 137 -- -- -- 137
Other................... 885 10 13 34 942
------- ----- ----- ------ -------
Total current assets. 16,782 2,119 5,012 2,804 26,717
Property, plant &
equipment--net......... 23,193 925 4,225 13,770 A 267 45,114
B 1,994
C 810
Goodwill................ 17,347 -- 474 -- A 2,402 35,895
B 11,506
C 4,166
Other assets............ 1,052 -- 39 9 1,100
------- ----- ----- ------ -------
Total assets......... $58,374 3,044 9,750 16,513 108,826
======= ===== ===== ====== =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Current liabilities:
Notes payable......... -- -- 336 1,384 1,720
Trade accounts
payable.............. 2,244 -- 1,004 1,226 4,474
Notes payable other... 296 -- -- -- 296
Unearned income....... 173 -- -- -- 173
Accrued expenses...... 2,166 -- 251 -- 2,417
Income taxes payable.. 352 519 753 -- 1,624
Deferred income taxes. -- -- 174 -- 174
Other................. -- 28 -- -- 28
------- ----- ----- ------ -------
Total current
liabilities......... 5,231 547 2,518 2,610 10,906
Notes payable........... 1,412 165 1,244 -- A 4,810 42,631
B 17,500
C 17,500
Deferred income taxes... 3,570 92 1,250 1,079 A 99 7,128
B 738
C 300
Stockholders' equity:
Common stock.......... 25 1 -- (4)A 1 25
C 4
Additional paid-in
capital.............. 41,620 -- 39 -- B 39 41,620
Retained earnings..... 6,516 2,239 4,699 12,828 A 2,239 6,516
B 4,699
C 12,828
------- ----- ----- ------ -------
Total stockholders'
equity.............. 48,161 2,240 4,738 12,824 48,161
------- ----- ----- ------ -------
Total liabilities and
stockholders'
equity.............. $58,374 3,044 9,750 16,513 108,826
======= ===== ===== ====== =======
</TABLE>
F-3
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL SUPERIOR HISTORICAL HISTORICAL
HISTORICAL HISTORICAL F&F TONG PRO FORMA PRE-RECENT HISTORICAL STABIL SUB
SUPERIOR NAUTILUS WIRELINE RENTAL ADJUSTMENTS ACQUISITIONS FASTORQ DRILL SURFACE
---------- ---------- ---------- ---------- ----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........... $33,309 575 336 1,523 35,743 3,934 11,536 7,846
------- --- --- ----- --- ------ ----- ------ -----
Costs and expenses:
Costs of
services.......... 14,735 264 137 532 15,668 1,658 4,881 2,723
Depreciation and
amortization...... 1,992 109 5 77 D 81 2,264 85 606 1,339 E
General and
administrative.... 7,556 209 48 545 8,358 1,732 2,619 2,010 K
Total costs and
expenses........ 24,283 582 190 1,154 81 26,290 3,475 8,106 6,072
------- --- --- ----- --- ------ ----- ------ -----
Income from
operations......... 9,026 (7) 146 369 (81) 9,453 459 3,430 1,774
Other income
(expense):
Interest expense.. (463) (27) (2) -- (492) -- (55) (122)L
Other............. -- -- -- -- -- -- 20 --
------- --- --- ----- --- ------ ----- ------ -----
Income before
income taxes.... 8,563 (34) 144 369 (81) 8,961 459 3,395 1,652
Income taxes....... 2,826 -- -- 129 H (12) 2,943 165 1,392 608 I
------- --- --- ----- --- ------ ----- ------ -----
Net income........ $ 5,737 (34) 144 240 (69) 6,018 294 2,003 1,044
======= === === ===== === ====== ===== ====== =====
Net income per
common share and
common share
equivalent......... $ 0.28 $ 0.29
======= ======
Weighted average
shares outstanding. 20,259 20,958
======= ======
<CAPTION>
PRO FORMA PRO
ADJUSTMENTS FORMA
----------- -------
<S> <C> <C>
Revenues........... 59,059
----------- -------
Costs and expenses:
Costs of
services.......... 24,930
Depreciation and
amortization...... 7 4,301
General and
administrative.... (970) 13,749
Total costs and
expenses........ (968) 42,980
----------- -------
Income from
operations......... 968 16,079
Other income
(expense):
Interest expense.. (2,314) (2,983)
Other............. 20
----------- -------
Income before
income taxes.... (1,346) 13,116
Income taxes....... (249) 4,859
----------- -------
Net income........ (1,097) 8,257
=========== =======
Net income per
common share and
common share
equivalent......... $ 0.39
=======
Weighted average
shares outstanding. 20,958
=======
</TABLE>
F-4
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL SUPERIOR
HISTORICAL HISTORICAL HISTORICAL HISTORICAL F&F TONG PRO FORMA PRE-RECENT STABIL
SUPERIOR BAYTRON DIMENSIONAL NAUTILUS WIRELINE RENTAL ADJUSTMENTS ACQUISITIONS FASTORQ DRILL
---------- ---------- ----------- ---------- ---------- ---------- ----------- ------------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........... $23,638 1,277 4,053 4,424 1,269 5,061 39,722 3,687 10,140
------- ----- ----- ----- ----- ----- ---- ------ ----- ------
Costs and expenses:
Costs of
services......... 11,040 367 2,982 1,401 674 1,269 17,733 1,748 4,596
Depreciation and
amortization..... 1,323 40 26 556 32 274 F 515 2,766 88 726
General and
administratiave.. 5,737 773 584 1,560 372 2,391 11,417 861 3,091
------- ----- ----- ----- ----- ----- ---- ------ ----- ------
Total costs and
expenses....... 18,100 1,180 3,592 3,517 1,078 3,934 515 31,916 2,697 8,413
------- ----- ----- ----- ----- ----- ---- ------ ----- ------
Income from
operations........ 5,538 97 461 907 191 1,127 (515) 7,806 990 1,727
Other income
(expense):
Interest expense.. (127) (8) (45) (125) (35) -- (340) -- (132)
Other............. 206 (16) -- -- -- -- 190 -- --
------- ----- ----- ----- ----- ----- ---- ------ ----- ------
Income before
income taxes... 5,617 73 416 782 156 1,127 (515) 7,656 990 1,595
Income taxes....... 1,685 -- -- 301 65 428 H (49) 2,410 356 638
J (20)
------- ----- ----- ----- ----- ----- ---- ------ ----- ------
Net income........ $ 3,932 73 416 481 91 699 (446) 5,246 634 957
======= ===== ===== ===== ===== ===== ==== ====== ===== ======
Net income per
common share and
common share
equivalent........ $ 0.22 $ 0.26
======= ======
Weighted average
shares
outstanding....... 17,619 20,167
======= ======
<CAPTION>
SUPERIOR
SUB PRO FORMA PRO
SURFACE ADJUSTMENTS FORMA
--------- ----------- --------
<S> <C> <C> <C>
Revenues........... 10,614 64,163
--------- ----------- --------
Costs and expenses:
Costs of
services......... 4,394 28,471
Depreciation and
amortization..... 2,016 G (113) 5,483
General and
administratiave.. 1,858 K (142) 17,085
--------- ----------- --------
Total costs and
expenses....... 8,268 (255) 51,039
--------- ----------- --------
Income from
operations........ 2,346 255 13,124
Other income
(expense):
Interest expense.. (88)L (3,085) (3,645)
Other............. -- 190
--------- ----------- --------
Income before
income taxes... 2,258 (2,830) 9,669
Income taxes....... 813 (543) 3,674
--------- ----------- --------
Net income........ 1,445 (2,287) 5,995
========= =========== ========
Net income per
common share and
common share
equivalent........ $ 0.30
========
Weighted average
shares
outstanding....... 20,167
========
</TABLE>
F-5
<PAGE>
A) To reflect the purchase price adjustments related to the acquisition of
Fastorq, Inc. The purchase price is the sum of $4,810,000 cash and a
promissory note, contingent on future earnings, of $2,590,000. Amounts to
be paid under the promissory note are subject to certain minimum earnings
requirements and are not reflected in the purchase price which approximates
$4,810,000. The property and equipment were valued at their approximate
fair value of $1,192,000. Deferred taxes have been provided for the
difference between the book and tax basis of the property, plant and
equipment acquired. The excess purchase price over the fair value of net
assets of Fastorq at September 30, 1997 of approximately $2,402,000 was
allocated to goodwill to be amortized over 20 years.
B) To reflect the purchase price adjustments related to the acquisition of
Stabil Drill, Inc. The purchase price is the sum of $17,500,000 cash and a
promissory note, contingent on future earnings, of $7,500,000. Amounts to
be paid under the promissory note are subject to certain minimum earnings
requirements and is not reflected in the purchase price which approximated
$17,500,000. The property and equipment were valued at their approximate
fair value of $6,219,000. Deferred taxes have been provided for the
difference between the book and tax basis of the property, plant and
equipment acquired. The excess purchase price over the fair value of net
assets of Stabil Drill at September 30, 1997 of approximately $11,506,000
was allocated to goodwill to be amortized over 20 years.
C) To reflect the purchase price adjustments related to the acquisition of
Sub-Surface, Inc. The purchase price is the sum of $17,500,000 cash and a
promissory note, contingent on future earnings, of $7,500,000. Amounts to
be paid under the promissory note are subject to certain minimum earnings
requirements and are not reflected in the purchase price which approximates
$17,500,000. The property and equipment were valued at their approximate
fair value of $14,580,000. Deferred taxes have been provided for the
difference between the book and tax basis of the property, plant and
equipment acquired. The excess purchase price over the fair value of net
assets of Sub-Surface at September 30, 1997 of approximately $4,166,000 was
allocated to goodwill be amortized over 20 years.
D) To reflect depreciation and amortization of goodwill associated with the
acquisitions of Nautilus, F&F Wireline and Tong for the pro forma nine-
months ended September 30, 1997.
<TABLE>
<S> <C> <C> <C> <C>
Adjustments For: Nautilus F&F Wireline Tong Total
-------- ------------ ------- -------
Depreciation........................ $(18,000) 14,000 (21,000) (25,000)
Amortization........................ 22,000 5,000 79,000 106,000
-------- ------------ ------- -------
Total............................. $ 4,000 19,000 58,000 81,000
======== ============ ======= =======
</TABLE>
E) To reflect the depreciation and amortization of goodwill associated with
the acquisitions of Fastorq, Stabil Drill and Sub-Surface for the pro forma
nine-months ended September 30, 1997.
<TABLE>
<S> <C> <C> <C> <C>
Adjustments For: Fastorq Stabil Drill Sub-Surface Total
------- ------------ ----------- --------
Depreciation.................... $ 5,000 (178,000) (497,000) (670,000)
Amortization.................... 90,000 431,000 156,000 677,000
------- ------------ ----------- --------
Total......................... $95,000 253,000 (341,000) 7,000
======= ============ =========== ========
</TABLE>
F-6
<PAGE>
F) To reflect the depreciation and amortization of goodwill associated with
the acquisitions of Nautilus, F&F Wireline, Tong, Dimensional and Baytron
for the pro forma year 1996.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Adjustments For: Nautilus F&F Wireline Tong Dimensional Baytron Total
--------- ------------ ------- ----------- ------- -------
Depreciation............ $(110,000) 54,000 (85,000) 38,000 18,000 (85,000)
Amortization............ 131,000 20,000 317,000 94,000 38,000 600,000
--------- ------------ ------- ----------- ------- -------
Total................. $ 21,000 74,000 232,000 132,000 56,000 515,000
========= ============ ======= =========== ======= =======
</TABLE>
G) To reflect the depreciation and amortization of goodwill associated with
the acquisitions of Fastorq, Stabil Drill and Sub-Surface for the pro forma
year 1996.
<TABLE>
<S> <C> <C> <C> <C>
Adjustment For: Fastorq Stabil Drill Sub-Surface Total
-------- ------------ ----------- ----------
Depreciation................. $ 33,000 (155,000) (894,000) (1,016,000)
Amortization................. 120,000 575,000 208,000 903,000
-------- ------------ ----------- ----------
Total...................... $153,000 420,000 (686,000) (113,000)
======== ============ =========== ==========
</TABLE>
H) To adjust the Company's provision for income taxes to give effect to the
acquisitions of Nautilus, F&F Wireline and Tong
I) To adjust the Company's provision for income taxes to give effect to the
acquisitions of Fastorq, Stabil Drill and Sub-Surface.
J) To adjust the Company's provision for income taxes to give effect to the
acquisitions of Baytron and Dimensional.
K) To adjust compensation for employees to amounts per employment agreements
entered in connection with the acquisition of Fastorq.
L) To record interest expense at a current interest rate of 7.75% for
acquisition of companies. If the maximum rate (prime) of 8.5% (maximum
price in 1997) would have been used, the annual interest expense would have
increased by $315,000 to $3.4 million and the nine month interest expense
would have increased by $200,000 to $2.5 million.
F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Superior Energy Services, Inc.:
We have audited the consolidated balance sheets of Superior Energy Services,
Inc. and subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of operations, changes in stockholders' equity and
cash flows for the years then ended. 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 Superior
Energy Services, Inc. and subsidiaries as of December 31, 1995 and 1996, and
the results of their operations and their cash flows for each of the years
then ended in conformity with generally accepted accounting principles.
As discussed in Note 9 to the consolidated financial statements, in 1995 the
Company adopted the methods of accounting for the impairment of long-lived
assets and for long-lived assets to be disposed of prescribed by Statement of
Financial Accounting Standards No. 121.
KPMG PEAT MARWICK LLP
New Orleans, Louisiana
March 14, 1997
F-8
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1995 1996
------ ------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 5,068 $ 433
Accounts receivable--net of allowance for doubtful accounts
of $204,000 in 1995 and $149,000 in 1996................... 3,759 6,966
Inventories................................................. 968 1,197
Deferred income taxes....................................... 256 137
Other....................................................... 227 345
------- -------
Total current assets...................................... 10,278 9,078
Property, plant and equipment--net............................ 6,904 9,894
Goodwill--net................................................. 4,576 8,239
Patent--net................................................... 1,226 1,126
------- -------
$22,984 $28,337
======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Notes payable--bank......................................... $ 1,249 $ 351
Accounts payable............................................ 2,345 1,800
Notes payable--other........................................ 3,422 1,171
Unearned income............................................. 1,085 392
Accrued expenses............................................ 456 1,362
Income taxes payable........................................ 545 1,208
Other....................................................... 200 200
------- -------
Total current liabilities................................. 9,302 6,484
------- -------
Deferred income taxes......................................... 408 1,254
Long-term debt................................................ -- 250
Other......................................................... 180 --
Stockholders' equity:
Preferred stock of $.01 par value. Authorized--5,000,000
shares; none issued........................................ -- --
Common stock of $.001 par value. Authorized--40,000,000
shares; issued--18,597,045................................. 17 19
Additional paid-in capital.................................. 16,230 19,551
Retained earnings (deficit)................................. (3,153) 779
------- -------
Total stockholders' equity................................ 13,094 20,349
------- -------
$22,984 $28,337
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-9
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Revenues................................................ $ 12,338 $ 23,638
--------- ----------
Costs and expenses:
Costs of services..................................... 7,487 11,040
Depreciation and amortization......................... 259 1,323
Impairment of long-lived assets....................... 4,042 --
General and administrative............................ 3,258 5,737
--------- ----------
Total costs and expenses............................ 15,046 18,100
--------- ----------
Income (loss) from operations........................... (2,708) 5,538
Other income (expense):
Interest expense...................................... (86) (127)
Other................................................. 79 206
--------- ----------
Income (loss) before income taxes................... (2,715) 5,617
Income taxes............................................ 131 1,685
--------- ----------
Net income (loss)................................... $ (2,846) $ 3,932
========= ==========
Net loss as adjusted for pro forma income taxes
(unaudited):
Loss before income taxes as per above................. $ (2,715)
Pro forma income taxes................................ 640
---------
Net loss as adjusted for pro forma income taxes..... $ (3,355)
=========
Net income (loss) per common share and common share
equivalent............................................. $ (.38) $ 0.22
========= ==========
Weighted average shares outstanding..................... 8,847,946 17,618,711
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
DECEMBER 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON ADDITIONAL RETAINED
STOCK COMMON PAID-IN EARNINGS
SHARES STOCK CAPITAL (DEFICIT) TOTAL
---------- ------ ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994..... 3,550 $ 248 $ -- $ 2,025 $ 2,273
Net loss....................... -- -- -- (2,846) (2,846)
Shareholder distributions...... -- -- -- (2,465) (2,465)
Acquisition of Oil Stop, Inc... 1,800,000 2 3,598 -- 3,600
Share exchange for the Superior
Companies..................... 10,037,700 (238) 3,350 133 3,245
Sale of common stock........... 5,175,000 5 9,265 -- 9,270
Exercise of private warrants... 16,666 -- 17 -- 17
---------- ----- ------- ------- -------
Balance, December 31, 1995..... 17,032,916 17 16,230 (3,153) 13,094
Net income..................... -- -- -- 3,932 3,932
Acquisition of remaining minor-
ity interest in Ace Rental
Tools, Inc.................... 14,129 -- 35 -- 35
Acquisition of Baytron, Inc.... 550,000 1 1,099 -- 1,100
Acquisition of Dimensional Oil
Field Services, Inc........... 1,000,000 1 2,187 -- 2,188
---------- ----- ------- ------- -------
Balance, December 31, 1996..... 18,597,045 $ 19 $19,551 $ 779 $20,349
========== ===== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $(2,846) $ 3,932
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.............................. 259 1,323
Unearned income............................................ 1,085 (692)
Impairment of long-lived assets............................ 4,042 --
Deferred income taxes...................................... (444) 258
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable....................................... (384) (1,490)
Notes receivable.......................................... 120 --
Inventories............................................... 61 (229)
Other--net................................................ 141 (56)
Accounts payable.......................................... (332) (1,482)
Due from (to) shareholders................................ 1,243 (302)
Accrued expenses.......................................... 58 751
Income taxes payable...................................... 613 663
------- -------
Net cash provided by operating activities................ 3,616 2,676
------- -------
Cash flows from investing activities:
Proceeds from sale of property and equipment................ -- 354
Payments for purchases of property and equipment............ (610) (1,965)
Deferred payment for acquisition of Oil Stop, Inc........... -- (2,000)
Acquisition of businesses, net of cash acquired............. -- (2,321)
------- -------
Net cash used in investing activities.................... (610) (5,932)
------- -------
Cash flows from financing activities:
Notes payable............................................... (5,264) (1,379)
Shareholder distributions................................... (2,465) --
Due to shareholders......................................... 297 --
Proceeds from sale of common stock.......................... 9,287 --
------- -------
Net cash (used in) provided by financing activities...... 1,855 (1,379)
------- -------
Net (decrease) increase in cash.......................... 4,861 (4,635)
Cash and cash equivalents at beginning of year............... 207 5,068
------- -------
Cash and cash equivalents at end of year..................... $ 5,068 $ 433
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts of Superior
Energy Services, Inc. and its subsidiaries (the Company). All significant
intercompany accounts and transactions are eliminated in consolidation.
Certain previously reported amounts have been reclassified to conform to the
1996 presentation.
(b) Business
The Company is in the business of providing an integrated range of
specialized oilfield products and services in the Gulf of Mexico. These
products and services include oil and gas well plug and abandonment, wireline
and workover services, the manufacture, sale and rental of specialized oil
well equipment and fishing tools, the development, manufacture, sale and
rental of oil and gas drilling instrumentation and computerized rig data
acquisition systems, and the development, manufacture and sale of oil spill
containment booms and ancillary equipment. A majority of the Company's
business is conducted with major oil and gas exploration companies. The
Company continually evaluates the financial strength of their customers but
does not require collateral to support the customer receivables. The Company
operated as one segment in 1995 and 1996.
Customers which accounted for 10 percent or more of revenue for the years
ended December 31, 1995 and 1996, were as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Chevron USA................................................... 23.7% 34.5%
Conoco Inc.................................................... 16.4% 8.9%
</TABLE>
(c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the related
lives as follows:
<TABLE>
<S> <C>
Buildings................................................... 30 years
Machinery and equipment..................................... 5 to 15 years
Automobiles, trucks, tractors and trailers.................. 2 to 5 years
Furniture and equipment..................................... 5 to 7 years
</TABLE>
The Company assesses the potential impairment of capitalized costs of long-
lived assets in accordance with Statement of Financial Accounting Standards
(FAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. Under this method, the Company assesses
its capitalized costs utilizing its current estimate of future revenues and
operating expenses. In the event net undiscounted cash flow is less than
capitalized costs, an impairment loss is recorded based on estimated fair
value, which would consider discounted future net cash flows.
F-13
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(e) Goodwill
The Company amortizes costs in excess of fair value of net assets of
businesses acquired using the straight-line method over a period of 20 years.
Recoverability will be reviewed periodically by comparing the undiscounted
fair value of cash flows of the assets to which the goodwill applies to the
net book value, including goodwill, of assets.
