UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
_______________
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by Registrant X
Filed by a party other than the Registrant
Check the appropriate box:
X Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to section 240.14a-11(c) or section
240.14a-12
SUPERIOR ENERGY SERVICES, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required
X Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which the transaction applies:
(i) Common Stock, par value $0.001 per share of Superior Energy
Services, Inc. ("Superior"), ("Superior Common Stock") to be issued
by Superior in the transaction.
(2) Aggregate number of securities to which transaction applies:
30,321,260, being the maximum number of shares of Superior Common
Stock estimated to be issued in the transaction.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: The filing fee of $1,910 is
calculated in accordance with Rule 0-11(c)(1) under the Exchange
Act as one-fiftieth of one percent of $9,547,386, which is the
aggregate book value as of March 31, 1999 of the 75,336 shares of
Cardinal capital stock (including shares issuable upon the exercise
of outstanding rights to acquire Cardinal capital stock and the
$45,000,000 worth of Cardinal capital stock to be issued as a
condition to closing the transaction) to be cancelled in the
transaction.
(4) Proposed maximum aggregate value of the transaction:
$9,547,386.00.
(5) Total fee paid: $1,910.
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
1105 PETERS ROAD
HARVEY, LOUISIANA 70058
(504) 362-4321
June ___, 1999
Dear Stockholder:
You are cordially invited to attend the annual meeting of Superior Energy
Services, Inc. ("Superior"), which will be held on ______________, 1999 at
10:00 a.m. local time at 201 St. Charles Ave., 52nd Floor, New Orleans, La.
At the annual meeting you will be asked to approve the issuance of shares
of Superior common stock pursuant to an Agreement and Plan of Merger dated as
of April 20, 1999, providing for the merger (the "Merger") of a wholly-owned
subsidiary of Superior with and into Cardinal Holding Corp. ("Cardinal"). As a
result of the Merger, Cardinal will become a wholly-owned subsidiary of
Superior.
Consummation of the Merger is subject to satisfaction of certain other
conditions, including approval by Superior stockholders of amendments to
Superior's Certificate of Incorporation and a new 1999 Stock Incentive Plan, as
well as the election by Superior stockholders of a new slate of directors.
In the materials accompanying this letter, you will find a Notice of Annual
Meeting of Stockholders, a Proxy Statement relating to the actions to be taken
by Superior stockholders at the annual meeting and a proxy card. The Proxy
Statement more fully describes the proposed Merger and includes information
about Superior and Cardinal. I urge you to read this material carefully.
Our investment banking firm, Johnson Rice & Company, L.L.C. ("Johnson
Rice"), has given us its opinion that the terms of the Merger are fair from a
financial point of view to you as a stockholder. The entire written opinion of
Johnson Rice is attached as Appendix B to this Proxy Statement. You are urged
to read the entire Johnson Rice opinion carefully.
THE SUPERIOR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND THE
RELATED TRANSACTIONS AND HAS DETERMINED THAT THEY ARE FAIR TO AND IN THE BEST
INTERESTS OF SUPERIOR AND ITS STOCKHOLDERS. YOUR BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE ISSUANCE OF SUPERIOR
COMMON STOCK PURSUANT TO THE MERGER AND THE ELECTION OF DIRECTORS AND OTHER
PROPOSALS DESCRIBED HEREIN.
The formal notice of the annual meeting is attached, and a form of proxy is
enclosed for your use. Whether or not you expect to attend the meeting, it is
very important that your shares be represented and it would therefore be
helpful if you would return your signed and dated proxies promptly in the
enclosed addressed, postage-paid envelope.
This Proxy Statement and the accompanying proxy card are first being mailed
to stockholders of record as of June ______, 1999, the record date, on or about
June ___, 1999.
Sincerely,
Terence E. Hall
Chairman of the Board and Chief Executive
Officer
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
1105 PETERS ROAD
HARVEY, LOUISIANA 70058
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Holders of Common Stock of Superior Energy Services, Inc.:
The annual meeting (the "Meeting") of stockholders of Superior Energy
Services, Inc. ("Superior") will be held at 201 St. Charles Avenue, 52nd Floor,
New Orleans, Louisiana 70170, on ____________, _____________, 1999 at 10:00
a.m., New Orleans time, to consider and vote on:
1. Approval of the issuance of a number of shares of Superior common stock
equal to 51% of the outstanding shares after giving effect to such
issuance, calculated on a fully diluted basis, in accordance with the
terms of an Agreement and Plan of Merger, pursuant to which a wholly-
owned subsidiary of Superior would merge (the "Merger") with and into
Cardinal Holding Corp. ("Cardinal") and Cardinal would become a wholly-
owned subsidiary of Superior;
2. The election of six directors;
3. Approval of an amendment to Superior's Certificate of Incorporation to
increase the number of authorized shares of Superior common stock from
40,000,000 to 125,000,000;
4. Approval of an amendment to Superior's Certificate of Incorporation to
regulate the ownership of the capital stock of Superior by persons who
are not citizens of the United States;
5. Approval of the Superior Energy Services, Inc. 1999 Stock Incentive Plan;
and
6. Such other business as may properly come before the Meeting or any
adjournment thereof.
YOUR VOTE IS VERY IMPORTANT. Consummation of the Merger is conditioned upon
the approval by Superior's stockholders of proposals 1 through 5 (the "Merger
Proposals") and each of proposals 2 through 5 are conditioned upon consummation
of the Merger.
The Proxy Statement, which you are encouraged to read carefully, provides
important information about the Merger and about the business of Superior and
Cardinal. In particular, you should review the sections entitled "Reasons for
the Merger" and "Recommendation of the Superior Board of Directors" under the
heading "The Merger" for the reasons why we believe the Merger is in the best
interests of Superior's stockholders.
Your Board of Directors believes that the Merger with Cardinal is in the
best interests of Superior and its stockholders and unanimously recommends that
you vote FOR approval of all of the Merger Proposals.
The Board of Directors of Superior has fixed the close of business on June
___, 1999 as the record date for the determination of stockholders entitled to
receive notice of and to vote at the Meeting or any adjournment or postponement
thereof.
Even if you now expect to attend the Meeting, you are requested to mark,
sign, date, and return the accompanying proxy in the enclosed addressed,
postage-paid envelope. If you attend the Meeting, you may vote in person,
whether or not you have sent in your proxy. A proxy may be revoked at any time
prior to the voting thereof.
By Order of the Board of Directors
Carolyn Plaisance
Secretary
Harvey, Louisiana
June ___, 1999
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Superior files annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). You can inspect and copy that information at the public
reference room of the Commission at 450 Fifth Street, NW, Washington, D.C.
20549. You may call the Commission at 1-800-SEC-0330 for more information
about the public reference room. The Commission also maintains an Internet
site that contains reports, proxy and information statements and other
information regarding registrants, like us, that file reports with the
Commission electronically. The Commission's Internet address is
http://www.sec.gov.
The Commission allows Superior to "incorporate by reference" the
information it files with the Commission, which means that Superior can
disclose important information to you by referring to documents on file with
the Commission. Certain information that Superior currently has on file is
incorporated by reference and is an important part of this Proxy Statement.
Certain information that Superior will file later with the Commission will
automatically update and supersede this information.
Superior incorporates by reference the following documents that it has
filed with the Commission pursuant to the Securities Exchange Act of 1934 (the
"Exchange Act"):
* Annual Report on Form 10-KSB for the fiscal year ended December
31, 1998
* Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1999
* All documents filed by Superior with the Commission pursuant to
Sections 13(a), 14 or 15(d) of the Exchange Act after the date of
this Proxy Statement and prior to the date of the Meeting
You can obtain any of the above listed documents from us or the
Commission. Documents listed above are available from us without charge,
excluding all appendices unless the appendices have been specifically
incorporated by reference into this Proxy Statement. Stockholders may request
copies by writing or telephoning us at:
Superior Energy Services, Inc.
1105 Peters Road
Harvey, Louisiana 70058
Attn: Carolyn Plaisance
Telephone: (504) 362-4321
<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY 1
The Annual Meeting 1
Purpose of the Meeting 1
Quorum; Vote Required to Pass Proposals 1
Structure and Terms of the Merger (Proposal 1) 2
The Companies 2
Effective Time of the Merger 2
Reasons for the Merger 2
Board Recommendation 3
Opinion of Financial Advisors 3
Other Terms and Conditions to the Merger 3
Rights of Superior Stockholders; Dilution 5
Appraisal Rights 5
Accounting Treatment 5
Federal Income Tax Consequences 6
Election of Directors (Proposal 2) 6
Amendment to Certificate of Incorporation to Increase the Number of
Authorized Shares of Superior Common Stock (Proposal 3) 6
Amendment to Certificate of Incorporation to Restrict Ownership by
Non-U.S. Citizens (Proposal 4) 6
Superior Energy Services, Inc. 1999 Stock Incentive Plan (Proposal 5) 6
SUMMARY HISTORICAL FINANCIAL DATA SUPERIOR ENERGY SERVICES, INC. 8
SUMMARY HISTORICAL FINANCIAL DATA CARDINAL HOLDING CORP. 10
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL INFORMATION 12
COMPARATIVE PER SHARE DATA 13
MARKET PRICES AND DIVIDENDS 14
THE ANNUAL MEETING 15
Date and Place of the Annual Meeting 15
Purpose of the Meeting 15
Record Date; Stockholders Entitled to Vote 15
Quorum; Vote Required 15
Solicitation, Voting and Revocability of Proxies 16
THE MERGER 17
The Merger Agreement 17
Structure and Terms of the Merger 17
Background of the Merger 18
Reasons for the Merger 19
Recommendation of the Superior Board of Directors 19
Opinion of Financial Advisers 20
Effective Time of the Merger 23
Exchange of Stock Certificates 23
Certain Terms of the Merger Agreement 23
Hart-Scott-Rodino Clearance 26
Other Conditions to the Merger 26
Interests of Certain Persons in the Merger 27
Conduct of Business by Cardinal and Superior Pending the Merger 29
No Solicitation 30
Restrictions on the Funds 31
Amendment; Waiver; Termination 31
Fees and Expenses 33
Rights of Superior Stockholders; Dilution 33
Appraisal Rights 33
Accounting Treatment 33
Certain Federal Income Tax Consequences 33
Federal Securities Law Consequences 34
Vote Required 34
BUSINESS OF THE COMPANIES 35
Description of Business of Superior 35
Description of Business of Cardinal 36
SELECTED CONSOLIDATED FINANCIAL DATA OF SUPERIOR ENERGY SERVICES, INC 41
SELECTED CONSOLIDATED FINANCIAL DATA OF CARDINAL HOLDING CORP 43
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS 45
SUPERIOR ENERGY SERVICES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 53
Overview 53
Comparison of the Results of Operations for the Quarters Ended March
31, 1999 and 1998 53
Comparison of the Results of Operations for the Years Ended December
31, 1998 and 1997 53
Comparison of Results of Operations for the Years Ended December
31, 1997 and 1996 54
Liquidity and Capital Resources 55
New Accounting Pronouncements 56
Year 2000 56
Quantitative and Qualitative Disclosures About Market Risk 57
CARDINAL HOLDING CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 58
General 58
Acquisitions 59
Recapitalization and Refinancing 59
Results of Operations 60
Quarter Ended March 31, 1999 Compared to Quarter Ended March 31, 1998 60
Year ended December 31, 1998 Compared to Year Ended December 31, 1997 61
Year ended December 31, 1997 Compared to Year Ended December 31, 1996 62
Liquidity and Capital Resources 62
Year 2000 Issues 63
Quantitative and Qualitative Disclosures About Market Risk 64
ELECTION OF DIRECTORS 65
Voting Procedure 65
Information About Directors 65
Board Committees 66
Director Compensation 66
Information About Executive Officers 67
PRINCIPAL STOCKHOLDERS 68
EXECUTIVE COMPENSATION 71
Summary of Executive Compensation 71
Summary Compensation Table 71
Executive Employment Agreements 71
1998 Stock Option and Stock Appreciation Right Grants 73
Aggregate Option Exercises During 1998 and Option Values at Fiscal
Year End 73
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 74
Section 16(a) Beneficial Ownership Reporting Compliance 74
PROPOSED AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE
NUMBER OF AUTHORIZED SHARES 75
Purposes and Effects of the Proposal 75
Vote Required 75
PROPOSED AMENDMENT TO CERTIFICATE OF INCORPORATION TO RESTRICT
OWNERSHIP BY NON-UNITED STATES CITIZENS 76
General 76
Background and Purpose of the Citizenship Amendment 76
Description of Citizenship Amendment Provisions 76
Effect of Amendment on Stockholders 78
Vote Required 78
PROPOSAL TO APPROVE THE SUPERIOR ENERGY SERVICES, INC. 1999 STOCK
INCENTIVE PLAN 79
General 79
Purpose of the Proposal 79
Terms of the Plan 79
Awards To Be Granted 82
Federal Income Tax Consequences of Stock Options 82
Vote Required 83
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS 83
STOCKHOLDER PROPOSALS 83
INDEX TO FINANCIAL STATEMENTS F-1
APPENDIX A: Agreement and Plan of Merger A-1
APPENDIX B: Fairness Opinion of Johnson Rice & Company L.L.C. B-1
APPENDIX C: Authorized Share Amendment C-1
APPENDIX D: Citizenship Amendment D-1
APPENDIX E: Superior Energy Services, Inc. 1999 Stock Incentive Plan E-1
<PAGE>
SUMMARY
This summary is not a complete statement of all of the features or effects
of the proposals to be voted upon at the Meeting. This summary is qualified in
its entirety by the more detailed information contained in this Proxy Statement
and the Appendices attached hereto.
THE ANNUAL MEETING
The annual meeting (the "Meeting") of Superior Energy Services, Inc., a
Delaware corporation ("Superior"), will be held at 201 St. Charles Avenue, 52nd
Floor, New Orleans, Louisiana 70170, on ____________, _____________, 1999 at
10:00 a.m., New Orleans time. Only holders of record of shares of Superior
common stock, $.001 par value per share ("Superior Common Stock"), at the close
of business on June __, 1999 (the "Record Date") are entitled to notice of and
to vote at the Meeting. On the Record Date, there were [28,792,523] shares of
Superior Common Stock issued and outstanding, with each share entitled to cast
one vote with respect to each matter properly presented at the Meeting.
PURPOSE OF THE MEETING
At the Meeting, holders of Superior Common Stock will be asked to:
1. Approve the issuance of a number of shares of Superior Common Stock equal
to 51% of the outstanding shares after giving effect to such issuance,
calculated on a fully diluted basis (the "Share Issuance") in accordance
with the terms of an Agreement and Plan of Merger (the "Merger
Agreement"), pursuant to which a wholly-owned subsidiary of Superior
would merge (the "Merger") with and into Cardinal Holding Corp.
("Cardinal") and Cardinal would become a wholly-owned subsidiary of
Superior;
2. Elect six directors;
3. Approve an amendment to Superior's Certificate of Incorporation to
increase the number of authorized shares of Superior Common Stock from
40,000,000 to 125,000,000;
4. Approve an amendment to Superior's Certificate of Incorporation to
regulate the ownership of the capital stock of Superior by persons who
are not citizens of the United States; and
5. Approve the Superior Energy Services, Inc. 1999 Stock Incentive Plan (the
"Plan").
QUORUM; VOTE REQUIRED TO PASS PROPOSALS
The presence, in person or by proxy, of a majority of the outstanding shares
of Superior Common Stock entitled to vote is necessary to constitute a quorum.
Stockholders voting, or abstaining from voting, on any issue will be counted as
present for purposes of constituting a quorum.
Under the Delaware General Corporation Law ("DGCL"), neither the Merger
Agreement nor the Shares Issuance is required to be approved by Superior's
stockholders. However, the rules of the Nasdaq National Market, upon which the
Superior Common Stock is traded, require that the Share Issuance be submitted
to the Superior stockholders and be approved by at least a majority of the
votes cast on the proposal.
The approval of each of the proposed amendments to Superior's Certificate of
Incorporation requires the affirmative vote of the holders of at least a
majority of the outstanding shares of Superior Common Stock. Approval of the
Plan requires the affirmative vote of holders of at least a majority of the
shares of Superior Common Stock present, in person or by proxy, at the Meeting.
Superior directors will be elected by a plurality of the votes cast at the
Meeting.
An abstention will have no effect on the approval of the Share Issuance or
the election of directors, but will have the effect of a vote against each of
the other proposals. If brokers do not receive instructions from beneficial
owners as to the granting or withholding of proxies and may not or do not
exercise discretionary power to grant a proxy with respect to such shares (a
"broker non-vote") on the proposals, shares not voted on such proposals, other
than the election of directors, as a result will be counted as not present and
not cast with respect to the proposals. Thus, broker non-votes will have no
effect on the Share Issuance or the proposal to approve the Plan, but will have
the effect of a vote against the proposals to amend Superior's Certificate of
Incorporation.
STRUCTURE AND TERMS OF THE MERGER (PROPOSAL 1)
On April 20, 1999, Superior, Superior Cardinal Acquisition Company, Inc.,
a wholly-owned subsidiary of Superior, Cardinal and two major stockholders of
Cardinal, First Reserve Fund VII, Limited Partnership and First Reserve Fund
VIII, L.P. (the "Funds"), entered into the Merger Agreement, pursuant to which
the wholly-owned subsidiary of Superior would be merged with and into Cardinal
and Cardinal would become a wholly-owned subsidiary of Superior. The terms of
the Merger Agreement provide that at the Effective Time (as defined below) of
the Merger, all of the outstanding shares of Cardinal capital stock will be
converted into the right to receive, in the aggregate, a number of shares of
Superior Common Stock (the "Merger Shares") equal to 51% (the "Exchange
Percentage") of the then outstanding Superior Common Stock after giving effect
to such issuance, calculated on a fully diluted basis.
The number of shares of Superior Common Stock that will be issued upon
consummation of the Merger will be calculated based on the number of shares of
Superior Common Stock that will be used by Superior to calculate its fully
diluted earnings per share in accordance with generally accepted accounting
principles ("GAAP") for its fiscal quarter ending June 30, 1999. If this
calculation were made as of March 31, 1999, the average price for Superior
Common Stock was $2.75, the number of issued and outstanding shares of Superior
Common Stock was 28,792,523, and the number of fully diluted shares of Superior
Common Stock was 28,822,296. Thus, 29,998,716 shares of Superior Common Stock
(51% of the fully diluted shares plus the number of shares issued in the
Merger) would be issued to Cardinal stockholders upon consummation of the
Merger, or 51% of the shares of Superior Common Stock actually issued and
outstanding after giving effect to the Merger. See "The Merger - Structure and
Terms of the Merger" and "- Effective Time of the Merger."
THE COMPANIES
Superior provides oil tool rentals, well plug and abandonment services,
and other specialized products and services to oil companies operating in the
Gulf of Mexico and Gulf Coast land regions. Superior is located at 1105 Peters
Road, Harvey, Louisiana 70058, telephone (504) 362-4321. See "Business of the
Companies - Description of the Business of Superior."
Cardinal provides liftboat rentals and other production related services,
including mechanical wireline services and plug and abandonment services to oil
companies operating in the Gulf of Mexico. Cardinal's principal place of
business is located at 3703 South Lewis Street, New Iberia, Louisiana 70560,
telephone (318) 364-4545. See "Business of the Companies - Description of the
Business of Cardinal."
EFFECTIVE TIME OF THE MERGER
The Merger will become effective at the time (the "Effective Time") and on
the date (the "Effective Date") the Certificate of Merger is filed with the
Secretary of State of Delaware. Unless Superior and Cardinal otherwise agree,
the Merger will be consummated as soon as possible after all stockholder
approvals described in this Proxy Statement have been obtained and the other
conditions to the Merger have been satisfied or waived (the "Closing Date").
See "The Merger - Hart-Scott-Rodino Clearance" and "- Other Conditions to the
Merger."
REASONS FOR THE MERGER
Superior's Board believes the terms of the Merger are fair to and in the
best interests of Superior and its stockholders. The Board believes the Merger
will provide Superior with a means of achieving certain long-term financial and
strategic objectives, and believes the Merger offers various synergistic
opportunities, including the ability to: (i) achieve broader penetration in
the well life cycle by bundling product and service offerings; (ii) become a
market leader in the well service market through the combination of Cardinal's
and Superior's well service operations; (iii) reduce corporate and field
operating costs as a percentage of revenue; (iv) expand internationally given
the increased size of the combined company; and (v) increase revenues and
market share by capitalizing on cross-marketing opportunities. See "The Merger
- - Background of the Merger," "- Reasons for the Merger" and "- Recommendation
of the Superior Board of Directors."
BOARD RECOMMENDATION
Superior's Board of Directors believes that the Merger is in the best
interests of Superior and its stockholders and recommends that stockholders
vote in favor of the Share Issuance and the related proposals (described below)
to elect directors, amend Superior's Certificate of Incorporation and adopt the
1999 Stock Incentive Plan. The Board believes that if the Merger is
consummated, Superior will have greater prospects for future success.
OPINION OF FINANCIAL ADVISORS
Johnson Rice & Company, L.L.C. ("Johnson Rice") was retained by Superior
to provide a fairness opinion in connection with the Merger. On April 13, 1999
Johnson Rice rendered its oral opinion to the Superior Board, later confirmed
in writing, that as of such date and based upon factors and assumptions set
forth therein, the Exchange Percentage was fair from a financial point of view
to holders of Superior Common Stock. In rendering its opinion, Johnson Rice
took into account that the consideration to be paid to Cardinal stockholders in
connection with the Merger was determined through arms'-length negotiations
between Cardinal and Superior. Superior has agreed to pay Johnson Rice a fee
for its fairness opinion and related advisory services of $1,200,000 payable
upon the consummation of the Merger. Superior has also agreed to reimburse
Johnson Rice for its expenses related to the engagement and to indemnify
Johnson Rice and its affiliates against certain liabilities and expenses,
including liabilities under federal securities laws in connection with Johnson
Rice's engagement. The full text of the Johnson Rice letter is attached to
this Proxy Statement as Appendix B. See "The Merger - Opinion of Financial
Advisers."
OTHER TERMS AND CONDITIONS TO THE MERGER
In addition to the foregoing, the Merger Agreement contains certain other
terms and conditions, including:
EQUITY CONTRIBUTION. In March 1999, Cardinal completed an offering of $5
million of equity to the current holders of Cardinal capital stock, and the
consummation of the Merger is conditioned upon Cardinal's completion of a
private placement of an additional $45 million of equity to the current holders
of Cardinal capital stock or other institutional investors, the net proceeds of
which will be used to reduce Cardinal's indebtedness upon consummation of the
Merger. Each of the Funds has committed to subscribe for its pro rata portion
of the offering (approximately $28 million in the aggregate). See "The Merger
- - Certain Terms of the Merger Agreement - Equity Contribution."
FINANCING. Under the terms of the Merger Agreement, prior to the
consummation of the Merger, Superior must obtain a new credit facility, which
may be in the form of an offering of senior notes, or secured or unsecured bank
debt, or any other form reasonably satisfactory to Superior and Cardinal,
containing usual and customary covenants, and on terms that are mutually agreed
upon by Superior and Cardinal, in a principal amount (the "Financing") that
will produce proceeds sufficient to repay or refinance certain existing
indebtedness of both Cardinal and Superior. The completion of the Financing is
a condition to the consummation of the Merger. As of the date of this Proxy
Statement, Superior is evaluating several indications of interest from lenders
for the Financing. See "The Merger - Certain Terms of the Merger Agreement -
Financing."
CONSTITUTION OF SUPERIOR'S BOARD; STOCKHOLDERS' AGREEMENT. The Merger
Agreement requires Superior's Board to nominate a slate of directors to be
elected at the Meeting, consisting of (i) two individuals designated by
Superior, one of whom is Superior's Chief Executive Officer, (ii) two
individuals designated by Cardinal, and (iii) two individuals who are
independent of both Superior and Cardinal, and who have been designated by
Cardinal. Accordingly, Superior's Board has nominated six individuals meeting
this criteria to replace the current board members, all of whose terms expire
at the Meeting.
As a condition to the Merger, Superior and the Funds must execute a
stockholders' agreement (the "Stockholders' Agreement") that provides, among
other things, that following the Closing Date the Board of Directors of
Superior will continue to consist of six directors nominated as provided above
(except that following the Merger the Funds, rather than Cardinal, will
designate the directors initially designated by Cardinal). However, the second
individual, other than the Chief Executive Officer, initially selected by
Superior will only be nominated for re-election at the first annual meeting of
Superior's stockholders following the Closing Date and will serve until the
expiration of his term at the second annual meeting of Superior's stockholders
following the Closing Date, at which time this board seat will be filled by an
independent director designated by a majority vote of the entire Board. The
Stockholders' Agreement also contains certain covenants pursuant to which the
Funds' ability to acquire or dispose of Superior Common Stock is restricted.