(f) Inventories
Inventories are stated at the lower of average cost or market. The cost of
booms and parts are determined principally on the first-in, first-out method.
(g) Cash Equivalents
The Company considers all short-term deposits with a maturity of ninety days
or less to be cash equivalents.
(h) Revenue Recognition
The Company recognizes revenues when services are provided and upon the
completion of job orders from its customers. Rental income is recognized on a
straight-line basis. Unearned income is recorded for lease payments in excess
of rental income recognized.
(i) Income Taxes
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards (FAS) No. 109, Accounting for Income Taxes. FAS
No. 109 requires an asset and liability approach for financial accounting and
reporting for income taxes. Deferred income taxes reflect the impact of
temporary differences between amounts of assets for financial reporting
purposes and such amounts as measured by tax laws.
(j) Patents
Patents are amortized using the straight-line method over the life of each
patent.
(k) Pro Forma Income Taxes and Earnings per Share
Pro forma income tax expense and net income (loss) as adjusted for income
taxes is presented on the Statement of Operations in order to reflect the
impact on income taxes as if the entire consolidated company had been a
taxable entity for all of 1995. In computing weighted average shares
outstanding, 8,400,000 shares issued in the Reorganization (see Note 2) is
assumed to be outstanding as of January 1, 1995. All other common shares
issued or sold are included in the weighted average shares outstanding
calculation from the date of issuance or sale.
(l) Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and notes payable. The carrying amount
of these financial instruments approximates their fair value.
F-14
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(2) BUSINESS COMBINATIONS
In July 1996, the Company, pursuant to a statutory merger, acquired Baytron,
Inc. (Baytron) for $1,100,000 in cash and 550,000 shares of the Company's
common stock at the current approximate $2.00 market price at the date of
purchase for a total purchase price of $2,200,000. The property, plant and
equipment of Baytron were valued at their estimated fair value of
approximately $791,000. Deferred taxes have been provided for the difference
between the book and tax basis of the property. The remaining assets and
liabilities approximated their fair values. The excess purchase price over the
fair value of the net assets of Baytron at July 31, 1996 of $1,309,000 was
allocated to goodwill to be amortized over 20 years.
In September 1996, the Company, pursuant to a statutory merger, acquired all
the capital stock of Dimensional Oil Field Services, Inc. (Dimensional) for
$1,500,000 in cash, a promissory note of $1,000,000 and 1,000,000 restricted
shares of the Company's common stock at the current approximate $2 3/16 market
price at the date of purchase. Promissory notes having an aggregate value of
$750,000 are subject to certain minimum earnings requirements and are not
reflected in the purchase price which approximates $3,984,000. The property,
plant and equipment of Dimensional were valued at their estimated fair value
of approximately $1,517,000. Deferred taxes have been provided for the
difference between the book and tax basis of the property. The remaining
assets and liabilities approximated their fair values. The excess purchase
price over the fair value of the net assets of Dimensional at September 15,
1996 of approximately $2,649,000 was allocated to goodwill to be amortized
over 20 years.
On December 13, 1995, the Company consummated a share exchange (the Share
Exchange) whereby it (i) acquired all of the outstanding common stock of
Superior Well Service, Inc., Connection Technology, Ltd. and Superior Tubular
Services, Inc. (collectively, Superior ) and (ii) acquired all of the
outstanding common stock of Oil Stop, Inc. (Oil Stop). As used in the
consolidated statements of the Company, the term Small's (Small's Oilfield
Services Corp.) refers to the Company as of dates and periods prior to the
consummation of the Share Exchange.
Small's acquired all of the capital stock of Superior for 8,400,000 Common
Shares. Because of the controlling interest that Superior shareholders had in
the combined entity, among other factors, the transaction was accounted for as
a reverse acquisition which resulted in the adjustment of the net assets of
Small's to its estimated fair value as required by the rules of purchase
accounting. The net assets of Superior were reflected at their respective
historical book values. The valuation of Small's net assets was based upon the
1,641,250 shares of common stock outstanding prior to the Share Exchange at
the approximate market price of $2.00 at the time of the renegotiation of the
Share Exchange on August 25, 1995. The purchase price allocated to net assets
was $3,283,000. The revaluation resulted in a substantial reduction in the
carrying value of Small's property and equipment. The revaluation reflected an
excess purchase price of $3,520,000 over the fair value of tangible assets
which was recorded as goodwill. At December 31, 1995, in applying the rules of
FAS No. 121 (see Note 9), this goodwill was written off and the property and
equipment was written down an additional $522,000.
Small's also acquired Oil Stop for the sum of $2,000,000 in cash and
1,800,000 million shares of common stock at the approximate trading price of
$2.00 at the time of the renegotiation of the Share Exchange on August 25,
1995 for a total purchase price of $5,600,000. The book values of Oil Stop's
assets and liabilities approximated their fair values under the rules of
purchase accounting. The excess purchase price over the fair value of the net
assets of Oil Stop at December 13, 1995 of $4,585,000 was allocated to
goodwill to be amortized over 20 years.
Each of the above transactions have been accounted for as a purchase and the
results of operations of the acquired company have been included from the
acquisition date.
F-15
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
The following unaudited pro forma information presents a summary of
consolidated results of operations as if the acquisitions and the Share
Exchange had occurred on January 1, 1995 with pro forma adjustments to give
effects to amortization of goodwill, depreciation and certain other
adjustments together with related income tax effects (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Net sales............................................... $25,870 $28,968
======= =======
Net earnings (loss)..................................... $(4,151) $ 4,253
======= =======
Earnings (loss) per share............................... $ (0.40) $ 0.23
======= =======
</TABLE>
The above pro forma financial information is not necessarily indicative of
the results of operations as they would have been had the acquisitions and the
Share Exchange been effected on the assumed date.
Subsequent to year end, the Company, pursuant to a stock purchase agreement
dated February 28, 1997, acquired all of the outstanding common stock of
Nautilus Pipe & Tool Rental, Inc. and Superior Bearing & Machine Works, Inc.
(collectively doing business as "Concentric Pipe & Tool Rentals") for
$4,000,000 cash, 420,000 restricted shares of the Company's common stock and a
promissory note in the principal amount of $2,150,000. The promissory note of
$2,150,000 is subject to certain contingencies and is not reflected in the
purchase price which approximates $5,838,000. Concentric Pipe & Tool Rentals
is engaged in the business of renting specialized equipment used in the
exploration, development and production of oil and gas and has operating
facilities in Houma and Lafayette, Louisiana.
(3) LEASED EQUIPMENT
In April 1993, the Company entered into an agreement to lease equipment
(boom) to National Response Corporation for the period June 1993 through
December 31, 1997. The lease is an operating lease. The lessee has the option
to purchase the equipment at the end of the lease term for $450,000. Rental
income is recognized on a straight-line basis. Unearned income is recorded for
lease payments in excess of rental income recognized.
(4) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment at December 31, 1995 and 1996 (in
thousands) is as follows:
<TABLE>
<CAPTION>
1995 1996
------ -------
<S> <C> <C>
Buildings................................................. $ 462 $ 462
Machinery and equipment................................... 5,669 8,725
Automobiles, trucks, trailers and tractors................ 839 1,036
Furniture and fixtures.................................... 74 184
Construction-in-progress.................................. 360 1,170
Land...................................................... 320 20
------ -------
7,724 11,597
Less accumulated depreciation............................. 820 1,703
------ -------
Property, plant and equipment, net........................ $6,904 $ 9,894
====== =======
</TABLE>
The cost of property, plant and equipment leased to third parties was
$5,231,000 at December 31, 1995 and 1996.
F-16
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(5) NOTES PAYABLE
The Company's notes payable as of December 31, 1995 and 1996 consist of the
following (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ ----
<S> <C> <C>
Revolving line of credit in the original amount of $1,000,000
bearing a variable rate of interest which equals the Wall Street
Journal posted prime rate (8.5% at December 31, 1995) plus 2%;
principal due March 31, 1996..................................... $ 918 $ --
Master note loan agreement with bank with a maximum principal
amount of $4,000,000 bearing interest at the bank's prime rate
(8.25% at December 31, 1996)..................................... -- 300
Note payable in connection with purchase of Dimensional Oil Field
Services, Inc., due January, 1998, annual interest of 7.0%....... -- 250
Installment notes payable, annual interest rates of 8.00% to 8.75%
at December 31, 1996............................................. 90 51
Notes payable to insurance company, due July 1996, annual interest
rate of 7.5%..................................................... 96 --
Other installment notes payable with interest rates ranging from
7.35% to 12.0% due in monthly installments through 1996.......... 145 --
------ ----
1,249 601
Less current portion of notes payable............................. 1,249 351
------ ----
Long-term debt.................................................... $ -- $250
====== ====
</TABLE>
At December 31, 1996, the Company had notes payable related to acquisitions
totaling $750,000 which are not recorded as their payment is subject to
certain minimum earnings requirements.
Subsequent to year end, the Company borrowed $4.0 million in connection with
the acquisition of Concentric Pipe & Tool Rentals. Interest is at the lender's
prime rate. The loan requires no principal payments through December 31, 1997
at which time it will convert to a five or seven year term loan (at the
Company's option) with principal and interest payable monthly thereafter at
8.25%.
(6) INCOME TAXES
Prior to December 13, 1995, certain companies in the Share Exchange were
sub-chapter S corporations for income tax reporting purposes. Therefore,
through December 13, 1995, no provision for federal and state income taxes had
been made. In accordance with the terms of the Share Exchange, the sub-chapter
S shareholders received a note to be paid in five equal installments during
the twelve-month period ended November 1, 1997 for undistributed earnings
prior to January 1, 1995 in the amount of $1,374,000. In addition, they
received $1,091,000 primarily to pay taxes on earnings from January 1, 1995
through December 13, 1995. Pro forma income tax expense and net income (loss)
as adjusted for income taxes is presented on the Statements of Operations in
order to reflect the impact of income taxes as if Superior had been a taxable
entity for all of 1995.
F-17
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
The components of income tax expense for the years ended December 31, 1995
and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
----- ------
<S> <C> <C>
Current:
Federal................................................... $ 497 $1,382
State..................................................... 78 54
----- ------
575 1,436
----- ------
Deferred:
Federal................................................... (384) 242
State..................................................... (60) 7
----- ------
$ 131 $1,685
===== ======
</TABLE>
The significant components of deferred tax assets and liabilities at
December 31, 1995 and 1996 are as follows ( in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Property, plant and equipment........................ $ 527 $ --
Unearned income...................................... 401 137
Allowance for doubtful accounts...................... 75 51
Net operating loss carryforward...................... 1,118 942
------- -------
2,121 1,130
Valuation allowance.................................. (1,900) (992)
------- -------
Net deferred tax assets............................ 221 138
------- -------
Deferred tax liabilities:
Property, plant and equipment........................ -- (946)
Patent............................................... (373) (308)
------- -------
(373) (1,254)
------- -------
$ (152) $(1,116)
======= =======
</TABLE>
A valuation allowance is provided to reduce the deferred tax assets to a
level which, more likely than not, will be realized. The net deferred tax
assets reflect management's estimate of the amount which will be realized from
future profitability which can be predicted with reasonable certainty.
As of December 31, 1996, the Company has a net operating loss carryforward
of approximately $2.8 million which is available to reduce future Federal
taxable income through 2010. The utilization of the net operating loss
carryforward is limited to approximately $200,000 a year.
F-18
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
A reconciliation between the statutory federal income rate and the Company's
effective tax rate on pretax income (loss) for the years ended December 31,
1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
----- ----
<S> <C> <C>
Federal income tax rate..................................... (34.0)% 34.0%
Impairment of long-lived assets............................. 50.6 --
Sub-chapter S income not subject to corporate tax........... (17.2) --
Valuation allowance adjustment.............................. -- (6.3)
Other....................................................... 5.4 2.3
----- ----
Effective income tax rate................................... 4.8% 30.0%
===== ====
</TABLE>
(8) JOINT VENTURE
On January 15, 1996, the Company entered into a joint venture with the G&L
Tool Company, Inc. ("G&L"), an unrelated party, which extends through January
31, 2001. The Company contributed its West Texas assets that had a book value
of approximately $4.5 million to the joint venture which will be engaged in
the business of renting specialized oil well equipment and fishing tools to
the oil and gas industry in connection with the drilling, development and
production of oil, gas and related hydrocarbons.
The Company receives as its share of distributions from operations $110,000
a month which began February 1996 and runs through January 1998 and $80,000 a
month for the period February 1998 through January 2001. The distributions are
reflected as revenues on the Statements of Operations. The Company's share of
distributions is personally guaranteed by a principal of G&L.
At the end of the joint venture term, G&L will have at its election, the
option to purchase all of the Company's West Texas assets contributed to the
joint venture for $2 million.
(9) IMPAIRMENT OF LONG-LIVED ASSETS
In 1995 the Company elected the early adoption of Statement of Financial
Accounting Standards (FAS) No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of. FAS No. 121 requires
that when events or changes in circumstances indicate that carrying amounts of
an asset may not be recoverable, there has been an impairment, and the asset
should be written down to its fair asset value. In such instances where there
is goodwill associated with the asset as a result of a business combination
accounted for using the purchase method, the goodwill is eliminated before
making any reduction of the carrying amounts of the impaired long-lived asset.
The undiscounted net cash flows from the joint venture described in Note 8
were less than the carrying value of the property, plant and equipment and
associated goodwill indicating that an impairment had taken place.
The fair value of the fixed assets was determined by discounting the
estimated net cash flows from the joint venture. The result was an impairment
charge of $4,042,000 for the year ended December 31, 1995 consisting of a
write-off of goodwill of $3,520,000 and a write-off of $522,000 of property,
plant and equipment.
F-19
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(10) STOCKHOLDERS' EQUITY
At a special meeting of stockholders on February 23, 1996, the shareholders
approved increasing the authorized number of shares of common stock to
40,000,000. At December 31, 1996, the following were outstanding:
(a) Class A Warrants issued in connection with the Company's initial
public offering, entitling the holders to purchase an aggregate of
1,121,251 shares of Common Stock until July 6, 1997 at an exercise price of
$6.00 per Common Share;
(b) Class B Warrants issued December 13, 1995 entitling the holder to
purchase an aggregate of 5,175,000 shares of Common Stock until December
13, 2000 at an exercise price of $3.60 per Common Share;
(c) Warrants entitling the holders thereof to purchase an aggregate of
66,666 shares of Common Stock until January 17, 2000 at an exercise price
of $1.00 per share;
(d) Options to purchase an aggregate of 75,000 shares of Common Stock
until December 31, 1997 at an exercise price of $3.60 per share;
(e) Options to purchase an aggregate of 150,000 shares of Common Stock
until May 5, 1998 at an exercise price of $4.75 per share;
(f) Options issued in July 1992 to purchase (a) an aggregate of 210,000
shares of Common Stock until July 6, 1997 at an exercise price of $3.60 per
share and (b) Class A Warrants at an exercise price of $.07 per warrant,
which Class A Warrants entitle the holders thereof to purchase an aggregate
of 210,000 shares of Common Stock at a price of $6.00 per share, and
(g) Underwriters Unit Purchase Options issued December 13, 1995 entitling
the holder to purchase up to 150,000 Units until December 13, 1999 at an
exercise price of $10.40.
Under a Stock Option Plan (1991 Option Plan), approved by the Company's
stockholders and Board of Directors, the Company may grant to officers,
directors, employees, consultants and agents stock options for up to 75,000
shares of the Company's common stock. Stock options are exercisable at the
greater of the fair market value of the common shares on the date of grant or
$5.00 and options may not be granted to persons who hold 10% or more of the
Company outstanding common shares on the date of a proposed grant. All options
expire ten years from the date of grant. None of the stock options under the
1991 Option Plan has been granted.
In October 1995, the stockholders approved the 1995 Stock Incentive Plan
(Incentive Plan) to provide long-term incentives to its key employees,
including officers and directors who are employees of the Company (Eligible
Employees). Under the Incentive Plan, the Company may grant incentive stock
options, non-qualified stock options, restricted stock, stock awards or any
combination thereof to Eligible Employees for up to 600,000 shares of the
Company's Common Stock. The Compensation Committee of the Board of Directors
establishes the exercise price of any stock options granted under the
Incentive Plan, provided the exercise price may not be less than the fair
market value of a common share on the date of grant.
F-20
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
A summary of stock options granted under the Incentive Plan for the years
ended December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---------------- -----------------
NUMBER WEIGHTED NUMBER WEIGHTED
OF AVERAGE OF AVERAGE
SHARES PRICE SHARES PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year............. -- 150,000 $2.53
Granted...................................... 150,000 $2.53 421,500 $2.56
Exercised.................................... -- -- --
Forfeited.................................... -- -- (40,000) $2.56
Canceled..................................... -- -- -- --
------- ----- ------- -----
Outstanding at the end of year............... 150,000 $2.53 531,500 $2.55
======= ===== ======= =====
Exercisable at end of year................... -- -- 357,000 $2.55
======= ===== ======= =====
Available for future grants.................. 450,000 68,500
======= =======
</TABLE>
The Company accounts for its stock based compensation under the principles
prescribed by the Accounting Principles Board's Opinion No. 25, Accounting for
Stock Issued to Employees (Opinion No. 25). Accordingly, stock options awarded
under the Incentive Plan are considered to be "non-compensatory" and do not
result in the recognition of compensation expense.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (FAS) No.123 Accounting for Stock-Based
Compensation, which encouraged the use of fair value based method of
accounting for compensation expense associated with stock option and similar
plans. However, FAS No. 123 permits the continued use of the value based
method prescribed by Opinion No. 25 but required additional disclosures,
including pro forma calculations of earnings and net earnings per share as if
the fair value method of accounting prescribed by FAS No. 123 had been applied
in 1995 and 1996. The pro forma data presented below is not representative of
the effects on reported amounts for future years because FAS No. 123 does not
apply to awards prior to 1995 and additional awards are expected in the future
(in thousands, except per share amounts).
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
--------------------- ---------------------
1995 1996 1995 1996
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net income (loss)................ $ (3,355) $ 3,932 $ (3,355) $ 3,798
========= ========== ========= ==========
Earnings per share............... $ (0.38) $ 0.22 $ (0.38) $ 0.22
========= ========== ========= ==========
Average shares outstanding....... 8,847,946 17,618,711 8,847,946 17,618,711
========= ========== ========= ==========
Average fair value of grants dur-
ing the year.................... -- -- $ 0.57 $ 0.58
========= ========== ========= ==========
Black-Scholes option pricing
model assumptions:
Risk free interest rate........ 5.9% 6.1%
Expected life (years).......... 3 3
Volatility..................... 20.6% 20.6%
Dividend yield................. -- --
========= ==========
</TABLE>
F-21
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(11) COMMITMENTS AND CONTINGENCIES
The Company leases certain office, service and assembly facilities under
operating leases. The leases expire at various dates over the next several
years. Total rent expense was $85,000 in 1995 and $169,000 in 1996. Future
minimum lease payments under non-cancelable leases for the five years ending
December 31, 1996 through 2000 are as follows: $243,000, $198,000, $93,000,
$54,000 and none, respectively.
From time to time, the Company is involved in litigation arising out of
operations in the normal course of business. In management's opinion, the
Company is not involved in any litigation, the outcome of which would have a
material effect on its business or operations.
(12) RELATED PARTY TRANSACTIONS
The Company has entered into certain transactions which have given rise to
amounts payable to the shareholders. The balances at December 31, 1995 and
1996 were $3,422,000 and $1,171,000, respectively.
Due to shareholders, included in notes payable--other on the consolidated
balance sheet, at December 31, 1995 consisted of $2,000,000 paid January 2,
1996 to the former sole shareholder of Oil Stop in the acquisition of that
company and approximately $1,374,000 due to the former shareholders of
Superior for undistributed earnings in sub-chapter S corporations prior to
December 31, 1994. Due to shareholders at December 31, 1996 is primarily for
the undistributed earnings in sub-chapter S corporations prior to December 31,
1994.
The Company paid consulting fees to a director, who is not an employee, of
$25,000 in 1995 and $23,000 in 1996. The employment contract of a director,
who is a former officer, was converted to a consulting agreement, in May 1996.
He was paid $70,000 in 1996 under this agreement and will be paid $60,000 in
1997 and 1998. The Company also paid a director, who is also an employee and a
shareholder rent of approximately $2,400 in 1995 and $46,200 in 1996. The
Company is obligated to make such rent payments in the future as follows:
$46,200 in 1997 and $46,200 in 1998. The Company also paid an employee $36,000
in 1995 for the rent of two facilities. As of December 31, 1995, the Company
negotiated the cancellation of lease with an officer and director in the
amount of $125,000.