See "The Merger - Certain Terms of the Merger Agreement - Constitution of
Superior's Board Following the Merger; Stockholder's Agreement" and "Election
of Directors."
AGREEMENT AND RELEASE. The Merger Agreement also requires that all of
Cardinal's stockholders execute an agreement and release, pursuant to which,
among other things, each stockholder releases and discharges Cardinal from any
obligations it may have under charter documents, contracts or applicable law,
waives any preemptive rights such stockholder may have, waives any appraisal
rights such stockholder may have under applicable law, agrees to terminate
certain existing agreements, and agrees to accept the Merger Shares to which
such stockholder will become entitled in accordance with the terms of the
Merger Agreement in full payment for such stockholder's shares of Cardinal
capital stock exchanged therefor. See "The Merger - Certain Terms of the
Merger Agreement - Agreement and Release."
REGISTRATION RIGHTS AGREEMENTS. The Merger Agreement also requires
Superior to execute separate registration rights agreements with each of the
Funds and all other Cardinal stockholders. The registration rights agreement
with the Funds provides, among other things, that at any time after one year
following the Closing Date, the Funds may request that Superior file a
registration statement under the Securities Act of 1933 (the "Securities Act")
for the offer and sale of not less than 20% of the Superior Common Stock owned
by the Funds following the Merger. The registration rights agreement with the
other stockholders of Cardinal provides, among other things, that Superior will
file a shelf registration statement under the Securities Act within 90 days
after the Closing Date registering the resale from time to time of the Superior
Common Stock owned by such stockholders and maintain the effectiveness of such
registration statement for two years after the Closing Date. Both agreements
provide that the respective stockholders may include their shares on any
registration statement filed by Superior to register the offer and sale of
Superior Common Stock by Superior or other stockholders, subject to certain
limitations. See "The Merger - Certain Terms of the Merger Agreement -
Registration Rights Agreements."
HART-SCOTT-RODINO CLEARANCE. The obligations of Superior and Cardinal to
consummate the Merger are subject to the expiration or earlier termination of
the requisite waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"). Superior and Cardinal each made their
required initial filings under the HSR Act on May ___, 1999. If not earlier
terminated, the waiting period will expire on June _____, 1999. See "The
Merger - Hart-Scott-Rodino Clearance."
OTHER CONDITIONS. In addition to Superior stockholder approval and HSR
clearance and the other matters discussed above, the consummation of the Merger
is also conditioned upon approval by Cardinal's stockholders of the Merger, the
receipt by Superior and Cardinal of an opinion of Jones, Walker, Waechter,
Poitevent, Carrere & Denegre, L.L.P., counsel to Superior, to the effect
that the Merger will constitute a tax-free reorganization, the receipt of any
necessary third party consents or approvals, the receipt by both parties of
customary legal opinions and other customary closing conditions. See "The
Merger - Other Conditions to the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER. In considering the
recommendation of Superior's Board of Directors with respect to the Merger,
Superior's stockholders should be aware that certain of the directors and
officers of Superior, Cardinal and the Funds have certain interests respecting
the Merger separate from their interests as holders of Superior Common Stock or
Cardinal capital stock, as the case may be. These include employment
agreements that will be entered into between Superior and certain Superior
executive officers and the receipt of stock options by certain of these
officers and directors pursuant to Superior's 1999 Stock Incentive Plan.
Certain officers of Cardinal will also receive employment contracts and stock
options following consummation of the Merger. In addition, two of Superior's
current directors will maintain their positions on Superior's Board and the
Funds will designate two directors to Superior's Board.
Further, the Merger Agreement provides that Superior will indemnify the
present and former officers and directors of Cardinal and its wholly-owned
subsidiary, Cardinal Services, Inc., in accordance with Cardinal's Certificate
of Incorporation, and will purchase and maintain an extension of Cardinal's
directors' and officers' liability insurance policy for the Cardinal officers
and directors. In addition, all current Cardinal employees who become
employees of Superior following the Merger will receive the same employee
benefits available to current Superior employees. See "The Merger - Interests
of Certain Persons in the Merger," "Proposal to Approve the Superior Energy
Services, Inc. 1999 Stock Incentive Plan" and "Election of Directors."
CONDUCT OF BUSINESS BY THE PARTIES PENDING THE MERGER. Pursuant to the
Merger Agreement, each of Superior and Cardinal has agreed to use its
reasonable best efforts to preserve the goodwill of suppliers, customers and
others having business relations with it and its subsidiaries and to do nothing
knowingly to impair its ability to keep and preserve its business. See "The
Merger - Conduct of Business by Cardinal and Superior Pending the Merger."
NO SOLICITATION. The Merger Agreement prohibits Superior, Cardinal and
their respective subsidiaries, affiliates, officers, directors, representatives
and agents from soliciting, initiating or encouraging the submission of a
proposal for an alternative sale transaction, entering into or giving any
approval with respect to any such sale transaction, or participating in any
discussions or negotiations regarding or furnishing to any person information
with respect to any proposal that constitutes, or may reasonably be expected to
lead to any such sale transaction. If the Board of either party determines in
good faith, based upon the advice of outside counsel, that it is necessary to
do so in order to comply with its fiduciary responsibilities, it may respond to
an unsolicited proposal for an alternative sale transaction, furnish
information with respect to itself to the person making such a proposal, and
participate in negotiations regarding such a proposal. Each party, in such
circumstances, may also modify or withdraw its recommendation of the Merger or
recommend an alternative sale transaction to its stockholders but only after
terminating the Merger Agreement and paying a termination fee equal to $3
million to the other party. See "The Merger - No Solicitation."
AMENDMENT; WAIVER; TERMINATION. The Merger Agreement may be amended at
any time upon written agreement of the parties, provided that any amendment
that by law requires approval of the stockholders of either party must receive
such approval. The Merger Agreement may be terminated by the parties under
certain circumstances, however, if the Merger Agreement is terminated by either
party in connection with its acceptance of a competing sale transaction, a
termination fee equal to $3 million will be due to the other party.
Moreover, if the Agreement is terminated due to (i) a breach of the other
party's representations, warranties or covenants, (ii) the withdrawal or
modification of the recommendation of the Merger by the other party's Board,
(iii) the commencement of a tender or exchange offer for the other party's
stock that is not opposed by such other party's Board, (iv) the acquisition of
30% or more of the outstanding stock of the other party, or (v) the failure of
the stockholders of the other party to approve the Merger, AND within three
months of the termination, the other party enters into a written agreement for
another sale transaction and the other sale transaction is ultimately
consummated, the party entering into such other sale transaction will owe a
termination fee of $3 million to the other party. See "The Merger - Amendment;
Waiver; Termination."
RIGHTS OF SUPERIOR STOCKHOLDERS; DILUTION
The rights of the Superior stockholders will not be altered as a result of
the consummation of the Merger, except as those rights are affected by the
proposed amendments to Superior's Certificate of Incorporation. The Merger
will significantly dilute Superior's current stockholders. If the Merger is
completed, Superior's current stockholders will own in the aggregate 49% of the
total number of shares of Superior Common Stock then outstanding on a fully
diluted basis, with the former stockholders of Cardinal owning in the aggregate
the remaining 51%. See "Comparative Per Share Data" and "The Merger - Rights of
Superior Stockholders; Dilution."
APPRAISAL RIGHTS
Superior stockholders do not have appraisal rights in connection with the
Merger. Under the DGCL, Cardinal stockholders would be entitled to appraisal
rights in connection with the Merger; however, it is a condition to the Merger
that each of the Cardinal stockholders sign an Agreement and Release in which
it affirms that it has waived any and all appraisal rights. See "The Merger -
Appraisal Rights" and "- Certain Terms of the Merger Agreement - Agreement and
Release."
ACCOUNTING TREATMENT
The Merger will result in the former stockholders of Cardinal owning 51%
of the outstanding shares of Superior Common Stock on a fully diluted basis.
For accounting purposes, the Merger will be treated as if Cardinal was the
acquiror (a reverse acquisition) of Superior using the purchase method of
accounting. See "The Merger - Accounting Treatment."
FEDERAL INCOME TAX CONSEQUENCES
Management of Superior believes that the Merger will constitute a tax-
free reorganization within the meaning of the Internal Revenue Code. The
Merger is conditioned upon the receipt of an opinion of Jones, Walker,
Waechter, Poitevent, Carrere & Denegre, L.L.P., Superior's counsel, to
that effect. See "The Merger - Certain Federal Income Tax Consequences."
ELECTION OF DIRECTORS (PROPOSAL 2)
It is a condition to the Merger that Superior's stockholders approve the
election of the following nominees to serve as the directors of Superior for a
one-year term ending at Superior's 2000 Annual Meeting of Stockholders: (i)
William E. Macaulay and Ben A. Guill, two individuals selected by Cardinal,
(ii) Robert E. Rose and Richard A. Bachmann, two individuals selected by
Cardinal who are independent of both Cardinal and Superior, (iii) Terence E.
Hall, Superior's Chief Executive Officer and (iv) Justin L. Sullivan, a current
Superior director. These director nominees are described in detail under
"Election of Directors." The four nominees selected by Cardinal will only take
office if the Merger is consummated. If, after the Meeting, the Merger is not
consummated for any reason, Superior will call a special meeting of
stockholders to elect substitute nominees in replacement of the four persons
selected by Cardinal. See "Election of Directors."
AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF SUPERIOR COMMON STOCK (PROPOSAL 3)
Currently, Superior's Certificate of Incorporation authorizes 40,000,000
shares of Superior Common Stock, of which [28,792,523] are issued and
outstanding, and 1,651,500 are reserved for issuance upon the exercise of
outstanding stock options. Superior will be required to increase the number of
authorized shares in order to have sufficient shares available to be issued to
Cardinal's stockholders pursuant to the Merger and upon the exercise of new
options proposed to be granted under the 1999 Stock Incentive Plan. The Board
of Directors has approved an amendment to Superior's Certificate of
Incorporation increasing the number of shares of authorized Superior Common
Stock to 125,000,000 to become effective only upon consummation of the Merger.
It is a condition to the Merger that this amendment be approved by Superior's
stockholders; likewise, if the Merger is not consummated, the charter amendment
will not be effected. See "Proposed Amendment to Certificate of Incorporation
to Increase Number of Authorized Shares."
AMENDMENT TO CERTIFICATE OF INCORPORATION TO RESTRICT OWNERSHIP BY NON-U.S.
CITIZENS (PROPOSAL 4)
Cardinal currently operates vessels in United States coastwide trade,
which subjects it to the domestic stock ownership requirements of the Maritime
Laws (as defined below). In order to enable Superior to comply with the
Maritime Laws following the Merger, the Board has approved an amendment to
Superior's Certificate of Incorporation to regulate the ownership of the
capital stock of Superior by persons who are not citizens of the United States.
It is a condition to the Merger that this amendment be approved by Superior's
stockholders; likewise, if the Merger is not consummated, the charter amendment
will not be effected. See "Proposed Amendment to Certificate of Incorporation
to Restrict Ownership by Non-United States Citizens."
SUPERIOR ENERGY SERVICES, INC. 1999 STOCK INCENTIVE PLAN (PROPOSAL 5)
The Merger is also conditioned on the approval by the Superior
stockholders of the Superior Energy Services, Inc. 1999 Stock Incentive Plan
(the "Plan"). The Plan has been adopted by the Board of Directors, subject to
approval by the stockholders at the Meeting.
Officers, key employees, consultants or advisers of Superior (including
officers who are also directors of Superior and including individuals who are
currently Cardinal officers, key employees, consultants or advisers) will be
eligible to receive awards ("Incentives") under the Plan when designated by the
Compensation Committee. Incentives under the Plan may be granted in any one or
a combination of the following forms: (i) incentive stock options under Section
422 of the Internal Revenue Code (the "Code") and non-qualified stock options;
(ii) restricted stock; and (iii) other stock-based awards.
Directors of Superior who are not also full-time employees of Superior
(the "Outside Directors") will automatically be granted non-qualified stock
options under the Plan upon joining the Board and on an annual basis
thereafter. If the Plan is approved by the stockholders, Superior proposes to
grant non-qualified stock options to certain officers, including persons who
become officers of Superior in connection with the Merger. See "Proposal to
Approve the Superior Energy Services, Inc. 1999 Stock Incentive Plan" and "The
Merger - Interests of Certain Persons in the Merger."
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
SUPERIOR ENERGY SERVICES, INC.
(IN THOUSANDS EXCEPT EARNINGS PER SHARE)
The following summary historical financial information for each of the
years ended December 31, 1996 through 1998 has been derived from Superior's
audited Consolidated Financial Statements. The summary historical financial
information for the three months ended March 31, 1999 has been derived from
Superior's unaudited interim Consolidated Financial Statements. Such unaudited
interim historical financial information reflects all adjustments (consisting
only of normally recurring accruals) which Superior's management considers
necessary to present fairly the financial information for such period. The
results of operations for the interim period are not necessarily indicative of
results for a full year. The information set forth below is qualified by
reference to and should be read in conjunction with Superior's Consolidated
Financial Statements and related notes included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------------------- MARCH 31,
1996 1997 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues $ 23,638 $ 54,256 $ 91,334 $ 18,042
---------- ---------- ---------- ----------
Cost and expenses:
Cost of services 11,040 23,216 43,734 7,601
Depreciation and amortization 1,323 3,272 7,494 2,142
Special charges(2) --- --- 13,763 ---
General and administrative 5,531 12,530 22,921 6,149
---------- ---------- ---------- ----------
Total cost and expenses 17,894 39,018 87,912 15,892
---------- ---------- ---------- ----------
Income from operations 5,744 15,238 3,422 2,150
Other income (expense)
Interest expense - net (127) (722) (1,490) (500)
Merger termination(3) --- --- (2,237) ---
Gain on sale of subsidiary --- --- 1,176 ---
---------- ---------- ---------- ----------
Income before taxes 5,617 14,516 871 1,650
Provisions for income taxes 1,685 5,061 4,979 627
---------- ---------- ---------- ----------
Net income (loss) $ 3,932 $ 9,455 $ (4,108) $ 1,023
========== ========== ========== ==========
Income (loss) per share (diluted) $ .22 $ .43 $ (0.14) $ .04
========== ========== ========== ==========
Weighted average shares outstanding
(diluted) 17,619 21,993 28,982 28,822
====== ====== ====== ======
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents $ 433 $ 1,902 $ 737 $ 1,131
Property, plant and equipment - net 9,894 51,797 76,187 76,647
Total assets 28,200 118,060 131,144 124,032
Total long-term debt, including
current portion 1,772 11,339 27,955 25,006
Total stockholders' equity(4) 20,349 88,853 82,704 83,727
</TABLE>
__________________
(1) In 1996, Superior acquired all of the outstanding common stock of two
companies for a combined $2.7 million in cash, 1.6 million shares of
Superior Common Stock, a note payable of $1.0 million and promissory
notes providing for payments of up to $0.8 million.
In 1997, Superior acquired all of the outstanding common stock of six
companies for a combined $50.2 million in cash, 1.5 million shares of
Superior Common Stock and promissory notes providing for payments of up
to $20.6 million.
In 1998, Superior acquired all of the outstanding common stock of two
companies for a combined $3.9 million in cash. Additional consideration,
if any, will be based on a multiple of earnings, not to exceed a combined
$50.1 million.
The promissory notes and additional consideration are subject to
contingencies and were not reflected in the purchase price of the
respective acquisitions.
(2) In 1998, Superior recorded a pre-tax special charge which consisted of
$12.1 million for impairment of goodwill, $930,000 in patents and
$690,000 in associated inventory as a result of obsolescence and $650,000
associated with a reduction in employees as a result of the general
decline in the industry. The portion of the special charge related to
inventory obsolescence is included in costs of services in the
consolidated statement of operations.
(3) In 1998, Superior entered into an agreement to merge with Parker
Drilling Company ("Parker"). Superior and Parker subsequently jointly
agreed to terminate the merger. As part of the termination, Superior
agreed to pay a termination fee.
(4) Superior issued $36.9 million of Superior Common Stock in November 1997.
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
CARDINAL HOLDING CORP.
(IN THOUSANDS EXCEPT SHARE DATA)
The following summary financial data for the three years ended
December 31, 1998 are derived from the audited consolidated financial
statements of Cardinal. The financial data for the three month period ended
March 31, 1999 are derived from unaudited financial statements. The unaudited
financial statements include all adjustments, consisting of normal recurring
accruals, which Cardinal considers necessary for a fair presentation of the
financial position and the results of operations for this period. Operating
results for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1999. The data should be read in conjunction with the
consolidated financial statements, related notes, and other financial
information included herein.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------------------- MARCH 31,
1996 1997 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Operating Revenue $ 48,128 $ 63,412 $ 82,223 $ 18,978
Operating expenses:
Labor 14,872 18,709 25,075 7,061
Maintenance 4,557 4,451 4,626 1,207
Insurance 2,681 2,503 3,746 734
Depreciation and amortization 3,509 4,207 6,118 1,810
Cost of goods sold 1,627 2,087 1,809 503
Other 4,219 5,386 9,350 1,714
---------- ---------- ---------- ----------
Total operating expenses 31,465 37,343 50,724 13,029
---------- ---------- ---------- ----------
Gross profit 16,663 26,069 31,499 5,949
General and administrative expenses 8,317 10,842 15,729 3,297
Income from operations 8,346 15,227 15,770 2,652
Other income (expense):
Interest(2) (3,448) (5,464) (12,641) (3,201)
Consulting fees paid to
related party (300) (1,150) --- ---
Other, net 2 58 (777) (2)
---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary loss 4,600 8,671 2,352 (551)
Income taxes (benefit) 1,706 4,350 1,149 (98)
---------- ---------- ---------- ----------
Income (loss) before extraordinary
loss(3) 2,894 4,321 1,203 (453)
Extraordinary loss, net of income tax
benefit --- --- (10,885) ---
---------- ---------- ---------- ----------
Net income (loss) $ 2,894 $ 4,321 $ (9,682) $ (453)
========== ========== ========== ==========
Income (loss) per share of common
stock:
Basic:
Income (loss) before
extraordinary loss $ 50.61 $ 76.64 $ 21.09 $ (64.53)
Extraordinary loss --- --- (493.71) ---
---------- ---------- ---------- ----------
Net income (loss) $ 50.61 $ 76.64 $ (472.62) $ (64.53)
========== ========== ========== ==========
Assuming dilution:
Income (loss) before
extraordinary loss $ 47.69 $ 72.23 $ 21.09 $ (64.53)
Extraordinary loss --- --- (493.71) ---
---------- ---------- ---------- ----------
Net income (loss) $ 47.69 $ 72.23 $ (472.62) $ (64.53)
========== ========== ========== ==========
Average shares outstanding:
Basic 56,000 56,000 22,047 16,674
========== ========== ========== ==========
Assuming dilution 59,420 59,420 22,047 16,674
========== ========== ========== ==========
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents $ 153 $ --- $ 421 $ 266
Property, plant and equipment - net 28,986 43,737 60,328 59,661
Total assets 11,630 62,387 107,961 102,426
Long-term obligations 26,905 36,804 127,620 126,182
Total shareholder's equity (deficiency) 4,197 5,646 (39,940) (35,263)
</TABLE>
__________________
(1) From December 1996 to March 1998 Cardinal contracted for the
construction and took delivery of three lift boats for a total price of
$17.6 million.
In 1998, Cardinal purchased all of the outstanding common stock of
three companies for a combined $22.4 million in cash and $1.4
million in stock.
(2) In connection with the refinancing that occurred in October 1995,
Cardinal issued warrants to holders of its subordinated debt to
purchase approximately nine percent (on a diluted basis) of Cardinal
Services, Inc.'s nonvoting common stock at a price of $.01 per share.
These warrants allowed the warrant holders to put the warrants to
Cardinal Services under certain circumstances, including the passage of
time and the occurrence of certain capital transactions. The estimated
value at the end of each year was amortized over the earliest put date
of the warrants. Interest expense in 1996, 1997 and 1998 includes
$280,000, $2,173,000 and $362,000, respectively, related to these
warrants. On February 26, 1998, Cardinal redeemed the warrants for
$13.3 million.
(3) On February 26, 1998, Cardinal completed a re capitalization which
included (i) the issuance of 10,267 shares of Class A Common Stock
for $30 million, (ii) the issuance of 10,267 shares of Class C
Preferred Stock for $30 million, (iii) the redemption of 51,583 shares
of Class A Common Stock for $114.68 million, and (iv) the redemption of
warrants related to 11,870 shares of Cardinal Services, Inc. nonvoting
common stock in exchange for $13.3 million (the "Recapitalization").
In addition, Cardinal refinanced substantially all of its long-term
debt (the "Refinancing"). The Recapitalization and Refinancing were
funded through the issuance of $105 million of senior secured debt,
$20 million of subordinated debt which includes $2 million accounted
for as original issue discount relating to the issuance of 350 shares
of Class A Common Stock and 350 shares of Class C Preferred Stock, and
$60 million of equity investments discussed in (i) and (ii) above.
On the date of the Recapitalization and Refinancing, Cardinal charged
off $10.9 million, which included the unamortized estimated value of
the warrants of $10.5 million and unamortized debt acquisition costs of
$380,000 (net of $235,000 tax benefit).
<PAGE>
SUMMARY PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION
(in thousands, except per share data)
The following summary unaudited pro forma condensed financial
information combines the historical consolidated balance sheets and
statements of income of Superior and Cardinal for the fiscal year ended
December 31, 1998 and the quarter ended March 31, 1999 after giving
effect to the Merger. The following is a summary of the Unaudited Pro
Forma Financial Information appearing elsewhere in this Proxy Statement,
which was prepared using the purchase method of accounting for business
combinations. The following information is not necessarily indicative
of the financial position or operating results that would have occurred
had the Merger been consummated on the dates as of which, or at the
beginning of the periods for which, the Merger is being given effect,
nor is it necessarily indicative of future operating results or
financial position.
<TABLE>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ -------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 189,665 $ 37,020
------------ -------------
Cost and expenses:
Cost of services 97,859 18,820
Depreciation and amortization 15,579 4,203
Special charges 13,763 ---
General and administrative 43,857 9,509
------------ -------------
Total cost and expenses 171,058 32,532
------------ -------------
Income from operations 18,607 4,488
Other income (expense)
Interest expense - net (10,851) (2,686)
Merger termination (2,237) ---
Other 399 (2)
------------ -------------
Income before taxes and extraordinary loss 5,918 1,800
Provisions for income taxes 7,569 720
------------ -------------
Income (loss) before extraordinary loss $ (1,651) $ 1,080
============ =============
Income (loss) per share (diluted) $ (.03) $ .02
============ =============
Weighted average shares outstanding (diluted) 58,981 58,821
============ =============
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents $ 1,397
Property, plant and equipment - net 136,308
Total assets 257,567
Total long-term debt, including current portion 106,188
Total stockholders' equity 121,573
</TABLE>
<PAGE>
COMPARATIVE PER SHARE DATA
The following summary presents comparative historical unaudited
per share data for both Superior and Cardinal and pro forma per share
information for Superior. The pro forma amounts assume the Merger was
effective as of the commencement of the periods presented and was
accounted for as a reverse acquisition. Superior's pro forma amounts
represent the combined pro forma results of Superior and Cardinal. The
data presented should be read in conjunction with the historical
financial statements and related notes thereto included elsewhere herein
or incorporated by reference herein.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
---------------- --------------
<S> <C> <C>
Historical - Superior
Earnings (loss) per common share $ (0.14) $ 0.04
Cash Dividends per common share --- ---
Book Value per common share 2.85 2.90
Historical - Cardinal
Earnings (loss) per common share(1) $ 21.09 $ (64.53)
Cash Dividends per common share --- ---
Book Value per common share (1.81) (2.11)
Pro Forma per common share data - Superior
Earnings per common share $ (0.03) $ .02
Cash Dividends per common share --- ---
Book Value per common share 2.07 2.07
</TABLE>
__________________
(1) Historical earnings (loss) per common share is before the
extraordinary loss.
<PAGE>
MARKET PRICES AND DIVIDENDS
SUPERIOR
Superior Common Stock is traded on the Nasdaq National Market
under the symbol "SESI." The following table sets forth, for the
periods indicated, the high and low sales prices for Superior Common
Stock as reported on Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- --------
<S> <C> <C>
Fiscal year ended December 31, 1997
First Quarter $ 4.875 $ 2.875
Second Quarter 5.188 4.375
Third Quarter 9.125 5.000
Fourth Quarter 14.313 8.875
Fiscal year ended December 31, 1998
First Quarter $ 10.063 $ 7.000
Second Quarter 11.563 5.000
Third Quarter 5.531 3.125
Fourth Quarter 4.375 2.500
Fiscal year ended December 31, 1999
First Quarter $ 3.688 $ 2.000
Second Quarter (through May 14, 1999) 5.500 3.000
</TABLE>
On April 20, 1999, the date preceding public announcement of the
proposed Merger, the closing sale price of Superior Common Stock was
$3.875, and on May 14, 1999, the closing sale price of Superior Common
Stock was $4.94. As of May 14, 1999, there were approximately 163
holders of record of Superior Common Stock.
Superior has not declared or paid cash dividends on the Superior
Common Stock in the past and currently intends to retain earnings, if
any, to meet its working capital requirements and to finance Superior's
future operation and growth. Superior does not plan to declare or pay
cash dividends to holders of the Superior Common Stock in the
foreseeable future. In addition, the terms of Superior's bank credit
facility prohibit the payment of dividends or other distributions by
Superior to its stockholders. Superior's ability to declare or pay cash
dividends is also affected by the ability of Superior's subsidiaries to
declare and pay dividends or otherwise transfer funds to Superior since
Superior conducts its operations entirely through its subsidiaries. It
is anticipated that any new credit facility obtained as part of the
Financing will contain similar limitations. Subject to such
limitations, the payment of cash dividends on the Superior Common Stock
will be within the discretion of Superior's Board of Directors and will
depend upon Superior's earnings and capital requirements, the
requirements of Superior's credit arrangements and applicable laws and
other factors that are considered relevant by Superior's Board of
Directors.
CARDINAL
None of the classes of Cardinal capital stock outstanding is
traded on any exchange and there is no established public trading market
for such stock. There are no bid or asked prices available for the
Cardinal capital stock. Cardinal currently does not pay cash dividends
and has no plans to pay cash dividends in the foreseeable future. In
addition, the terms of Cardinal's credit facilities restrict its ability
to declare or pay cash dividends.
<PAGE>
THE ANNUAL MEETING
DATE AND PLACE OF THE ANNUAL MEETING
This Proxy Statement is being furnished to holders of common
stock, $.001 par value per share (the "Superior Common Stock"), of
Superior Energy Services, Inc., a Delaware corporation ("Superior"), in
connection with the solicitation of proxies by and on behalf of the
Board of Directors of Superior for use at the annual meeting of
stockholders to be held at 201 St. Charles Avenue, 52nd Floor, New
Orleans, Louisiana 70170, on ____________, _____________, 1999 at 10:00
a.m., New Orleans time (the "Meeting").
PURPOSE OF THE MEETING
At the Meeting, the holders of Superior Common Stock will
consider and vote upon the following:
1. Approval of the issuance of a number of shares of Superior
Common Stock equal to 51% of the outstanding shares after
giving effect to such issuance, calculated on a fully
diluted basis (the "Share Issuance") in accordance with the
terms of an Agreement and Plan of Merger (the "Merger
Agreement"), pursuant to which a wholly-owned subsidiary of
Superior would merge (the "Merger") with and into Cardinal
Holding Corp. ("Cardinal") and Cardinal would become a
wholly-owned subsidiary of Superior;
2. The election of six directors;
3. Approval of an amendment to Superior's Certificate of
Incorporation to increase the number of authorized shares of
Superior Common Stock from 40,000,000 to 125,000,000 (the
"Authorized Share Amendment");
4. Approval of an amendment to Superior's Certificate of
Incorporation to regulate the ownership of the capital stock
of Superior by persons who are not citizens of the United
States (the "Citizenship Amendment," and together with the
Authorized Share Amendment, the "Charter Amendments");
5. Approval of the Superior Energy Services, Inc. 1999 Stock
Incentive Plan (the "Plan"); and
6. Such other business as may properly come before the Meeting
or any adjournment.
Proposals 1-5 are referred to herein as the "Merger Proposals."
RECORD DATE; STOCKHOLDERS ENTITLED TO VOTE
The Superior Board has fixed June ___, 1999 as the record date
(the "Record Date") for the determination of the stockholders of
Superior entitled to notice of and to vote at the Meeting. Only holders
of record of Superior Common Stock at the close of business on the
Record Date will be entitled to notice of and to vote at the Meeting. As
of the Record Date, there were [28,792,523] shares of Superior Common
Stock outstanding and entitled to vote. Each record holder of Superior
Common Stock on the Record Date is entitled to cast one vote per share,
exercisable in person or by properly executed proxy, on the proposals
described herein and on each other matter properly submitted to a vote
of the stockholders at the Meeting.
This Proxy Statement and the accompanying proxy card are first
being mailed to stockholders of record as of the Record Date on or about
June ___, 1999.
QUORUM; VOTE REQUIRED
The presence, in person or by proxy, of a majority of the
outstanding shares of Superior Common Stock entitled to vote is
necessary to constitute a quorum. Stockholders voting, or abstaining
from voting, by proxy on any issue will be counted as present for
purposes of constituting a quorum.
Under the Delaware General Corporation Law ("DGCL"), neither
the Merger Agreement nor the Share Issuance requires the approval of
Superior's stockholders. However, the rules of the Nasdaq National
Market, upon which the Superior Common Stock is traded, require that the
Share Issuance be submitted to the stockholders of Superior and be
approved by at least a majority of the votes cast on the proposal.
Superior stockholders are not entitled to appraisal rights in connection
with the Merger or the approval of the Share Issuance.
The approval of each of the proposed Charter Amendments
requires the affirmative vote of the holders of at least a majority of
the outstanding shares of Superior Common Stock. Adoption of the Plan
requires the affirmative vote of holders of at least a majority of the
shares of Superior Common Stock present, in person or by proxy, at the
meeting. Superior directors will be elected by a plurality of the votes
cast at the Meeting.
An abstention will have no effect on the approval of the Share
Issuance or the election of directors, but will have the effect of a
vote against each of the other proposals. If brokers do not receive
instructions from beneficial owners as to the granting or withholding of
proxies and may not or do not exercise discretionary power to grant a
proxy with respect to such shares (a "broker non-vote") on the
proposals, shares not voted on such proposals, other than the election
of directors, as a result will be counted as not present and not cast
with respect to the proposals. Thus, broker non-votes will have no
effect on the Share Issuance or the proposal to approve the Plan, but
will have the effect of a vote against each of the Charter Amendments.
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
In addition to solicitation by mail, proxies may be solicited
by directors, officers and employees of Superior in person or by
telephone, telegram or other means of communication. Such directors,
officers and employees will not receive any compensation in addition to
their regular salary, but may be reimbursed for reasonable out-of-pocket
expenses in connection with the solicitation. Arrangements will also be
made with custodians, nominees and fiduciaries for forwarding proxy
solicitation materials to beneficial owners of Superior Common Stock
held of record by such custodians, nominees and fiduciaries, all of whom
will be reimbursed for reasonable expenses incurred in connection
therewith.
All shares of Superior Common Stock that are represented at the
Meeting by duly executed proxies will be voted in accordance with the
instructions indicated thereon. If a duly executed proxy is submitted
and no voting instructions are indicated thereon, such proxy will be
voted "FOR" the election of the directors named in the proxy and "FOR"
approval of the proposals to approve the Share Issuance, each of the
Charter Amendments and the Plan.
The Superior Board knows of no other matter to be presented at
the Meeting, but if any other matter is properly presented for
consideration at the Meeting (or any adjournments or postponements
thereof), the persons named in the enclosed form of proxy will have
discretion to vote on such matters in accordance with their best
judgment.
A holder of Superior Common Stock may revoke a previously
submitted proxy at any time prior to its exercise at the Meeting by: (i)
filing with the Corporate Secretary of Superior at or prior to the
Meeting a written revocation bearing a later date or a duly executed
later-dated proxy relating to the same shares of Superior Common Stock;
or (ii) attending the Meeting and voting in person. Attendance at the
Meeting will not in and of itself constitute a revocation of a proxy.
Any written revocation or later-dated proxy should be delivered at the
Meeting to the Corporate Secretary of Superior or before the Meeting to
Superior at 1105 Peters Road, Harvey, Louisiana 70058, Attention:
Corporate Secretary.
Holders of Superior Common Stock are requested to mark, date
and sign the enclosed proxy and return it promptly to Superior in the
enclosed stamped, pre-addressed envelope. Stockholders may vote in
person at the Meeting even if they have previously mailed a proxy.
STOCKHOLDERS SHOULD NOT SEND ANY SUPERIOR STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
<PAGE>
THE MERGER
(PROPOSAL NO. 1)
THE MERGER AGREEMENT
The Merger is to be effected in accordance with the terms and
conditions set forth in the Merger Agreement, a copy of which is
attached hereto as Appendix A. The following brief description is
necessarily incomplete and is qualified in its entirety by reference to
the Merger Agreement.
STRUCTURE AND TERMS OF THE MERGER
On April 20, 1999, the Merger Agreement was executed by and among
Superior, Superior Cardinal Acquisition Company, Inc., a wholly-owned
subsidiary of Superior ("Superior Sub"), Cardinal, First Reserve Fund
VII, Limited Partnership and First Reserve Fund VIII, L.P. (together,
the "Funds"). The Merger Agreement provides that Superior Sub will
merge with and into Cardinal and upon consummation of the Merger, the
separate existence of Superior Sub will cease and Cardinal will become a
wholly-owned subsidiary of Superior.
Cardinal currently has three classes of capital stock outstanding:
Class A Common Stock, Class B Common Stock and Class C Preferred Stock.
Cardinal has also issued to certain members of its management rights to
acquire shares of its Class A Common Stock and Class C Preferred Stock
("Management Shares" and, together with the Class A Common Stock, Class
B Common Stock and Class C Preferred Stock, the "Cardinal Capital
Stock").
Upon consummation of the Merger, all of the shares of Cardinal
Capital Stock that are then outstanding will be converted into the right
to receive, in the aggregate, a number of shares of Superior Common
Stock (the "Merger Shares") that will be equal to 51% (the "Exchange
Percentage") of the outstanding Superior Common Stock after giving
effect to such issuance, calculated on a fully diluted basis based on
the number of shares of Superior Common Stock that will be used by
Superior to calculate its fully diluted earnings per share in accordance
with GAAP for its fiscal quarter ending June 30, 1999.
Under GAAP, the number of fully diluted shares of Superior Common
Stock as of June 30, 1999 will be determined by adding to the number of
issued and outstanding shares of Superior Common Stock as of June 30,
1999, a number of shares (determined as described below) that are
subject to outstanding stock options having exercise prices equal to or
less than the Average Price (as defined herein) of the Superior Common
Stock (the "In-the-Money Options"). As used herein, the "Average Price"
means the average of the closing sale prices of Superior Common Stock
for the three months ended June 30, 1999. For purposes of the
calculation, it is assumed that (i) all In-the-Money Options are
exercised, and (ii) Superior uses the proceeds of such exercise to re-
purchase shares of Superior Common Stock on the open market at the
Average Price. The number of In-the-Money Options is then reduced by
the number of shares assumed to be so re-purchased, and the remaining
In-the-Money Options are added to the number of shares of Superior
Common Stock outstanding as of June 30, 1999 to determine the fully
diluted share number (the "Fully Diluted Shares"). The number of Merger
Shares that will be issued to the Cardinal stockholders upon
consummation of the Merger will be equal to 51% of the sum of the Fully
Diluted Shares as of June 30, 1999 and the number of shares issued in
the Merger.
As an example, if this calculation was made as of March 31, 1999,
the average price for the three months ended March 31, 1999 was $2.75,
the number of issued and outstanding shares of Superior Common Stock was
28,792,523, the number of In-the-Money Options was 29,773 and the number
of Fully Diluted Shares was 28,822,296. Therefore, 29,998,716 shares
of Superior Common Stock (51% of the sum of the Fully Diluted Shares and
the number of shares issued in the Merger), would have been issued to
Cardinal stockholders upon consummation of the Merger, or 51% of the
shares of Superior Common Stock actually issued and outstanding after
giving effect to the Merger.
Of the Merger Shares, 1,000,000 (subject to adjustment for any
stock splits, combinations or recapitalizations relating to the Superior
Common Stock that are effected after the date of the Merger Agreement)
will be issued to the holder of the Cardinal Class B Common Stock. The
remaining Merger Shares will be divided on an equivalent per share basis
among the holders of the Cardinal Class A Common Stock, the Class C
Preferred Stock and the Management Shares, although 892,000 of these
remaining Merger Shares will be placed in escrow for the benefit of the
holder of Cardinal Class B Common Stock.
BACKGROUND OF THE MERGER
Superior has grown rapidly through internal capacity expansion and
strategic acquisitions designed to take advantage of the continued
consolidation of the oilfield service industry. Internal expansion has
focused on product development to provide cost-effective solutions to
oil and gas operators creating inherent competitive advantages. The
acquisition strategy has focused on diversification of business lines,
consolidation of a highly fragmented market and targeted strong
companies with established name or brand recognition. These strategies
have established Superior as the dominant plug and abandonment provider
in the U.S. Gulf of Mexico and one of the largest rental tool providers
operating along the U.S. Gulf Coast.
From March 1998 to October 1998, Superior's management initiated a
strategic planning process to identify and determine the appropriate
actions to meet its financial and strategic goals. Among the objectives
identified were to: (i) increase its market share and revenues in both
the rental tool and well service business lines; (ii) continue to make
strategic market acquisitions; (iii) capture an extended share of the
well life cycle; (iv) diversify its reliance on the U.S. Gulf Coast
activity levels; and (v) accelerate its expansion to international
markets. In connection with this review, Superior engaged Johnson Rice
& Company, L.L.C. ("Johnson Rice") as a financial advisor.
In October 1998, at the request of Mr. Guill, Messrs. Guill and
Hall met to discuss a proposal by the Funds to combine Superior's well
service business with Cardinal under Mr. Hall's management. At the
meeting, Messrs. Guill and Hall also discussed the possibility of
combining their respective businesses as a means of becoming a fully
integrated provider of well service products and services. At that time
no agreement was reached and their discussions ended.
In February 1999, following the termination of the proposed merger
between Superior and Parker Drilling Company, Messrs. Guill, Macaulay
and Hall revisited the possibility of combining Superior and Cardinal as
a means of effectuating each company's long term strategies. After
several meetings, Mr. Guill proposed that the parties move forward
regarding the proposed transaction and suggested the general terms of a
transaction pursuant to which Cardinal stockholders would receive in the
aggregate 54% of the outstanding Superior Common Stock after giving
effect to the transaction on a fully diluted basis. He also proposed
that Cardinal would seek an additional equity contribution of $50
million in order to enhance the long-term growth prospects of the
company by adding financial flexibility, and also outlined the need for
a recapitalization of the combined company's debt into a long-term,
largely interest-only public or private facility with a mutually
acceptable cost of capital. Cardinal received $5 million of this
additional equity contribution prior to the execution of the Merger
Agreement.
From March 1, 1999, through April 5, 1999, representatives of
Superior and Cardinal and their respective legal, financial and
accounting advisors participated in various meetings in which the terms
of the Merger Agreement were negotiated and legal and business
information concerning the companies was exchanged. Messrs. Guill and
Hall also met on March 31 and adjusted the percentage ownership of the
combined company that Cardinal stockholders would receive in the Merger
to 51% on a fully diluted basis. During this period the Superior Board
and other key members of management met with Johnson Rice on several
occasions to discuss the terms of the Merger and its impacts on both
businesses.
On April 13, 1999, the Superior Board met to review the final
terms of the proposed Merger. At this meeting, representatives of
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P.,
Superior's counsel, discussed with Superior the terms of the Merger
Agreement. Representatives of Johnson Rice also provided to the
Superior Board a review of the proposed Merger from a financial point of
view and provided an oral opinion (which was confirmed in writing on
April 16, 1999) that the Exchange Percentage pursuant to the Merger
Agreement was fair from a financial point of view, to holders of
Superior Common Stock. Mr. Hall also discussed with the Superior Board
the strategic merits and benefits of the proposed Merger. After
discussion, the directors unanimously approved the Merger Agreement and
approved a resolution recommending that the stockholders of Superior
approve the Share Issuance in connection with the Merger Agreement.
On April 15, 1999, the Cardinal Board met and approved the Merger.
On April 20, 1999 the Merger Agreement was executed, and a public
announcement of the transaction was made after the close of business on
April 20, 1999.
REASONS FOR THE MERGER
Superior's Board believes the terms of the Merger are fair to and
in the best interests of Superior and its stockholders. The Superior
Board views the Merger as a means of achieving the long-term financial
and strategic objectives previously identified and believes the Merger
offers various synergistic opportunities, including the ability to: (i)
achieve broader penetration in the well life cycle by bundling product
and service offerings; (ii) become a market leader in the well service
market through the combination of Cardinal's and Superior's well service
operations; (iii) reduce corporate and field operating costs as a
percentage of revenue; (iv) expand internationally given the increased
size of the combined company; and (v) increase revenues and market share
by capitalizing on cross-marketing opportunities.
In reaching its conclusion to approve the Merger, the Superior
Board also considered the following factors:
* Information regarding the financial performance and condition,
business operations and prospects of each Superior and Cardinal,
and Superior's future performance and prospects as a separate
entity and on a combined basis with Cardinal.
* Current industry and economic conditions and how they relate to
business combinations or strategic alliances in the oil and gas
industry.
* Recent and historical prices of Superior Common Stock.
* The structure of the transaction and terms of the Merger
Agreement and the Exchange Percentage, which were the result of
arm's-length negotiations between Superior and Cardinal.
* The financial analysis provided by Johnson Rice, which is
described below.
* Consolidation benefits that would be available to the combined
entity, primarily in the form of revenue enhancement, associated
margin improvements and corporate cost reductions.
* The advantages of becoming affiliated with the Funds, including
the expectation of increased analyst coverage of the Superior
Common Stock.
* The terms of the Merger Agreement permit the Superior Board, in
the exercise of its fiduciary duties and subject to certain
conditions, to terminate the Merger Agreement if the Superior
Board receives a takeover proposal which the Superior Board deems
to be a superior transaction, upon payment by Superior to Cardinal
of a termination fee of $3 million. The Superior Board did not
view the termination fee provision of the Merger Agreement as an
unreasonable impediment to any interested third party proposing a
superior transaction.
* The expectation that Cardinal's stockholders will be able to
receive Superior Common Stock free of immediate U.S. federal
income tax impacts.
* The likelihood that the Merger would be consummated.
* Opportunities for Superior's employees in the combined entity
upon consummation of the Merger.
In determining that the Merger was fair and in the best interests of
Superior's stockholders, the Superior Board considered the factors
listed above without assigning any particular or relative weighting to
such factors. The Superior Board believes that the combination will
allow Superior stockholders to participate in a combined entity that
will have greater business and financial resources than Superior would
have absent the Merger.
RECOMMENDATION OF THE SUPERIOR BOARD OF DIRECTORS
AFTER CAREFUL CONSIDERATION, THE SUPERIOR BOARD HAS
DETERMINED THAT THE MERGER IS ADVISABLE AND IN THE BEST INTERESTS OF ITS
STOCKHOLDERS, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
MERGER AND RECOMMENDS THAT HOLDERS OF SHARES OF SUPERIOR COMMON STOCK
VOTE "FOR" APPROVAL OF THE SHARE ISSUANCE.
OPINION OF FINANCIAL ADVISERS
Johnson Rice was retained by Superior to provide a fairness
opinion in connection with the Merger (the "Fairness Opinion"). On
April 13, 1999, Johnson Rice rendered its oral opinion to the Superior
Board, later confirmed in writing, that as of such date and based upon
the factors and assumptions set forth therein, the Exchange Percentage
was fair from a financial point of view to holders of Superior Common
Stock. In rendering its opinion, Johnson Rice took into account that
the consideration to be paid to the holders of Cardinal Capital Stock in
connection with the Merger was determined through arms'-length
negotiations between Cardinal and Superior. A copy of the Fairness
Opinion is attached hereto as Appendix B. Superior stockholders are
urged to read the Fairness Opinion in its entirety for an explanation of
the assumptions made, matters considered and limits of the review made
by Johnson Rice.
The following summary does not purport to be a complete
description of the analyses supporting the Fairness Opinion or the
presentation made by Johnson Rice to the Superior Board. The
preparation of a fairness opinion is a complex process of involving
various determinations as to the most relevant and appropriate methods
of financial analysis and the application of those methods to the
particular circumstances and, therefore, such opinion is not readily
susceptible to partial analysis. In arriving at its opinion, Johnson
Rice did not assign any particular weighting to any of the factors
considered, but rather made qualitative judgements as to the relevance
or significance of each factor. Accordingly, Johnson Rice believes that
the analyses must be considered as a whole and that selecting portions
of the analyses without considering the analyses as a whole, would
create an incomplete view to the process underlying the Fairness
Opinion.
For purpose of the analyses, Johnson Rice made many assumptions
with respect to the industry performance, general business, economic,
market and financial conditions and other matters beyond the control of
Johnson Rice. Actual conditions may differ significantly from those
assumed. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty. In addition, the Fairness Opinion
was among several factors taken into consideration by the Superior Board
in making its decision to approve the Merger Agreement. Consequently,
the Johnson Rice analyses described below should not be viewed as the
determinative factor of the decision of the Superior Board with respect
to the fairness of the Exchange Percentage.
In arriving at its opinion Johnson Rice among other things, (i)
reviewed certain publicly available business and financial information
relating to Superior and Cardinal that Johnson Rice deemed to be
relevant; (ii) reviewed certain financial information provided by the
management of both Superior and Cardinal relating the business,
earnings, cash flow, assets, liabilities and prospects of Superior and
Cardinal, as well as synergies and impacts from the Merger; (iii)
reviewed available securities analysts' models regarding the earnings
and cash flow estimates for Superior for 1999 and 2000; (iv) conducted
discussions with members of senior management of Superior and Cardinal
concerning information provided in clauses (i), (ii) and (iii) above, as
well as their respective businesses and outlook before and after giving
effect to the Merger; (v) reviewed market prices and valuation multiples
of Superior Common Stock and compared them to other public companies
deemed to be relevant by Johnson Rice; (vi) reviewed the potential pro
forma impact of the Merger on Superior's earnings per share, cash flow,
consolidated capitalization and financial ratios; (vii) reviewed the
reported prices and trading activity of Superior Common Stock; (viii)
reviewed the financial terms of other comparable mergers; (ix) reviewed
the Merger Agreement and related documents; (x) participated in certain
discussions and negotiations among representatives of Superior, Cardinal
and their financial and legal advisors; and (xi) reviewed such other
financial studies and analyses and took into account such other matters
as deemed relevant by Johnson Rice.
In preparing its opinion, Johnson Rice assumed and relied upon the
accuracy and completeness of all information supplied or otherwise made
available to Johnson Rice, discussed with or reviewed by or for Johnson
Rice, or publicly available, and Johnson Rice did not assume any
responsibility for independently verifying such information. Johnson
Rice did not undertake an independent evaluation or appraisal of any of
the assets or liabilities of Superior or Cardinal and was not furnished
with any such appraisal or evaluation. In addition, Johnson Rice did
not assume the responsibility to conduct any physical inspection of the
properties, facilities or equipment of Superior or Cardinal. With
respect to the financial forecasts provided to or discussed with Johnson
Rice by Superior or Cardinal, Johnson Rice assumed that they had been
reasonably prepared and reflected the best currently available estimates
and judgment of the management of Superior and Cardinal, respectively,
as to the expected future financial performance of Superior or Cardinal.
Johnson Rice further assumed that the Merger would be accounted for as a
purchase under GAAP and that it would qualify as a tax-free
reorganization for U.S. federal income tax purposes.
The Fairness Opinion is necessarily based upon market, economic
and other conditions as they existed and could be evaluated on the date
of such opinions. Johnson Rice was not authorized by Superior or the
Superior Board to solicit, nor did it solicit, third-party indications
of interest for the acquisition of all or any part of Superior. Johnson
Rice did not express an opinion regarding the value that would be
realized upon the sale or liquidation of Superior, and the Fairness
Opinion does not address the relative merits of the Merger compared to
any alternative business combination transaction that might be available
to Superior. In addition, Johnson Rice was not asked to consider, and
the Fairness Opinion does not in any manner, address the price at which
Superior shares would actually trade following the consummation of the
Merger.
Both Superior and Cardinal provided Johnson Rice with certain
financial information regarding their respective financial performance
to develop estimates of future performance. Johnson Rice also utilized
certain models available from various securities analysts to develop a
two-year financial forecast for the two-year period ending December 31,
1999 and December 31, 2000 for both Superior and Cardinal. Johnson Rice
relied upon the information available and provided by Superior and
Cardinal in performing their analyses and preparing the Fairness
Opinion.
The following is a brief summary of selected analyses presented to
the Superior Board by Johnson Rice in connection with the delivery of
the Fairness Opinion.