F-22
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
ASSETS 1997
------ -------------
<S> <C>
Current assets:
Cash and cash equivalents...................................... $ 1,103
Accounts receivable--net....................................... 13,183
Inventories.................................................... 1,474
Deferred income taxes.......................................... 137
Other.......................................................... 885
-------
Total current assets......................................... 16,782
-------
Property, plant and equipment--net............................... 23,193
Goodwill--net.................................................... 17,347
Patent--net...................................................... 1,052
-------
Total assets................................................. $58,374
=======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
Current liabilities:
Accounts payable............................................... $ 2,244
Notes payable--other........................................... 296
Unearned income................................................ 173
Accrued expenses............................................... 2,166
Income taxes payable........................................... 352
-------
Total current liabilities.................................... 5,231
-------
Deferred income taxes............................................ 3,570
Long-term debt................................................... 1,412
Stockholders' equity:
Preferred stock of $.01 par value. Authorized, 5,000,000
shares; none issued........................................... --
Common stock of $.001 par value. Authorized, 40,000,000 shares;
issued, 25,143,985............................................ 25
Additional paid-in capital..................................... 41,620
Retained earnings.............................................. 6,516
-------
Total stockholders' equity................................... 48,161
-------
Total liabilities and stockholders' equity................... $58,374
=======
</TABLE>
F-23
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER ENDED SEPTEMBER
30, 30,
---------------- ----------------
1996 1997 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue.................................... $ 5,910 $13,220 $15,240 $33,309
------- ------- ------- -------
Costs and expenses:
Costs of services........................ 2,716 5,442 7,129 14,735
Depreciation and amortization............ 346 829 936 1,992
General and administrative............... 1,359 3,063 3,548 7,556
------- ------- ------- -------
Total costs and expenses............... 4,421 9,434 11,613 24,283
------- ------- ------- -------
Income from operations..................... 1,489 3,886 3,627 9,026
Other income (expense):
Interest expense......................... (11) (226) (59) (463)
Other.................................... (7) -- 173 --
------- ------- ------- -------
Income before income taxes............. 1,471 3,660 3,741 8,563
Provision for income taxes................. 441 1,208 1,122 2,826
------- ------- ------- -------
Net income................................. $ 1,030 $ 2,452 $ 2,619 $ 5,737
======= ======= ======= =======
Net income per common share and common
share equivalent.......................... $ 0.06 $ 0.11 $ 0.15 $ 0.28
======= ======= ======= =======
Weighted average shares outstanding........ 17,614 22,126 17,259 20,259
======= ======= ======= =======
</TABLE>
F-24
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
30,
-----------------
1996 1997
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 2,619 $ 5,737
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 936 1,992
Unearned income........................................... (519) (219)
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable...................................... (1,044) (4,387)
Inventories.............................................. 14 (269)
Other-net................................................ (70) (395)
Accounts payable......................................... (1,186) (63)
Due to shareholders...................................... (26) (1,136)
Accrued expenses......................................... 135 670
Income taxes payable..................................... 1,111 (1,234)
------- --------
Net cash provided by operating activities................... 1,970 696
------- --------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired........... (2,349) (9,256)
Payments for purchases of property and equipment........... (1,164) (4,985)
Proceeds from sale of property and equipment............... 357 --
------- --------
Net cash used in investment activities.................. (3,156) (14,241)
Cash flows from financing activities:
Notes payable--bank........................................ (308) (524)
Deferred payment for acquisition of Oil Stop, Inc.......... (2,000) --
Proceeds from exercise of warrants and stock options....... -- 14,739
------- --------
Net cash provided by (used in) financing activities..... (2,308) 14,215
------- --------
Net increase (decrease) in cash......................... (3,494) 670
Cash and cash equivalents at beginning of period............ 5,068 433
------- --------
Cash and cash equivalents at end of period.................. $ 1,574 $ 1,103
======= ========
</TABLE>
F-25
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
Certain information and footnote disclosures normally in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to rules and regulations of
the Securities and Exchange Commission; however, management believes the
disclosures which are made are adequate to make the information presented not
misleading. These financial statements and footnotes should be read in
conjunction with the financial statements and notes thereto included in the
Company's consolidated financial statements for the year ended December 31,
1996.
The financial information for the nine months ended September 30, 1996 and
1997, has not been audited. However, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the results of operations for the periods presented have been
included therein. The results of operations for the first nine months of the
year are not necessarily indicative of the results of operations which might
be expected for the entire year. Certain previously reported amounts have been
reclassified to conform to the 1997 presentation.
(2) BUSINESS COMBINATIONS
The Company, pursuant to a stock purchase agreement dated February 28, 1997,
acquired all of the outstanding common stock of Nautilus Pipe & Tool Rental,
Inc. and Superior Bearing & Machine Works, Inc. (collectively doing business
as "Concentric Pipe & Tool Rentals") for $4,000,000 cash 420,000 restricted
shares of the Company's common stock and a promissory note in the principal
amount of $2,150,000. The amounts payable under the promissory note is subject
to certain contingencies and is not reflected in the purchase price which
approximated $5,838,000. Concentric Pipe & Tool Rentals is engaged in the
business of renting specialized equipment used in the exploration, development
and production of oil and gas and has operating facilities in Houma and
Lafayette, Louisiana.
The Company, pursuant to a stock purchase agreement dated April 30, 1997,
acquired all of the outstanding common stock of F. & F. Wireline Service, Inc.
for $900,000 cash and a promissory note in the principal amount of $600,000.
The amount payable under the promissory note is subject to certain
contingencies and is not reflected in the purchase price of $900,000. F & F
Wireline Service, Inc. is located in Lake Charles, Louisiana and provides
production wireline services on land and throughout the western Gulf of
Mexico.
The Company, pursuant to an agreement and plan of merger dated May 31, 1997,
acquired Tong Rentals and Supply Company, Inc. for $5,500,000 cash and
1,100,000 shares of the Company's common stock. Tong Rentals and Supply
Company, Inc. rents power swivels, power tongs and related equipment. It
operates offices in Lafayette, Louisiana and Houston and Alice, Texas.
Subsequent to September 30, 1997, the Company, pursuant to a stock purchase
agreement dated October 3, 1997, acquired all of the outstanding common stock
of Fastorq, Inc. for $4,810,000 cash and a promissory note in the principal
amount of $2,590,000. The amount payable under the promissory note is subject
to certain contingencies and is not reflected in the purchase price of
$4,810,000. Fastorq, Inc. provides wrench bolting, nut splitting, bolt removal
and mechanical pipe cutting services and has operating facilities in Belle
Chasse and Gonzales, Louisiana.
Subsequent to September 30, 1997, the Company agreed in principle to
purchase all of the outstanding stock of Stabil Drill Specialties, Inc. for
$17,500,000 cash and a promissory note in the principal amount of $7,500,000.
The amount payable under the promissory note will be subject to certain
contingencies. Stabil Drill
F-26
<PAGE>
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
Specialties, Inc. manufactures for sale and rental a full range of tools used
in the bottom hole assembly including stabilizers, mills, hole openers and
non-magnetic drill collars with operating facilities in Lafayette, Houma,
Louisiana and Houston and Corpus Christi, Texas.
Subsequent to September 30, 1997, the Company agreed in principle to
purchase all of the outstanding stock of Sub-Surface Tools, Inc. for
$17,500,000 cash and a promissory note of $7,500,000. The amount payable under
the promissory note will be subject to certain contingencies. Sub-Surface
Tools, Inc. provides specialized rental equipment including tubulars, tubular
handling tools and pressure equipment used for drilling completion and
workover of oil and gas wells with operating facilities in Morgan city, Venice
and New Iberia, Louisiana and Alvin, Texas.
New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards Statement No. 128, (FAS) No. 128, Earnings
Per Share. FAS No. 128 which supersedes Opinion No. 15, will be effective for
the Company's year ended December 31, 1997, and cannot be adopted earlier.
After adoption, all prior period earnings per share must be restated to
conform with FAS No. 128. FAS No. 128 will not have a material impact on the
Company's earnings per share.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Boards of Directors
Stabil Drill Specialties, Inc.:
We have audited the accompanying balance sheets of Stabil Drill Specialties,
Inc. as of August 31, 1996 and 1997, and the related statements of income and
retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements referred to above present fairly,
in all material respects, the financial position of Stabil Drill Specialties,
Inc. as of August 31, 1996 and 1997, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
New Orleans, Louisiana
October 20, 1997
F-28
<PAGE>
STABIL DRILL SPECIALTIES, INC.
BALANCE SHEETS
AUGUST 31, 1996 AND 1997
<TABLE>
<CAPTION>
ASSETS 1996 1997
------ ---------- ---------
<S> <C> <C>
Current assets:
Cash......................................................... $ 25,983 748,801
Accounts receivable, net of allowance of $20,303 and $36,106
in 1996 and 1997, respectively:
Billed..................................................... 2,010,028 3,574,511
Unbilled................................................... 351,984 671,170
Other receivables............................................ 25,453 4,370
Other current assets......................................... 134,122 13,010
---------- ---------
Total current assets..................................... 2,547,570 5,011,862
---------- ---------
Property, plant and equipment, net............................. 2,831,089 4,225,331
Goodwill, net.................................................. -- 473,500
Other assets................................................... 37,501 39,318
---------- ---------
$5,416,160 9,750,011
========== =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Notes payable................................................ 777,116 20,735
Current portion of long-term debt............................ 246,811 314,799
Accounts payable............................................. 243,098 1,004,605
Accrued expenses............................................. 117,622 250,890
Income taxes payable......................................... 40,081 752,596
Deferred income taxes........................................ 185,450 174,118
---------- ---------
Total current liabilities................................ 1,610,178 2,517,743
---------- ---------
Long-term debt................................................. 409,439 1,244,036
Deferred income taxes.......................................... 1,011,926 1,249,814
Stockholders' equity:
Common stock, $1 par value, 10,000 shares authorized, 100
shares issued and outstanding............................... 100 100
Additional paid in capital................................... 39,106 39,106
Retained earnings............................................ 2,345,411 4,699,212
---------- ---------
Total stockholders' equity............................... 2,384,617 4,738,418
---------- ---------
$5,416,160 9,750,011
========== =========
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
STABIL DRILL SPECIALTIES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED AUGUST 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Revenues................................................. $8,601,983 14,372,077
---------- ----------
Costs and expenses:
Operating expenses..................................... 4,374,170 6,144,914
General and administrative............................. 2,440,645 3,367,107
Depreciation........................................... 668,871 807,600
Interest expense....................................... 132,314 82,107
Loss (gain) on sale of other assets.................... 19,717 (19,926)
Deferred compensation.................................. 230,000 --
---------- ----------
7,865,717 10,381,802
---------- ----------
Income before income taxes........................... 736,266 3,990,275
Income taxes............................................. 322,814 1,636,474
---------- ----------
Net income............................................... 413,452 2,353,801
Retained earnings, beginning of year..................... 1,931,959 2,345,411
---------- ----------
Retained earnings, end of year........................... $2,345,411 4,699,212
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
STABIL DRILL SPECIALTIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 413,452 2,353,801
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 670,868 808,818
Gain on sale of equipment............................ (314,995) (621,285)
Deferred income taxes................................ 219,470 112,891
Changes in working capital, net of the effect of the
acquisition of Terrebonne Machine Shop, Inc.:
Accounts receivable................................. (286,720) (1,599,853)
Other assets........................................ (113,100) 45,146
Accounts payable and accrued expenses............... (267,834) 673,086
Other liabilities................................... 6,568 707,149
--------- -----------
Net cash provided by operating activities.......... 327,709 2,479,753
--------- -----------
Cash flows from investing activities:
Capital expenditures.................................. (950,583) (1,964,488)
Proceeds from the sale of equipment................... 534,273 1,021,821
Acquisition of Terrebonne Machine Shop, Inc........... -- (605,070)
--------- -----------
Net cash used in investing activities.............. (416,310) (1,547,737)
--------- -----------
Cash flows from financing activities:
Repayments on loan obligations........................ (750,532) (1,273,302)
Proceeds from issuance of debt........................ 838,262 1,064,104
--------- -----------
Net cash (used in) provided by financing
activities........................................ 87,730 (209,198)
--------- -----------
Net (decrease) increase in cash........................ (871) 722,818
Cash, beginning of year................................ 26,854 25,983
--------- -----------
Cash, end of year...................................... $ 25,983 748,801
========= ===========
Supplemental schedules of noncash investing and
financing activities:
Long-term debt was incurred when the Company purchased
the following assets:
Terrebonne Machine Shop, Inc......................... $ -- 255,402
Equipment............................................ 40,000 --
--------- -----------
$ 40,000 255,402
========= ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.............................................. $ 132,423 82,849
========= ===========
Income taxes.......................................... $ 114,314 896,798
========= ===========
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
STABIL DRILL SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Operations
Stabil Drill Specialties, Inc. (the Company) rents, repairs and sells
drilling tools used in the exploration of oil and gas primarily in Louisiana
and Texas. The Company's customers consist primarily of oil and gas drilling
companies.
(b) Revenue Recognition
The Company recognizes revenues when rentals are provided. Rentals are not
invoiced until the tool is returned from the job. Unbilled accounts receivable
consist of receivables which have not been invoiced as of the end of the
period. In the ordinary course of business, the Company grants credit to
customers, generally without collateral.
(c) Income Taxes
Income taxes are accounted for in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, (FAS) No. 109, Accounting
for Income Taxes. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. 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.
(d) Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Manufacturing overhead
is capitalized and included in the cost of rental tools fabricated by the
Company. Depreciation is computed using the straight line method based on the
estimated useful lives of the individual assets as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Autos and trucks.................................................... 5
Machinery and equipment............................................. 5-18
Leasehold improvements.............................................. 8-15
Building............................................................ 30
</TABLE>
Expenditures for property, plant and equipment and items which substantially
increase the useful lives of existing assets are capitalized at cost while
routine expenditures for repairs and maintenance are expensed as incurred.
(e) Cash Flow Statement
For purposes of the statements of cash flows, the Company considers all
highly-liquid instruments purchased with a maturity date of three months or
less to be cash equivalents.
(f) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Accordingly, actual results could differ from those
estimates.
F-32
<PAGE>
STABIL DRILL SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1996 AND 1997
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at August 31, 1996 and 1997 consists of the
following:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Rental tools.................................... $ 2,623,126 3,486,731
Shop equipment.................................. 745,556 1,307,138
Land and buildings.............................. 346,222 643,013
Truck and auto.................................. 597,180 639,303
Furniture and fixtures.......................... 114,457 149,863
Leasehold improvements.......................... 7,274 7,274
----------- -----------
4,433,815 6,233,322
Less accumulated depreciation................... (1,676,893) (2,156,880)
----------- -----------
2,756,922 4,076,442
Construction in progress........................ 74,167 148,889
----------- -----------
$ 2,831,089 4,225,331
=========== ===========
</TABLE>
(3) NOTES PAYABLE
Notes payable at August 31, 1996 and 1997 consists of the following:
<TABLE>
<CAPTION>
1996 1997
-------- ------
<S> <C> <C>
Note payable to a bank, due September 1996, bearing interest
at 9.75%, secured by equipment and accounts receivable...... $ 72,175 --
Note payable to a bank, $450,000 revolving line of credit
($300,000, prior to January 1996) under which the Company
may borrow amounts not to exceed 70% of eligible accounts
receivable, bearing interest at 2% over Chase Manhattan
Bank's prime rate, due monthly, secured by assignments of
accounts receivable and personal guarantee of an officer.... 450,000 --
Note payable to a vendor, non-interest bearing, payable in
monthly payments of $6,667 through November 1996............ 20,000 --
Note payable to a credit corporation, due in monthly
installments through May 1997, bearing interest at 10.95%,
unsecured.................................................... 95,927 --
Note payable to an individual, as further described in note
6............................................................ 139,014 20,735
-------- ------
$777,116 20,735
======== ======
</TABLE>
F-33
<PAGE>
STABIL DRILL SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1996 AND 1997
(4) LONG-TERM DEBT
Long-term debt at August 31, 1996 and 1997 consists of the following:
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
Notes payable to a bank, bearing interest at 1% above Chase
Manhattan Bank's prime rate (9.57% at August 31, 1997),
due in monthly installments of $2,175 through February
2002 and one final payment of $104,525, secured by
personal guarantee of an officer and mortgages on land and
building.................................................. $ -- 162,854
Notes payable to a bank, bearing interest at 8.5%, due in
monthly installments of $14,405, secured by personal
guarantee of an officer and chattel mortgage on equipment. -- 690,719
Notes payable to certain individuals, dated July 31, 1997,
non-interest bearing, with a face amount of $400,000 and
imputed interest at 8.5%, due in annual installments of
$100,000 through July 31, 2000, unsecured................. -- 255,402
Note payable to an individual, dated December 21, 1994,
bearing interest at 8.5% per annum, due in monthly
installments of $2,368 through December 1997, unsecured... 35,511 --
Notes payable to officers, subordinated to certain bank
debts, bearing interest at 9% per annum, due on demand
with interest payable monthly, unsecured.................. 186,697 154,255
Note payable to the Small Business Administration, bearing
interest at 8.78% per annum, due in monthly installments
of $770 through April 2011, secured by mortgages on land
and building.............................................. 71,639 68,945
Note payable to a bank, bearing interest at 8%, due in
monthly installments of $1,092 through April 2005, secured
by mortgages on land and building......................... 81,175 72,708
Note payable to a bank, bearing interest at 1 1/2% above
Chase Manhattan Bank's prime rate (10% at August 31,
1997), due in monthly installments of $1,130 through
December 2003, secured by personal guarantee of an officer
and mortgages on land and building........................ 72,134 65,473
Notes payable to banks, bearing interest at 7.9% to 8.75%,
due in monthly installments through October 1997, secured
by chattel mortgage on vehicles........................... 106,119 88,479
Notes payable to banks, bearing interest at 10.25% to
12.5%, due in monthly installments through July 1997,
secured by chattel mortgage on equipment and accounts
receivable assignment..................................... 102,975 --
-------- ---------
656,250 1,558,835
Less current portion of long-term debt..................... 246,811 314,799
-------- ---------
Total long-term debt..................................... $409,439 1,244,036
======== =========
</TABLE>
Maturities of long-term debt for each of the next five years are as follows:
<TABLE>
<S> <C>
1998............................................................. $314,799
1999............................................................. 246,271
2000............................................................. 267,968
2001............................................................. 191,580
2001............................................................. 286,530
Thereafter....................................................... 251,687
========
</TABLE>
F-34
<PAGE>
STABIL DRILL SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1996 AND 1997
(5) INCOME TAXES
Income tax expense for the years ended August 31, 1996 and 1997 consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- -------- ---------
<S> <C> <C> <C>
1996:
U.S. Federal............................. $ 102,001 251,564 353,565
State and local.......................... 1,343 (32,094) (30,751)
---------- ------- ---------
$ 103,344 219,470 322,814
========== ======= =========
1997:
U.S. Federal............................. 1,377,552 61,360 1,438,912
State and local.......................... 146,031 51,531 197,562
---------- ------- ---------
$1,523,583 112,891 1,636,474
========== ======= =========
</TABLE>
The actual income tax expense attributable to pretax income for the years
ended August 31, 1996 and 1997, differs from amounts computed by applying the
U.S. Federal tax rate of 34% to pretax income as a result of the following:
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
Computed expected tax expense........................ $250,330 1,356,694
State income tax net of the Federal benefit.......... (20,296) 130,391
Expenses not deductible for tax...................... 76,072 80,637
Other................................................ 16,708 68,752
-------- ---------
$322,814 1,636,474
======== =========
</TABLE>
The tax effects of temporary differences which give rise to significant
portions of the deferred tax assets and liabilities at August 31, 1996 and
1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Deferred tax assets--accounts payable accrued for
financial reporting purposes............................. $ 139,843 --
---------- ---------
Deferred tax liabilities:
Property, plant and equipment, principally due to
differences in depreciation............................ 455,577 693,939
Accounts receivable accrued for financial reporting
purposes............................................... 881,642 557,907
Other................................................... -- 172,086
---------- ---------
Total deferred tax liabilities........................ 1,337,219 1,423,932
---------- ---------
Net deferred tax liability............................ $1,197,376 1,423,932
========== =========
</TABLE>
No valuation allowance has been provided for the deferred tax asset, as
management believes it is more likely than not it will be realized through
future operating results and the reversal of taxable temporary differences.
F-35
<PAGE>
STABIL DRILL SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1996 AND 1997
(6) DEFERRED COMPENSATION AGREEMENT
On November 8, 1995, the Company entered into a deferred compensation
agreement with a former employee. The agreement bears interest at 8.75% and
obligates the Company to pay the individual monthly payments of $10,481 from
December 1995 through November 1997. The present value has been recorded as
expense in the statement of income in 1996.
(7) OPERATING LEASES
The Company has, in its normal course of business, entered into several
operating lease agreements expiring in various years through 2001. Future
minimum lease payments, scheduled by years ending August 31, are as follows:
<TABLE>
<S> <C>
1998.............................................................. $28,216
1999.............................................................. 28,210
2000.............................................................. 21,000
2001.............................................................. 12,250
=======
</TABLE>
Rent expense totaled $104,495 and $94,689 for the years ended August 31,
1996 and 1997, respectively.
(8) PROFIT SHARING PLAN
The Company maintains a profit sharing plan with a 401(k) provision that
covers all full-time employees over the age of twenty-one with more than one
year of service. Each participant may contribute up to 15% of their
compensation. Employer contributions to the plan are at the discretion of the
board of directors. Employer matching contributions to the plan amounted to
$37,046 and $57,308 during 1996 and 1997, respectively. The board of directors
elected to make a profit sharing contribution of $35,000 and $100,000 for the
fiscal years ended August 31, 1996 and 1997, respectively.
(9) RELATED PARTY TRANSACTIONS
Loans from officers at August 31, 1996 and 1997 amount to $186,697 and
$154,255, respectively. Interest paid by the Company on these loans for the
years ended August 31, 1996 and 1997 amounted to $18,393 and $18,226,
respectively. These obligations are more fully described in note 4.
The Company purchases equipment from an entity that is owned by the
Company's management. Purchases during 1996 and 1997 amounted to $115,160 and
$122,572, respectively.
(10) BUSINESS ACQUISITION
In July 1997, the Company acquired 100% of the outstanding common stock of
Terrebonne Machine Shop, Inc. The acquisition was recorded as a purchase and,
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their fair value at the purchase date. The
remainder of the purchase price was recorded as goodwill and is being
amortized over 20 years. The Company paid cash of $600,000 and issued a note
payable for the remaining balance of $400,000 ($355,402 at present value). In
connection with the acquisition, immediately following the transaction, the
Company merged the assets and liabilities of Terrebonne Machine Shop, Inc.
into the Company. Results of operations of the acquired entity have been
included in the accompanying statement of income and retained earnings from
the date of acquisition forward.
F-36
<PAGE>
STABIL DRILL SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1996 AND 1997
The purchase price allocation is as follows:
<TABLE>
<S> <C>
Assets acquired:
Cash........................................................ $ 235,416
Accounts receivable......................................... 262,733
Fixed assets................................................ 563,170
Other assets................................................ 572
Cost in excess of net assets acquired....................... 474,717
----------
Total assets acquired..................................... 1,536,608
----------
Liabilities assumed:
Accounts payable............................................ 88,421
Notes payable............................................... 240,486
Income taxes payable........................................ 85,731
Accrued expenses............................................ 52,903
Deferred income taxes....................................... 113,665
----------
Total liabilities assumed................................. 581,206
----------
Net assets acquired....................................... $ 955,402
==========
</TABLE>
The following unaudited pro forma information presents a summary of results
of operations as if the acquisition had occurred on September 1, 1995 with pro
forma adjustments to give effect to amortization of goodwill, depreciation and
certain other adjustments together with related income tax effects:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Revenue............................................. $9,522,400 15,888,396
========== ==========
Net income.......................................... $ 488,666 2,473,933
========== ==========
</TABLE>
The above pro forma financial information is not necessarily indicative of
the results of operations as they would have been had the acquisition been
effected on the assumed date.
(11) COMMITMENTS AND CONTINGENCIES
From time to time the Company is involved in litigation arising out of
operations in the norman course of business. In management's opinion, the
Company is not involved in any litigation, the outcome of which would have a
material effect on its financial position or results of operations.
(12) SUBSEQUENT EVENT
Subsequent to year end, the Company's shareholders entered into an agreement
to sell all of the common stock of the Company for cash of $17,500,000 and
contingent notes payable of $7,500,000, which are dependent upon the financial
performance of the Company over the next three years, to Superior Energy
Services, Inc.
F-37
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Boards of Directors
Sub-Surface Tools, Inc.:
We have audited the accompanying balance sheet of Sub-Surface Tools, Inc. as
of July 31, 1997, and the related statements of income and retained earnings
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sub-Surface Tools, Inc. as
of July 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
New Orleans, Louisiana
October 15, 1997
F-38
<PAGE>
SUB-SURFACE TOOLS, INC.
BALANCE SHEET
JULY 31, 1997
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Current assets:
Cash............................................................. $ 626,228
Accounts receivable.............................................. 2,143,159
Other............................................................ 34,127
-----------
Total current assets........................................... 2,803,514
Net property and equipment......................................... 13,700,428
Other assets....................................................... 9,200
-----------
$16,513,142
===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
Current liabilities:
Accounts payable and accrued expenses............................ 1,225,023
Current portion of notes payable................................. 1,383,852
-----------
Total current liabilities...................................... 2,608,875
-----------
Deferred income taxes.............................................. 1,079,249
Stockholders' equity:
Common stock, no par value; 5,000 shares authorized and issued... 5,000
Treasury stock................................................... (8,500)
Retained earnings................................................ 12,828,518
-----------
Total stockholders' equity..................................... 12,825,018
-----------
$16,513,142
===========
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE>
SUB-SURFACE TOOLS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
YEAR ENDED JULY 31, 1997
<TABLE>
<S> <C>
Revenues........................................................... $10,696,294
-----------
Expenses:
Costs of services................................................ 3,886,370
Selling, general and administrative.............................. 2,411,973
Interest......................................................... 147,748
Depreciation..................................................... 1,784,661
-----------
8,230,752
-----------
Income before income taxes..................................... 2,465,542
Income taxes....................................................... 909,303
-----------
Net income..................................................... 1,556,239
Retained earnings at beginning of year............................. 11,272,279
-----------
Retained earnings at end of year................................... $12,828,518
===========
</TABLE>
See accompanying notes to financial statements.
F-40
<PAGE>
SUB-SURFACE TOOLS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED JULY 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income....................................................... $ 1,556,239
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.................................................... 1,784,661
Gain on sale of property and equipment.......................... (205,804)
Deferred income taxes........................................... 140,049
Changes in operating assets and liabilities:
Accounts receivable............................................ 114,478
Other assets................................................... (2,268)
Accounts payable and accrued expenses.......................... (166,065)
-----------
Net cash provided by operating activities..................... 3,221,290
-----------
Cash flows from investing activities:
Proceeds from sale of property and equipment..................... 713,175
Payments for purchases of property and equipment................. (4,532,734)
-----------
Net cash used in investing activities......................... (3,819,559)
-----------
Cash flows from financing activities:
Repayment of loan to shareholder................................. (42,000)
Proceeds from notes payable...................................... 1,924,086
Repayments of notes payable...................................... (1,455,859)
-----------
Net cash provided by financing activities..................... 426,227
-----------
Net decrease in cash.......................................... (172,042)
Cash at beginning of year......................................... 798,270
-----------
Cash at end of year............................................... $ 626,228
===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest........................... $ 145,757
===========
Cash paid during the year for taxes.............................. $ 787,000
===========
</TABLE>
See accompanying notes to financial statements.
F-41
<PAGE>
SUB-SURFACE TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
Sub-Surface Tools, Inc. (the Company) rents specialized equipment, including
tubulars, tubular handling tools and pressure control equipment, used in oil
and gas well drilling, workover, completion and production activities.
(b) Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
(c) Revenue Recognition
Revenues are recognized when rentals are provided.
(d) Property and Equipment
Property and equipment is carried at cost. Depreciation is computed using
the straight-line method based on the following estimated useful lives:
<TABLE>
<CAPTION>
ESTIMATED
DESCRIPTION USEFUL LIVES
----------- ------------
<S> <C>
Buildings and improvements................................... 30 years
Machinery and equipment...................................... 5-15 years
Transportation equipment..................................... 3-5 years
Oilfield tools............................................... 10-12 years
Furniture and fixtures....................................... 5-7 years
</TABLE>
(e) Income Taxes
Income taxes are accounted for in accordance with the provisions of
Statement of Financial Accounting Standard No. 109, (FAS) No. 109, Accounting
for Income Taxes. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the year in which
those temporary differences are expected to be recovered or settled. Under
Statement 109, 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.
(2) CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMER
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and trade accounts receivable. The
Company places cash with high quality financial institutions.
A majority of the Company's business is conducted with major oil and gas
exploration companies with operations in the Gulf of Mexico. The Company
continually evaluates the financial strength of their customers but does not
require collateral to support the customer receivables.
F-42
<PAGE>
SUB-SURFACE TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997
One customer, Shell Oil Corporation, accounted for 86 percent of operating
revenues for the year ended July 31, 1997.
(3) PROPERTY AND EQUIPMENT
A summary of property and equipment at July 31, 1997 follows:
<TABLE>
<S> <C>
Land......................................................... $ 348,061
Buildings and improvements................................... 812,410
Machinery and equipment...................................... 528,520
Automobiles, trucks, trailers and tractors................... 211,175
Furniture and fixtures....................................... 7,567
Oilfield tools............................................... 19,195,592
-----------
21,103,325
Less accumulated depreciation................................ 7,402,897
-----------
Net property and equipment................................. $13,700,428
===========
</TABLE>
(4) NOTES PAYABLE
A summary of notes payable at July 31, 1997 follows:
<TABLE>
<S> <C>
Revolving master note payable to bank......................... $ 781,352
Installment note payable, principal and interest (8.25%)
payable monthly, maturing July 20, 1998...................... 530,500
Note payable shareholder...................................... 72,000
----------
1,383,852
Less current portion.......................................... 1,383,852
----------
$ --
==========
</TABLE>
The Company entered into a revolving master note loan agreement with a bank
with a maximum aggregate principal amount of $1,000,000. The master note
payable bears interest at variable rates as determined by the bank (effective
rate of 8.25% at July 31, 1997). Amounts currently outstanding under the
agreement are due December 15, 1997.
Additionally, on September 30, 1997, the Company entered into a master note
with a bank for aggregate borrowings not to exceed $3,000,000. Total
borrowings under the master note were $1,653,424 at October 10, 1997.
Principal and interest, which accrue at 8.5%, are due November 30, 1997.
(5) INCOME TAXES
Components of income tax expense for the year ended July 31, 1997 are as
follows:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
-------- ------ -------
<S> <C> <C> <C>
Current........................................... $719,837 49,417 769,254
Deferred.......................................... 131,618 8,431 140,049
-------- ------ -------
$851,455 57,848 909,303
======== ====== =======
</TABLE>
F-43
<PAGE>
SUB-SURFACE TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997
The effective rate of income tax expense is 37% for the year ended July 31,
1997. The reasons for the differences between the effective tax rate and the
"expected" corporate federal income tax rate of 34% are as follows:
<TABLE>
<CAPTION>
PERCENTAGE
OF PRETAX
EARNINGS
----------
<S> <C>
Expected tax rate.................................................... 34%
Increases (decreases) in tax rate resulting from:
State income taxes................................................. 1
Non-deductible meals and entertainment expense..................... 1
Other.............................................................. 1
---
37%
===
</TABLE>
The deferred tax liability of $1,079,249 at July 31, 1997 is a result of the
difference in the tax and book basis of property, plant and equipment,
principally due to differences in depreciation.
(6) COMMITMENTS AND CONTINGENCIES
The Company leases office space under an operating lease. The operating
lease is for a five-year period from March 1, 1997 to February 28, 2002 and
provides for annual rental payments of $32,000.
From time to time the Company is involved in litigation arising out of
operations in the normal course of business. In management's opinion, the
Company is not involved in any litigation, the outcome of which would have a
material effect on its financial position or results of operations.
(7) SUBSEQUENT EVENT
Subsequent to year end, the Company's shareholder entered into an agreement
to sell all of the common stock of the Company for cash of $17,500,000 and
contingent notes payable of $7,500,000, which are dependent upon the financial
performance of the Company over the next three years, to Superior Energy
Services, Inc.
F-44
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFERING CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER 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 IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 10
Forward-Looking Statements................................................ 14
Use of Proceeds........................................................... 15
Dividends and Price Range of
Common Stock ............................................................ 16
Capitalization............................................................ 17
Selected Consolidated Financial Data...................................... 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 20
Business.................................................................. 24
Management................................................................ 30
Principal and Selling Stockholders........................................ 32
Description of Capital Stock.............................................. 33
Underwriting.............................................................. 35
Legal Matters............................................................. 36
Experts................................................................... 36
Available Information..................................................... 37
Incorporation of Certain Documents by Reference........................... 37
Index to Consolidated Financial Statements................................ F-1
</TABLE>
---------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
6,000,000 SHARES
[LOGO OF SUPERIOR ENERGY SERVICES, INC.]
COMMON STOCK
---------------
PROSPECTUS
---------------
, 1997
JOHNSON RICE & COMPANY L.L.C.
JEFFERIES & COMPANY, INC.
GAINES, BERLAND INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses payable in connection
with the sale and distribution of the securities being registered.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 23,393
NASD filing fee................................................. 8,220
Nasdaq listing fee.............................................. 17,500
Printing expenses............................................... 75,000*
Accounting fees and expenses.................................... 125,000*
Legal fees and expenses......................................... 125,000*
Miscellaneous................................................... 25,887*
--------
Total......................................................... $400,000
========
</TABLE>
- --------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law of Delaware, as amended
(the "DGCL"), provides that a Delaware corporation may indemnify its officers,
directors, employees and agents in a variety of circumstances, which may
include liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). Article Tenth of the Registrant's Certificate of
Incorporation, a copy of which is incorporated herein by reference as Exhibit
3.1, provides for the indemnification of directors and officers against
expenses and liabilities incurred in connection with defending actions brought
against them for negligence or misconduct in their official capacities.
Paragraph 7 of Section 102(b) of the DGCL permits a Delaware corporation, by
so providing in its Certificate of Incorporation, to eliminate or limit the
personal liability of a director to the corporation for damages arising out of
certain alleged breaches of the director's duties to the corporation. The
DGCL, however, provides that no such limitation of liability may affect a
director's liability with respect to any of the following: (i) for breach of
the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for unlawful payment of
dividends or unlawful purchase or redemption of its capital stock, or (iv) for
any transaction from which the director derived an improper personal benefit.
Article Ninth of the Registrant's Certificate of Incorporation eliminates the
personal liability of the directors of the Company to the fullest extent
permitted by Paragraph 7 of Section 102(b) of the DGCL.
The Registrant also has indemnity agreements with each of its officers and
directors, which provide for indemnification of such directors and officers.
The Registrant also carries insurance permitted by the DGCL on behalf of its
directors and officers, which may cover liabilities under the Securities Act.
The Underwriting Agreement, a form of which is filed as Exhibit 1.1, also
provides indemnification to directors and officers of the Registrant under
certain conditions.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.1 --Form of Underwriting Agreement.
3.1 --Composite of the Company's Certificate of Incorporation (incorporated by
reference from the Company's Form 10-QSB for the quarter ended March 31,
1996).
3.2 --Composite of the Company's By-laws (incorporated by reference from the
Company's Registration Statement on Form SB-2 (Registration No. 333-
15987)).
3.3 --Specimen Stock Certificate (incorporated by reference from the Company's
registration statement on Form SB-2 (Registration No. 33-94454)).
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
5.1 --Opinion of Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P.
23.1 --Consent of KPMG Peat Marwick LLP
23.2 --Consent of Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P. (included in Exhibit
5.1).
24 --Power of Attorney (included in the Signature Page to this Registration Statement).
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended,
that is incorporated by reference in this registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item
15 above, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit, or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(3) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the small business issuer pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Belle Chasse, State of Louisiana, on October 29,
1997.
SUPERIOR ENERGY SERVICES, INC.
/s/ Terence E. Hall
By: _________________________________
Terence E. Hall
Chairman of the Board,
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL MEAN BY THESE PRESENTS, that each person whose signature appears
immediately below constitutes and appoints each of Terence E. Hall and Robert
S. Taylor, as his true and lawful attorney-in-fact and agent, with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and additional registration
statements relating to this Registration Statement and filed pursuant to Rule
462 under the Securities Act of 1933, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agent or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Terence E. Hall Chairman of the Board, Chief October 29, 1997
____________________________________ Executive Officer and
Terence E. Hall President (Principal
Executive Officer)
/s/ Robert S. Taylor Chief Financial Officer October 29, 1997
____________________________________ (Principal Financial
Robert S. Taylor Officer)
/s/ Ernest J. Yancey, Jr. Director October 29, 1997
____________________________________
Ernest J. Yancy, Jr.
/s/ James E. Ravannack Director October 29, 1997
____________________________________
James E. Ravannack
/s/ Richard J. Lazes Director October 29, 1997
____________________________________
Richard J. Lazes
/s/ Kenneth C. Boothe Director October 29, 1997
____________________________________
Kenneth C. Boothe
/s/ Bradford Small Director October 29, 1997
____________________________________
Bradford Small
/s/ Justin L. Sullivan Director October 29, 1997
____________________________________
Justin L. Sullivan
</TABLE>
S-1
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
(A DELAWARE CORPORATION)
COMMON STOCK
UNDERWRITING AGREEMENT
DATED: DECEMBER ___, 1997
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
UNDERWRITING AGREEMENT
December ___, 1997
JOHNSON RICE & COMPANY L.L.C.
MORGAN KEEGAN & COMPANY, INC.
GAINES, BERLAND INC.
As Representatives of the Several
Underwriters Named in Schedule A hereto
c/o Johnson Rice & Company L.L.C.
639 Loyola Avenue, Suite 2775
New Orleans, Louisiana 70113
Dear Sirs:
Superior Energy Services, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the underwriters named in Schedule A
(collectively, the "Underwriters") an aggregate of 3,900,000 shares of Common
Stock, par value $0.001 per share (the "Common Stock"), of the Company (the
"Firm Company Shares") and the persons named on Schedule B hereto (the "Selling
Stockholders") propose to sell to the Underwriters an aggregate of 2,100,000
shares of Common Stock (the "Firm Selling Stockholder Shares"). The Firm
Company Shares and the Firm Selling Stockholder Shares are collectively referred
to herein as the "Firm Shares". The Firm Shares are to be sold to each
Underwriter, acting severally and not jointly, in such amounts as are set forth
in Schedule A opposite the name of such Underwriter.
The Selling Stockholders also grant to the Underwriters the option described
in Section 3 to purchase, on the same terms as the Firm Shares, up to 900,000
additional shares of Common Stock (the "Option Shares") solely to cover over-
allotments. The Firm Shares, together with all or any part of the Option
Shares, are collectively herein called the "Shares."
Section 1. Representations and Warranties of the Company The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) registration statement on Form S-3 (File No. 333-______) with respect to
the Shares, including a preliminary form of prospectus, has been prepared by the
Company in conformity with the requirements of the Securities Act of 1933, as
amended (the "1933 Act"), and the applicable rules and regulations (the "1933
Act Regulations") of the Securities and Exchange Commission (the "Commission"),
and has been filed with the Commission; and such amendments to such registration
statement as may have been required prior to the date hereof have been filed
with the Commission, and such amendments have been similarly
<PAGE>
prepared. Copies of such registration statement and amendment or amendments and
of each related preliminary prospectus, and the exhibits, financial statements
and schedules, as amended and revised, have been delivered to you. The Company
has prepared in the same manner, and proposes so to file with the Commission,
one of the following: (i) prior to effectiveness of such registration statement,
a further amendment thereto, including the form of final prospectus, (ii) if the
Company does not rely on Rule 434 of the 1933 Act, a final prospectus in
accordance with Rules 430A and 424(b) of the 1933 Act Regulations or (iii) if
the Company relies on Rule 434 of the 1933 Act, a term sheet relating to the
Shares that shall identify the preliminary prospectus that it supplements
containing such information as is required or permitted by Rules 434, 430A and
424(b) of the 1933 Act. The Company also may file a related registration
statement with the Commission pursuant to Rule 462(b) of the 1933 Act for the
purpose of registering certain additional shares of Common Stock, which
registration statement will be effective upon filing with the Commission. As
filed, such amendment, any registration statement filed pursuant to Rule 462(b)
of the 1933 Act and any term sheet and form of final prospectus, or such final
prospectus, shall include all Rule 430A Information (as defined below) and,
except to the extent that you shall agree in writing to a modification, shall be
in all respects in the form furnished to you prior to the date and time that
this Agreement was executed and delivered by the parties hereto, or, to the
extent not completed at such date and time, shall contain only such specific
additional information and other changes (beyond that contained in the latest
preliminary prospectus) as the Company shall have previously advised you in
writing would be included or made therein.