DISCOUNTED CASH FLOW ANALYSIS. Employing certain data supplied by
Superior and reviewed by Cardinal, estimates of future industry trends
based on current market conditions and certain qualitative factors
deemed to be reasonable by Johnson Rice, a discounted cash flow analysis
of Superior was prepared to determine the present value of unleveraged
free cash flows during the period from January 1, 1999 to December 31,
2003.
The estimated future cash flows were discounted at an average rate
of 14% and terminal multiples in the range of 6.0x to 7.0x were
employed. These calculations provided a reference equity value range
for Superior of $96.5 to $115.1 million, with an implied stock price of
$3.29 to $3.93.
Employing certain data supplied by Cardinal and reviewed by
Superior, estimates of future industry trends based on current market
conditions and certain qualitative factors deemed to be reasonable by
Johnson Rice, a discounted cash flow analysis of Cardinal was prepared
to determine the present value of unleveraged free cash flows during the
period from January 1, 1999 to December 31, 2003.
The estimated future cash flows were discounted at an average rate
of 14% and terminal multiples in the range of 6.0x to 7.0x were
employed. These calculations provided a reference equity value range
for Cardinal of $110.6 million to $132.8 million. Using a Superior
share price of $3.38, the purchase of Cardinal at the implied range of
values determined in the discounted cash flow analysis would require the
issuance of between 32.5 million to 39.0 million shares of Superior
Common Stock based on the fully diluted share count corresponding to the
$3.38 share price. It is anticipated that the number of shares of
Superior Common Stock to be issued pursuant to the Merger will be below
this range.
COMPARABLE PUBLIC COMPANY ANALYSIS. As part of its analysis,
Johnson Rice compared certain financial information of Superior and
Cardinal with that of a group of selected oilfield services companies
deemed relevant by Johnson Rice. Both companies were compared to
several offshore construction and well service/workover companies
including, BJ Services, Cal Dive, Global Industries, Horizon Offshore,
J. Ray McDermott, Key Energy, Oceaneering, Stolt Comex and Trico Marine.
Such analyses indicated that as of April 6, 1999, the average ratio of
Adjusted Market Value (defined as equity market value plus short and
long-term debt less cash and marketable securities) to estimated 1999
and 2000 earnings before interest, tax, depreciation and amortization
("EBITDA") was 8.6x and 7.3x, respectively.
Based upon this analysis, Johnson Rice applied a range of
comparable multiples after making certain qualitative adjustments to
Superior EBITDA estimates in 1999 and 2000. The ranges applied were
7.4x to 8.4x for 1999 and 6.5x to 8.0x for 2000. Application of these
multiples yielded a reference equity value range for Superior of $102.1
million to $119.0 million.
Based upon this analysis, Johnson Rice applied a range of
comparable multiples to Cardinal EBITDA estimates in 1999. The ranges
applied were from 7.4x to 8.4x for 1999. Application of these multiples
yielded a reference equity value range for Cardinal of $94.9 million to
$119.3 million. Assuming a Superior share price of $3.38, Superior's
purchase of Cardinal at the $94.9 million and $119.3 million reference
ranges would require the issuance of 28.1 million to 35.3 million shares
of Superior Common Stock based on the fully diluted share count
corresponding to the $3.38 share price. It is anticipated that the
number of shares of Superior Common Stock to be issued pursuant to the
Merger will be consistent with this range.
No company utilized in the comparable public company analysis is
identical to Superior or Cardinal. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating
characteristics of Superior and Cardinal and other factors that could
affect the public trading value of the companies to which they are being
compared.
CONTRIBUTION ANALYSIS. Johnson Rice analyzed the pro forma
contribution of each of Superior and Cardinal to the combined company.
Such analysis included, among other things, relative contributions of
net income from operations, cash flow from operations and EBITDA.
Johnson Rice utilized certain financial information provided by Superior
and Cardinal management as well as estimates from various securities
analysts for the analysis. The relative levels of net income, operating
cash flow and EBITDA were used to develop implied enterprise value
contributions on a leverage adjusted basis to derive implied equity
market value contributions. The analysis indicated that Superior would
contribute 48.4% of the equity value based on net income, 49.1% based on
operating cash flow and 49.7% based on EBITDA in 1999. Using a Superior
share price of $3.38 and assigning various weightings to the
contribution statistics, the purchase of Cardinal would require the
issuance of 29.6 million to 30.9 million shares of Superior Common Stock
based on the fully diluted share count corresponding to the $3.38 share
price. It is anticipated that the number of shares of Superior Common
Stock to be issued pursuant to the Merger will be consistent with this
range.
PRO FORMA ANALYSIS OF THE MERGER. Johnson Rice analyzed the pro
forma impact of the Merger on earnings per share, and cash flow per
share for Cardinal for the calendar years 1999 and 2000. Johnson Rice
utilized certain financial information provided by Superior and Cardinal
management, as well as estimates from various securities analysts for
the analysis. The pro forma analyses also took into account the
anticipated cost savings and synergies expected to be derived from the
Merger as estimated by the Cardinal and Superior management teams.
Johnson Rice noted that, assuming the Merger would be treated as a
purchase for accounting purposes, the Merger would be neutral to
slightly dilutive to earnings per share and neutral to slightly
accretive to cash flow per share in 1999. The Merger would be accretive
to both earnings per share and cash flow per share in 2000.
Johnson Rice also analyzed the effects of the Merger on the
balance sheet and credit statistics of the combined company. Treating
Cardinal's subordinated securities as debt and including the off-balance
sheet contingent payments of Superior as debt, Superior's debt to total
market capitalization using a $3.38 share price increased to 40.2% from
27.5% at year end 1999 and to 35.9% from 23.5% at year end 2000. Debt
to EBITDA ratios increase to 3.06 from 2.06 in 1999 and to 2.14 from
1.43 in 2000. Fixed Charge Coverage (EBITDA / (interest + capital
expenditures + principal payments), increased to 2.12 from 1.93 in 1999
and to 1.26 from 0.73 in 2000.
Superior retained Johnson Rice based on its experience and
expertise. Johnson Rice is an internationally recognized investment
banking and advisory firm. As part of its investment banking business,
Johnson Rice is regularly engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and
other purposes. Neither Johnson Rice nor its principals has a material
ownership interest in Superior or Cardinal. In the past, Johnson Rice
has provided financial advisory and financing services to Superior and
its affiliates and has received customary fees in connection with these
services. No limitations were placed by the Superior Board or
management regarding the procedures or investigations undertaken by
Johnson Rice in connection with arriving at its opinion. Superior and
its management cooperated fully with Johnson Rice in connection
therewith.
Superior has agreed to pay Johnson Rice a fee for its financial
opinion and related advisory services of $1,200,000 payable upon the
consummation of the Merger. Superior has also agreed to reimburse
Johnson Rice for its expenses related to the engagement and to indemnify
Johnson Rice and its affiliates against certain liabilities and
expenses, including liabilities under federal securities laws, in
connection with Johnson Rice's engagement.
Cardinal retained Simmons & Company International ("Simmons") to
act as financial advisor to Cardinal in connection with its review and
approval of the Merger. Cardinal has agreed to pay Simmons a fee in the
range of $1,400,000 to $1,700,000, depending on the market price of the
Superior Common Stock upon consummation of the Merger, for its financial
advisory services and to reimburse Simmons for its expenses related to
the engagement and to indemnify Simmons and its affiliates against
certain liabilities and expenses, including liability under federal
securities laws, in connection with Simmons' engagement.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective at the time (the "Effective
Time") and on the date (the "Effective Date") the Certificate of Merger
is filed with the Secretary of State of Delaware. Unless Superior and
Cardinal otherwise agree, the Merger will be consummated as soon as
possible after all stockholder approvals described in this Proxy
Statement have been obtained and the other conditions of the Merger have
been satisfied or waived (the "Closing Date"). See "- Hart-Scott-Rodino
Clearance" and "- Other Conditions to the Merger."
EXCHANGE OF STOCK CERTIFICATES
Promptly after the Effective Time, Superior will mail to the
former holders of record of shares of Cardinal Capital Stock
instructions for surrendering the certificates representing shares of
Cardinal Capital Stock (the "Certificates") in exchange for certificates
representing Superior Common Stock.
Upon surrender of the Certificates for cancellation together with
the letter of transmittal duly executed, the holders of the Certificates
will be entitled to receive in exchange, certificates for the number of
whole shares of Superior Common Stock exchangeable for the shares of
Cardinal Capital Stock represented by the Certificate so surrendered,
plus a cash payment (without interest) equal to the fraction of a share
of Superior Common Stock to which such holder would be entitled
multiplied by the closing price of the Superior Common Stock on the
Nasdaq National Market on the Effective Date. The Certificates
surrendered will then be cancelled. Holders of Management Shares will
not be required to surrender certificates representing such Management
Shares or complete a letter of transmittal in order to obtain the shares
of Superior Common Stock and fractional share payment, if any, to which
such holder is entitled to receive upon consummation of the Merger.
At and after the Effective Time, the stockholders of Cardinal will
be treated as stockholders of record of Superior, but no dividends will
be paid to the holders of the Certificates until the Certificates have
been surrendered, at which time the amount of any dividends which
theretofore became payable but which were not paid with respect to the
number of shares of Superior Common Stock exchangeable for the shares of
Cardinal Capital Stock represented by the Certificates will be paid.
After the Effective Time, there will be no further registration of
transfers on the stock transfer books of Cardinal or its transfer agent
of shares of Cardinal Capital Stock that were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates
are presented for any reason, they will be canceled and exchanged as
described above.
HOLDERS OF SUPERIOR COMMON STOCK WILL NOT EXCHANGE THEIR
CERTIFICATES REPRESENTING SHARES OF SUPERIOR COMMON STOCK. AFTER THE
MERGER, EACH OUTSTANDING SHARE OF SUPERIOR COMMON STOCK WILL REMAIN
OUTSTANDING AND SUPERIOR STOCKHOLDERS WILL CONTINUE TO HOLD THE SAME
NUMBER OF SHARES OF SUPERIOR COMMON STOCK THEY CURRENTLY OWN.
CERTAIN TERMS OF THE MERGER AGREEMENT
EQUITY CONTRIBUTION
In March 1999, Cardinal completed an offering of $5 million of
equity to the current holders of Cardinal Capital Stock. The
consummation of the Merger is conditioned upon the completion by
Cardinal of a private placement of an additional $45 million of equity
(the "Equity Contribution") to the current holders of Cardinal Capital
Stock or other institutional investors on terms reasonably satisfactory
to Superior. Superior has agreed to assist Cardinal in completing the
Equity Contribution. The net proceeds of this private placement will be
used to reduce Cardinal's indebtedness prior to consummation of the
Merger.
In order to satisfy this condition, on April 30, 1999 the Board of
Directors of Cardinal authorized $45 million of Class A Common Stock of
Cardinal to be offered to its existing stockholders at a purchase price
of $1,333 per share, which purchase price was determined on the basis of
the average of the closing price per share of the Superior Common Stock
for the ten days preceding April 20, 1999 ($3.34 per share). Pursuant
to the requirements of a stockholders agreement among such stockholders
and Cardinal, each Cardinal stockholder will have until June 1, 1999 to
subscribe for its pro rata portion of the offering. To the extent that
any of the offering has not been subscribed for by the existing
stockholders at the end of such period, the Board of Directors of
Cardinal has authorized the unsubscribed portion to be offered to
institutional investors approved by the officers of Cardinal. Each of
the Funds has committed to subscribe for its pro rata portion of the
offering (approximately $28 million in the aggregate).
FINANCING
Under the terms of the Merger Agreement, prior to the consummation
of the Merger, Superior must obtain a new credit facility, which may be
in the form of an offering of senior notes, or secured or unsecured bank
debt, or any other form reasonably satisfactory to Cardinal and the
Funds (the "Financing"), containing usual and customary covenants, and
on terms that are mutually agreed upon by Superior and Cardinal, in a
principal amount that will produce proceeds sufficient to repay or
refinance certain indebtedness of Cardinal and Superior. Cardinal has
agreed to assist Superior in the arrangement of the Financing. As of
March 31, 1999, the amount of the outstanding indebtedness of each of
Cardinal and Superior that would be repaid or refinanced with the
proceeds of the Financing and the Equity Contribution, or otherwise
restructured on terms mutually satisfactory to Superior and Cardinal,
was approximately $128 million and $25 million, respectively. The
completion of the Financing is a condition to the consummation of the
Merger. Superior is currently reviewing several indications of
interests from lenders for the Financing.
CONSTITUTION OF SUPERIOR'S BOARD FOLLOWING THE MERGER: STOCKHOLDERS'
AGREEMENT
The one-year term of all of the current members of Superior's
Board of Directors will expire at the Meeting. The Merger Agreement
requires Superior's Board to nominate a slate of directors to be elected
at the Meeting, consisting of (i) two individuals designated by
Superior, one of whom is the Chief Executive Officer of Superior, (ii)
two individuals designated by Cardinal, and (iii) two individuals who
are independent of both Superior and Cardinal, and who have been
designated by Cardinal. Accordingly, Superior's Board has nominated six
individuals meeting this criteria. See "Election of Directors."
As a condition to the Merger, Superior and the Funds must execute
a stockholders' agreement (the "Stockholders' Agreement") that provides,
among other things, that following the Closing Date the Board of
Directors of Superior will continue to consist of six directors
nominated as provided above (except that following the Merger the Funds,
rather than Cardinal, will designate the directors initially designated
by Cardinal). However, the second individual initially designated by
Superior (other than the Chief Executive Officer) will only be nominated
for re-election at the first annual meeting of Superior's stockholders
following the Closing Date and will serve until the expiration of his
term at the second annual meeting of Superior's stockholders following
the Closing Date, at which time this board seat will be filled by an
independent director designated by a majority vote of the entire Board.
Under the Stockholders' Agreement, the Funds must vote the shares
of Superior Common Stock owned by them following the Merger in favor of
the director nominees selected pursuant to the Stockholders' Agreement,
and Superior's Board must take all necessary or appropriate action to
assist in the nomination for election as directors the persons so
designated, including recommending that the Superior stockholders vote
in favor of such nominees.
Once the Funds cease to beneficially own in the aggregate at least
15% of the voting power of Superior, the Funds will cease to have the
right to designate the independent directors, and upon the earlier to
occur of 10 years from the Closing Date or once the Funds beneficially
own less than 5% of the voting power of Superior, the Funds will no
longer have the right to designate any individuals to serve on the
Superior Board of Directors and the Stockholders' Agreement will
terminate.
The Stockholders' Agreement also provides that the Funds will not,
among other things:
* acquire additional securities of Superior (other than the
Merger Shares) that will result in the Funds' obtaining
beneficial ownership of 10% or more of the voting power or the
outstanding shares of any class of Superior securities.
* sell or otherwise dispose of any beneficial interest in
any Superior securities, except by conversion, exchange or
exercise of the securities according to their terms, or
pursuant to:
(i)a bona fide pledge of or the granting of a security interest
in such securities to certain lenders;
(ii)a transfer of the securities to a member of the Funds, or a
partner of one of the Fund members, provided the transferee
has signed a counterpart of the Stockholders' Agreement;
(iii)a public offering;
(iv)a sale effected in compliance with Rule 144 or certain
privately negotiated sales; or
(v)a business combination involving Superior that has been
approved by the Board.
In effecting any distribution of Superior securities to any
partner of one of the Funds or any privately negotiated sale,
the Funds have also agreed to use their reasonable best efforts
to refrain from knowingly transferring 5% or more of the voting
power of Superior to any one person or group of persons.
* vote in a manner other than as recommended by the Board
with respect to any business combination or other change in
control of Superior that has not been approved by the Board.
* join a partnership, limited partnership, syndicate or
other group or otherwise act in concert with any other person,
other than the Funds, for the purpose of acquiring, holding,
voting or disposing of any Superior securities.
* assist or act as a financing source for, or otherwise
invest in, any transaction that would result in a change of
control of Superior.
These covenants will cease to be effective during any period that
a director designated by the Funds is not serving as a director as a
result of the failure of Superior or the Board to comply with the terms
of the Stockholders' Agreement or because any such designee is not
elected by the stockholders.
AGREEMENT AND RELEASE
The Merger Agreement also requires that all of the holders of
Cardinal Capital Stock execute an agreement and release (the "Agreement
and Release"), pursuant to which, among other things, (i) the holders of
the Cardinal Class C Preferred Stock agree to convert their shares into
Cardinal Class A Common Stock, on a share for share basis, prior to the
Merger, unless they instead vote in favor of the Merger and agree to
convert their shares directly into Merger Shares, (ii) all stockholders
of Cardinal agree to release and discharge Cardinal, its subsidiaries
and its officers and directors from any obligations arising under
charter documents, any contract (other than the Merger Agreement), the
DGCL or the Louisiana Business Corporation Law (the "LBCL"), and agree
to waive any preemptive rights, or any other rights to acquire
additional shares of Cardinal Capital Stock that such stockholders may
have, (iii) all stockholders of Cardinal agree to accept the number of
shares of Superior Common Stock that such stockholder is entitled to
receive upon consummation of the Merger in accordance with the terms of
the Merger Agreement in full payment for their shares of Cardinal
Capital Stock exchanged therefor, and agree to waive any appraisal
rights such stockholders may have under Cardinal's charter documents,
any contract or the DGCL or the LBCL, and (iv) such stockholders agree
to terminate certain existing registration rights, stockholders and
other agreements with Cardinal.
As stated above, the Merger Agreement requires that all shares of
Cardinal's Class C Preferred Stock be either redeemed by Cardinal or
converted into shares of Cardinal's Class A Common Stock prior to the
Merger. However, if this does not occur, and the holders of the Class C
Preferred Stock instead vote as a class in favor of the Merger and agree
to convert their shares directly into shares of Superior Common Stock
upon consummation of the Merger, each such share will be treated in the
Merger like a share of Cardinal's Class A Common Stock.
REGISTRATION RIGHTS AGREEMENTS
The Merger Agreement also requires Superior to execute separate
registration rights agreements with each of the Funds and all other
Cardinal stockholders (the "Registration Rights Agreements").
Under the registration rights agreement with the Funds, at any
time after one year following the Closing Date, the Funds may request
that Superior file a registration statement under the Securities Act of
1933 (the "Securities Act") for the sale of not less than 20% of the
Superior Common Stock owned by the Funds following the Merger. Under
the registration rights agreement, Superior will not be obligated to
effect more than one demand registration during any 12 month period nor
more than four demand registrations during the term of the registration
rights agreement. Pursuant to this agreement, the Funds also have the
right to include their shares in any other registration statement filed
by Superior to register the offer and sale of Superior Common Stock by
Superior or other stockholders, subject to certain limitations.
Under the registration rights agreement with the other
stockholders of Cardinal, Superior has agreed to file within 90 days
after the Closing Date, a shelf registration statement under the
Securities Act registering the resale from time to time of the Superior
Common Stock owned by such stockholders. Superior will keep the
registration statement effective until the earlier of (i) the second
anniversary of the Closing Date and (ii) the date on which all
securities covered by the registration statement have been sold.
Pursuant to this agreement, these stockholders also have the right to
include their shares in any registration statement filed by Superior to
register the offer and sale of Superior Common Stock by Superior or
other stockholders, subject to certain limitations.
HART-SCOTT-RODINO CLEARANCE
The obligations of Superior and Cardinal to consummate the Merger
are subject to the expiration or earlier termination of the requisite
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"). Under the HSR Act and the rules and
regulations promulgated thereunder by the Federal Trade Commission (the
"FTC"), the Merger will not be able to be consummated until (i)
notifications has been given and certain information has been furnished
to the FTC and the Antitrust Division of the Department of Justice (the
"DOJ") and (ii) specific waiting periods have expired or terminated.
Superior and Cardinal have agreed, pursuant to the Merger
Agreement, to use reasonable efforts to file or cause to be filed with
the FTC and the DOJ such notifications as are required to be filed under
the HSR Act and the rules and regulations promulgated thereunder, and to
respond to any requests for additional information made by either the
FTC or the DOJ. Accordingly, Superior and Cardinal each filed Premerger
Notification and Report Forms with the FTC and DOJ on May __, 1999. If
not earlier terminated, the statutory waiting period is expected to
expire on or about June __, 1999.
The DOJ and the FTC, as well as state antitrust enforcement
agencies, frequently scrutinize the legality under the antitrust laws of
transactions such as the Merger. The termination of the HSR Act waiting
period will not preclude DOJ, the FTC or state antitrust enforcement
agencies from challenging the Merger on antitrust grounds. Accordingly,
at any time before or after the consummation of the Merger and
notwithstanding the expiration or termination of the HSR Act waiting
period, any federal or state antitrust authorities could take action
under the antitrust laws as they deem necessary or desirable in the
public interest. Such action could include seeking to enjoin the
consummation of the Merger or seeking divestiture of all or part of the
assets of Cardinal or Superior. Private parties may also seek to take
legal action under the antitrust laws, if circumstances permit.
OTHER CONDITIONS TO THE MERGER
In addition to Superior stockholder approval of the Merger
Proposals and HSR clearance, the respective obligations of Cardinal and
Superior to consummate the Merger are subject to the satisfaction of the
following conditions:
* No statute, rule, regulation, executive order, decree,
preliminary or permanent injunction or restraining order shall
have been enacted, entered, promulgated or enforced by any
court of competent jurisdiction or other governmental entity
which prohibits or restricts the consummation of the
transactions contemplated by the Merger Agreement, and no
proceeding shall have been commenced and be pending which seeks
to prohibit or restrict the consummation of the transactions
contemplated by the Merger Agreement.
* The Cardinal stockholders shall have approved the Merger
and shall have executed the Agreement and Release, and the
Cardinal Class C Preferred Stock shall have been redeemed or
converted into shares of Cardinal's Class A Common Stock or the
holders of such shares of Class C Preferred Stock shall have
approved the Merger and agreed to convert their shares directly
into shares of Superior Common Stock upon consummation of the
Merger.
* Superior and Cardinal shall have received an opinion from
Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P. to the effect that the Merger will constitute a tax-free
reorganization.
* Superior shall have completed the Financing and Cardinal
shall have completed the Equity Contribution.
* The Stockholders' Agreement shall have been executed and
delivered by Superior and the Funds.
* An escrow agreement required to be executed under the
terms of a settlement agreement between Cardinal and certain of
its stockholders shall have been executed and delivered, and
arrangements shall have been made to escrow thereunder 892,000
shares of Superior Common Stock to be issued upon consummation
of the Merger for the benefit of the former holder of Cardinal
Class B Common Stock.
* The Merger Shares shall have been approved for listing,
subject to notice of official issuance, on the Nasdaq National
Market.
* All consents and approvals of third parties necessary for
consummation of the transactions contemplated by the Merger
Agreement shall have been obtained, including the consent of
the holders of Cardinal's 11.0% Senior Subordinated Notes,
issued pursuant to the Securities Purchase Agreement (unless
such notes are refinanced at Closing).
The obligations of Superior to consummate the Merger are subject
to the satisfaction of the following additional conditions unless waived
by Superior:
* Each of the representations and warranties of Cardinal
contained in the Merger Agreement that is qualified as to
materiality will be true and correct, and each of such
representations and warranties that is not so qualified as to
materiality will be true and correct in all material respects,
as of the date of the Merger Agreement and Closing Date as
though made on and as of the Closing Date, and Cardinal and the
Funds will have performed in all material respects all
obligations required to be performed by them under the Merger
Agreement at or prior to the Closing Date.
* Superior shall have received customary legal opinions from
Cardinal's counsel.
The obligations of Cardinal and the Funds to consummate the
transactions contemplated by the Merger Agreement are subject to the
satisfaction for the following additional conditions unless waived by
Cardinal and the Funds:
* Each of the representations and warranties of Superior set
forth in the Merger Agreement that is qualified as to
materiality will be true and correct, and each of such
representations and warranties that is not so qualified as to
materiality will be true and correct in all material respects,
as of the date of the Merger Agreement and as of the Closing
Date as though made on and as of the Closing Date and Superior
shall have performed in all material respects all obligations
required to be performed by it under this Agreement on or prior
to the Closing Date.
* Cardinal and the Funds shall have received evidence
satisfactory to them that an extension of Cardinal's directors'
and officers' liability insurance policy meeting the
requirements of the Merger Agreement is in force.
* Superior shall have executed and delivered the Registration
Rights Agreements.
* Superior stockholder approval shall have been obtained
with respect to the Merger Proposals at the Meeting, and
Superior shall have effected or caused to be effected the
Charter Amendments and the Plan.
* Cardinal and the Funds shall have received customary legal
opinions from Superior's counsel.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of Superior's Board of Directors
with respect to the Merger, Superior's stockholders should be aware that
certain directors and officers of Superior, Cardinal and the Funds have
certain interests respecting the Merger separate from their interests as
holders of Superior Common Stock or Cardinal Capital Stock, as the case
may be, including those referred to below.