The term "Registration Statement" as used in this Agreement shall mean such
registration statement at the time such registration statement becomes effective
and, in the event any post-effective amendment thereto becomes effective prior
to the Closing Time (as hereinafter defined), shall also mean such registration
statement as so amended; provided, however, that such term shall also include
all Rule 430A Information contained in any Prospectus and any Term Sheet (as
hereinafter defined) and deemed to be included in such registration statement at
the time such registration statement becomes effective as provided by Rule 430A
of the 1933 Act Regulations. The term "Preliminary Prospectus" shall mean any
preliminary prospectus referred to in the preceding paragraph and any
preliminary prospectus included in the Registration Statement at the time it
becomes effective that omits Rule 430A Information. The term "Prospectus" as
used in this Agreement shall mean (a) if the Company relies on Rule 434 of the
1933 Act Regulations, the Term Sheet relating to the Shares that is first filed
pursuant to Rule 424(b)(7) of the 1933 Act Regulations, together with the
Preliminary Prospectus identified therein that such Term Sheet supplements or
(b) if the Company does not rely on Rule 434 of the 1933 Act Regulations, the
prospectus relating to the Shares in the form in which it is first filed with
the Commission pursuant to Rule 424(b) of the 1933 Act Regulations or, if no
filing pursuant to Rule 424(b) of the 1933 Act Regulations is required, shall
mean the form of final prospectus included in the Registration Statement at the
time such Registration Statement becomes effective. The term "Rule 430A
Information" means information with respect to the Shares and the offering
thereof permitted pursuant to Rule 430A of the 1933 Act Regulations to be
omitted from the Registration
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Statement when it becomes effective. The term "462(b) Registration Statement"
means any registration statement filed with the Commission pursuant to Rule
462(b) under the 1933 Act (including the Registration Statement and any
Preliminary Prospectus or Prospectus incorporated therein at the time such
registration statement becomes effective). The term "Term Sheet" means any term
sheet that satisfies the requirements of Rule 434 of the 1933 Act Regulations.
Any reference to the "date" of a Prospectus that includes a Term Sheet shall
mean the date of such Term Sheet.
(b) No order preventing or suspending the use of any Preliminary Prospectus
has been issued by the Commission, and no proceedings for that purpose have been
instituted or threatened by the Commission or the state securities or blue sky
authority of any jurisdiction, and each Preliminary Prospectus and any amendment
or supplement thereto, at the time of filing thereof, conformed in all material
respects to the requirements of the 1933 Act and the 1933 Act Regulations, and
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by an Underwriter expressly
for use in the Registration Statement or any 462(b) Registration Statement.
(c) When the Registration Statement and any 462(b) Registration Statement
shall become effective, when any Term Sheet that is part of the Prospectus is
filed with the Commission pursuant to Rule 434, when any Prospectus is first
filed pursuant to Rule 424(b) of the 1933 Act Regulations, when any amendment to
the Registration Statement or any 462(b) Registration Statement becomes
effective, and when any supplement to the Prospectus or any Term Sheet is filed
with the Commission and at the Closing Time and Date of Delivery (as hereinafter
defined), (i) the Registration Statement, the 462(b) Registration Statement, the
Prospectus, the Term Sheet and any amendments thereof and supplements thereto
will conform in all material respects with the applicable requirements of the
1933 Act and the 1933 Act Regulations, and (ii) neither the Registration
Statement, the 462(b) Registration Statement, the Prospectus, any Term Sheet nor
any amendment or supplement thereto will contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading; provided,
however, that this representation and warranty shall not apply to any statements
or omissions made in reliance upon and in conformity with information furnished
in writing to the Company by an Underwriter expressly for use in the
Registration Statement or any 462(b) Registration Statement.
(d) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the state of Delaware with all
requisite corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Registration Statement and the
Prospectus. The Company is duly
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qualified to transact business as a foreign corporation and is in good standing
in each of the jurisdictions in which the ownership or leasing of its properties
or the nature or conduct of its business as described in the Registration
Statement and the Prospectus requires such qualification, except where the
failure to do so would not have a material adverse effect on the condition
(financial or other), business, properties, net worth or results of operations
of the Company and the Subsidiaries (as hereinafter defined) taken as a whole.
(e) All of the Company's subsidiaries are named on an exhibit to the
Registration Statement (each a "Subsidiary" and collectively the
"Subsidiaries"). Each of the Subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the state
of its incorporation with all requisite corporate power and authority to own,
lease and operate its properties and conduct its business as described in the
Registration Statement and the Prospectus. Each such entity is duly qualified to
do business and is in good standing as a foreign corporation in each other
jurisdiction in which the ownership or leasing of its properties or the nature
or conduct of its business as described in the Registration Statement and the
Prospectus conducted requires such qualification, except where the failure to do
so would not have a material adverse effect on the condition (financial or
other), business, properties, net worth or results of operations of such
Subsidiaries.
(f) The Company has full corporate right, power and authority to enter into
this Agreement, to issue, sell and deliver the Shares as provided herein and to
consummate the transactions contemplated herein. This Agreement has been duly
authorized, executed and delivered by the Company and constitutes a valid and
binding agreement of the Company, enforceable in accordance with its terms,
except to the extent that enforceability may be limited by bankruptcy,
insolvency, moratorium, reorganization or other laws of general applicability
relating to or affecting creditors' rights, or by general principles of equity
whether considered at law or at equity and except to the extent enforcement of
the indemnification provisions set forth in Section 8 of this Agreement may be
limited by federal or state securities laws or the public policy underlying such
laws.
(g) Each consent, approval, authorization, order, license, certificate,
permit, registration, designation or filing by or with any governmental agency
or body necessary for the valid authorization, issuance, sale and delivery of
the Shares, the execution, delivery and performance of this Agreement and the
consummation by the Company of the transactions contemplated hereby has been
made or obtained and is in full force and effect, except as may be required
under applicable state securities laws.
(h) Neither the issuance, sale and delivery by the Company of the Shares,
nor the execution, delivery and performance of this Agreement, nor the
consummation of the transactions contemplated hereby will conflict with or
result in a breach or violation of any of the terms and provisions of, or (with
or without the giving of notice or the passage of time or both) constitute a
default under the charter or bylaws of the Company or the Subsidiaries,
respectively, or under any indenture, mortgage, deed of trust, loan agreement,
note, lease or
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other agreement or instrument to which the Company or the Subsidiaries,
respectively, is a party or to which the Company or the Subsidiaries,
respectively, any of their respective properties or other assets is subject; or
any applicable statute, judgment, decree, order, rule or regulation of any court
or governmental agency or body applicable to any of the foregoing or any of
their respective properties; or result in the creation or imposition of any
lien, charge, claim or encumbrance upon any property or asset of the Company or
the Subsidiaries, respectively.
(i) The Shares to be issued and sold to the Underwriters hereunder have been
validly authorized by the Company. When issued and delivered against payment
therefor as provided in this Agreement, the Shares will be duly and validly
issued, fully paid and nonassessable. No preemptive rights of shareholders
exist with respect to any of the Shares which have not been satisfied or waived.
No person or entity holds a right to require or participate in the registration
under the 1933 Act of the Shares pursuant to the Registration Statement which
has not been satisfied or waived; and, except as set forth in the Prospectus, no
person holds a right to require registration under the 1933 Act of any shares of
Common Stock of the Company at any other time which has not been satisfied or
waived.
(j) The Company's authorized, issued and outstanding capital stock is as
disclosed in the Prospectus. All of the issued shares of capital stock of the
Company have been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description of the Company's capital stock
contained in the Prospectus.
(k) All of the issued shares of capital stock of each of the Subsidiaries
have been duly authorized and validly issued, are fully paid and nonassessable
and are owned directly or indirectly through another Subsidiary by the Company
free and clear of all liens, security interests, pledges, charges, encumbrances,
defects, shareholders' agreements, voting trusts, equities or claims of any
nature whatsoever. Other than the Subsidiaries, the Company does not own,
directly or indirectly, any capital stock or other equity securities of any
other corporation or any ownership interest in any partnership, joint venture or
other association.
(l) Except as disclosed in the Prospectus, there are no outstanding (i)
securities or obligations of the Company or any of its Subsidiaries convertible
into or exchangeable for any capital stock of the Company or any such
Subsidiary, (ii) warrants, rights or options to subscribe for or purchase from
the Company or any such Subsidiary any such capital stock or any such
convertible or exchangeable securities or obligations, or (iii) obligations of
the Company or any such Subsidiary to issue any shares of capital stock, any
such convertible or exchangeable securities or obligation, or any such warrants,
rights or options.
(m) The Company and the Subsidiaries have good and marketable title to all
real property, if any, and good title to all personal property owned by them, in
each case free and clear of all liens, security interests, pledges, charges,
encumbrances, mortgages and defects, except such as are disclosed in the
Prospectus or such as do not materially and adversely affect
5
<PAGE>
the value of such property and do not interfere with the use made or proposed to
be made of such property by the Company and the Subsidiaries; and any real
property and buildings held under lease by the Company or any Subsidiary are
held under valid, existing and enforceable leases, with such exceptions as are
disclosed in the Prospectus or are not material and do not interfere with the
use made or proposed to be made of such property and buildings by the Company or
such Subsidiary.
(n) The financial statements of the Company and its consolidated
Subsidiaries included in the Registration Statement and Prospectus present
fairly the financial position of the Company and its consolidated Subsidiaries
as of the dates indicated and the results of operations and cash flows for the
Company and its consolidated Subsidiaries for the periods specified, all in
conformity with generally accepted accounting principles applied on a consistent
basis. The financial statements of Stabil Drill Specialities, Inc. ("Stabil
Drill") included in the Registration Statement and Prospectus present fairly the
financial position of Stabil Drill as of the dates indicated and the results of
operations and cash flows for Stabil Drill for the periods specified, all in
conformity with generally accepted accounting principles applied on a consistent
basis. The financial statements of Sub-Surface Tools, Inc. ("Sub-Surface")
included in the Registration Statement and Prospectus present fairly the
financial position of Sub-Surface as of the dates indicated and the results of
operations and cash flows for Sub-Surface for the periods specified, all in
conformity with generally accepted accounting principles applied on a consistent
basis. The financial statement schedules included in the Registration Statement
and the historical financial amounts in the Prospectus under the captions
"Prospectus Summary -- Summary Consolidated Financial Data", "Capitalization"
and "Selected Consolidated Financial Data" fairly present the information shown
therein and have been compiled on a basis consistent with the historical
financial statements included in the Registration Statement and the Prospectus.
The unaudited pro forma financial information (including the related notes)
included in the Prospectus or any Preliminary Prospectus complies as to form in
all material respects to the applicable accounting requirements of the 1933 Act
and the 1933 Act Regulations, and management of the Company believes that the
assumptions underlying the pro forma adjustments are reasonable. Such pro forma
adjustments have been properly applied to the historical amounts in the
compilation of the information and such information fairly presents with respect
to the Company and the Subsidiaries, the financial position, results of
operations and other information purported to be shown therein at the respective
dates and for the respective periods specified.
(o) KPMG Peat Marwick L.L.P., who have examined and are reporting upon the
audited financial statements and schedules of the Company, Stabil Drill and Sub-
Surface included in the Registration Statement, are, and were during the periods
covered by their reports included in the Registration Statement and the
Prospectus, independent public accountants within the meaning of the 1933 Act
and the 1933 Act Regulations.
(p) None of the Company or the Subsidiaries has sustained, since December
31, 1996, any material loss or interference with its business from fire,
explosion, flood, hurricane,
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accident or other calamity, whether or not covered by insurance, or from any
labor dispute or arbitrators' or court or governmental action, order or decree;
and, since the respective dates as of which information is given in the
Registration Statement and the Prospectus, and except as otherwise stated in the
Registration Statement and Prospectus, there has not been (i) any material
change in the capital stock, long-term debt, obligations under capital leases or
short-term borrowings of the Company, or the Subsidiaries, or (ii) any material
adverse change, or any development which could reasonably be seen as involving a
prospective material adverse change, in or affecting the business, prospects,
properties, assets, results of operations or condition (financial or other) of
the Company or the Subsidiaries.
(q) Neither the Company nor its Subsidiaries is in violation of its
respective charter, or by-laws, and no default exists, and no event has
occurred, nor state of facts exists, which, with notice or after the lapse of
time to cure or both, would constitute a default in the due performance and
observance of any obligation, agreement, term, covenant, consideration or
condition contained in any indenture, mortgage, deed of trust, loan agreement,
note, lease or other agreement or instrument to which any such entity is a party
or to which any such entity or any of its properties is subject. None of the
Company or its Subsidiaries is in violation of, or in default with respect to,
any statute, rule, regulation, order, judgment or decree, except as may be
properly described in the Prospectus or such as in the aggregate do not now have
and will not in the future have a material adverse effect on the financial
position, results of operations or business of each such entity, respectively.
(r) There is not pending or threatened any action, suit, proceeding, inquiry
or investigation against the Company, the Subsidiaries or any of their
respective officers and directors or to which the properties, assets or rights
of any such entity are subject, before or brought by any court or governmental
agency or body or board of arbitrators that is required to be described in the
Registration Statement or the Prospectus but is not described as required.
(s) The descriptions in the Registration Statement and the Prospectus of the
contracts, leases and other legal documents therein described present fairly the
information required to be shown, and there are no contracts, leases, or other
documents of a character required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement which
are not described or filed as required.
(t) The Company owns, possesses or has obtained all material permits,
licenses, franchises, certificates, consents, orders, approvals and other
authorizations of governmental or regulatory authorities or other entities as
are necessary to own or lease, as the case may be, and to operate its properties
and to carry on its business as presently conducted, or as contemplated in the
Prospectus to be conducted, and the Company has not received any notice of
proceedings relating to revocation or modification of any such licenses,
permits, franchises, certificates, consents, orders, approvals or
authorizations.
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(u) The Company owns or possesses adequate license or other rights to
use all patents, trademarks, service marks, trade names, copyrights, software
and design licenses, trade secrets, manufacturing processes, other intangible
property rights and know-how (collectively "Intangibles") necessary to entitle
the Company to conduct its business as described in the Prospectus, and the
Company has not received notice of infringement of or conflict with (and knows
of no such infringement of or conflict with) asserted rights of others with
respect to any Intangibles which could materially and adversely affect the
business, prospects, properties, assets, results of operations or condition
(financial or otherwise) of the Company.
(v) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences; and, none of the Company, the Subsidiaries, or any employee or
agent thereof, has made any payment of funds of the Company or the Subsidiaries,
or received or retained any funds and no funds of the Company or the
Subsidiaries have been set aside to be used for any payment, in each case in
violation of any law, rule or regulation.
(w) Each of the Company and the Subsidiaries has filed on a timely basis all
necessary federal, state, local and foreign income and franchise tax returns
required to be filed through the date hereof and have paid all taxes shown as
due thereon; and no tax deficiency has been asserted against any such entity,
nor does any such entity know of any tax deficiency which is likely to be
asserted against any such entity which if determined adversely to any such
entity, could materially adversely affect the business, prospects, properties,
assets, results of operations or condition (financial or otherwise) of any such
entity, respectively. All tax liabilities are adequately provided for on the
respective books of such entities.
(x) The Company and its Subsidiaries maintain insurance (issued by insurers
of recognized financial responsibility) of the types and in the amounts
generally deemed adequate for their respective businesses and consistent with
insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company and its Subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect.
(y) Each of the Company, the Subsidiaries, and their officers, directors or
affiliates has not taken and will not take, directly or indirectly, any action
designed to, or that
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<PAGE>
might reasonably be expected to, cause or result in or constitute the
stabilization or manipulation of any security of the Company or to facilitate
the sale or resale of the Shares.
(z) The Company is not, will not become as a result of the transactions
contemplated hereby, or will not conduct its respective businesses in a manner
in which the Company would become, "an investment company," or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended.
Section 2. Representations and Warranties of the Selling Stockholders.
Each of the Selling Stockholders represents and warrants to, and agrees with,
each of the several Underwriters and the Company that:
(a) Such Selling Stockholder has duly executed and delivered this Agreement
and this Agreement constitutes the valid and binding agreement of such Selling
Stockholder enforceable against such Selling Stockholder in accordance with its
terms, except to the extent that enforceability may be limited by bankruptcy,
insolvency, moratorium, reorganization or other laws of general applicability
relative to or affecting creditors' rights generally or by general principles of
equity whether considered at law or equity and except to the extent enforcement
of the indemnification provisions set forth in Section 8 of this Agreement may
be limited by federal or state securities laws or the public policy underlying
such laws.
(b) No consent, approval, authorization, order or declaration of or from, or
registration, qualification or filing with, any court or governmental agency or
body is required for the sale of the Shares to be sold by such Selling
Stockholder or the consummation of the transactions contemplated by this
Agreement, except the registration of such Shares under the 1933 Act (which, if
the Registration Statement is not effective as of the time of execution hereof,
shall be obtained as provided in this Agreement) and such as may be required
under state securities or blue sky laws in connection with the offer, sale and
distribution of such Shares by the Underwriters.
(c) The sale of the Shares to be sold by such Selling Stockholder and the
performance of this Agreement and the consummation of the transactions herein
contemplated will not conflict with, or (with or without the giving of notice or
the passage of time or both) result in a breach or violation of any of the terms
or provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement, lease or other agreement or instrument to which such
Selling Stockholder is a party or to which any of its properties or assets is
subject, nor will such action conflict with or violate any provision of the
charter or bylaws of such Selling Stockholder or any statute, rule or regulation
or any order, judgment or decree of any court or governmental agency or body
having jurisdiction over such Selling Stockholder or any of such Selling
Stockholder's properties or assets.
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(d) Such Selling Stockholder has good and valid title to the Shares to
be sold by such Selling Stockholder hereunder, free and clear of all liens,
security interests, pledges, charges, encumbrances, defects, shareholders'
agreements, voting trusts, equities or claims of any nature whatsoever; and,
upon delivery of such Shares against payment therefor as provided herein, good
and valid title to such Shares, free and clear of all liens, security interests,
pledges, charges, encumbrances, defects, shareholders' agreements, voting
trusts, equities or claims of any nature whatsoever, will pass to the several
Underwriters.
(e) Such Selling Shareholder has not taken, and will not take, directly or
indirectly, any action that is designed to, or that might reasonably be expected
to, cause or result in or constitute the stabilization or manipulation of any
security of the Company or to facilitate the sale or resale of the Shares.
Section 3. Sale and Delivery of the Shares to the Underwriters; Closing
(a) On the basis of the representations and warranties herein contained, and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to each of the Underwriters, and each of the Selling Stockholders
agrees to sell to each of the Underwriters the number of Firm Selling
Stockholder Shares set forth opposite the name of such Selling Stockholder under
the caption "Number of Firm Shares to be Sold" in Schedule B, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Stockholders, at the Closing Time (as defined below), the number of
Firm Shares set forth opposite the name of such Underwriter in Schedule A (the
proportion which each Underwriter's share of the total number of the Firm Shares
bears to the total number of Firm Shares is hereinafter referred to as such
Underwriter's "underwriting obligation proportion"), at a purchase price of
$_____ per share.
(b) In addition, on the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, the Selling
Stockholders hereby grant an option to the Underwriters to purchase, severally
and not jointly, up to an additional 900,000 Option Shares at the same purchase
price as shall be applicable to the Firm Shares. In the event that the
Underwriters exercise such option for the full number of Option Shares, each
Selling Stockholder will sell to the Underwriter the number of Option Shares set
forth opposite the name of such Selling Stockholder under the caption "Number of
Option Shares to be Sold" in Schedule B. In the event that the Underwriters
exercise such option for 772,494 Option Shares or less, then Terence E. Hall
shall sell to the Underwriters such number of Option Shares. In the event that
the Underwriters exercise such option for more than 772,494 Option Shares but
less than the full number of Option Shares, (i) Terence E. Hall shall sell to
the Underwriters 772,494 Option Shares and (ii) the Selling Stockholders
(including Terence E. Hall) shall sell to the Underwriters a number of Option
Shares equal to the difference between the number of Option Shares as to which
the Underwriters have exercised such option and 772,494 (the "Remaining
Exercised Option Shares"), with each such other Selling Stockholder to sell that
number of Option Shares as shall be equal to his proportionate
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share of Remaining Exercised Option Shares as determined by the relation by
which the number of Option Shares set forth opposite the name of such Selling
Stockholder bears to 127,506. The option hereby granted will expire if not
exercised within the thirty (30) day period after the date of the Prospectus by
giving written notice to the Company. The option granted hereby may be exercised
in whole or in part (but not more than once) by you, as representatives of the
Underwriters, only for the purpose of covering over-allotments that may be made
in connection with the offering and distribution of the Firm Shares. The notice
of exercise shall set forth the number of Option Shares as to which the several
Underwriters are exercising the option, and the time and date of payment
therefor and of issuance and delivery thereof. Such time and date of payment,
issuance and delivery (the "Date of Delivery") shall be determined by you but
shall not be later than three full business days after the exercise of such
option, nor in any event prior to the Closing Time. If the option is exercised
as to all or any portion of the Option Shares, the Option Shares as to which the
option is exercised shall be purchased by the Underwriters, severally and not
jointly, in their respective underwriting obligation proportions.
(c) Payment of the purchase price for and delivery of certificates in
definitive form representing the Firm Shares shall be made at the offices of
Johnson Rice & Company L.L.C., 639 Loyola Avenue, Suite 2775, New Orleans,
Louisiana 70113 or at such other place as shall be agreed upon by the Company
and you, at 10:00 a.m. New York time, either (i) on the third full business day
after the execution of this Agreement, or (ii) at such other time not more than
ten full business days thereafter as you and the Company shall determine
(unless, in either case, postponed pursuant to the term hereof), (such date and
time of payment and delivery being herein called the "Closing Time"). In
addition, in the event that any or all of the Option Shares are purchased by the
Underwriters, payment of the purchase price for and delivery of certificates in
definitive form representing the Option Shares shall be made at the offices of
Johnson Rice & Company L.L.C. in the manner set forth above, or at such other
place as the Company and you shall determine, on the Date of Delivery as
specified in the notice from you to the Company and the Selling Stockholders.
Payment for the Firm Shares and the Option Shares shall be made to the Company
and the Selling Stockholders by wire transfer in same-day funds to the accounts
designated to the Underwriters in writing by the Company against delivery to you
for the respective accounts of the Underwriters of the Shares to be purchased by
them.
(d) The certificates representing the Shares to be purchased by the
Underwriters shall be in such denominations and registered in such names as you
may request in writing at least two full business days before the Closing Time
or the Date of Delivery, as the case may be. The certificates representing the
Shares will be made available at the offices of Johnson Rice & Company L.L.C. or
at such other place as Johnson Rice & Company L.L.C. may designate for
examination and packaging not later than 10:00 a.m. New York time at least one
full business day prior to the Closing Time or the Date of Delivery, as the case
may be.
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(e) After the Registration Statement becomes effective, you intend to
offer the Shares to the public as set forth in the Prospectus, but after the
initial public offering of such Shares you may in your discretion vary the
public offering price.
Section 4. Certain Covenants of the Company. The Company covenants
and agrees with each Underwriter as follows:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective (if not yet effective at the date and time that
this Agreement is executed and delivered by the parties hereto). If the Company
elects to rely upon Rule 430A of the 1933 Act Regulations or the filing of the
Prospectus is otherwise required under Rule 424(b) of the 1933 Act Regulations,
the Company will comply with the requirements of Rule 430A and will file the
Prospectus, properly completed, pursuant to the applicable provisions of Rule
424(b), or a Term Sheet pursuant to and in accordance with Rule 434, within the
time period prescribed. If the Company elects to rely upon Rule 462(b), the
Company shall file a 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 p.m., Washington, D.C. time on the date of
this Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or give
irrevocable instructions for the payment of such fee. The Company will notify
you immediately, and confirm the notice in writing, (i) when the Registration
Statement, 462(b) Registration Statement or any post-effective amendment to the
Registration Statement, shall have become effective, or any supplement to the
Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the Commission to
amend the Registration Statement or 462(b) Registration Statement or amend or
supplement the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or any 462(b) Registration Statement or of any order
preventing or suspending the use of any Preliminary Prospectus or the suspension
of the qualification of the Shares for offering or sale in any jurisdiction, or
of the institution or threatening of any proceeding for any such purposes. The
Company will use every reasonable effort to prevent the issuance of any such
stop order or of any order preventing or suspending such use and, if any such
order is issued, to obtain the withdrawal thereof at the earliest possible
moment.
(b) The Company will not at any time file or make any amendment to the
Registration Statement, or any amendment or supplement (i) to the Prospectus, if
the Company has not elected to rely upon Rule 430A, (ii) if the Company has
elected to rely upon Rule 430A, to either the Prospectus included in the
Registration Statement at the time it becomes effective or to the Prospectus
filed in accordance with Rule 424(b) or any Term Sheet filed in accordance with
Rule 434, or (iii) if the Company has elected to rely upon Rule 462(b), to any
462(b) Registration Statement in any case if you shall not have previously been
advised and furnished a copy thereof a reasonable time prior to the proposed
filing, or if you or counsel for the Underwriters shall object to such amendment
or supplement.
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(c) The Company has furnished or will furnish to you, at its expense,
as soon as available, four copies of the Registration Statement as originally
filed and of all amendments thereto, whether filed before or after the
Registration Statement becomes effective, copies of all exhibits and documents
filed therewith and signed copies of all consents and certificates of experts,
as you may reasonably request, and has furnished or will furnish to each
Underwriter, one conformed copy of the Registration Statement as originally
filed and of each amendment thereto.
(d) The Company will deliver to each Underwriter, at the Company's expense,
from time to time, as many copies of each Preliminary Prospectus as such
Underwriter may reasonably request, and the Company hereby consents to the use
of such copies for purposes permitted by the 1933 Act. The Company will deliver
to each Underwriter, at the Company's expense, as soon as the Registration
Statement shall have become effective and thereafter from time to time as
requested during the period when the Prospectus is required to be delivered
under the 1933 Act, such number of copies of the Prospectus (as supplemented or
amended) as each Underwriter may reasonably request. The Company will comply to
the best of its ability with the 1933 Act and the 1933 Act Regulations so as to
permit the completion of the distribution of the Shares as contemplated in this
Agreement and in the Prospectus. If the delivery of a prospectus is required at
any time prior to the expiration of nine months after the time of issue of the
Prospectus or any Term Sheet in connection with the offering or sale of the
Shares and if at such time any events shall have occurred as a result of which
the Prospectus or any Term Sheet as then amended or supplemented would include
an untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made when such Prospectus or any Term Sheet is delivered,
not misleading, or, if for any reason it shall be necessary during such same
period to amend or supplement the Prospectus or any Term Sheet in order to
comply with the 1933 Act or the rules and regulations thereunder, the Company
will notify you and upon your request prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as you may from time
to time reasonably request of an amended Prospectus or any Term Sheet or a
supplement to the Prospectus or any Term Sheet or an amendment or supplement to
any such incorporated document which will correct such statement or omission or
effect such compliance, and in case any Underwriter is required to deliver a
prospectus in connection with sales of any of the Shares at any time nine months
or more after the time of issue of the Prospectus or any Term Sheet, upon your
request but at the expense of such Underwriter, the Company will prepare and
deliver to such Underwriter as many copies as you may request of an amended or
supplemented Prospectus or any Term Sheet complying with Section 10(a)(3) of the
1933 Act.
(e) The Company will use its best efforts to qualify the Shares for offering
and sale under the applicable securities laws of such states and other
jurisdictions as you may designate and to maintain such qualifications in effect
for as long as may be necessary to complete the distribution of the Shares;
provided, however, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation
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in any jurisdiction in which it is not so qualified or to make any undertakings
in respect of doing business in any jurisdiction in which it is not otherwise so
subject. The Company will file such statements and reports as may be required by
the laws of each jurisdiction in which the Shares have been qualified as above
provided.
(f) The Company will make generally available to its security holders as
soon as practicable, but in any event not later than the end of the fiscal
quarter first occurring after the first anniversary of the "effective date of
the Registration Statement" (as defined in Rule 158(c) of the 1933 Act
Regulations), an earnings statement (in reasonable detail but which need not be
audited) complying with the provisions of Section 11(a) of the 1933 Act and Rule
158 thereunder.
(g) The Company will use the net proceeds received by it from the sale of
the Shares in the manner specified in the Prospectus under the caption "Use of
Proceeds."
(h) During a period of five years after the date hereof, the Company will
furnish to you: (i) concurrently with furnishing to its securityholders, copies
of any statements of operations of the Company for each of the first three
quarters furnished to the Company's securityholders; (ii) concurrently with
furnishing to its securityholders, a balance sheet of the Company as of the end
of such fiscal year, together with statements of operations, of cash flows and
of securityholders' equity of the Company for such fiscal year, accompanied by a
copy of the certificate or report thereon of independent public accountants;
(iii) as soon as they are available, copies of all reports (financial or
otherwise) mailed to securityholders; (iv) as soon as they are available, copies
of all reports and financial statements furnished to or filed with the
Commission, any securities exchange or the National Association of Securities
Dealers, Inc. (the "NASD"); (v) every material press release in respect of the
Company or its affairs which is released by the Company; and (vi) any additional
information of a public nature concerning the Company or its business that you
may reasonably request. During such five-year period, the foregoing financial
statements shall be on a consolidated basis to the extent that the accounts of
the Company are consolidated with any subsidiaries, and shall be accompanied by
similar financial statements for any significant subsidiary that is not so
consolidated.
(i) During the period beginning from the date hereof and continuing to and
including the date 120 days after the date of the Prospectus, the Company will
not, without the prior written consent of Johnson Rice & Company L.L.C. offer,
pledge, issue, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of, or announce any offer, pledge, sale, grant of any option
to purchase or other disposition of, directly or indirectly, any shares of
Common Stock or securities convertible into, exercisable for or exchangeable for
shares of Common Stock, except as provided in Section 2 of this Agreement,
pursuant to the Company's 1991 Stock Incentive Plan or 1995 Stock Incentive Plan
or in connection with acquisitions of businesses or assets by the Company.
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(j) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for its Common Stock.
(k) The Company will cause the Shares to be listed, subject to notice of
issuance, on the Nasdaq Stock Market and will use commercially reasonable best
efforts to maintain the listing of the Shares on the Nasdaq Stock Market.
(l) The Company is familiar with the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, and has in the past conducted
its affairs, and will in the future conduct its affairs, in such a manner so as
to ensure that the Company was not and will not be an "investment company" or an
entity "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(m) The Company will not, and will use its best efforts to cause its
officers, directors and affiliates not to, (i) take, directly or indirectly
prior to termination of the underwriting syndicate contemplated by this
Agreement, any action designed to stabilize or manipulate the price of any
security of the Company, or which may cause or result in, or which might in the
future reasonably be expected to cause or result in, the stabilization or
manipulation of the price of any security of the Company, to facilitate the sale
or resale of any of the Shares, (ii) sell, bid for, purchase or pay anyone any
compensation for soliciting purchases of the Shares or (iii) pay or agree to pay
to any person any compensation for soliciting any order to purchase any other
securities of the Company.
(n) If at any time during the 30-day period after the Registration Statement
becomes effective, any rumor, publication or event relating to or affecting the
Company shall occur as a result of which in your reasonable opinion the market
price of the Common Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus) and after written notice from you
advising the Company to the effect set forth above, the Company agrees to
consult with you concerning the substance and dissemination of a press release
or other public statement responding to or commenting on such rumor, publication
or event.
Section 5. Covenants of the Selling Stockholders. The Selling
Stockholders covenant and agree with each of the Underwriters that the Selling
Stockholders will not, in violation of Regulation M of the 1934 Act Regulations,
(i) take, directly or indirectly, prior to the termination of the underwriting
syndicate contemplated by this Agreement, any action designed to cause or to
result in, or that might reasonably be expected to constitute, the stabilization
or manipulation of the price of any security of the Company to facilitate the
sale or resale of any of the Shares, (ii) sell, bid for, purchase or pay anyone
any compensation for soliciting purchases of, the Shares or (iii) pay to or
agree to pay any person any compensation for soliciting another to purchase any
other securities of the Company.
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Section 6. Payment of Expenses. The Company will pay and bear all
costs, fees and expenses incident to the performance of its obligations under
this Agreement (excluding fees and expenses of counsel for the Underwriters,
except as specifically set forth below), including (a) the preparation,
printing, filing and distribution of the Registration Statement (including
financial statements and exhibits), as originally filed and as amended, the
Preliminary Prospectuses, the Prospectus and any Term Sheet and any amendments
or supplements thereto, and the cost of furnishing copies thereof to the
Underwriters, (b) the preparation, printing and distribution of this Agreement,
the certificates representing the Shares, the memoranda relating to compliance
with state securities laws ("Blue Sky Memoranda") and any instruments relating
to any of the foregoing, (c) the issuance and delivery of the Shares to the
Underwriters, including any transfer taxes payable upon the sale of the Shares
to the Underwriters (other than transfer taxes on resales by the Underwriters),
(d) the fees and disbursements of the Company's counsel and accountants, (e) the
qualification of the Shares under the applicable state securities laws in
accordance with the terms of this Agreement, including filing fees and fees and
disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Memoranda, (f) all costs, fees
and expenses in connection with the notification to the Nasdaq Stock Market of
the proposed issuance of the Shares, (g) filing fees relating to the review of
the offering by the NASD, (h) the transfer agent's and registrar's fees and all
miscellaneous expenses referred to in Part II of the Registration Statement, (i)
costs related to travel and lodging incurred by the Company and its
representatives relating to meetings with and presentations to prospective
purchasers of the Shares reasonably determined by the Underwriters to be
necessary or desirable to effect the sale of the Shares to the public, and (j)
all other costs and expenses incident to the performance of the Company's
obligations hereunder (including costs incurred in closing the purchase of the
Option Shares, if any) that are not otherwise specifically provided for in this
section. The Company, upon your request, will provide funds in advance for
filing fees in connection with "blue sky" qualifications.
If the sale of the Shares provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth in Section 7 hereof
is not satisfied, because of any termination pursuant to Section 10 hereof or
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or comply with any provision hereof other than by
reason of default by any of the Underwriters, the Company will reimburse the
Underwriters severally on demand for all reasonable out-of-pocket expenses,
including fees and disbursements of Underwriters' counsel, reasonably incurred
by the Underwriters in reviewing the Registration Statement and the Prospectus,
and in investigating and making preparations for the marketing of the Shares.
Section 7. Conditions of Underwriters' Obligations. The obligations
of the Underwriters to purchase and pay for (i) the Firm Shares that they have
respectively agreed to purchase pursuant to this Agreement (and any Option
Shares as to which the option granted in Section 3 has been exercised and the
Date of Delivery determined by you is the same as the Closing Time) at the
Closing Time and (ii) the Option Shares at the Date of Delivery of the Option
Shares, are subject to
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the accuracy of the representations and warranties of the Company contained
herein as of the Closing Time or the Date of Delivery, as the case may be, and
to the accuracy of the representations and warranties of the Company contained
in certificates of any officer of the Company delivered pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, and to the following further conditions:
(a) The Registration Statement shall have become effective not later than
5:30 p.m. on the date of this Agreement or, with your consent, at a later time
and date not later, however, than 5:30 p.m. New York time on the first business
day following the date hereof, or at such later time or on such later date as
you may agree to in writing; if the Company has elected to rely upon Rule
462(b), the 462(b) Registration Statement shall have become effective by 10:00
p.m. New York time, Washington, D.C. time, on the date of this Agreement; and at
the Closing Time no stop order suspending the effectiveness of the Registration
Statement or any 462(b) Registration Statement shall have been issued under the
1933 Act and no proceedings for that purpose shall have been instituted or shall
be pending or, to your knowledge or the knowledge of the Company, shall be
contemplated by the Commission, and any request on the part of the Commission
for additional information shall have been complied with to the satisfaction of
counsel for the Underwriters. If the Company has elected to rely upon Rule 430A,
a Prospectus or a Term Sheet containing the Rule 430A Information shall have
been filed with the Commission in accordance with Rule 424(b) (or a post-
effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A).
(b) At the Closing Time, you shall have received a favorable opinion of
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., counsel for the
Company, dated as of the Closing Time, together with signed or reproduced copies
of such opinion for each of the other Underwriters, in form and substance
satisfactory to counsel for the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware with
the corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Registration Statement and
the Prospectus. The Company is qualified to transact business as a foreign
corporation and is in good standing in each of the jurisdictions in which
the ownership or leasing of the Company's properties or the nature or
conduct of its business requires such qualification, except where the
failure to do so would not have a material adverse effect on the condition
(financial or other), business, properties, net worth or results of
operations of the Company and the Subsidiaries taken as a whole.
(ii) Each of the Subsidiaries has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the state of its
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incorporation. Each such entity has all requisite corporate power and
authority to own, lease and operate its properties and conduct its business
as described in the Registration Statement and the Prospectus. Each such
entity is duly qualified to do business and is in good standing as a
foreign corporation in each other jurisdiction in which the ownership or
leasing of its properties or the nature or conduct of its business requires
such qualification, except where the failure to do so would not have a
material adverse effect on the condition (financial or other), business,
properties, net worth or results of operations of the Company and the
Subsidiaries taken as a whole.
(iii) The Company has the corporate power and authority to enter into this
Agreement, to issue, sell and deliver the Shares as provided herein and
to consummate the transactions contemplated herein. This Agreement has
been duly authorized, executed and delivered by the Company and, assuming
due authorization, execution and delivery by the Underwriters,
constitutes a valid and binding agreement of the Company, enforceable in
accordance with its terms, except to the extent enforceability may be
limited by bankruptcy, insolvency, moratorium, reorganization or other
laws affecting creditors' rights or by general principles of equity
whether considered at law or in equity, except to the extent that
enforcement of the indemnification provisions set forth in Section 6 of
this Agreement may be limited by federal or state securities laws or the
public policy underlying such laws and except that no opinion need be
expressed as to the effect of the first sentence of Section 13 of this
Agreement as to the laws of the State of Louisiana.
(iv) Each consent, approval, authorization, order, license, certificate,
permit, registration, designation or filing by or with any governmental
agency or body necessary for the valid authorization, issuance, sale and
delivery of the Shares, the execution, delivery and performance of this
Agreement and the consummation by the Company of the transactions
contemplated hereby, has been made or obtained and is in full force and
effect, except such as may be necessary under state securities laws or
required by the NASD in connection with the purchase and distribution of
the Shares by the Underwriters, as to which such counsel need express no
opinion.
(v) Neither the issuance, sale and delivery by the Company of the Shares, nor
the execution, delivery and performance of this Agreement, nor the
consummation of the transactions contemplated hereby will conflict with
or result in a breach or violation of any of the terms and provisions of,
or (with or without the giving notice or the passage of time or both)
constitute a default under, (i) the charter or by-laws of the Company or
the Subsidiaries, respectively, or, to such counsel's knowledge after due
inquiry, under any indenture, mortgage, deed of trust, loan agreement,
note, lease or other
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agreement or instrument to which the Company or the Subsidiaries,
respectively, is a party or to which the Company or the Subsidiaries,
respectively, any of their respective properties or other assets, is
subject, (ii) to such counsel's knowledge, any applicable statute,
judgment, decree, order, rule or regulation of any court or governmental
agency or body, or (iii) to such counsel's knowledge, result in the
creation or imposition of any lien, charge, claim or encumbrance upon any
property or asset of the Company or the Subsidiaries, respectively.
(vi) The Common Stock conforms in all material respects as to legal matters to
the description thereof contained in the Registration Statement and the
Prospectus under the heading "Description of Capital Stock."
(vii) The Shares to be issued and sold to the Underwriters hereunder have been
validly authorized by the Company. When issued and delivered against
payment therefor as provided in this Agreement, such shares will be
validly issued, fully paid and nonassessable. To such counsel's
knowledge, no preemptive rights of shareholders exist with respect to any
of the Shares which have not been satisfied or waived. To such counsel's
knowledge, no person or entity holds a right to require or participate in
the registration under the 1933 Act of the Shares pursuant to the
Registration Statement which has not been satisfied or waived and, except
as set forth in the Prospectus, no person holds a right to require
registration under the 1933 Act of any shares of Common Stock of the
Company at any other time which has not been satisfied or waived. The
form of certificates evidencing the Shares complies with all applicable
requirements of Louisiana law.
(viii) The Company has an authorized capitalization as set forth in the
Prospectus under the caption "Capitalization." All of the issued shares
of capital stock of the Company have been duly authorized and validly
issued, are fully paid and nonassessable. None of the issued shares of
capital stock of the Company has been issued or is owned or held in
violation of any preemptive rights of shareholders.
(ix) All of the issued shares of capital stock of each of the Subsidiaries
have been duly authorized and validly issued, are fully paid and
nonassessable and, to such counsel's knowledge after due inquiry, are
owned directly, or indirectly through another Subsidiary, by the Company
free and clear of all liens, security interests, pledges, charges,
encumbrances, defects, shareholders' agreements, voting trusts, equities
or claims of any nature whatsoever except security interests disclosed in
the Prospectus. To such counsel's knowledge after due inquiry, other than
the Subsidiaries, the Company does not own, directly or indirectly, any
capital stock or other equity securities of any other
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corporation or any ownership interest in any partnership, joint venture
or other association.
(x) Except as disclosed in the Prospectus, to such counsel's knowledge after
due inquiry, there are no outstanding (i) securities or obligations of
the Company or any of its Subsidiaries convertible into or exchangeable
for any capital stock of the Company or any such Subsidiary, (ii)
warrants, rights or options to subscribe for or purchase from the Company
or any such Subsidiary any such capital stock or any such convertible or
exchangeable securities or obligations, or (iii) obligations of the
Company or any such Subsidiary to issue any shares of capital stock, any
such convertible or exchangeable securities or obligation, or any such
warrants, rights or options.
(xi) Neither the Company nor its Subsidiaries is in violation of their
respective charter or by-laws, and, to such counsel's knowledge after due
inquiry, no material default exists, and no event has occurred nor state
of facts exist which, with notice or after the lapse of time to cure or
both, would constitute a material default in the due performance and
observance of any obligation, agreement, term, covenant, or condition
contained in any indenture, mortgage, deed of trust, loan agreement,
note, lease or other agreement or instrument to which any such entity is
a party or to which any such entity or any of its properties is subject.
(xii) To such counsel's knowledge, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation against the Company,
the Subsidiaries or any of their respective officers and directors or to
which the properties, assets or rights of any such entity are subject,
before or brought by any court or governmental agency or body or board of
arbitrators, that is required to be described in the Registration
Statement or the Prospectus but is not described as required.