EMPLOYMENT AGREEMENTS
On the Closing Date, Superior will enter into new two-year
employment agreements with Robert Taylor, who is currently the Chief
Financial Officer of Superior, James Holleman, currently serving as Vice
President and Chief Operating Officer of Cardinal and Dale Mitchell,
currently serving as Vice President-Marine Services of Cardinal,
providing for annual base salaries of $125,000, $135,000 and $125,000,
respectively. Superior will also amend and restate the current
employment agreement with Terence Hall, Superior's Chief Executive
Officer, to delete the current annual incentive bonus arrangement and
provide for an annual base salary equal to his current base salary.
On the Closing Date, Superior will also enter into new two-year
employment agreements with Kenneth Blanchard and Charles Funderburg,
each of whom is currently a Vice President of Superior, providing for an
annual base salary equal to their current base salary, and cash payments
in the aggregate of $1,000,000 payable over a two year period for
bonuses and covenants not to compete.
Each of the employment agreements referred to above will provide
that the executive officers will also be entitled to participate in all
other bonus and benefit programs on the same terms as all other
similarly situated employees. The employment agreements will also
contain non-competition, confidentiality and other provisions intended
to protect Superior's interests in the event any of the executive
officers cease to be employed by Superior. In addition, each employment
agreement will be in a form mutually satisfactory to both Cardinal and
Superior.
All other employment agreements between Superior or any of its
subsidiaries and any employee and Cardinal or any of its subsidiaries
and any employee will remain in effect on their present terms. After
the Closing, Superior will also establish an incentive bonus plan,
pursuant to which the members of the combined company's management team
will be eligible for annual cash bonuses based upon Superior achieving
certain performance goals, measured as a percentage of EBITDA, as may be
determined by the Compensation Committee.
OPTIONS GRANTED TO SUPERIOR OFFICERS AND DIRECTORS
At the Effective Time, it is contemplated that the following
officers will receive the number of nonqualified stock options under the
Plan listed opposite such officer's name. These options will all have
10-year terms, will have an exercise price equal to the market price of
the Superior Common Stock on the Closing Date, and will vest in one-
third increments on each of the first three anniversaries of the Closing
Date, except that 107,000 of the options granted to each of Messrs.
Blanchard and Funderburg will have five-year terms and will vest on the
first anniversary of the Closing Date. The proposed option grants are
as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME CURRENT TITLE SUBJECT TO OPTION
- ---- ------------- -----------------
<S> <C> <C>
Terence E. Hall Chairman and Chief Executive Officer of 488,617
Superior
Kenneth Blanchard Vice President of Superior 372,000
Charles Funderburg Vice President of Superior 347,000
Robert Taylor Chief Financial Officer of Superior 240,000
James Holleman Vice President and Chief Operating 265,000
Officer of Cardinal
Dale Mitchell Vice President-Marine Services of 240,000
Cardinal
</TABLE>
In addition to the options proposed to be granted to the executive
officers named above, it is also contemplated that an aggregate of
approximately 1.6 million options will be granted under the Plan to
other officers and employees of the combined company following
consummation of the Merger. Under the Plan, directors who are not also
full-time employees of Superior will also receive options to acquire
20,000 shares of Superior Common Stock on the date such person first
becomes a member of the Board and an option to acquire 5,000 shares of
Superior Common Stock on the day following each annual meeting of
stockholders, beginning with the 2000 annual meeting, if shares of
Superior Common Stock remain available for grant under the Plan.
EMPLOYEE BENEFITS
Superior has agreed that following consummation of the Merger, it
will offer to all persons who were employees of Cardinal or its
subsidiaries and who become employees of Superior following the Merger,
the same employee benefits as are offered by Superior to its own
employees.
INDEMNIFICATION
The Merger Agreement provides that, for four years after the
Effective Time, Superior will indemnify and hold harmless the present
and former officers and directors of Cardinal or its subsidiaries in
respect of acts or omissions prior to the Effective Time to the fullest
extent provided under Cardinal's Certificate of Incorporation in effect
on the date of the Merger Agreement or pursuant to any agreements
between Cardinal and such officers or directors.
The Merger Agreement also provides that, for a period of four
years after the Effective Time, Superior will, subject to certain
limitations, purchase and maintain an extension of Cardinal's current
directors' and officers' liability insurance policy for the benefit of
those persons who are currently covered by such policy on terms no less
favorable than the terms of such current insurance coverage.
BOARD MEMBERSHIP
Pursuant to the terms of the Merger Agreement and the
Stockholders' Agreement discussed above, Terence E. Hall, as Chief
Executive Officer of Superior, will retain his position as a member of
the Superior Board of Directors upon consummation of the Merger and
Justin L. Sullivan, a current director on the Superior Board, will serve
as the other Superior designee to the Board. The two director nominees
designated by Cardinal, Messrs. Ben A. Guill and William E. Macaulay,
are officers of the corporate general partner of the Funds. The
remaining two director nominees who were designated by Cardinal, Messrs.
Robert E. Rose and Richard A. Bachmann, are independent of Superior,
Cardinal and the Funds. See "Election of Directors" and "- Certain
Terms of the Merger Agreement - Constitution of Superior's Board
Following the Merger; Stockholders' Agreement."
CONDUCT OF BUSINESS BY CARDINAL AND SUPERIOR PENDING THE MERGER
Pursuant to the Merger Agreement, each of Superior and Cardinal
has agreed to use its reasonable best efforts to preserve the goodwill
of suppliers, customers and others having business relations with it and
its subsidiaries and to do nothing knowingly to impair its ability to
keep and preserve its business. In addition, Superior and Cardinal have
each agreed not to, prior to the Effective Time, unless expressly
contemplated by the Merger Agreement, without the prior written consent
of the other:
* Declare, set aside, increase or pay any dividend
(including any stock dividends), or declare or make any
distribution on, or directly or indirectly combine, redeem,
reclassify, purchase, or otherwise acquire, any shares of its
capital stock;
* Amend its certificate of incorporation or by-laws, or
adopt or amend any resolution or agreement concerning
indemnification of its directors, officers, employees or
agents;
* Commit any act which would cause any representation or
warranty contained in the Merger Agreement to become untrue in
any material respect;
* Violate any applicable law that would have a material
adverse effect on such party;
* Fail to maintain its books, accounts and records in the
usual manner on a basis consistent with that heretofore
employed in all material respects;
* Fail to pay, or to make adequate provision in all material
respects for the payment of, all taxes, including interest
payments and penalties, due and payable;
* Make any material change in the conduct of its business
and operations or enter into any transaction other than in the
ordinary course of business consistent with past practices;
* Issue any additional shares of capital stock or equity
securities or grant any option, warrant or right to acquire any
capital stock or equity securities; issue any security
convertible into or exchangeable for its capital stock; alter
any material term of any of its outstanding securities or make
any change in its outstanding shares of capital stock or other
ownership interests or its capitalization;
* Incur, assume or guarantee any indebtedness for borrowed
money or any other obligation of any other person, issue any
notes, bonds, debentures or other corporate debt securities or
grant any option, warrant or right to purchase any thereof
other than for working capital under an existing line of credit
and to fund capital expenditures;
* Make any sale, assignment, transfer, abandonment or other
conveyance of any of its material assets or any part thereof,
except transactions pursuant to existing contracts and
dispositions of worn-out or obsolete equipment for fair or
reasonable value in the ordinary course of business consistent
with past practices;
* Subject any of its assets or properties to a lien other
than a permitted lien;
* Make or commit to make any capital expenditures that in
the aggregate are in excess of $500,000 except in accordance
with such party's budget as disclosed to the other party;
* Make any loan, advance or capital contribution to or
investment in, or sell, transfer or lease any properties or
assets to, or enter into any agreement or arrangement with, any
of its affiliates other than in the ordinary course of
business;
* Make any change in any method of accounting or accounting
principle, method, estimate or practice except for any such
change required by reason of a concurrent change in generally
accepted accounting principles or write down the value of any
inventory or write off as uncollectible any accounts receivable
except in the ordinary course of business consistent with past
practices;
* Enter into or modify any employment, severance or similar
agreement or arrangement with any director or employee, or
grant any increase in the rate of wages, salaries, bonuses or
other compensation or benefits of any executive officer or
other employee other than increases in wages, salaries,
bonuses, compensation or benefits (i) required by contracts,
agreements, policies or collective bargaining agreements or
(ii) to field or operating employees made in the ordinary
course of business;
* Enter into any new line of business; or
* Make any tax election that is inconsistent with any
corresponding election made on a prior return or settle or
compromise any tax liability for an amount in excess of the
liability therefor that is reflected on such party's financial
statements.
NO SOLICITATION
The Merger Agreement prohibits each of Superior and Cardinal and
its respective subsidiaries, affiliates, officers, directors,
representatives and agents from soliciting, initiating or encouraging
the submission of any proposal for a Sale Transaction (as defined
herein), entering into or giving any approval with respect to a Sale
Transaction, or participating in any discussions or negotiations
regarding or furnishing to any person any information with respect to,
or take any other action to facilitate any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to lead to,
any Sale Transaction. As defined in the Merger Agreement, a Sale
Transaction generally means, with respect to either Superior or
Cardinal: (i) an acquisition by any person of a majority of the
outstanding common stock of such party, (ii) a reorganization,
recapitalization, merger, consolidation or similar business combination
or transaction involving such party, where such party is not the
surviving company or (iii) a sale or other disposition of assets having
a value in excess of 25% of the market value of all of such party's
assets, and specifically excludes the Equity Contribution.
If the Board of Superior or Cardinal, as the case may be,
determines in good faith, based upon the advice of outside counsel, that
it is necessary to do so in order to comply with its fiduciary duties to
its stockholders under applicable law, it may in response to a written
proposal for a Sale Transaction not solicited on or after the date of
the Merger Agreement, furnish information with respect to itself or a
subsidiary pursuant to a customary confidentiality agreement with the
person making such proposal, and participate in negotiations regarding
such proposal.
The Merger Agreement prohibits the Boards of each of Superior and
Cardinal from withdrawing or modifying its recommendation to its
stockholders, in a manner adverse to the approval of the Merger
Agreement, or approve or recommend any Sale Transaction, except if the
Board of such party determines in good faith, based upon the advice of
outside counsel, that it is necessary to do so in order to comply with
its fiduciary obligations to its stockholders, and then only after
terminating the Merger Agreement and paying a termination fee of $3
million (the "Termination Fee").
Each of Superior and Cardinal are also obligated to promptly
inform the other of any request for information or of any proposed Sale
Transaction or any inquiry with respect to or which could reasonably be
expected to lead to a Sale Transaction, and the terms and conditions
thereof, and to keep the other fully informed of the status and details
of any such request or proposal.
RESTRICTIONS ON THE FUNDS
Each of the Funds has agreed that, prior to the Closing Date, it
will not sell, transfer or otherwise dispose of all or any part of the
shares of Cardinal Capital Stock owned by it or grant any proxy relating
thereto other than to existing Cardinal stockholders as of the date of
the Merger Agreement. The Funds, which collectively own approximately
63% of the outstanding Cardinal Capital Stock, have also agreed to vote
or cause to be voted all of the shares of Cardinal Capital Stock owned
by them in favor of approval of the Merger Agreement and against any
similar agreement unless Superior is then in material breach or default
of its obligations under the Merger Agreement such that Cardinal would
have the right to terminate the Merger Agreement.
AMENDMENT; WAIVER; TERMINATION
The Merger Agreement may be amended at any time before or after
its approval by the stockholders of Superior and Cardinal by written
agreement of Superior and Cardinal, except that no amendment may be made
after the approval by the stockholders of Superior and Cardinal that by
law would require further stockholder approval unless such further
stockholder approval is obtained.
The Merger Agreement provides that it may be terminated at any
time prior to the Closing Date:
* By mutual consent of Superior and Cardinal;
* By Superior, if there shall have been a breach of any
representation, warranty, covenant or agreement on the part
of Cardinal or the Funds that is qualified as to
materiality, or a material breach of any such
representation, warranty, covenant or agreement that is not
so qualified as to materiality, which breach shall not have
been cured prior to the earlier of (i) 30 days following
notice of such breach and (ii) the Closing Date;
* By Cardinal, if there shall have been a breach of any
representation, warranty, covenant or agreement on the part
of Superior that is qualified as to materiality, or a
material breach of any such representation, warranty,
covenant or agreement that is not so qualified as to
materiality, which breach shall not have been cured prior to
the earlier of (i) 30 days following notice of such breach
and (ii) the Closing Date;
* By either Superior or Cardinal if any permanent injunction
or other order of a court or other competent governmental
entity preventing the transactions contemplated by this
agreement shall have become final and nonappealable;
* By either Superior or Cardinal if the transactions
contemplated by this Agreement shall not have been
consummated on or before October 15, 1999; provided, that
the right to terminate Merger Agreement will not be
available to any party whose breach of its representations
and warranties in the Merger Agreement or whose failure to
perform any of its covenants and agreements under the Merger
Agreement has resulted in the failure of the transactions
contemplated by the Merger agreement to occur on or before
such date;
* By Superior, if (i) the Board of Directors of Cardinal
withdraws, modifies or changes its recommendation of the
Merger Agreement or the Merger or shall have resolved to do
any of the foregoing or the Board of Directors of Cardinal
shall have recommended to the stockholders of Cardinal
another proposed Sale Transaction or resolved to do so; (ii)
a tender offer or exchange offer for 30% or more of the
outstanding shares of Cardinal Class A or Class B Common
Stock is commenced and the Board of Directors of Cardinal,
within 10 business days after such tender offer or exchange
offer is so commenced, either fails to recommend against
acceptance of such tender or exchange offer by its
stockholders or takes no position with respect to the
acceptance of such tender or exchange offer by its
stockholders; or (iii) any person shall have acquired
beneficial ownership or the right to acquire beneficial
ownership of, or any "group" (as such term is defined under
Section 13(d) of the Exchange Act and the regulations
promulgated thereunder), shall have been formed which
beneficially owns, or has the right to acquire beneficial
ownership of, 30% or more of the then outstanding shares of
Cardinal Class A or Class B Common Stock;
* By Cardinal if (i) the Board of Directors of Superior
withdraws, modifies or changes its recommendation of the
Merger Agreement or the Merger or shall have resolved to do
any of the foregoing or the Board of Directors of Superior
shall have recommended to the stockholders of Superior
another proposed Sale Transaction or resolved to do so; (ii)
a tender offer or exchange offer for 30% or more of the
outstanding shares of Superior Common Stock is commenced and
the Board of Directors of Superior, within 10 business days
after such tender offer or exchange offer is so commenced,
either fails to recommend against acceptance of such tender
or exchange offer by its stockholders or takes no position
with respect to the acceptance or such tender or exchange
offer by its stockholders; or (iii) any person shall have
acquired beneficial ownership or the right to acquire
beneficial ownership of, or any "group" (as such term is
defined under Section 13(d) of the Exchange Act and the
regulations promulgated thereunder), shall have been formed
which beneficially owns, or has the right to acquire
beneficial ownership of, 30% or more of the then outstanding
shares of Superior Common Stock; or
* By either Superior or Cardinal if (i) Cardinal accepts
another proposed Sale Transaction, which shall have been
approved by Cardinal's Board of Directors; (ii) Superior
accepts another proposed Sale Transaction, which shall have
been approved by Superior's Board of Directors; (iii) the
required approval of Superior's stockholders of the Merger
Agreement is not received at the Meeting; or (iv) the
required approval of Cardinal's stockholders of the Merger
Agreement is not obtained.
In the event the Merger Agreement is terminated as a result of the
acceptance of another proposed Sale Transaction by one of the parties,
the party accepting such Sale Transaction shall pay to the other party a
Termination Fee equal to $3 million. Further, this Termination Fee will
also be payable to the terminating party if the Merger Agreement is
terminated due to (i) the other party's breach of its representations,
warranties, covenants or agreements contained in the Merger Agreement;
(ii) the withdrawal or modification of the recommendation of the Merger
by the other party's Board of Directors; (iii) the commencement of a
tender or exchange offer for the other party's stock that is not opposed
by such other party's Board of Directors; (iv) the acquisition of 30% or
more of the outstanding stock of the other party; or (v) the failure of
the stockholders of the other party to approve the Merger; AND within
three months of the termination, the other party enters into a written
agreement for another proposed Sale Transaction and the other proposed
Sale Transaction is ultimately consummated.
To the extent a termination of the Merger Agreement results from a
willful breach of a party's representations, warranties, covenants or
agreements set forth in the Merger Agreement, the injured party shall
have the right to recover its damages caused thereby, although such
injured party will not be entitled to consequential or punitive damages.
FEES AND EXPENSES
The Merger Agreement provides that whether or not the Merger is
consummated, all fees and expenses incurred in connection with the
Merger shall be paid by the party incurring them, except as provided in
connection with the Termination Fee.
RIGHTS OF SUPERIOR STOCKHOLDERS; DILUTION
The stockholders of Superior will not be exchanging their shares
of Superior Common Stock for other securities, and the rights of the
Superior stockholders will not be altered as a result of the
consummation of the Merger, except as those rights are affected by the
proposed Charter Amendments. As stated above and as described more
fully below, in connection with the Merger, the Board has recommended
the adoption of certain amendments to Superior's Certificate of
Incorporation which will increase the number of authorized shares of
Superior Common Stock and restrict ownership of Superior capital stock
by Non-Citizens. See "Proposed Amendment to Certificate of
Incorporation to Increase Number of Authorized Shares" and "Proposed
Amendment to Certificate of Incorporation to Restrict Ownership by Non-
United States Citizens."
The Merger will significantly dilute Superior's current
stockholders. If the Merger is completed, Superior's current
stockholders will own in the aggregate 49% of the total number of shares
of Superior Common Stock then outstanding on a fully diluted basis, with
the former stockholders of Cardinal owning in the aggregate the
remaining 51% of the total number of shares then outstanding on a fully
diluted basis. See "Comparative Per Share Data."
APPRAISAL RIGHTS
Under the DGCL, Cardinal stockholders would be entitled to
appraisal rights in connection with the Merger. However, as a condition
to consummation of the Merger, each of the Cardinal stockholders will be
required to sign the Agreement and Release in which it affirms that it
has waived any and all appraisal rights. Superior stockholders do not
have appraisal rights in connection with the Merger or the Share
Issuance.
ACCOUNTING TREATMENT
The Merger will result in the former stockholders of Cardinal
owning 51% of the outstanding shares of Superior Common Stock after
giving effect to the Merger, calculated on a fully diluted basis. For
accounting purposes, the Merger will be treated as if Cardinal was the
acquiror (a reverse acquisition) of Superior using the purchase method
of accounting. Under the purchase method of accounting, the purchase
price is allocated to the assets and liabilities acquired based upon the
estimated fair values of such assets and liabilities on the date of
acquisition. Any excess of the fair market value of the consideration
given over the fair market value of the identifiable net assets acquired
is reported as goodwill.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Management of Superior believes that the Merger will constitute a
tax-free reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Internal Revenue Code (the "Code"). The Merger is
conditioned upon the receipt by Superior and Cardinal of the opinion of
Jones, Walker, Waechter, Poitevent, Carrere & Denegre L.L.P. to
that effect.
Assuming qualification as a tax-free reorganization under the
Code:
* No gain or loss will be recognized by Superior or its
stockholders as a result of the Merger;
* No gain or loss will be recognized by Cardinal or its
stockholders who receive Superior Common Stock in exchange
for their shares of Cardinal Capital Stock in the Merger;
and
* The basis of the shares of Superior Common Stock to be
received by the Cardinal stockholders in the Merger will be
the same as the basis of the shares of Cardinal Capital
Stock surrendered in exchange therefor.
In the event that the Merger does not constitute a tax-free
reorganization, the Cardinal stockholders may recognize a gain or loss
based on the difference between the fair market value of the Superior
Common Stock received and the tax basis in the Cardinal Capital Stock
exchanged therefor.
Neither Superior nor Cardinal has requested a ruling from the
Internal Revenue Service with regard to any of the federal income tax
consequences of the Merger.
FEDERAL SECURITIES LAW CONSEQUENCES
None of the shares of Superior Common Stock received by the
Cardinal stockholders in the Merger will be registered under the
Securities Act. As a result, the shares of Superior Common Stock
received by the Cardinal stockholders in the Merger may be resold only
in transactions permitted by the resale provisions of Rule 144
promulgated under the Securities Act or as otherwise permitted under the
Securities Act.
The obligations of Cardinal to consummate the Merger are
conditioned upon Superior executing the Registration Rights Agreements
with the Funds and the other stockholders of Cardinal. See
"Registration Rights Agreements."
VOTE REQUIRED
Approval of the Share Issuance pursuant to the Merger requires the
affirmative vote of a majority of the votes cast on the proposal at the
Meeting. However, the consummation of the Merger is contingent on the
approval by Superior's stockholders of all of the other Merger
Proposals.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
the approval of the Share Issuance pursuant to the Merger.
<PAGE>
BUSINESS OF THE COMPANIES
DESCRIPTION OF BUSINESS OF SUPERIOR
GENERAL
Superior 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, tank cleaning
services, the manufacture and sale of computerized electronic torque and
pressure control equipment and the manufacture and sale of oil spill
containment equipment. Over the last several years, Superior has
significantly expanded its operations through both internal growth and
strategic acquisitions. This expansion has enabled Superior 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.
Since the second quarter of 1998, there has been a downturn in
demand for Superior's services, resulting in a significant decline in
demand for Superior's well services operations. Superior's rental tool
operations have not been as adversely affected because its present
inventory of rental tools is used primarily in work over activity and
deep water drilling projects which have not been affected as much as
other areas of the industry.
OPERATIONS
RENTAL TOOLS. Superior 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 Superior. 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.
Through its internal growth and through acquisitions, Superior has
increased the size and breadth of its rental tool inventory and now has
20 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. Superior also has a limited
inventory of rental tools located in Venezuela.
WELL SERVICES. Superior is the leading provider of P&A services
in the Gulf of Mexico and also provides electric and mechanical wireline
services as well as tank cleaning services. Superior 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 rather than using 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, Superior 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.
Superior 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 Superior provides these services in connection with
P&A jobs, it also provides wireline services for other than P&A jobs,
such as logging and pipe recovery. Superior's wireline personnel are
trained to perform both P&A jobs and wireline services.
In 1998, Superior expanded its well services to include vessel
pressure cleaning and safe vessel entry. In addition to conventional
tank and vessel pressure cleaning, Superior uses its patented technology
for on-line/remote cleaning to pressure clean vessels while under normal
operation and flow. This patented technology offers numerous benefits,
including no confined space entry, elimination of production shut-in,
and reduction of waste disposal costs.
OTHER SERVICES. Other services provided by Superior include (i)
data acquisition and monitoring for the oil and gas industry and (ii)
the manufacture, sale and rental of oil spill containment equipment.
Superior designs, manufactures and sells computerized electronic
torque and pressure control equipment. Superior's torque and pressure
control equipment is used in connection with drilling and work over
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.
Superior also sells oil spill containment inflatable boom and
ancillary storage/deployment/retrieval equipment. Superior'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.
Superior 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.
DESCRIPTION OF BUSINESS OF CARDINAL
GENERAL
Cardinal is a leading provider of wellbore intervention and
topside (above-surface) production services to the oil and gas industry
in the U.S. Gulf of Mexico and the onshore Gulf Coast region. Cardinal
currently provides such services primarily to customers operating
offshore oil and gas wells located in the shallow waters (less than 200
feet) and transition zone (marsh environment) of the Gulf of Mexico.
Cardinal utilizes its fleet of 48 offshore service vessels in
conjunction with its highly skilled service personnel to perform its
services in the Gulf of Mexico, while truck and skid-mounted equipment
are utilized to perform services onshore.
Cardinal provides oil and gas producers with on-going maintenance
and repairs to oil and gas wells. Wellbore intervention services that
Cardinal provides include: cased hole wireline services (including
mechanical wireline and electric wireline services), plugging and
abandonment, coiled tubing, logging, data acquisition and
interpretation, and pumping services. Cardinal believes that it
currently is one of the largest providers of mechanical wireline
services to the Gulf of Mexico oil and gas industry.
In addition to utilizing its fleet of liftboats and other offshore
service vessels to facilitate its wellbore intervention services,
Cardinal's marine assets provide support to the maintenance of above
surface oil and gas well structures. Liftboats are self-propelled,
self-elevating vessels that can efficiently assist offshore platform
construction, maintenance and well servicing tools that traditionally
have required the use of larger, more expensive mobile offshore drilling
units or derrick barges. Cardinal's liftboats provide: accommodations
for personnel and equipment used to maintain platforms and wellhead
equipment; working space, elevated to the appropriate height above the
water surface; and one or two utility cranes per vessel, providing
lifting capacity up to 100 tons. Cardinal believes that it currently
owns and operates one of the largest, most diverse fleets of liftboats
in the Gulf of Mexico.
Founded in 1959 as Cardinal Wireline Specialists, Inc. by four
former employees of Otis Engineering, Cardinal originally utilized a
fleet of trucks to provide wireline services for land-based oil and gas
wells. Cardinal's range of oil and gas production services was expanded
to include offshore wells in the 1960s and 1970s through the purchase of
liftboats and additional wireline companies and equipment. In 1987,
Cardinal increased its presence in the offshore production services
market through the acquisition of the Gulf of Mexico mechanical wireline
division of Schlumberger Ltd.
In 1990, John P. Kotts acquired Cardinal in a leveraged buyout
transaction. Over the following seven years, Cardinal continued to
expand its asset base and scope of services through strategic
acquisitions and selective product extensions. Most significantly, in
1995 Cardinal acquired the liftboat fleets of Blue Streak Offshore, Inc.
(five vessels) and Cross Marine, Inc. (six vessels). These two
acquisitions expanded Cardinal's liftboat fleet to include more heavy-
duty vessels with leg lengths ranging from 100 to 150 feet.
Additionally, in 1997 and 1998, Cardinal entered the high-end liftboat
market through the commission of three newly built liftboats with 200
foot legs.
In February 1998, Cardinal entered into a recapitalization
transaction whereby a group led by the private equity investment firm
First Reserve Corporation ("First Reserve") acquired approximately 75
percent of Cardinal's equity. Purchased in 1982 by the current owners,
First Reserve is the oldest and largest private equity firm focused
exclusively on equity investing in the energy industry, and currently
manages approximately $1.7 billion in equity. In purchasing 75 percent
of Cardinal, the First Reserve-led group of investors paid approximately
$185 million, facilitated in part by $125 million in long-term debt.
Since the First Reserve transaction, Cardinal has continued its
acquisition efforts. Cardinal purchased Moores Wireline, Inc. and
Moores Engineering, Inc. in April 1998, and Gunn Wireline, Inc. in
September 1998. These transactions further consolidated the Gulf of
Mexico offshore and Gulf Coast onshore mechanical wireline markets and
expanded Cardinal's presence in the logging, data acquisition and
interpretation market.
DESCRIPTION OF OPERATIONS
MARINE SERVICES
Cardinal operates 48 offshore service vessels (42 liftboats, four
spudboats and two supply vessels) in the Gulf of Mexico. These vessels
are used in oil and gas production facility maintenance and construction
operations as well as production service activities. With a fleet size
of 42 vessels, Cardinal operates one of the largest and most diverse
fleets of liftboats in the Gulf of Mexico. Liftboats are self-
propelled, self-elevating vessels that can efficiently assist offshore
platform construction, maintenance and well servicing tasks that
traditionally have required the use of larger, more expensive mobile
offshore drilling units or derrick barges. Cardinal's liftboats each
have three cylindrical legs ranging in length from 65 to 200 feet.
These legs utilize independent jacking systems to elevate the deck of
the vessel level with the deck of the platform. Each of Cardinal's
liftboats also have either one or two cranes onboard, ranging in lifting
capacity from 5 to 100 tons.
Cardinal management estimates that approximately 65 percent of
Cardinal's liftboat jobs have at least one Cardinal production service
bundled with it. Of Cardinal's 42 liftboats, 15 are dedicated to
providing mechanical wireline services. Several of these vessels have
operated in the same producing area for five to six years, returning to
shore only for annual United States Coast Guard ("Coast Guard")
inspections. The remaining vessels often will be chartered in
conjunction with coiled tubing, electric wireline or P&A services.
Liftboats operating in the Gulf of Mexico typically command higher
dayrates but experience lower average utilization rates than other
classes of marine support vessels. However, Cardinal management
believes that its ability to bundle its production services with its
liftboats allows Cardinal to experience higher average utilization rates
than its competitors.
When Cardinal's liftboats are not chartered in connection with a
wireline, coiled tubing or P&A job, they are typically used in platform
maintenance and construction activities. Maintenance services provided
include sandblasting, painting, support of diving or salvage operations
and routine mechanical repairs. Cardinal's construction services
consist of fabrication, removal and replacement of worn parts or
sections of the platform and complete removal of facilities from smaller
platforms. These maintenance and construction services are
provided by Cardinal and by third party service providers under charter
arrangements with Cardinal.
Cardinal's fleet of vessels is subject to the regulations of
various governmental agencies, including the Coast Guard, the National
Transportation Safety Board, the U.S. Customs Service and the U.S.
Maritime Administration. Cardinal is required under governmental
regulations to maintain its vessels in accordance with standards of
seaworthiness, safety and health. In addition to annual inspections by
the Coast Guard, Cardinal maintains an ongoing preventative maintenance
and quality inspection program that helps to minimize vessel downtime.
Most of the repair and maintenance work performed on Cardinal's marine
fleet is conducted in New Iberia, Louisiana, at Cardinal's shipyard
facility.
WIRELINE SERVICES
Cardinal provides wireline services to customers throughout the
Gulf of Mexico and onshore Gulf Coast from its bases located in New
Iberia, Belle Chasse, Broussard, and Lafayette, Louisiana, and Alvin and
Longview, Texas. All of Cardinal's wireline services are performed in
existing wellbores, a sector of the market often referred to as the
"cased hole" wireline market. Producing wells require wireline services
to perform a variety of ongoing maintenance and repairs, as well as to
perform modifications to enhance the production capacity and life span
of the well.
Wireline services are segmented into two service types: mechanical
wireline and electric wireline. Cardinal believes that it currently is
one of the largest providers of cased hole mechanical wireline services
to oil and gas companies operating in the Gulf of Mexico. Cardinal
entered the cased hole electric wireline market in 1996, and is
currently focused on growing this service operation.
Cardinal maintains a large inventory of specially designed
mechanical wireline equipment and, through its in-house maintenance
facilities, modifies its equipment to meet individual customer needs and
well specifications. Cardinal provides mechanical wireline services on
a 24-hour per day basis. Services exclusively provided by mechanical
wireline include: bottom hole pressure and temperature surveys;
specialized fishing operations which retrieve loose or broken equipment
in the wellbore; locating and sealing-off tubing holes and leaks;
setting and pulling safety devices; installing flow chokes in wells upon
initial completion as well as resetting flow chokes; installing
artificial gas lift valves for enhanced production.
Applications provided through electric wireline include pipe
recovery, perforating and/or cutting pipe with focused explosive
charges, production well logging and well completion services.
PLUGGING AND ABANDONMENT SERVICES
Cardinal began offering P&A services in 1993 to capitalize on the
growth potential that exists as the Gulf of Mexico basin matures. Once
an oil or gas well in the Gulf of Mexico is determined to no longer be
capable of producing in economic quantities, the owner is mandated by
law to file with the appropriate regulatory bodies a plan of disposition
for the well. Cardinal's P&A equipment is smaller in size than that
used by many of its competitors. This allows Cardinal's P&A work to be
completed from liftboats and other work platforms with low-lift
capabilities rather than using a drilling rig. Cardinal believes that
the use of its liftboat fleet to perform P&A work provides a competitive
advantage over many of its competitors, while allowing it to offer its
customers a cost advantage over traditional P&A methods.
COILED TUBING SERVICES
Throughout the Gulf of Mexico and onshore Gulf Coast Cardinal
provides coiled tubing services to oil and gas operators requiring
advanced well remediation services. Cardinal's six coiled tubing units
and related nitrogen equipment can be truck-mounted for onshore
operations, transported to offshore platforms, or utilized offshore in
conjunction with Cardinal's liftboat fleet. Cardinal entered the coiled
tubing market in 1997 and believes that it currently operates one of the
newest, most technologically advanced coiled tubing fleets in the Gulf
of Mexico. In addition to the services that can be performed by
mechanical and electric wireline equipment, coiled tubing equipment is
able to perform well remediation services at higher pressures and in
deviated wellbores (ie, horizontally or directionally drilled wells).
LOGGING, DATA ACQUISITION AND INTERPRETATION SERVICES
Cardinal's downhole logging, data acquisition and interpretation
services are provided with a mechanical wireline unit and are designed
to optimize well productivity. Through its high-precision downhole
memory pressure gauges and advanced software packages, Cardinal is able
to measure downhole well conditions such as pressure, temperature and
flow properties and subsequently simulate well performance and the
reservoir's production characteristics. Cardinal maintains trained and
experienced crews at the wellsite to monitor all testing procedures and
to collect the comprehensive wellsite information necessary to perform
the complete production analysis of the well test data. Cardinal's
advanced well testing software includes test design tools, well models,
model validation capabilities and inter-well analysis capabilities.
After integrating the well test results with its system analysis
software, Cardinal provides its customers with an analysis of the well
problems as well as corrective procedure recommendations.
Cardinal also offers memory (as opposed to real-time) production
logging services performed in conjunction with certain mechanical
wireline services. Memory logging services delivered via mechanical
wireline require less workspace and wellhead control equipment, reduce
mobilization costs and are more cost effective than traditionally
expensive diagnostic logs. Cardinal provides on-site data viewing to
ensure that the acquired data is recorded successfully before leaving
the well location.
Oil and gas producers increasingly are emphasizing the
maximization of their existing wells' productivity through well
production simulation and reservoir monitoring. By packaging logging,
data acquisition and interpretation services with mechanical wireline
services, Cardinal believes it can offer more complete and cost-
effective downhole production services.
FLEET OF MARINE SERVICE VESSELS
<TABLE>
<CAPTION>
PRIMARY YEAR LIVING
LEG CRANE BUILT/ QUARTER
LENGTH CAPACITY REBUILT CAPACITY
-------- -------- --------- ----------
(feet) (tons)
<S> <C> <C> <C> <C>
LIFTBOATS:
- ----------
D.L. Hanson 200 100 1997 43
W. Lopez 200 100 1998 37
P.G. Jones 200 100 1998 37
P.J. Richard 155 70 1981 28
J.A. Holleman 150 40 1981 32
J.N. Mitchell 145 70 1982 32
C.G. Hentze 145 70 1982 26
J. Scarboro 145 70 1980 26
C.A. Babin 145 70 1981 22
P.H. Holmes 145 40 1981 24
H.G. Louviere 145 25 1980 30
R.P. Rodrigue 130 70 1980 20
F.G. Derouen 130 30 1985 24
R.E. Thibodeaux 130 25 1980 34
T.D. Saunier 120 30 1976 20
G.O. Roach 120 30 1982 12
R.E. Johnson 105 30 1976 23
D.J. Viator 105 25 1980 20
Al Breaux 105 25 1980 20
E.J. Henry 105 25 1978 17
R.P. Weeks 105 25 1974 12
L.M. Romero 105 15 1977 15
D.J. Mitchell 105 15 1991 15
R.E. Sanders 90 10 1979 8
S.M. Darby 90 10 1979 8
C.D. Little 75 10 1978 10
D.J. Sanders 75 5 1978 5
D. VanCampen 66 10 1976 4
D.J. Richard 65 15 1981 12
H. Polk 65 10 1979 4
H. Bennett 60 10 1979 6
R.P. Berthet 60 10 1978 6
Leo Comeaux 60 10 1983 4
J.W. Collins 60 10 1980 4
J.L. Romero 60 10 1981 4
K.D. Knapp 60 10 1977 4
D.R. Hermecz 60 10 1978 4
C.C. LeBlanc 60 10 1979 4
P.E. Darby 60 10 1978 4
T.C. Holleman 60 10 1978 4
C.C. LeMaire 60 10 1981 3
CE II 45 5 1970 4
SUPPLY VESSELS (100 FEET IN LENGTH):
- ------------------------------------
C.L. Norris N/A N/A 1980 16
S.Y. Graham N/A N/A 1977 8
SPUD BOATS:
- -----------
Cardinal I 30 5 1968 2
Cardinal II 30 5 1965 2
Cardinal III 25 5 1972 2
Redbird 25 3 1965 2
</TABLE>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
OF
SUPERIOR ENERGY SERVICES, INC.
The following table sets forth selected historical financial data for
Superior as of and for each of the periods indicated. The financial
data as of and for the years ended December 31, 1994 through 1998, are
derived from the audited consolidated financial statements of Superior.
The financial data for the three months ended March 31, 1998 and 1999,
are derived from Superior's unaudited consolidated financial statements
which, in the opinion of management, include all adjustments (which
consist only of normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations of
Superior for such interim periods. The following information should be
read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial
statements of Superior and the related notes thereto included elsewhere
in this Proxy Statement.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
YEAR ENDED DECEMBER 31, (UNAUDITED)
------------------------------------------------ ------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues $ 11,088 $ 12,338 $ 23,638 $ 54,256 $ 91,334 $ 22,702 $ 18,042
-------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Costs of services 6,785 7,487 11,040 23,216 43,734 9,562 7,601
Depreciation and 149 259 1,323 3,272 7,494 1,661 2,142
amortization
Special charges(2) --- 4,042 --- --- 13,763 --- ---
General and administrative 2,310 3,179 5,531 12,530 22,921 5,197 6,149
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses 9,244 14,967 17,894 39,018 87,912 16,420 15,892
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations 1,844 (2,629) 5,744 15,238 3,422 6,282 2,150
Other income (expense)
Interest expense - net (40) (86) (127) (722) (1,490) (230) (500)
Merger termination(3) --- --- --- --- (2,237) --- ---
Gain on sale of subsidiary --- --- --- --- 1,176 1,176 ---
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes 1,804 (2,715) 5,617 14,516 871 7,228 1,650
Provision for income taxes(4) 667 640 1,685 5,061 4,979 2,747 627
-------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 1,137 $ (3,355) $ 3,932 $ 9,455 $ (4,108) $ 4,481 $ 1,023
======== ======== ======== ======== ======== ======== ========
Income (loss) per share (diluted) $ 0.14 $ (0.38) $ 0.22 $ 0.43 $ (0.14) $ 0.15 $ .04
======== ======== ======== ======== ======== ======== ========
Weighted average shares
outstanding (diluted) 8,400 8,848 17,619 21,993 28,982 29,531 28,822
======== ======== ======== ======== ======== ======== ========
Other Financial Data:
EBITDA(5) $ 1,993 $ 1,672 $ 7,067 $ 18,510 $ 25,369 $ 7,943 $ 4,292
Cash flows from operating activities 1,632 3,616 2,676 2,343 18,126 7,015 5,957
Cash flows from investing activities (432) (610) (5,932) (57,597) (29,206) (7,518) (2,614)
Cash flows from financing activities (1,430) 1,855 (1,379) 56,723 9,915 883 (2,949)
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents $ 207 $ 5,068 $ 433 $ 1,902 $ 737 $ 2,282 $ 1,131
Property, plant and equipment - net 1,193 6,904 9,894 51,797 76,187 59,484 76,647
Total assets 4,422 22,984 28,200 118,060 131,144 125,022 124,032
Total long-term debt
including current portion 750 4,671 1,772 11,339 27,955 12,165 25,006
Total stockholders' equity(6) 2,273 13,094 20,349 88,853 82,704 93,390 83,727
</TABLE>
(1)In 1996, Superior acquired all of the outstanding common stock of
two companies for a combined $2.7 million in cash, 1.6 million shares
of Superior Common Stock, a note payable of $1.0 million and
promissory notes providing for payments of up to $0.8 million.
In 1997, Superior acquired all of the outstanding common stock of six
companies for a combined $50.2 million in cash, 1.5 million shares of
Superior Common Stock and promissory notes providing for payments of
up to $20.6 million.
In 1998, Superior acquired all of the outstanding common stock of two
companies for a combined $3.9 million in cash. Additional
consideration, if any, will be based on a multiple of earnings, not
to exceed a combined $50.1 million.
The promissory notes and additional consideration are subject to
contingencies and were not reflected in the purchase price of the
respective acquisitions.
(2)On December 31, 1995, Superior 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 Superior recognizing a non-cash
charge in 1995 of $4.0 million, consisting of the write-off of $3.5
million of goodwill and $0.5 million of property, plant and
equipment. In 1998, Superior recorded a pre-tax special charge which
consisted of $12.1 million for impairment of goodwill, $930,000 in
patents and $690,000 in associated inventory as a result of
obsolescence and $650,000 associated with a reduction in employees
as a result of the general decline in the industry. The portion of
the special charge related to inventory obsolescence is included in
costs of services in the consolidated statement of operations.
(3)In 1998, Superior entered into an agreement to merge with Parker
Drilling Company ("Parker"). Superior and Parker subsequently
jointly agreed to terminate the merger. As part of the termination,
Superior agreed to pay a termination fee.
(4)Gives pro forma effect to income taxes in 1994 and 1995 for the
full year. Prior to the share exchange offer completed in December
1995, described in the 1995 10-KSB Superior was an S corporation and,
as a result, paid no federal or state income taxes at the corporate
level.
(5)Superior calculates EBITDA (earnings before interest expense,
income taxes, depreciation and amortization) as operating income plus
depreciation and amortization, special charges, and merger
termination costs less gain on sale of subsidiary. EBITDA should not
be considered as an alternative to net income or any other measure of
operating performance calculated in accordance with generally
accepted accounting principles. EBITDA is widely used by financial
analysts as a measure of financial performance. Superior's
measurement of EBITDA may not be comparable to similarly titled
measures reported by other companies.
(6)Superior issued $36.9 million of common stock in November 1997.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
OF
CARDINAL HOLDING CORP.
The following selected financial data for the four years ended
December 31, 1998 are derived from the audited consolidated financial
statements of Cardinal. The selected financial data for the year ended
December 31, 1994 and the financial data for the three month periods
ended March 31, 1998 and 1999 are derived from unaudited financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which Cardinal considers
necessary for a fair presentation of the financial position and the
results of operations for these periods. Operating results for the
three months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the entire year ending December 31,
1999. The data should be read in conjunction with the consolidated
financial statements, related notes, and other financial information
included herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Operating Revenue $ 21,802 $ 28,798 $ 48,128 $ 63,412 $ 82,223 $ 18,982 $ 18,978
Operating expenses:
Labor 7,815 9,989 14,872 18,709 25,075 5,163 7,061
Maintenance 1,510 2,392 4,557 4,451 4,626 975 1,207
Insurance 1,841 2,121 2,681 2,503 3,746 697 734
Depreciation and amortization 2,466 2,650 3,509 4,207 6,118 1,195 1,810
Cost of goods sold 839 1,194 1,627 2,087 1,809 446 503
Other 2,352 3,306 4,219 5,386 9,350 1,576 1,714
--------- -------- -------- -------- -------- -------- --------
Total operating expenses 16,823 21,652 31,465 37,343 50,724 10,052 13,029
--------- -------- -------- -------- -------- -------- --------
Gross profit 4,979 7,146 16,663 26,069 31,499 8,930 5,949
General and administrative expenses 3,503 4,412 8,317 10,842 15,729 4,142 3,297
--------- -------- -------- -------- -------- -------- --------
Income from operations 1,476 2,734 8,346 15,227 15,770 4,788 2,652
Other income (expense):
Interest(2) (1,298) (2,204) (3,448) (5,464) (12,641) (2,698) (3,201)
Consulting fees paid to related
party --- --- (300) (1,150) --- --- ---
Other, net 189 (17) 2 58 (777) (515) (2)
--------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary loss 367 513 4,600 8,671 2,352 1,575 (551)
Income taxes (benefit) 151 180 1,706 4,350 1,149 591 (98)
--------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary loss(3)(4) 216 333 2,894 4,321 1,203 984 (453)
Extraordinary loss, net
of income tax benefit --- 1,335 --- --- (10,885) (10,885) ---
--------- -------- -------- -------- -------- -------- --------
Net income (loss) 216 (1,002) $ 2,894 $ 4,321 $ (9,682) $ (9,901) $ (453)
========= ======== ======== ======== ======== ======== ========
Net income (loss) before extraordinary
loss assuming dilution(5) $ 4.26 $ 9.63 $ 47.69 $ 72.23 $ 21.09 $ 20.25 $ (64.53)
========= ======== ======== ======== ======== ======== ========
Average shares
outstanding assuming dilution 59,420 59,420 59,420 59,420 22,047 48,595 16,674
========= ======== ======== ======== ======== ======== ========
Other Financial Data:
EBITDA(6) $ 4,483 $ 6,012 $ 12,042 $ 19,708 $ 22,101 $ 5,571 $ 4,795
Rental Fleet Data:
Operating Data:
Rental Fleet Size 13.0 15.8 25.0 26.5 29.3 28.0 29.0
Average Day Rate $ 1,472 $ 2,037 $ 3,231 $ 4,201 $ 4,191 $ 4,776 $ 3,266
Utilization % 79% 79% 83% 80% 76% 77% 71%
Average Boat Size (leg length) 100' 105' 119' 120' 128' 128' 128'
Wireline Data:
Average Wireline not
Jobs/Day available 39.2 42.5 41.1 45.2 52.9 53.2
Average Revenue not
per Job available $ 957 $ 1,007 $ 1,173 $ 1,367 $ 1,199 $ 1,568
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents $ 61 $ 858 $ 153 $ --- $ 421 $ --- $ 266
Property, plant and equipment - net 10,249 27,641 28,986 43,737 60,328 51,469 59,661
Total assets 16,809 40,402 11,630 62,387 107,961 77,903 102,426
Long-term obligations 8,580 31,394 26,905 36,804 127,620 125,000 126,182
Total shareholder's equity (deficiency) 1,074 99 4,197 5,646 (39,940) (59,262) (35,263)
</TABLE>
__________________
(1)In October 1995, Cardinal acquired 11 lift boats from
two competitors for a cash purchase price of $18.5
million.
From December 1996 to March 1998 Cardinal contracted
for the construction and took delivery of three lift
boats for a total price of $17.6 million.
In 1998, Cardinal purchased all of the outstanding
common stock of three companies for a combined $22.4
million in cash and $1.4 million in stock.
(2)In October 1995, Cardinal refinanced revolving credit
notes payable and a term loan note payable to a bank
and a subordinated note payable to an investment
company (the "1995 Refinancing"). Cardinal also paid a
negotiated amount of $2.4 million to the bank as a
prepayment premium and to redeem stock warrants issued
to the bank. Management estimated the value of these
warrants to be approximately $750,000 immediately prior
to the 1995 Refinancing and recorded this amount as
interest expense. The remaining portion of the
payment, along with the write-off of certain debt
acquisition and interest rate cap agreement costs
related to the bank debt was recorded, net of income
taxes, as an extraordinary loss.
(3)In connection with the 1995 Refinancing, Cardinal
issued warrants to holders of its subordinated debt to
purchase approximately nine percent (on a diluted
basis) of Cardinal Services, Inc.'s nonvoting common
stock at a price of $.01 per share. These warrants
allowed the warrant holders to put the warrants to
Cardinal Services under certain circumstances,
including the passage of time and the occurrence of
certain capital transactions. The estimated value at
the end of each year was amortized over the earliest
put date of the warrants. Interest expense in 1996,
1997 and 1998 includes $280,000, $2,173,000 and
$362,000, respectively, related to these warrants. On
February 26, 1998, Cardinal redeemed the warrants for
$13,320,000 (see note 5).
(4)On February 26, 1998, Cardinal completed a
recapitalization which included (i) the issuance of
10,267 shares of Class A Common Stock for $30 million,
(ii) the issuance of 10,267 shares of Class C
Preferred Stock for $30 million, and (iii) the
redemption of 51,583 shares of Class A Common Stock for
$114.68 million, and (iv) the redemption of warrants
related to 11,870 shares of Cardinal Services, Inc.
nonvoting common stock in exchange for $13,320,000 (the
"Recapitalization"). In addition, Cardinal refinanced
substantially all of its long-term debt (the
"Refinancing"). The Recapitalization and Refinancing
were funded through the issuance of $105 millin of
senior secured debt, $20 million of subordinated debt,
which includes $2 million accounted for as original
issue discount relating to the issuance of 350 shares
of Class A Common Stock and 350 shares of Class C
Preferred Stock, and $60 million of equity investments
discussed in (i) and (ii) above. On the date of the
Recapitalization and Refinancing, Cardinal charged off
$10,885,000 which included the unamortized estimated
value of the warrants of $10,505,000 and unamortized
debt acquisition costs of $380,000 (net of $235,000 tax
benefit).
(5)See Note 6 to Cardinal's financial statements for
earnings per share computations.
(6)Cardinal calculates EBITDA (earnings before interest
expense, income taxes, depreciation and amortization)
as income before income taxes and extraordinary items,
plus interest expense, depreciation and amoritzation.