(xiii) The descriptions in the Registration Statement and the Prospectus of the
contracts, leases and other legal documents therein described present
fairly the information required to be shown and there are no contracts,
leases or other documents known to such counsel of a character required
to be described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement which are not described
or filed as required.
(xiv) The Common Stock has been approved for trading on the Nasdaq Stock
Market.
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(xv) The Registration Statement and any 462(b) Registration Statement have
become effective under the 1933 Act and, to the knowledge of such
counsel, no stop order suspending the effectiveness of the Registration
Statement or any 462(b) Registration Statement has been issued and no
proceeding for that purpose has been instituted or is pending or
contemplated under the 1933 Act. Other than financial statements and
other financial and operating data and schedules contained therein, as to
which counsel need express no opinion, the Registration Statement, any
462(b) Registration Statement, all Preliminary Prospectuses, the
Prospectus and any amendment or supplement thereto, appear on their face
to conform as to form in all material respects with the requirements of
the 1933 Act and the rules and regulations thereunder.
(xvi) The Company is not, or solely as a result of the consummation of the
transactions contemplated hereby will not become, an "investment
company," or a company "controlled" by an "investment company," within
the meaning of the Investment Company Act of 1940, as amended.
(xvii) The descriptions in the Prospectus of statutes, regulations, legal or
governmental proceedings are accurate and present fairly a summary of the
information required to be shown under the 1933 Act and the 1933 Act
Regulations. The information in the Prospectus under the caption "Shares
Available for Future Sale" to the extent that it constitutes matters of
law or legal conclusions, has been reviewed by such counsel, is correct
and presents fairly the information required to be disclosed therein
under the 1933 Act and the 1933 Act Regulations.
Such counsel also shall state that they have no reason to believe that the
Registration Statement, any 462(b) Registration Statement or any further
amendment thereto made prior to the Closing Time or the Date of Delivery, as the
case may be, on its effective date and as of the Closing Time or the Date of
Delivery, as the case may be, contained or contains any untrue statement of a
material fact or omitted or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus, or any amendment or supplement thereto made prior to the
Closing Time or the Date of Delivery, as the case may be, as of its issue date
and as of the Closing Time or the Date of Delivery, as the case may be,
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (provided that such counsel need express no belief regarding the
financial statements and related schedules and other financial data contained in
the Registration Statement, any 462(b) Registration Statement, any amendment
thereto, or the Prospectus, or any amendment or supplement thereto).
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In rendering the opinions set forth in Section 7(b), such counsel may rely
on the following:
(A) as to matters involving the application of laws other than the laws of
the United States and jurisdictions in which they are admitted, to the extent
such counsel deems proper and to the extent specified in such opinion, upon an
opinion or opinions (in form and substance reasonably satisfactory to
Underwriters' counsel) of other counsel familiar with the applicable laws, and
(B) as to matters of fact, to the extent they deem proper, on certificates
of responsible officers of the Company and certificates or other written
statements of officers or departments of various jurisdictions having custody of
documents respecting the existence or good standing of the Company, provided
that copies of all such opinions, statements or certificates shall be delivered
to Underwriters' counsel.
The opinion of counsel for the Company shall state that the opinion of any other
counsel, or certificate or written statement, on which such counsel is relying
is in form satisfactory to such counsel and their belief that you and they are
justified in relying thereon.
(c) At the Closing Time, you shall have received a favorable opinion of
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., counsel for the
Selling Stockholders, dated as of the Closing Time, together with signed or
reproduced copies of such opinion for each of the Underwriters in form and
substance satisfactory to counsel for the Underwriters, to the effect that:
(i) This Agreement has been duly executed and delivered by each of the Selling
Stockholders, the sale of the Shares to be sold by the Selling Stockholders
at such Closing Time and the performance of this Agreement and the
consummation of the transactions herein contemplated will not conflict with
or (with or without the giving of notice or the passage of time or both)
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any material indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which any
of the Selling Stockholders is a party or to which any of their respective
properties or assets is subject, nor will such action conflict with or
violate any statute, rule or regulation or any order, judgment or decree of
any court or governmental agency or body having jurisdiction over any of
the Selling Stockholders or any of the Selling Stockholders' properties or
assets.
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(ii) No consent, approval, authorization, order or declaration of or from, or
registration, qualification or filing with, any court or governmental
agency or body is required for the issue and sale of the Shares being sold
by the Selling Stockholders or the consummation of the transactions
contemplated by this Agreement, except the registration of such Shares
under the Act and such as may be required under state securities or blue
sky laws in connection with the offer, sale and distribution of such Shares
by the Underwriters.
(iii) Each of the Selling Stockholders has good and valid title to the Shares
being sold by such Selling Stockholder hereunder, free and clear of all
liens, security interests, pledges, charges, encumbrances, defects,
shareholders' agreements, voting trusts, equities or claims of any nature
whatsoever; and, upon delivery of such Shares against payment therefor as
provided herein, good and valid title to such Shares, free and clear of
all liens, security interests, pledges, charges, encumbrances, defects,
stockholders' agreements, voting trusts, equities or claims of any nature
whatsoever, will pass to the several Underwriters.
In rendering the opinions set forth in Section 7(c), such counsel may rely
on the following:
(1) as to matters involving the application of laws other than the laws of
the United States and jurisdictions in which they are admitted, to the extent
such counsel deems proper and to the extent specified in such opinion, upon an
opinion or opinions (in form and substance reasonably satisfactory to
Underwriters' counsel) of other counsel familiar with the applicable laws, and
The opinion of counsel for the Selling Stockholders, shall state that the
opinion of any other counsel, or certificate or written statement, on which such
counsel is relying is in form satisfactory to such counsel and that you and they
are justified in relying thereon.
(d) At the Closing Time, you shall have received a favorable opinion from
Andrews & Kurth L.L.P., counsel for the Underwriters, dated as of the Closing
Time, with respect to the incorporation of the Company, the issuance and sale of
the Shares, the Registration Statement, the Prospectus and other related matters
as the Underwriters may reasonably require, and the Company shall have furnished
to such counsel such documents as they may reasonably request for the purpose of
enabling them to pass on such matters.
(e) At the Closing Time, (i) the Registration Statement, any 462(b)
Registration Statement, and the Prospectus, as they may then be amended or
supplemented, shall contain all statements that are required to be stated
therein under the 1933 Act and the 1933 Act Regulations and in all material
respects shall conform to the requirements of the 1933 Act and
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the 1933 Act Regulations; the Company shall have complied in all material
respects with Rule 430A (if it shall have elected to rely thereon) and neither
the Registration Statement, any 462(b) Registration Statement, nor the
Prospectus, as they may then be amended or supplemented, shall contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
there shall not have been, since the respective dates as of which information is
given in the Registration Statement, any material adverse change in the
business, prospects, properties, assets, results of operations or condition
(financial or otherwise) of the Company, whether or not arising in the ordinary
course of business, (iii) no action, suit or proceeding at law or in equity
shall be pending or, to the best of Company's knowledge, threatened against the
Company that would be required to be set forth in the Prospectus other than as
set forth therein and no proceedings shall be pending or, to the best knowledge
of the Company, threatened against the Company before or by any federal, state
or other commission, board or administrative agency wherein an unfavorable
decision, ruling or finding could materially adversely affect the business,
prospects, assets, results of operations or condition (financial or otherwise)
of the Company, other than as set forth in the Prospectus, (iv) the Company
shall have complied with all agreements and satisfied all conditions on their
part to be performed or satisfied pursuant to this Agreement at or prior to the
Closing Time, and (v) the representations and warranties of the Company set
forth in Section 1 shall be accurate as though expressly made at and as of the
Closing Time. At the Closing Time, you shall have received a certificate
executed by the President and Chief Financial Officer of the Company dated as of
the Closing Time, to such effect and with respect to the following additional
matters: (A) the Registration Statement has become effective under the 1933 Act
and no stop order suspending the effectiveness of the Registration Statement or
preventing or suspending the use of the Prospectus has been issued, and no
proceedings for that purpose have been instituted or are pending or, to the best
of their knowledge, threatened under the 1933 Act; and (B) they have reviewed
the Registration Statement and the Prospectus and, when the Registration
Statement and any 462(b) Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement, any 462(b) Registration Statement and the Prospectus and
any amendments or supplements thereto contained all statements and information
required to be included therein or necessary to make the statements therein not
misleading and neither the Registration Statement, any 462(b) Registration
Statement, nor the Prospectus nor any amendment or supplement thereto included
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and, since the effective date of the Registration Statement, there
has occurred no event required to be set forth in an amended or supplemented
Prospectus that has not been so set forth.
(f) You shall have received from KPMG Peat Marwick L.L.P. letters dated,
respectively, the date hereof (or, if the Registration Statement has been
declared effective prior to the execution and delivery of this Agreement, dated
such effective date and the date of this Agreement) and the Closing Time and the
Date of Delivery, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto. In the event that the letters referred to in this
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subsection set forth any changes, decreases or increases in the items specified
in paragraph (iii) of Annex I, it shall be a further condition to the
obligations of the Underwriters that (i) such letters shall be accompanied by a
written explanation by the Company as to the significance thereof, unless the
Underwriters deem such explanation unnecessary, and (ii) such changes, decreases
or increases do not, in your sole judgment, make it impracticable or inadvisable
to proceed with the purchase, sale and delivery of the Shares as contemplated by
the Registration Statement, as amended as of the date of such letter.
(g) At the Closing Time, you shall have received from KPMG Peat Marwick
L.L.P. a letter, in form and substance satisfactory to you and dated as of the
Closing Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (e) above, except that the specified date
referred to shall be a date not more than five days prior to the Closing Time.
(h) At the Closing Time, counsel for the Underwriters shall have been
furnished with all such documents, certificates and opinions as they may request
for the purpose of enabling them to pass upon the issuance and sale of the
Shares as contemplated in this Agreement and the matters referred to in Section
7(d) and in order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company, the performance of any
of the covenants of the Company, or the fulfillment of any of the conditions
herein contained; and all proceedings taken by the Company at or prior to the
Closing Time in connection with the authorization, issuance and sale of the
Shares as contemplated in this Agreement shall be reasonably satisfactory in
form and substance to you and to counsel for the Underwriters. The Company will
furnish you with such number of conformed copies of such opinions, certificates,
letters and documents as you shall reasonably request.
(i) The NASD, upon review of the terms of the public offering of the Shares,
shall not have objected to such offering, such terms or the Underwriters'
participation in the same.
(j) Subsequent to the date hereof, there shall not have occurred any of the
following: (i) there has occurred or accelerated any outbreak of hostilities or
other national or international calamity or crisis or change in economic or
political conditions the effect on the financial markets of the United States is
such as to make it, in your judgment, impracticable to market the Shares or
enforce contracts for the sale of the Shares, or (ii) trading in any securities
of the Company has been suspended by the Commission or by the Nasdaq Stock
Market, or if trading generally on the New York Stock Exchange or in the over-
the-counter market has been suspended, or limitations on prices for trading
(other than limitations on hours or numbers of days of trading) have been fixed,
or maximum ranges for prices for securities have been required, by such exchange
or the NASD or by order of the Commission or any other governmental authority,
or (iii) there has been any downgrading in the rating of any of the Company's
debt securities or preferred stock by any "nationally recognized statistical
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rating organization" (as defined for purposes of Rule 436(g) under the 1933
Act), or (iv) a banking moratorium has been declared by federal or New York or
Tennessee authorities, or (v) any federal or state statute, regulation, rule or
order of any court or other governmental authority has been enacted, published,
decreed or otherwise promulgated which in your reasonable opinion materially
adversely affects or will materially adversely affect the business or operations
of the Company, or (vi) any action has been taken by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
reasonable opinion has a material adverse effect on the securities markets in
the United States.
(k) Prior to the date of the execution of this Agreement, the Company shall
have furnished to the Representatives a letter substantially in the form of
Exhibit A hereto from each executive officer and director of the Company and
from each person who beneficially owns five percent or more of the Company's
outstanding Common Stock, addressed to the Representatives, in which each such
person agrees not to offer, pledge, sell, contract to sell, grant any option for
the sale of, or otherwise dispose of, or announce any offer, pledge, sale, grant
of any option to purchase or other disposition of, directly or indirectly, any
shares of Common Stock beneficially owned by such person or any securities
convertible into, exercisable for or exchangeable for shares of Common Stock for
a period of 120 days after the date of the Prospectus without the prior written
consent of Johnson Rice & Company L.L.C.; provided, however, that the foregoing
restrictions shall not apply to any gift of Common Stock to a donee who agrees
in writing for the benefit of the Underwriters to be bound by the foregoing
restrictions with respect to such shares of Common Stock.
If any of the conditions specified in this Section 7 shall not have been
fulfilled when and as required by this Agreement to be fulfilled, this Agreement
may be terminated by you on notice to the Company at any time at or prior to the
Closing Time, and such termination shall be without liability of any party to
any other party, except as provided in Section 6. Notwithstanding any such
termination, the provisions of Section 8 shall remain in effect.
The several obligations of the Underwriters to purchase Option Shares
hereunder are subject to the satisfaction on and as of any Date of Delivery for
Option Shares of the conditions set forth in this Section 7, except that, if any
Date of Delivery for Option Shares is other than the Closing Time, the
certificates, opinions and letters referred to in paragraphs (b), (c) and (d)
shall be revised to reflect the sale of Option Shares.
Section 8. Indemnification and Contribution.
(a) The Company will indemnify and hold harmless each Underwriter against
any losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject under the 1933 Act, or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) (i) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in (A) any Preliminary Prospectus, the Registration
Statement, any 462(b) Registration Statement or the Prospectus, or any
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amendment or supplement thereto, or (B) any application or other document, or
any amendment or supplement thereto, executed by the Company or based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Shares under the securities or blue sky
laws thereof or filed with the Commission or any securities association or
securities exchange (each an "Application"), or (ii) arise out of or are based
upon the omission or alleged omission to state in any Preliminary Prospectus,
the Registration Statement, any 462(b) Registration Statement, the Prospectus,
or any amendment or supplement thereto, or any Application a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by such Underwriter in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement, any 462(b) Registration
Statement or the Prospectus, or any such amendment or supplement, in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter expressly for use therein. The Company will also indemnify and hold
harmless each Underwriter against any losses, claims, damages or liabilities,
joint and several, to which such Underwriter may become subject insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any breach of any warranty or covenant of the Company
contained herein. In addition to its other obligations under this Section 8(a),
the Company agrees that, as an interim measure during the pendency of any such
claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in this Section 8(a), it will reimburse the Underwriters on a monthly
basis for all reasonable legal and other expenses incurred by the Underwriters
in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
of the Company to reimburse the Underwriters for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction; provided, however, that the obligation of the
Company to make any such reimbursements shall be subject to receipt from the
Underwriters of an undertaking to return any such reimbursements to the extent
that is determined by a court of competent jurisdiction or an arbitrator
appointed in accordance with Section 8(e) that such indemnification of the
Underwriters by the Company is not permitted. Any such interim reimbursement
payments that are not made to an Underwriter within 30 days of a request for
reimbursement shall bear interest at the prime rate (or reference rate or other
commercial lending rate for borrowers of the highest credit standing) published
from time to time by The Wall Street Journal (the "Prime Rate") from the date of
such request. This indemnity agreement shall be in addition to any liabilities
that the Company may otherwise have. The Company will not, without the prior
written consent of each Underwriter, settle or compromise or consent to the
entry of any judgment in any pending or threatened action or claim or related
cause of action or portion of such cause of action in respect of which
indemnification may be
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sought hereunder (whether or not such Underwriter is a party to such action or
claim), unless such settlement, compromise or consent includes an unconditional
release of such Underwriter from all liability arising out of such action or
claim (or related cause of action or portion thereof).
The indemnity agreement in this Section 8(a) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each person, if any,
who controls any Underwriter within the meaning of the 1933 Act to the same
extent as such agreement applies to the Underwriters.
(b) Each Selling Stockholder will indemnify and hold harmless the Company
and each Underwriter against any losses, claims, damages or liabilities, to
which the Company or any Underwriter may become subject under the 1933 Act, or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) (i) arise out of or are based upon any breach of any warranty
or covenant of such Selling Stockholder herein contained, (ii) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in (A) any Preliminary Prospectus, the Registration Statement,
any 462(b) Registration Statement or the Prospectus, or any amendment or
supplement thereto, or (B) any Application, or (iii) arise out of or are based
upon the omission or alleged omission to state in any Preliminary Prospectus,
the Registration Statement, any 462(b) Registration Statement, the Prospectus,
or any amendment or supplement thereto, or any Application a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and each Underwriter for any legal or
other expenses reasonably incurred by either the Company or such Underwriter, or
both, in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that such Selling Stockholder
shall not be liable in any such case to the Underwriters to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement, any 462(b) Registration
Statement, or the Prospectus, or any such amendment or supplement, in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter expressly for use therein; provided, further, however, that (i) such
Selling Stockholder shall be liable hereunder in any case only to the extent of
the total net proceeds from the offering (before deducting expenses) received by
such Selling Stockholder from the Underwriters for the Shares sold by such
Selling Stockholder hereunder, unless any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement, any 462(b)
Registration Statement or any amendment or supplement thereto, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto or any
Application in reliance upon and in conformity with written information
furnished to the Company by such Selling Stockholder expressly for use therein,
in which case such limitation of the liability of such Selling Stockholder shall
not apply. In addition to its other obligations under this Section 8(b), each
Selling Stockholder agrees that, as an interim measure during the pendency of
any such claim, action, investigation, inquiry or other
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proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in this Section 8(b), such Selling
Stockholder will reimburse the Company and the Underwriters on a monthly basis
for all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of such Selling Stockholder's obligation to
reimburse the Company or the Underwriters for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction; provided, however, that the obligation of such Selling
Stockholder to make any such reimbursements shall be subject to receipt from the
Company or the Underwriters, as the case may be, of an undertaking to return any
such reimbursements to the extent that it is determined by a court of competent
jurisdiction that such indemnification of the Company and the Underwriters by
such Selling Stockholder is not permitted. Any such interim reimbursement
payments that are not made to the Company or an Underwriter within 30 days of
receipt of a request for reimbursement, and all appropriate supporting
documentation, shall bear interest at the Prime Rate from the date of such
request. This indemnity agreement shall be in addition to any liabilities that
the Selling Stockholders may otherwise have. The Selling Stockholders will not,
without the prior written consent of the Company and Johnson Rice & Company
L.L.C., as representative of the Underwriters, settle or compromise or consent
to the entry of any judgment in any pending or threatened action or claim or
related cause of action or portion of such cause of action in respect of which
indemnification may be sought hereunder (whether or not any of the Company or
any Underwriter is a party to such action or claim), unless such settlement,
compromise or consent includes an unconditional release of the Company and each
Underwriter from all liability arising out of such action or claim (or related
cause of action or portion thereof).
The indemnity agreement in this Section 9(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each of the officers
and directors of the Company and each Underwriter and each person, if any, who
controls the Company and any Underwriter within the meaning of the 1933 Act to
the same extent such indemnity agreement applies to the Company and the
Underwriters.
(c) Each Underwriter, severally but not jointly, will indemnify and hold
harmless the Company and the Selling Stockholders against any losses, claims,
damages or liabilities to which the Company may become subject, under the 1933
Act, or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any breach of any
warranty or covenant by such Underwriter herein contained or any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement, any 462(b) Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was
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made in any Preliminary Prospectus, the Registration Statement or the Prospectus
or any such amendment or supplement thereto in reliance upon and in conformity
with written information furnished to the Company by such Underwriter expressly
for use therein; and will reimburse the Company and the Selling Stockholders for
any legal or other expenses reasonably incurred by the Company or the Selling
Stockholders in connection with investigating or defending any such loss, claim,
damage, liability or action. In addition to its other obligations under this
Section 8(c), the Underwriters agree that, as an interim measure during the
pendency of any such claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged statement
or omission, described in this Section 8(c), they will reimburse the Company and
the Selling Stockholders on a monthly basis for all reasonable legal and other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of their
obligation to reimburse the Company and the Selling Stockholders for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. Any such interim reimbursement
payments that are not made to the Company and the Selling Stockholders within 30
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request. This indemnity agreement shall be in addition to any
liabilities that the Underwriters may otherwise have. No Underwriter will,
without the prior written consent of the Company and the Selling Stockholders,
settle or compromise or consent to the entry of judgment in any pending or
threatened action or claim or related cause of action or portion of such cause
of action in respect of which indemnification may be sought hereunder (whether
or not the Company or the Selling Stockholders are parties to such action or
claim), unless such settlement, compromise or consent includes an unconditional
release of the Company and the Selling Stockholders from all liability arising
out of such action or claim (or related cause of action or portion thereof).
The indemnity agreement in this Section 8(c) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer and
director of the Company and each person, if any, who controls the Company within
the meaning of the 1933 Act to the same extent as such agreement applies to the
Company.