EBITDA is presented not as an alternative measure of
operating results or cash flow from operations (as
determined in accordance with generally accepted
accounting principles), but because it is a widely
accepted financial indicator of a company's ability to
incur and service debt. Cardinal's measurement of
EBITDA may not be comparable to similarly titled
measures reported by other companies. The EBIDTA of
Cardinal does not exclude the impact of certain private
company transactions during 1995 through 1998, nor does
it exclude one-time costs associated with the
Recapitalization and Refinancing. Had these items
been excluded, EBITDA would have been $6,548,000,
$15,285,000, $24,732,000 and $26,181,000 for the years
1995, 1996, 1997 and 1998, respectively, and
$7,603,000 for the quarter ended March 31, 1998.
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following unaudited pro forma condensed financial
information has been prepared by management utilizing the
historical financial statements of Superior and Cardinal.
In 1998, Superior acquired Tong Specialty, Inc. and Lamb
Services, Inc. (collectively, the "Lamb Companies") and
Hydro-dynamics Oilfield Contractors, Inc. ("Hydro-
dynamics") (the "1998 Superior acquisitions"). The
historical financial information has been included for the
Lamb Companies through May 31, 1998 and Hydro-dynamics
through August 31, 1998, the dates of the acquisitions by
Superior. Also in 1998, Cardinal acquired Moores
Wireline, Inc. and Moores Engineering, Inc. (collectively,
the "Moores Companies") and Gunn Wireline, Inc. ("Gunn")
(the "1998 Cardinal acquisitions"). The historical
financial information has been included for the Moores
Companies through April 30, 1998 and Gunn through
September 30, 1998, the dates of the 1998 Cardinal
acquisitions. Adjustments have been made to reflect the
financial impact of purchase accounting and other items
had the 1998 acquisitions and Merger taken place on
January 1, 1998 with respect to operating data and March
31, 1999 with respect to the 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
reflects all adjustments necessary to present fairly the
data for such periods.
The unaudited pro forma condensed financial information
should be read in conjunction with the historical
financial data appearing elsewhere in this Proxy
Statement.
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
March 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Historical Historical Pro Forma
ASSETS Superior Cardinal Adjustment Pro Forma
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash $ 1,131 266 1,397
Accounts receivable 17,216 17,446 34,662
Deferred tax asset - 624 624
Inventories 3,030 - 3,030
Income tax receivable - 151 151
Other 1,928 2,604 A 500 5,032
------------------------ -----------
Total current assets 23,305 21,091 44,896
Property, plant & equipment - net 76,647 59,661 136,308
Goodwill-net 24,080 17,055 A 30,109 71,244
Other Assets - net - 4,619 A 500 5,119
------------------------ -----------
Total assets $ 124,032 102,426 257,567
======================== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Trade accounts payable $ 3,118 3,111 6,229
Accrued expenses 3,035 1,853 B 2,000 7,888
A 1,000
Current maturities of long-term debt - 7,595 7,595
Notes payable - other - 1,505 1,505
Income taxes payable 534 - 534
------------------------ -----------
Total Current Liabilities 6,687 14,064 23,751
Long-term debt 25,006 100,719 D (45,000) 80,725
Subordinated debt - 17,868 17,868
Deferred income taxes 8,612 5,038 13,650
Stockholders' equity
Common stock 29 - C 30 59
Preferred stock - 2 C (2) -
Additional paid-in capital 78,794 84,079 A 33,013 240,858
C (28)
D 45,000
Retained earnings 7,149 (119,344)A (5,149) (119,344)
B (2,000)
Treasury stock (2,245) - A 2,245 -
------------------------ -----------
Total stockholders' equity 83,727 (35,263) 121,573
------------------------ -----------
Total liabilities and stockholders'
equity $ 124,032 102,426 257,567
======================== ===========
</TABLE>
<PAGE>
SUPERIOR ENERGY SERVICES, INC
UNAUDITED PRO FORMA CONDENSED STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(In thousands except per share data)
<TABLE>
<CAPTION>
Historical Historical Combined Pro Forma
Superior Cardinal Pro Formas Adjustments Pro Forma
---------- ------------------------------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues 18,042 18,978 37,020 37,020
-------- --------------------- --------
Costs and expenses:
Costs of services 7,601 11,219 18,820 18,820
Depreciation and amortization 2,142 1,810 3,952 L 251 4,203
General and administrative 6,149 3,297 9,446 L 63 9,509
-------- --------------------- --------
Total costs and expenses 15,892 16,326 32,218 32,532
-------- --------------------- --------
Income from operations 2,150 2,652 4,802 4,488
Other income (expense):
Interest expense (500) (3,201) (3,701)D 1,015 (2,686)
Other - (2) (2) (2)
-------- --------------------- --------
Income (loss) before income tax 1,650 (551) 1,099 1,800
Provision for income taxes 627 (98) 529 M 191 720
-------- --------------------- --------
Net income (loss) 1,023 (453) 570 1,080
======== ===================== ========
Net income (loss) per common
share and common share equivalent $ 0.04 $ (64.53) $ 0.02 $ 0.02
======== ===================== ========
Basic Weighted average shares
outstanding 28,793 17 28,793 N 58,792
======== ===================== ========
Net income (loss) per common
share and common share
equivalent $ 0.04 $ (64.53) $ 0.02 $ 0.02
======== ===================== ========
Diluted Weighted average share
outstanding 28,822 17 28,822 N 58,821
======== ===================== ========
</TABLE>
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(In thousands, except for per share data)
<TABLE>
<CAPTION>
1998
Historical Superior Sale of Pro Forma Superior
Superior Acquisitions Baytron Adjustments Pro Forma
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues 91,334 8,517 489 - 99,362
----------------------------------------------------------------------
Costs and expenses:
Costs of services 43,734 4,218 128 47,824
Depreciation and amortization 7,494 372 51 E (111) 7,704
Special charges 13,763 13,763
General and administrative 22,921 4,577 295 F (161) 27,042
----------------------------------------------------------------------
Total costs and expenses 87,912 9,167 474 (272) 96,333
----------------------------------------------------------------------
Income (loss) from operations 3,422 (650) 15 272 3,029
Other income (expense):
Interest expense (1,490) (194) - G (136) (1,820)
Merger termination (2,237) (2,237)
Other 1,176 - - - 1,176
----------------------------------------------------------------------
Income (loss) before income taxes
and extraordinary loss 871 (844) 15 136 148
Provision for income taxes 4,979 20 6 H (307) 4,686
----------------------------------------------------------------------
Income (loss) before extraordinary
loss (4,108) (864) 9 443 (4,538)
======================================================================
Net (loss) per common
share and common share equivalent $ (0.14) $ (0.16)
======== ========
Basic Weighted average shares
outstanding 28,982 28,982
======== ========
Net (loss) per common
share and common share equivalent $ (0.14) $ (0.16)
======== ========
Diluted Weighted average shares
outstanding 28,982 28,982
======== =======
</TABLE>
<TABLE>
<CAPTION>
1998
Historical Cardinal Pro Forma Cardinal Combined Pro Forma
Cardinal Acquisitions Adjustments Pro Forma Pro Formas Adjustments Pro Forma
------------------------------------------------------ ----------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues 82,223 8,080 - 90,303 189,665 189,665
------------------------------------------------------ ------- -------
Costs and expenses:
Costs of services 44,606 5,429 50,035 97,859 97,859
Depreciation and amortization 6,118 418 I 301 6,837 14,541 L 1,038 15,579
Special charges - - 13,763 13,763
General and administrative 15,729 836 16,565 43,607 L 250 43,857
------------------------------------------------------ ------- -------
Total costs and expenses 66,453 6,683 301 73,437 169,770 171,058
------------------------------------------------------ ------- -------
Income (loss) from operations 15,770 1,397 (301) 16,866 19,895 18,607
Other income (expense):
Interest expense (12,641) (216) J (234) (13,091) (14,911) D 4,060 (10,851)
Merger termination - - (2,237) (2,237)
Other (777) - - (777) 399 399
------------------------------------------------------ ------- -------
Income (loss) before income taxes
and extraordinary loss 2,352 1,181 (535) 2,998 3,146 5,918
Provision for income taxes 1,149 373 K (87) 1,435 6,121 M 1,448 7,569
------------------------------------------------------ ------- -------
Income (loss) before extraordinary
loss 1,203 808 (448) 1,563 (2,975) (1,651)
====================================================== ======= =======
Net income (loss) per common
share and common share equivalent $ 21.09 $ 37.42 $ (0.10) $ (0.03)
======== ======= ======= =======
Basic Weighted average shares
outstanding 22 22 28,982 N 58,981
======== ======= ======= =======
Net income (loss) per common
share and common share equivalent $ 21.09 $ 37.42 $ (0.10) $ (0.03)
======== ======= ======= =======
Diluted Weighted average shares
outstanding 22 22 28,982 N 58,981
======== ======= ======= =======
</TABLE>
<PAGE>
A)This adjustment reflects the reverse acquisition of Superior by Cardinal (the
Merger). Superior will exchange approximately 30 million of its Common Stock
Shares for 100% of the outstanding stock of Cardinal. Because of the
controlling interest that the Cardinal Shareholders will have in the combined
entity, among other factors, the transaction will be accounted for as a
reverse acquisition which will result in the adjustment of the net assets of
Superior to their estimated fair values required by the rules of purchase
accounting. The net assets of Cardinal are reflected in this transaction at
their historical book values. The valuation of Superior's net assets is
based upon the approximate 28.8 million Common Shares outstanding prior to
the merger times the trading price of $3.78 at the time of negotiation of the
merger, plus additional capitalized costs of approximately $3 million related
to the Cardinal merger costs for professional fees net of $2 million in
Superior merger costs expensed. Superior's historical book basis for its
property, plant and equipment is considered to be its fair market value.
Agreements not to compete related to two Superior employees, have been
recorded at their fair market value of $1 million . The valuation reflects
excess purchase price of $30,109,000, over the fair value of net assets. Such
amount has been recorded as goodwill and is being amortized over 30 years.
B)To record the merger costs associated with Superior, the acquired company.
C)To reflect the exchange of 100% of Cardinal's outstanding stock for
approximately 30 million shares of Superior's $.001 par value common stock.
D)To record the equity contribution of $45 million to Cardinal, used to pay
down debt. The associated reduction in interest expense due to the equity
contribution, uses Cardinal's borrowing rate of 8.12%, on an equity
contribution of $50 million, since the $5 million was placed on March 31,
1999.
E)In 1998, Superior acquired all of the outstanding common stock of the Lamb
Companies and Hydro-dynamics (1998 Superior acquisitions) for an aggregate
$3,857,000 in cash. Payment of an additional $750,000 for the Hydro-dynamics
acquisitions will be based on the attainment of certain objectives. At the
third anniversary of each acquisition, additional cash consideration, if any,
will be based upon a multiple of four times the acquired company's average
earnings before interest, taxes, depreciation and amortization (EBITDA) over
a three year period from the date of acquisition, and will be capitalized as
additional purchase price. In no event will the total additional payments
exceed $50,143,000. The property, plant and equipment of the 1998 Superior
acquisitions were valued at their estimated fair value of approximately $5.04
million. 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 prices over the fair
values of the net assets of the 1998 Superior acquisitions of approximately
$1.5 million was allocated to goodwill and is being amortized over 30 years.
To reflect depreciation and amortization of goodwill associated with 1998
Superior acquisitions, and the sale of Baytron, Inc. (Baytron) for the pro
forma for the twelve months ended December 31, 1998.
Sale of
Adjustments For: Lamb Companies Hydro Dynamics Baytron Total
----------------------------------------------
Depreciation $ (137) 2 10 (125)
Amortization 9 18 (13) 14
----------------------------------------------
Total $ (128) 20 (3) (111)
==============================================
F)To adjust compensation for employees to amounts per employment agreements
entered in connection with the 1998 Superior acquisitions.
G)To record the increase in interest expense resulting from additional debt to
finance $3,857,000 cash for the 1998 Superior acquisitions' purchase prices.
The interest rate on the new line of credit debt is assumed to be 7.31%. A
change of 1/8 percent in the interest rate would result in a change in
interest expense of $2,000.
H)To adjust Superior's provision for income taxes to give effect to the 1998
Superior Acquistions and the sale of Baytron.
<PAGE>
I)In 1998, Cardinal acquired all of the outstanding common stock of the Moores
companies and Gunn (1998 Cardinal acquisitions) for an aggregate $19.8
million in cash, $1.4 million in CSI stock, $1.8 million in bank debt and
$800,000 in other. The remaining assets and liabilities approximated their
fair values. The excess purchase prices over the fair values of the net
assets of the 1998 Cardinal acquisitions of approximately $17.2 million was
allocated to goodwill and is being amortized over a period of 15-30 years.
To reflect amortization of goodwill associated with the 1998 Cardinal
acquisitions for the pro forma twelve months December 31, 1998.
Adjustments For: Moore Companies Gunn Total
-----------------------------------
Amortization $ 188 113 301
-----------------------------------
Total $ 188 113 301
===================================
J)To record the increase in interest expense resulting from additional debt to
finance $8,500,000 cash for the 1998 Cardinal acquisitions' purchase prices.
The interest rate on the debt is assumed to be 8.25%. A change of 1/8
percent in the interest rate would result in a change in interest expense
of $3,541.
K)To adjust Cardinal's provision for income taxes to give effect to the 1998
Cardinal acquisitions.
L)To record the amortization of goodwill over 30 years and the non-compete
agreements over 4 years.
M)To adjust the provision for income taxes to give effect to the Merger's
adjustments, exclusive of the amortization adjustment.
N)Pro forma net income(loss) per Common Share is computed using Superior's
approximate 28.8 million oustanding Common Shares and the approximate 30
million Common Shares to be exchanged in the merger.
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Demand for Superior's rental tools and well 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, and 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. Demand for Superior'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 oilfield services industry experienced a
significant decline in activity in the last half of 1998
which has continued into the first quarter of 1999.
Superior's rental tool business has been impacted, but not
as much as many other areas of the oilfield service
industry because it is primarily concentrated in workover
activity and deep water drilling projects which have not
been affected as much as other areas of the industry.
Superior's P&A segment has been adversely affected as
some major and independent oil and gas companies have
elected to defer making these expenditures. However, as a
result of these deferrals and increased depletion rates,
the backlog of wells requiring plug and abandonment
continues to increase. Should the decline in overall
industry activity levels continue, it could have a
material adverse effect on Superior's financial condition
and results of operations.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE QUARTERS
ENDED MARCH 31, 1999 AND 1998.
Superior's revenues were $18 million for the quarter
ended March 31, 1999 as compared to $22.7 million for the same
period in 1998. In the first quarter of 1999, Superior continued
to be affected by the downturn in the industry activity, which
began in the last half of 1998. The decline in revenue is
primarily attributable to the well services segment since it is
more susceptible to the major and independent oil and gas
companies' deferment of discretionary spending. The rental tools
segment's revenue has not been as adversely affected by industry
conditions as a result of its focus on workover, remediation and
deep water drilling activity. Although Superior's revenues
declined in the first quarter of 1999 compared to the same
period in 1998, Superior's gross margin remained constant at 58%
for both quarters.
Depreciation and amortization increased 29%, to $2.1
million for the three months ended March 31, 1999 from
$1.7 million for the three months ended March 31, 1998.
Most of the increase resulted from the larger asset base
that has resulted from Superior's 1998 acquisitions and
capital expenditures. General and administrative expenses
increased 18%, to $6.1 million for the first quarter of
1999 as compared to $5.2 million for the same period of
1998. The increase is the result of the 1998 acquisitions
completed during the second and third quarters of 1998.
Net income for the quarter ended March 31, 1999
decreased 77.2% to $1 million as compared to $4.5 million
for the comparable period in the prior year. While the
$1.2 million gain on the sale of subsidiary increased the
net income in the first quarter of 1998, Superior's
results for the first quarter of 1999 reflected the impact
of the economic slowdown in the oil and gas industry and
customers' decisions to limit or defer investments in
exploration, drilling, production and plug and abandonment
services.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 1998 AND 1997.
Superior's performance in 1998 was impacted in the
second half of the year by the decline in activity in the
oilfield services industry as a result of a decline in oil
prices. In addition, work in the Gulf of Mexico, which is
Superior's primary operating area, was virtually shut down
during September 1998 by a series of storms and
hurricanes.
Superior's revenue increased 68% to $91.3 million
for the year ended December 31, 1998, as compared to $54.3
million for the year ended December 31, 1997. The majority
of the increase is primarily the result of a full year of
revenues from acquisitions made in 1997 in the rental
segment.
Superior's gross margin decreased to 52.1% for the
year ended December 31, 1998 as compared to 57.2% for the
year ended December 31, 1997. This decrease is primarily a
result of the general decline in activity in the oilfield
services industry and a $690,000 charge for obsolete
inventory as part of the special charges discussed below.
Although all three segments were impacted, the well
services segment had the largest decline as a result of
several factors. The well services segment was in the
process of expansion in the latter part of 1997 and the
beginning of 1998 which resulted in increased expenses at
about the time the P&A activity began to decline. During
the year, due to competitive pressures, Superior performed
more turnkey basis projects, which impacted Superior's
gross margin negatively. Throughout the last half of 1998
and into the first quarter of 1999, in response to the
downturn in demand for Superior's services, Superior has
made an extensive effort to bring costs into line with the
reduced level of activity, and is considering further cost
savings measures.
Depreciation and amortization increased 129%, to
$7.5 million for the year ended December 31, 1998 as
compared to $3.3 million for the year ended December 31,
1997. Most of the increase is a result of a full year of
depreciation from the 1997 acquisitions. Depreciation
also increased as a result of $29.1 million of capital
expenditures in the year ended December 31, 1998 primarily
for purposes of expanding the rental tool inventory.
General and administrative expenses increased to
$22.9 million for the year ended December 31, 1998 as
compared to $12.5 million for the year ended December 31,
1997. Most of the increase is a result of a full year of
general and administrative expenses for the acquisitions
made in 1997 as well as acquisitions made in 1998.
Interest expense increased to $1.4 million for the year
ended December 31, 1998 from $722,000 for the year ended
December 31, 1997 as a result of an increase in borrowings
to fund capital expenditures as well as two acquisitions.
Net income before special charges, merger
termination expenses and gain on sale of subsidiary was
$10.2 million or diluted earnings per share of $0.34 for
the year ended December 31, 1998 as compared to net income
of $9.5 million or diluted earnings per share of $0.43 for
the year ended December 31, 1997.
During the year ended December 31, 1998, Superior
recorded a pre-tax special charge of $14.4 million. The
special charge consisted of $12.1 million for impairment
of goodwill, $930,000 in patents and $690,000 in
associated inventory as a result of obsolescence and
$650,000 associated with a reduction in employees as a
result of the general decline in the industry. The portion
of the special charge related to inventory obsolescence is
included in costs of services in the consolidated
statement of operations.
The non-cash writeoff of goodwill was recorded in
accordance with Statement of Financial Standards (FAS) No.
121, which requires that long-lived assets and certain
identifiable intangibles held and used by Superior be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an
asset may not be recoverable. The severity as well as the
duration of the downturn in activity in the oil and gas
industry is such an event. 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 assets.
Superior's review of its long-lived assets indicated
that the carrying value of certain of Superior's assets
used by Superior in its well services, rental tools and
oil containment boom businesses had been impaired. The
fair value of the assets was determined by discounting the
estimated net cash flows generated by the assets. The
result was an impairment charge of $12.1 million for the
year ended December 31, 1998 consisting entirely of
goodwill.
The special charges of $930,000 in patents and
$690,000 in associated inventory are a result of
obsolescence in the oil containment boom business as
evidenced by declining cash flows. Superior also
authorized and committed to terminating thirty employees
during the fourth quarter of 1998. As a result, included
in the special charge, is $650,000 for severance,
employment contract and benefits costs for the terminated
employees.
During the fourth quarter of 1998, the Company
entered into a merger agreement with Parker, which was
subsequently terminated by mutual consent. As part of the
termination, Superior agreed to pay Parker $2.125 million
and also incurred approximately $112,000 in additional
costs associated with the merger termination. In the
first quarter of 1998, Superior sold a subsidiary for a
gain of approximately $1.2 million.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
Superior experienced significant growth in revenue
and net income in the year ended December 31, 1997 as
compared to the year ended December 31, 1996 due to
continued strong demand for its products and services,
internal growth and growth through acquisitions.
Superior's revenue increased 130% to $54.3 million
for the year ended December 31, 1997 as compared to $23.6
million for the year ended December 31, 1996. Of this
increase, approximately 26% was the result of internal
growth of Superior's operations and approximately 74% was
the result of acquisitions completed by Superior since
July 1996.
Superior's gross margin increased to 57.2% for the
year ended December 31, 1997 from 53.3% for the year ended
December 31, 1996. This increase was primarily due to the
increase in the percentage of Superior's revenue that was
generated by its rental tool and data acquisition
businesses, which tend to have higher gross margins than
Superior's other businesses.
Depreciation and amortization increased 147%, to
$3.3 million for the year ended December 31, 1997 from
$1.3 million for the year ended December 31, 1996. Most
of the increase resulted from the larger asset base that
has resulted from Superior's acquisitions. General and
administrative expenses as a percentage of revenue
decreased to 23.1% for the year ended December 31, 1997
from 23.4% for the year ended December 31, 1996. Interest
expense increased to $722,000 for the year ended December
31, 1997 as compared to $127,000 for the year ended
December 31, 1996. This was primarily as a result of the
interim financing of the various acquisitions Superior
made during 1997.
Net income increased 140% to $9.5 million for the
year ended December 31, 1997 from $3.9 million for the
year ended December 31, 1996, while diluted earnings per
share increased 95% to $0.43 from $0.22. The strong
earnings growth experienced by Superior is the 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 income for the
period as the average number of shares outstanding for the
year ended December 31, 1997 increased as a result of the
issuance of approximately 4.5 million shares upon the
exercise of Superior's Class B Warrants, which were
redeemed in September 1997, and as a result of the public
offering of approximately 3.9 million shares of Superior
Common Stock completed in December 1997.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1998, Superior had cash
flows from operations of $18.1 million as compared to $2.3
million for the year ended December 31, 1997. Superior's EBITDA
(earnings before interest, income taxes, depreciation and
amortization expense) was $25.4 million for the year ended
December 31, 1998 as compared to $18.5 million for the year
ended December 31, 1997. The EBITDA for 1998 of $25.4 million
is exclusive of the gain on sale of subsidiary, the merger
termination and the special charge, which was mostly non-cash in
nature. These increases are primarily a result of the
operations of the 1997 acquisitions being included for a full
fiscal year.
In 1998, Superior acquired all the outstanding
common stock of three companies for an aggregate of
$3,857,000 cash. Additional cash consideration, if any,
will be based upon a multiple of four times the respective
acquired company's average EBITDA over a three-year period
from the date of acquisition, less certain adjustments.
In no event, will the aggregate additional consideration
exceed $50,143,000. If the overall current industry
activity levels continue, the additional consideration
would be materially less than the maximum consideration.
For additional information, see Note 3 of the notes to
Superior's consolidated financial statements.
Superior made additional capital expenditures in
1998 of $29.1 million primarily for additional rental
equipment. Other capital expenditures included P&A
equipment spreads and renovation of Superior's new
operating facility. As of the end of the first quarter of
1998, Superior consolidated all of its New Orleans area
sales and administrative functions in this facility.
During the second quarter of 1998, the Board of
Directors approved the purchase of up to 500,000 shares of
the outstanding Superior Common Stock. Under this
program, Superior purchased a total of 474,500 shares of
Superior Common Stock at an average price of $4.73 per
share. This repurchase program has been discontinued.
In the first quarter of 1998, Superior made a final
payment of $750,000 in connection with the acquisition of
Dimensional Oilfield Services, Inc. In the first quarter
of 1998, Superior received cash proceeds of $4.2 million
from the sale of Baytron, Inc. At the beginning of the
fourth quarter of 1998, Superior entered into a merger
agreement with Parker. Superior and Parker subsequently
jointly agreed to terminate the merger agreement. As part
of the termination, Superior paid Parker $2.125 million
and also incurred approximately $112,000 in additional
costs associated with the merger termination.
For the three months ended March 31, 1999, Superior
had net income of $1 million and net cash provided by
operating activities of $6 million, compared to $4.5
million and $7 million, respectively, for the same period
in 1998. Superior's EBITDA decreased to $4.3 million, as
compared to $7.9 million, exclusive of the gain on sale of
a subsidiary, for the same period in 1998. The decrease
in net income, cash flow and EBITDA was primarily the
result of the significant decline in overall industry
activity in the last half of 1998 which has continued into
the first quarter of 1999.
Superior maintains a bank credit facility which
provides for a revolving line of credit up to $45 million,
matures on April 30, 2000, and bears interest at an annual
rate of LIBOR plus a margin that depends on Superior's
debt coverage ratio (currently 6.76% per annum). As of
April 30, 1999, there was $24.5 million outstanding under
the bank credit facility. Borrowings under the bank
credit facility are available for acquisitions, working
capital, letters of credit and general corporate purposes.