(d) Promptly after receipt by an indemnified party under subsection (a), (b)
or (c) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; no indemnification provided for in subsection (a), (b) or
(c) shall be available to any party who shall fail to give notice as provided in
this subsection (d) if the party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was prejudiced by the
failure to give such notice, but the omission so to notify the indemnifying
party will not relieve the indemnifying party from any liability that it may
have to any indemnified party otherwise than under Section 8. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
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shall be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof with counsel satisfactory to such indemnified party (who shall
not, except with the consent of the indemnified party (which consent shall not
be unreasonably withheld), be counsel to the indemnifying party), and, after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party under such subsection for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation, except that if the
indemnified party has been advised by counsel in writing that there are one or
more defenses available to the indemnified party which are different from or
additional to those available to the indemnifying party, then the indemnified
party shall have the right to employ separate counsel and in that event the
reasonable fees and expenses of such separate counsel for the indemnified party
shall be paid by the indemnifying party; provided, however, that if the
indemnifying party is the Company or a Selling Stockholder, the indemnifying
party shall only be obligated to pay the reasonable fees and expenses of a
single law firm (and any reasonably necessary local counsel) employed by all of
the indemnified parties. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
(e) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Section 8(a), (b) and (c)
hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the indemnifying parties, shall be settled by arbitration
conducted pursuant to the Code of Arbitration Procedure of the National
Association of Securities Dealers, Inc. Any such arbitration must be commenced
by service of a written demand for arbitration or a written notice of intention
to arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 8(a), (b) and (c)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses that is created by the provisions of
Sections 8(a), (b) and (c).
(f) In order to provide for just and equitable contribution in circumstances
under which the indemnity provided for in this Section 8 is for any reason
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
right of appeal) to be unenforceable by the indemnified parties although
applicable in accordance with its terms, the Company and the Selling
Stockholders, on the one hand, and the Underwriters, on the other hand, shall
contribute to the aggregate losses, liabilities, claims, damages and expenses of
the nature contemplated by such indemnity incurred by the Company and the
Selling Stockholders, and one or more of the
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Underwriters, as incurred, in such proportions that (a) the Underwriters are
responsible pro rata for that portion represented by the percentage that the
underwriting discount appearing on the cover page of the Prospectus bears to the
public offering price (before deducting expenses) appearing thereon, and (b) the
Company and the Selling Stockholders are responsible for the balance, provided,
however, that no person guilty of fraudulent misrepresentations (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation; provided,
further, that if the allocation provided above is not permitted by applicable
law, the Company and the Selling Stockholders, on the one hand, and the
Underwriters, on the other hand, shall contribute to the aggregate losses in
such proportion as is appropriate to reflect not only the relative benefits
referred to above but also the relative fault of the Company and the Selling
Stockholders, on the one hand, and the Underwriters, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the Company
or the Selling Stockholders, on the one hand, or by the Underwriters, on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company,
the Selling Stockholders and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this Section 8(f) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 8(f). The
amount paid or payable by a party as a result of the losses, claims, damages or
liabilities referred to above shall be deemed to include any legal or other fees
or expenses reasonably incurred by such party in connection with investigating
or defending such action or claim. Notwithstanding the provisions of this
Section 8(f), (i) no Selling Stockholder shall be required to contribute any
amount in excess of the aggregate amount of net proceeds received by such
Selling Stockholder from the sale of Shares by such Selling Stockholder and (ii)
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. The
Underwriters' obligations in this Section 8(f) to contribute are several in
proportion to their respective underwriting obligations and not joint. For
purposes of this Section 8(f), each person, if any, who controls an Underwriter
within the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company, within the meaning of Section 15 of the 1933 Act shall
have the same rights to contribution as the Company
Section 9. Representations, Warranties and Agreements to Survive
Delivery. The representations, warranties, indemnities, agreements and other
statements of the Company, or its
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officers, and the Selling Stockholders set forth in or made pursuant to this
Agreement will remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Company, the Selling Stockholders or
any Underwriter or controlling person, and with respect to an Underwriter, a
Selling Stockholder or the Company will survive delivery of and payment for the
Shares or termination of this Agreement.
Section 10. Effective Date of Agreement and Termination.
(a) This Agreement shall become effective immediately as to Sections 6 and 8
and, as to all other provisions, (i) if at the time of execution of this
Agreement the Registration Statement has not become effective, at 9:30 a.m. New
York, New York time on the first full business day following the effectiveness
of the Registration Statement, or (ii) if at the time of execution of this
Agreement the Registration Statement has been declared effective, at 9:30 a.m.
New York, New York time on the first full business day following the date of
execution of this Agreement; but this Agreement shall nevertheless become
effective at such earlier time after the Registration Statement becomes
effective as you may determine on and by notice to the Company and the Selling
Stockholders or by release of any of the Shares for sale to the public. For the
purposes of this Section 10, the Shares shall be deemed to have been so released
upon the release of publication of any newspaper advertisement relating to the
Shares or upon the release by you of telegrams (i) advising the Underwriters
that the Shares are released for public offering, or (ii) offering the Shares
for sale to securities dealers, whichever may occur first. By giving notice
before the time this Agreement becomes effective, you, as representative of the
several Underwriters, or the Company, may prevent this Agreement from becoming
effective, without liability of any party to any other party, except that the
Company shall remain obligated to pay costs and expenses to the extent provided
in Section 6 hereof and except that the provisions of Section 8 shall remain in
effect.
(b) You may terminate this Agreement, by notice to the Company and the
Selling Stockholders, at any time at or prior to the Closing Time (i) in
accordance with the penultimate paragraph of Section 7 of this Agreement, or
(ii) if there has been since the respective dates as of which information is
given in the Registration Statement, any material adverse change, or any
development involving a prospective material adverse change, in or affecting the
business, prospects, management, properties, assets, results of operations or
condition (financial or otherwise) of the Company, whether or not arising in the
ordinary course of business, or (iii) if there has occurred or accelerated any
outbreak of hostilities or other national or international calamity or crisis or
change in economic or political conditions the effect of which on the financial
markets of the United States is such as to make it, in your judgment,
impracticable to market the Shares or enforce contracts for the sale of the
Shares, or (iv) if trading in any securities of the Company has been suspended
by the Commission or by the Nasdaq Stock Market or if trading generally on the
New York Stock Exchange or in the over-the-counter market has been suspended, or
limitations on prices for trading (other than limitations on hours or numbers of
days of trading) have been fixed, or maximum ranges for prices for securities
have been required, by such exchange or the NASD or by order of the
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Commission or any other governmental authority, or (v) if a banking moratorium
has been declared by federal or New York or Tennessee authorities, or (vi) any
federal or state statute, regulation, rule or order of any court or other
governmental authority has been enacted, published, decreed or otherwise
promulgated which in your reasonable opinion materially adversely affects or
will materially adversely affect the business or operations of the Company, or
(vii) any action has been taken by any federal, state or local government or
agency in respect of its monetary or fiscal affairs which in your reasonable
opinion has a material adverse effect on the securities markets in the United
States.
(c) If this Agreement is terminated pursuant to this Section 10, such
termination shall be without liability of any party to any other party, except
to the extent provided in Section 6. Notwithstanding any such termination, the
provisions of Section 8 shall remain in effect.
Section 11. Default by One or More of the Underwriters. If one or
more of the Underwriters shall fail at the Closing Time to purchase the Shares
that it or they are obligated to purchase pursuant to this Agreement (the
"Defaulted Securities"), you shall have the right, within 36 hours thereafter,
to make arrangements for one or more of the non-defaulting Underwriters, or any
other underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms set forth in
this Agreement; if, however, you have not completed such arrangements within
such 36-hour period, then:
(a) If the aggregate number of Firm Shares which are Defaulted Securities
does not exceed 10% of the aggregate number of Firm Shares to be purchased
pursuant to this Agreement, the non-defaulting Underwriters shall be obligated
to purchase the full amount thereof in the proportions that their respective
underwriting obligation proportions bear to the underwriting obligations of all
non-defaulting Underwriters, and
(b) If the aggregate number of Firm Shares which are Defaulted Securities
exceeds 10% of the aggregate number of Firm Shares to be purchased pursuant to
this Agreement, this Agreement shall terminate without liability on the part of
any non-defaulting Underwriter.
No action taken pursuant to this Section 11 shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default that does not result in a termination of
this Agreement, either you or the Company shall have the right to postpone the
Closing Time for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus that
may thereby be made necessary. As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this Section 11.
34
<PAGE>
Section 12. Default by the Company. If the Company or any of the
Selling Stockholders shall fail at the Closing Time to sell and deliver the
aggregate number of Firm Shares that it is obligated to sell, then this
Agreement shall terminate without any liability on the part of any non-
defaulting party, except to the extent provided in Section 6 and except that the
provisions of Section 8 shall remain in effect.
No action taken pursuant to this Section shall relieve the Company or any of
the Selling Stockholders from liability, if any, in respect to such default.
Section 13. Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered, mailed or transmitted by any standard form of telecommunication.
Notices to the Underwriters shall be directed c/o Johnson Rice & Company L.L.C.,
639 Loyola Avenue, Suite 2775, New Orleans, Louisiana 70113, Attention: Gregory
L. Miner (with a copy sent in the same manner to Andrews & Kurth L.L.P., 4200
Texas Commerce Tower, Houston, Texas 77002, Attention: Thomas P. Mason); notices
to the Company shall be directed to it at 1503 Engineers Road, Belle Chasse,
Louisiana 70037, Attention: Terence E. Hall (with a copy of each notice to the
Company or to any Selling Stockholder sent in the same manner to Jones, Walker,
Waechter, Poitevent, Carrere & Denegre, L.L.P., 201 St. Charles Avenue, New
Orleans, Louisiana 70170, Attention: William B. Masters); and notices to the
Selling Stockholders shall be directed to them at their addresses specified for
them on the signature pages hereof.
Section 14. Parties. This Agreement is made solely for the benefit of
and is binding upon the Underwriters, the Selling Stockholders and the Company
and, to the extent provided in Section 8, any person controlling the Company,
the Selling Stockholders or any of the Underwriters, the officers and directors
of the Company, and their respective executors, administrators, successors and
assigns. Subject to the provisions of Section 8, no other person shall acquire
or have any right under or by virtue of this Agreement. The term "successors
and assigns" shall not include any purchaser, as such purchaser, from any of the
several Underwriters of the Shares.
All of the obligations of the Underwriters hereunder are several and not
joint.
Section 15. Governing Law and Time. This Agreement shall be governed
by the laws of the State of Louisiana. Specified time of the day refers to
United States Eastern Time. Time shall be of the essence of this Agreement.
Section 16. Counterparts. This Agreement may be executed in one or
more counterparts and when a counterpart has been executed by each party, all
such counterparts taken together shall constitute one and the same agreement.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us a counterpart hereof, and upon the acceptance
hereof by Johnson Rice & Company L.L.C., on behalf of each of the Underwriters,
this instrument will become a binding agreement
35
<PAGE>
among the Company and the several Underwriters in accordance with its terms. It
is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in the Agreement among
Underwriters, a copy of which shall be submitted to the Company for examination,
upon request, but without warranty on your part as to the authority of the
signers thereof.
Very truly yours,
SUPERIOR ENERGY SERVICES, INC.
By:
---------------------------------
Name: Terence E. Hall
Title: President
---------------------------------
Terence E. Hall
[address]
---------------------------------
Ernest J. Yancey, Jr.
[address]
---------------------------------
James E. Ravannack
[address]
---------------------------------
Richard J. Lazes
[address]
36
<PAGE>
The foregoing Agreement is hereby
confirmed and accepted as of the
date first written above:
JOHNSON RICE & COMPANY L.L.C.
MORGAN KEEGAN & COMPANY, INC.
GAINES, BERLAND INC.
By:Johnson Rice & Company L.L.C.
By:
----------------------------------
(Authorized Representative)
On behalf of each of the Underwriters
37
<PAGE>
SCHEDULE A
Number of
Firm Shares
to be Purchased
---------------
Underwriter
- -----------
Johnson Rice & Company L.L.C. _______________
Morgan Keegan & Company, Inc. _______________
Gaines, Berland Inc. _______________
TOTAL 6,000,000
===============
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of Number of
Name of Selling Firm Shares Option Shares
Stockholders To Be Sold To Be Sold
- ----------------------- ----------- -------------
<S> <C> <C>
Terence E. Hall............................... 618,902 800,648
James E. Ravannack............................ 419,708 28,154
Ernest J. Yancey, Jr.......................... 418,068 28,044
Richard J. Lazes.............................. 331,724 22,252
Rufus Patin................................... 225,498 15,126
John Gordon................................... 86,100 5,776
Total......................................... 2,100,000 900,000
========= =======
</TABLE>
<PAGE>
ANNEX I
Pursuant to Section 7(f) of the Underwriting Agreement, KPMG Peat
Marwick L.L.P. shall furnish letters to the Underwriters to the effect that:
(i) They are independent public accountants with respect to the
Company and its consolidated subsidiaries, with respect to Stabil Drill
Specialties, Inc. and with respect to Sub-Surface Tools, Inc. within the meaning
the 1933 Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the consolidated financial statements and
schedules audited by them and included in the Prospectus, the Registration
Statement and any 462(b) Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act
and the related published rules and regulations thereunder;
(iii) On the basis of limited procedures, not constituting an audit
in accordance with generally accepted auditing standards, consisting of a
reading of the latest available interim unaudited consolidated financial
statements of the Company and its consolidated subsidiaries included in the
Registration Statement and the Prospectus, a reading of the latest available
interim financial statements of the Company and its subsidiaries, inspection of
the minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries of
officials of the Company and its subsidiaries responsible for financial
accounting matters and such other inquiries and procedures as may be specified
in such letter, nothing came to their attention that caused them to believe
that:
(A) the unaudited consolidated condensed financial statements of the
Company and its consolidated subsidiaries included in the Registration Statement
and the Prospectus do not comply in form in all material respects with the
applicable accounting requirements of the 1933 Act and the related published
rules and regulations thereunder or are not in conformity with generally
accepted accounting principles applied on a basis substantially consistent with
that of the audited consolidated financial statements included in the
Registration Statement and the Prospectus;
(B) as of a specified date not more than 5 days prior to the date of
such letter, there were any changes in the capital stock (other than the
issuance of capital stock upon exercise of options which were outstanding on the
date of the latest balance sheet included in the Prospectus) or any increase in
inventories or the long-term debt or short-term debt of the Company and its
subsidiaries, or any decreases in net current assets or net assets or other
items specified by the Underwriters, or any increases in any items specified by
the Underwriters, in each case as compared with
<PAGE>
amounts shown in the latest balance sheet included in the Prospectus, except in
each case for changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such letter; and
(C) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in Clause (B) there
were any decreases in net sales or operating income or the total or per share
amounts of net income or other items specified by the Underwriters, or any
increases in any items specified by the Underwriters, in each case as compared
with the comparable period of the preceding year and with any other period of
corresponding length specified by the Underwriters, except in each case for
increases or decreases which the Prospectus discloses have occurred or may occur
which are described in such letter; and
(iv) In addition to the audit referred to in their report(s) included
in the Prospectus and the limited procedures, inspection of minute books,
inquiries and other procedures referred to in paragraph (iii) above, they have
carried out certain specified procedures, not constituting an audit in
accordance with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the Underwriters
which are derived from the general accounting records of the Company and its
subsidiaries, included in the Registration Statement and the Prospectus, or
which appear in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Underwriters, and have compared certain of such
amounts, percentages and financial information with the accounting records of
the Company and its subsidiaries and have found them to be in agreement.
(v) On the basis of a reading of the unaudited pro forma consolidated
condensed financial statements included in the Registration Statement and the
Prospectus, carrying out certain specified procedures that would not necessarily
reveal matters of significance with respect to the comments set forth in this
paragraph (v), inquiries of certain officials of the Company and its
consolidated subsidiaries who have responsibility for financial and accounting
matters and proving the arithmetic accuracy of the application of the pro forma
adjustments to the historical amounts in the unaudited pro forma consolidated
condensed financial statements, nothing came to their attention that caused them
to believe that the unaudited pro forma consolidated condensed financial
statements do not comply as to form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of such statements.
References to the Registration Statement and the Prospectus in this
Annex I shall include any amendment or supplement thereto at the date of such
letter.
2
<PAGE>
EXHIBIT A
December ___, 1997
Johnson Rice & Company L.L.C.
Morgan Keegan & Company, Inc.
Gaines, Berland Inc.
As Representatives of the
Several Underwriters
c/o Johnson Rice & Company L.L.C.
639 Loyola Avenue, Suite 2775
New Orleans, Louisiana 70113
Gentlemen:
The undersigned understands that Superior Energy Services, Inc. (the
"Company"), a Delaware corporation, has filed a Registration Statement on Form
S-3 with the Securities and Exchange Commission in connection with a proposed
underwritten public offering (the "Offering") of shares of the Company's Common
Stock, $0.001 par value per share (the "Common Stock").
At the request of Johnson Rice & Company L.L.C., Morgan Keegan &
Company, Inc. and Gaines, Berland Inc., as representatives of the several
underwriters (the "Representatives") participating in the Offering, and in
consideration of the underwriters' participation in the Offering, the
undersigned hereby does agree that the undersigned will not, without the prior
written consent of Johnson Rice & Company L.L.C., directly or indirectly, offer,
pledge, sell, contract to sell, grant any option for the sale of or otherwise
dispose of or announce any offer, pledge, sale, grant of any option to purchase
or other disposition of, directly or indirectly, any shares of Common Stock or
any securities convertible into, exercisable for or exchangeable for shares of
Common Stock owned by the undersigned for a period of 120 days from the date of
the final prospectus relating to the Common Stock; provided, however, that the
foregoing restrictions shall not apply to any gift of shares of Common Stock to
a donee who agrees in writing for the benefit of the underwriters to be bound by
the foregoing restrictions with respect to such shares of Common Stock.
Sincerely,
<PAGE>
JONES, WALKER
WAECHTER, POITEVENT
CARRERE & DENEGRE, L.L.P
October 29, 1997
Superior Energy Services, Inc.
P.O. Box 6220
New Orleans, Louisiana 70174
RE:Superior Energy Services, Inc.
Registration Statement on Form S-3
6,900,000 Shares of Common Stock
Gentlemen:
We have acted as your counsel in connection with the preparation of the
registration statement on Form S-3 (the "Registration Statement") filed by
Superior Energy Services, Inc. (the "Company") with the Securities and
Exchange Commission (the "Commission"), on the date hereof, with respect to
the registration of 6,900,000 of Common Stock, $.001 par value per share of
the Company (the "Shares").
In so acting, we have examined originals, or photostatic or certified
copies, of such records of the Company, certificates of officers of the
Company and of public officials, and such other documents as we have deemed
relevant. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
documents.
Based upon the foregoing, we are of the opinion that the Shares have been
duly authorized and when issued, if not currently outstanding, and sold upon
the terms described in the Registration Statement, will be validly issued and
outstanding, fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us in the prospectus included therein under
the caption "Legal Matters." In giving this consent, we do not admit that we
are within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the general rules and
regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Jones, Walker, Waechter,
Poitevent,Carrere & Denegre, L.L.P.
JONES, WALKER, WAECHTER, POITEVENT,
CARRERE & DENEGRE, L.L.P.
<PAGE>
EXHIBIT 23.1
The Board of Directors
Superior Energy Services, Inc.:
We consent to the use of our report included herein and incorporated by
reference herein, dated March 14, 1997, with respect to the consolidated
balance sheets of Superior Energy Service, Inc. and subsidiaries as of
December 31, 1995 and 1996, and the related consolidated statements of
operations and stockholders' equity and cash flows for the two years then
ended. Our report refers to the adoption in 1995 of the method of accounting
for the impairment of long-lived assets and long-lived assets to be disposed
of prescribed by Statement of Financial Accounting Standards No. 121.
We also consent to the use of our report included herein, dated October 20,
1997, with respect to the balance sheets of Stabil Drill Specialties, Inc. as
of August 31, 1996 and 1997, and the related statements of income and retained
earnings and cash flows for the years then ended.
We also consent to the use of our report included herein, dated October 15,
1997, with respect to the balance sheet of Sub-Surface Tools, Inc. as of July
31, 1997, and the related statements of income and retained earnings and cash
flows for the year then ended.
We also consent to the use of our report incorporated herein by reference,
dated July 18, 1997, with respect to the balance sheet of Tong Rentals &
Supply Co., Inc. as of December 31, 1996, and the related statements of
operations and retained earnings and cash flows for the year then ended.
We also consent to the use of our report incorporated herein by reference,
dated April 17, 1997, with respect to the balance sheet of Nautilus Pipe and
Rental Tool, Inc. as of December 31, 1996, and the related statements of
operations and retained earnings and cash flows for the year then ended.
We also consent to the reference to our firm under the headings "Summary
Consolidated Financial Data", "Selected Consolidated Financial Data" and
"Experts" in the Prospectus.
KPMG PEAT MARWICK LLP
New Orleans, Louisiana
October 28, 1997