Indebtedness under the bank credit facility is guaranteed
by Superior's subsidiaries, collateralized by
substantially all of the assets of Superior and its
subsidiaries, and a pledge of all the common stock of
Superior's subsidiaries. Pursuant to the bank credit
facility, Superior has also agreed to maintain certain
financial ratios. The bank credit facility also imposes
certain limitations on the ability of Superior to make
capital expenditures, pay dividends or other distributions
to shareholders, make acquisitions or incur indebtedness
outside of the bank credit facility.
In the first three months of 1999, Superior made
capital expenditures of $2.6 million primarily for
additional rental equipment. Management currently believes
that Superior will make additional capital expenditures,
excluding acquisitions, of approximately $5 to $7 million
in 1999 primarily to further expand its rental tool
inventory. Superior believes that cash generated from
operations and availability under the bank credit facility
will provide sufficient funds for Superior's identified
capital projects and working capital requirements.
However, part of Superior's strategy involves the
acquisition of companies that have products and services
complementary to Superior's existing base of operations.
Depending on the size of any future acquisitions, Superior
may require additional equity financing and debt financing
possibly in excess of Superior's bank credit facility.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 133 ("FAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." FAS 133 is effective
for all fiscal quarters of fiscal years beginning after
June 15, 1999 and establishes accounting and reporting
standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and
for hedging activities. FAS 133 requires that all
derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of
derivatives are to be recorded each period in current
earning or other comprehensive income, depending on
whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction.
Earlier application of the provisions of the Statement is
encouraged and is permitted as of the beginning of any
fiscal quarter that begins after the issuance of the
Statement. Due to the fact that Superior does not
currently use derivative instruments, adoption of the
Statement will not have a material effect on Superior's
results of operations, financial position, or liquidity.
YEAR 2000
Superior is assessing both the cost of addressing
and the cost or the consequence of incomplete or untimely
resolution of the Year 2000 issue. This process includes
(i) the development of Year 2000 awareness, (ii) a review
to identify systems that could be affected by the Year
2000 issue, (iii) an assessment of potential risk factors
(including non-compliance by Superior's suppliers,
subcontractors and customers), (iv) the allocation of
required resources, (v) a determination of the extent of
remediation work required, (vi) the development of an
implementation plan and time table, and (vii) the
development of contingency plans.
Superior makes use of computers in its processing of
accounting, financial, administrative, and management
information. Additionally, Superior uses computers as a
tool for its employees to communicate among themselves and
with other persons outside the organization. Superior
will contact its key vendors and customers to assess their
efforts and progress with Year 2000 issues. Superior
anticipates completion of its evaluation of non-
information technology equipment, key vendors and
suppliers and any remedial action and/or a contingency
plan, if necessary, by August 31, 1999.
Superior is in the process of analyzing and
evaluating the operational problems and costs that would
be reasonably likely to result from the failure by
Superior or certain third parties to complete efforts
necessary to achieve Year 2000 compliance on a timely
basis. Superior is in the process of evaluating all the
material information technology ("IT") and non-IT systems
that it uses directly in its operations. Superior
presently believes that the year 2000 issue will not pose
significant operational problems for Superior's computer
systems. However, if all significant Year 2000 issues are
not properly identified, or assessment, remediation and
testing of its systems are not effected timely, the Year
2000 issue could potentially have an adverse impact on
Superior's operations and financial condition. Among
other things, Superior could be impacted by the inability
of its customers to accurately and timely pay invoices,
Superior's inability to access necessary capital from
lenders or other sources when required, and the inability
of Superior's significant suppliers, subcontractors and
others to provide the necessary materials, services or
systems required to operate Superior's business.
Superior believes that it will be able to implement
successfully the changes necessary to address the Year
2000 issues with reliance on its third party vendors and
does not expect the cost of such changes to have a
material impact on Superior's financial position, results
of operations or cash flows in future periods.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
<PAGE>
CARDINAL HOLDING CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Cardinal was formed in December 1990 to acquire
substantially all of the assets and assume certain
liabilities of Cardinal Services, Inc. ("Cardinal
Services"). Since Cardinal's acquisition of Cardinal
Services in December 1990 (the "Cardinal Services
Acquisition"), Cardinal has grown by purchasing vessels
from others, constructing vessels for its use, developing
complementary service lines, and through other strategic
acquisitions.
Cardinal derives its revenues primarily from
providing workover, remediation and completion services to
the oil and gas industry. These services are typically
related to the maintenance and repair of existing wells
and installations as well as services that enhance well
performance and life span, and are not directly tied to
the drilling of new wells. These services contributed to
Cardinal's operating revenue as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------------------------- ------------------------------------------
1996 1997 1998 1998 1999
-------------------- -------------------- --------------------- -------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Marine vessel
rental $24,752 51.4% $33,332 52.6% $37,963 46.2% $ 9,733 51.3% $ 5,957 31.4%
Mechanical
Wireline 12,419 25.8% 14,508 22.9% 18,800 22.9% 3,696 19.5% 6,082 32.0%
Plugging and
abandonment 3,302 6.9% 4,773 7.5% 5,469 6.7% 1,143 6.0% 1,065 5.6%
Other(1) 7,655 15.9% 10,799 17.0% 19,991 24.2% 4,410 23.2% 5,874 31.0%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Operating
revenue $48,128 100.0% $63,412 100.0% $82,223 100.0% $18,982 100.0% $18,978 100.0%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
__________________
(1) Other revenue includes revenues relating primarily
to Cardinal's coiled tubing and data acquisition
activities.
__________________
Cardinal's customer base is comprised of both
major and large independent oil and gas operators,
including most of the major producers in the Gulf
of Mexico. Cardinal performs periodic credit
evaluations of its customers' financial condition
and generally does not require collateral. Credit
losses have historically been within management's
expectations.
Cardinal's business is affected by various
factors, including general economic conditions and
the price of oil and gas, which has experienced
significant fluctuations over the last 20 years.
Cardinal's revenue tends to fluctuate somewhat in
line with commodity pricing. While its management
believes Cardinal could partially mitigate the
impact of a general economic downturn or a severe
downturn in commodity pricing, there is no
assurance that Cardinal's results of operations
would not be materially impacted by such events. In
response to competitive pressures from any of its
current or future competitors, Cardinal may be
required to lower selling prices in order to
maintain or increase market share, and such
measures could adversely affect Cardinal's margins
and operating results. In addition, since a
significant portion of Cardinal's business is
carried out in the Gulf of Mexico, activity can be
impacted by severe weather including tropical
storms and hurricanes. Most of the tropical
weather occurs during late summer, and rough seas
and high winds during other times of the year can
also adversely impact Cardinal's operations.
The principal components of Cardinal's
expenses include labor, boat and other equipment
maintenance, insurance and depreciation. None of
Cardinal's employees are unionized. However, as
activity levels in the oil and gas industry
increase, competition for skilled and semi-skilled
labor within the oil service industry has from time
to time caused rapid increases in rates of pay for
many of the types of workers employed by Cardinal.
The fleet of liftboats operated by Cardinal is
subject to required annual Coast Guard inspections,
as well as major hull inspections every 5 years and
one minor hull examination every 2.5 years. These
inspections are held at Cardinal's shipyard in New
Iberia, which Cardinal believes has sufficient
capacity to handle all of the scheduled maintenance
requirements for its vessels. Unlike many liftboat
operators, Cardinal operates its own shipyard,
giving it increased flexibility in the scheduling
of maintenance and repairs.
ACQUISITIONS
During 1998, Cardinal completed acquisitions
of 100% of the outstanding common stock of the
businesses shown below, which were primarily
engaged in providing services for the oil and gas
industry in the southern United States and the Gulf
of Mexico. These businesses were acquired using a
combination of cash and stock as consideration.
Each of these acquisitions was accounted for using
the purchase method. The excess cost over the fair
value of net assets acquired has been recorded as
goodwill and is being amortized on a straight-line
basis over periods ranging from 15 to 30 years. The
operations of the acquired businesses are included
in the consolidated statements of operations from
the date of acquisition.
<TABLE>
<CAPTION>
DATE COMPANY NAME PURCHASE PRICE SERVICES OFFERED
- -------------- ------------------------ -------------- -------------------
<S> <C> <C> <C>
May 1998 Moores Wireline, Inc. $10,888,337 Mechanical Wireline
May 1998 Moores Engineering, Inc. 4,846,396 Data Engineering
September 1998 Gunn Wireline, Inc. 8,350,472 Mechanical Wireline
</TABLE>
RECAPITALIZATION AND REFINANCING
On February 26, 1998, Cardinal completed a
recapitalization and refinancing (the
"Recapitalization and Refinancing") which included
(i) the issuance of 10,267 shares of Class A Common
Stock for $30 million, (ii) the issuance of 10,267
shares of Class C Preferred Stock for $30 million,
(iii) the redemption of 51,583 shares of Class A
Common Stock for $114.68 million, and (iv) the
redemption of warrants related to 11,870 shares of
Cardinal Services nonvoting common stock in
exchange for $13.32 million. In addition, Cardinal
refinanced substantially all of its long-term debt.
The Recapitalization and Refinancing was funded
through the issuance of $105 million of senior
secured debt, $20 million of subordinated debt
which includes $2 million accounted for as original
issue discount relating to the issuance of 350
shares of Class A Common Stock and 350 shares of
Class C Preferred Stock, and $60 million of equity
investments discussed in (i) and (ii) above. On the
date of the Recapitalization and Refinancing,
Cardinal charged off $11,246,713 which included the
unamortized estimated value of the warrants of
$10,505,000 and unamortized debt acquisition costs
of $379,713 (net of $213,588 tax benefit).
<PAGE>
RESULTS OF OPERATIONS
The following table shows, for the periods
indicated, information derived from the
consolidated statements of operations of Cardinal
expressed as a percentage of net revenue for such
year (dollars in thousands).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------- -------------------------------------
1996 1997 1998 1998 1999
--------------------- -------------------- -------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue $ 48,128 100.0% $ 63,412 100.0% $ 82,223 100.0% $ 18,982 100.0% $ 18,978 100.0%
Operating expenses:
Labor 14,872 30.9% 18,709 29.5% 25,075 30.5% 5,163 27.2% 7,061 37.2%
Maintenance 4,557 9.5% 4,451 7.0% 4,626 5.6% 975 5.1% 1,207 6.4%
Insurance 2,681 5.6% 2,503 4.0% 3,746 4.6% 697 3.7% 734 3.9%
Depreciation 3,509 7.3% 4,207 6.6% 6,118 7.4% 1,195 6.3% 1,810 9.5%
Cost of goods sold 1,627 3.4% 2,087 3.3% 1,809 2.2% 446 2.4% 503 2.7%
Other 4.219 8.8% 5,386 8.5% 9,350 11.4% 1,576 8.3% 1,714 9.0%
------------------------------------------------------------------------------------------------------------
Total operating
expenses 31,465 65.4% 37,343 58.9% 50,724 61.7% 10,052 53.0% 13,029 68.7%
------------------------------------------------------------------------------------------------------------
Gross profit 16,663 34.6% 26,069 41.1% 31,499 38.3% 8,930 47.0% 5,949 31.3%
General and
administrative
expenses 8,317 17.3% 10,842 17.1% 15,729 19.1% 4,142 21.8% 3,297 17.4%
------------------------------------------------------------------------------------------------------------
Operating income 8,346 17.3% 15,227 24.0% 15,770 19.2% 4,788 25.2% 2,652 13.9%
Other income (expense):
Interest expense (3,448) -7.2% (5,464) -8.6% (12,641) -15.4% (2,698) -14.2% (3,201) -16.9%
Consulting fees paid
to related party (300) -0.6% (1,150) -1.8% --- --- --- --- --- ---
Other, net 2 0.0% 58 0.1% (777) -0.9% (515) -2.7% (2) 0.0%
------------------------------------------------------------------------------------------------------------
Income (loss) before
income taxes
and extraordinary
loss 4,600 9.5% 8,672 13.7% 2,352 2.9% 1,575 8.3% (551) -3.0%
Income tax 1,706 3.5% 4,350 6.9% 1,149 1.4% 591 3.1% (98) -0.5%
------------------------------------------------------------------------------------------------------------
Income before
extraordinary
loss $ 2,894 6.0% $ 4,322 6.8% $ 1,203 1.5% $ 984 5.2% $ (453) -2.5%
============================================================================================================
</TABLE>
Demand for Cardinal's liftboat rentals and other services is driven
primarily by the level of oil and gas well maintenance and workover activity in
the Gulf of Mexico. The level of oilfield activity is driven by commodity
prices of oil and gas, which impact the ability of oil and gas companies to
generate sufficient cash flows to make capital expenditures for exploration and
exploitation of new and existing hydrocarbon reserves. Demand for Cardinal's
plugging and abandonment services is largely driven by the number of wells
which have ceased to become commercially viable. The ability to provide wire-
line, coiled tubing, electric line, and plugging and abandonment services from
Cardinal's own fleet of liftboats helps keep overall fleet utilization higher
than otherwise would be enjoyed.
The oilfield services industry experienced a significant decline in
activity in the last half of 1998 which has continued into the first quarter of
1999, and such decline has resulted in lower utilization and day rates for its
liftboat fleet. Should the decline in overall industry activity levels
continue, it would have an increasing material adverse effect on Cardinal's
financial condition and results of operation.
The following discussions compare the results of operations for the
year ended December 31, 1998 to the year ended December 31, 1997 and the
results of operations for the year ended December 31, 1997 to the year ended
December 31, 1996.
QUARTER ENDED MARCH 31, 1999 COMPARED TO QUARTER ENDED MARCH 31, 1998
Cardinal's revenue remained constant at $18.9 million for the quarters
ended March 31, 1999 and March 31, 1998. While revenues were virtually
unchanged from year to year, the overall makeup of revenue changed
significantly in line with an overall downturn in the energy markets served by
Cardinal. The largest change in Cardinal's business was a 38% decrease in
revenues generated by its liftboat fleet. Dayrates declined by approximately
33% and utilization declined by approximately 5% in the first quarter of 1999.
Both of these decreases were due to a significant decline in energy prices
during the last nine months of 1998, which resulted in reduced cash flows for
Cardinal's customer base, and as a result, lower activity in the shelf area of
the Gulf of Mexico. Offsetting the decrease in vessel revenue were strong
performances in most of the other services offered by Cardinal, partially due
to gains in market share and partially due to acquisitions completed during the
last nine months of 1998. Mechanical wireline revenue increased 32% due to the
acquisitions. Without these acquisitions wireline revenue would have declined
12%. Electric line revenue increased 181% due to focused sales efforts and
improved equipment capabilities. Coiled tubing revenue increased by 59% due to
customer awareness as well as an increase in coiled tubing activity.
Labor increased 37% to $7.0 million for the quarter ended March 31,
1999, as compared to $5.1 million for the quarter ended March 31, 1998. This
increase is related to $1.0 million in labor from acquisitions made during
1998. The remaining increase is related to the additional services being
provided as well as the expansion of the current services and general
inflation.
Depreciation increased 52% to $1.8 million for the quarter ended March
31, 1999 as compared to $1.2 million for the quarter ended March 31, 1998.
Approximately one-third of this increase is the result of 1998 acquisitions and
the remaining two-thirds relate to depreciation from 1998 purchases.
General and administrative expenses decreased 20% to $3.3 million for
the quarter ended March 31, 1999 as compared to $4.1 million for the quarter
ended March 31, 1998. This is primarily due to a decrease in the amount of
consulting fees paid to the previous owner.
Interest expense increased 19% to $3.2 million for the quarter ended
March 31, 1999 as compared to $2.7 million for the quarter ended March 31,
1998. This increase is due to the additional indebtedness incurred in the
Recapitalization and Refinancing completed in February 1998.
The income tax provision (benefit) was ($98,000) for the quarter ended
March 31, 1998 compared to $591,000 for the quarter ended March 31, 1999.
Cardinal's effective tax rate for the three months ended March 31, 1999 was
higher than the comparable prior quarter because of certain non-deductible
goodwill amortization in 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Cardinal's performance in 1998 was impacted in the second half of the
year by the decline in activity in the oilfield services industry as a result
of a decline in oil prices. In addition, work in the Gulf of Mexico, which is
Cardinal's primary operating area, was significantly curtailed during September
1998 by a series of storms and hurricanes.
Cardinal's revenue increased 30% to $82.2 million for the year ended
December 31, 1998, compared to $63.4 million for the year ended December 31,
1997. Approximately 40% of this increase was the result of revenues from
acquisitions made during 1998. The remaining 60% was primarily due to
additional services Cardinal began providing during such period, including
coiled tubing and pumping and stimulation as well as an increase in related
vessel revenue due to the addition of two 200-foot liftboats in the first
quarter of 1998.
Labor increased 34% to $25.0 million for the year ended December 31,
1998, compared to $18.7 million for the year ended December 31, 1997. This
increase is due to $2.0 million in increased labor costs from acquisitions made
during 1998 and increases related to the additional services being provided as
well as the expansion of the current services. Labor as a percentage of revenue
remained relatively stable at 30.5% in 1998 compared to 29.5% in 1997.
Depreciation increased 45% to $6.1 million for the year ended December
31, 1998 compared to $4.4 million for the year ended December 31,1997. This
increase is primarily the result of increased depreciation from major vessel
purchases in the first quarter of 1998.
Other operating expenses include expendables, tool purchases and
rentals, and incidental costs such as transportation, fuel and supplies. These
costs increased 74% to $9.3 million for the year ended December 31, 1998
compared to $5.3 million for the year ended December 31, 1997. Other operating
expenses as a percentage of revenue increased to 11.4% in 1998 compared to 8.5%
in 1997. This increase is related to tool rentals and purchases related to
Cardinal's efforts to upgrade the caliber of wireline tools Cardinal uses in
providing its services. These purchases are not capitalized due to their high
susceptibility of loss.
General and administrative expenses increased 45% to $15.7 million for
the year ended December 31, 1998 compared to $10.8 million for the year ended
December 31, 1997. This is due to $1.2 million in additional salesman expense
related to an expanded marketing campaign as well as $0.8 million in stock
awards to management in conjunction with the Recapitalization and Refinancing
completed in February 1998, and an increase in employee benefits.
Interest expense increased 131% to $12.6 million for the year ended
December 31,1998 compared to $5.4 million for the year ended December 31, 1997.
This increase resulted from Cardinal's higher debt levels following the
Recapitalization and Refinancing.
Consulting fees were paid to the previous owner prior to the
Recapitalization. No such fees have been payable following the
Recapitalization.
The income tax provision decreased to $935,000 for the year ended
December 31, 1998 from $4.4 million for the year ended December 31, 1997 due to
a decrease in income before income taxes and a decrease in Cardinal's effective
tax rate. Cardinal's effective tax rate was higher in 1997 because of the non-
deductibility of $2.1 million in interest expense related to certain warrants
and the recording of $320,000 in tax liabilities related to Cardinal Management
Company. See Note 7 to Cardinal's Consolidated Financial Statement.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Cardinal's revenue increased 32% to $63.4 million for the year ended
December 31, 1997, compared to $48.1 million for the year ended December 31,
1996. This was due in large part to increased vessel rates and utilization due
to improved market conditions in the Gulf. Also, plugging and abandonment
contracts increased as Cardinal proved its ability to perform this service.
Labor increased 26% to $18.7 million for the year ended December 31,
1997, compared to $14.8 million for the year ended December 31, 1996. The
increase in labor was directly related to the increase in vessel utilization
brought on by improved market conditions as well as a 50% increase in contract
labor rates charged by welders. Labor as a percentage of revenue remained
relatively stable at 29.5% in 1997 compared to 30.9% in 1997.
Depreciation increased 20% to $4.2 million for the year ended December
31, 1997 compared to $3.5 million for the year ended December 31,1996. This
increase resulted from the asset additions made during 1997, including the
acquisition of one lift boat.
General and administrative expenses increased 30% to $10.8 million for
the year ended December 31, 1997 compared to $8.3 million for the year ended
December 31, 1996. This increase was a result of increased bonuses paid as a
result of improved performance.
Interest expense increased 58% to $5.4 million for the year ended
December 31,1997 compared to $3.4 million for the year ended December 31, 1996.
This was a result of greater borrowings on the line of credit compared to prior
year. These increased borrowings were a result of continued growth.
Consulting fees paid to the previous owner increased to $1.1 million
for the year ended December 31, 1997 compared to $300,000 for the year ended
December 31, 1996.
The income tax provision increased to $4.4 million for the year ended
December 31, 1997 from $1.7 million for the year ended December 31, 1996 due to
an increase in income before income taxes and an increase in Cardinal's
effective tax rate. Cardinal's effective tax rate increased in 1997 because of
the non-deductibility of $2.1 million in interest expense related to certain
warrants and the recording of $320,000 in tax liabilities related to Cardinal
Management Company. See Notes 5 and 7 to Cardinal's Consolidated Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
Cardinal's primary sources of working capital are cash flow from
operations and revolving credit advances under the credit agreement it entered
into with certain lenders in connection with the Recapitalization and
Refinancing (the "Credit Agreement"). Cardinal's primary sources of funds for
capital expenditures and strategic acquisitions have been term loans provided
by the Credit Agreement and proceeds from issuance of common and preferred
stock.
Cardinal had cash flows from operations of $7.4 million in 1996, $9.3
million in 1997 and $3.6 million in 1998. The decrease in cash flows from
operations from 1997 to 1998 resulted primarily from a $7.2 million increase in
interest expense related to Cardinal's higher debt levels following the
Recapitalization and Refinancing, which was completed during the first quarter
of 1998. The Recapitalization and Refinancing resulted in a net capital
deficiency, which was $39.9 million at December 31, 1998. As part of an
arrangement reached with the lenders under the Credit Agreement, certain
holders of Cardinal Capital Stock contributed $5,000,000 of equity to Cardinal
during March 1999. Consummation of the Merger is conditional upon the
completion by Cardinal of the $45,000,000 Equity Contribution and all of the
net proceeds of the Equity Contribution will be used to reduce Cardinal's
indebtedness as part of the consummation of the Merger.
Amounts due under the Credit Agreement are collateralized by
substantially all the assets of Cardinal. The Credit Agreement contains certain
covenants which restrict Cardinal's ability to pay dividends and require
Cardinal to maintain certain levels of stockholders' equity (net capital
deficiency) and debt service ratios. At March 31, 1999, Cardinal was in
compliance with all such covenants.
Cardinal utilizes interest rate swaps in which it pays the fixed rate
and receives the floating rate in order to reduce the impact of changes in
interest rates on interest expense. Cardinal generally maintains 40% of its
debt as fixed rate by entering into such interest rate swap arrangements.
The Credit Agreement provides Term Loans with a balance of
$108,000,000 at March 31, 1999. Additionally, the Credit Agreement provides
for up to $10,000,000 of revolving credit advances, subject to an accounts
receivable borrowing base, bearing interest at floating rates and maturing in
March 2004. At March 31, 1999, considering the borrowing base, there was
$9,309,000 available under the revolving credit facility. Unused amounts under
the revolving credit facility are subject to a floating availability fee
ranging from .375% to .50% of the unused balance.
On March 31, 1999, in connection with an amendment to the Credit
Agreement, shareholders purchased 2,312 shares of Class C Preferred Stock and
1,747 shares of Class A Common Stock for $5 million cash, which was used to
repay the outstanding balance of a revolving credit note and to provide
additional cash for operating activities.
In 1998, Cardinal acquired all of the outstanding stock of three
companies for an aggregate $22.4 cash and $1.4 million of Cardinal stock.
Cardinal made additional capital expenditures in 1998 of $19 million
primarily for the purchase of additional lift boats and coiled tubing
equipment. Cardinal had working capital (deficit) of $3,647,030 at December
31, 1998, ($3,961,210) at December 31, 1997 and $585,635 at December 31, 1996.
YEAR 2000 ISSUES
Cardinal utilizes and relies upon computer technology in many facets of
its operations, including its information systems, the internal and external
reporting of financial and operating information and other systems and
equipment, such as vessel operation systems and computer-chip dependent
electronic devices used in providing Cardinal's services (collectively, "IT").
Cardinal is continuing the process it initiated in 1998 of identifying
and remediating computer systems or other equipment which will not be Year 2000
compliant when handling date-related data in the Year 2000 and thereafter. The
related projects of migrating Cardinal's IT and addressing Year 2000 issues are
hereinafter collectively referred to as the Year 2000 Efforts.
Cardinal continues to assess and review its computer systems, devices,
software applications and equipment (collectively, "Computer Systems") to
identify those areas that could be affected by Year 2000 noncompliance. In
1998, because of its significant growth, Cardinal began the process of
upgrading its Computer Systems associated with substantially all of its
accounting and information systems. Based on its continuing review, management
believes, and has received confirmation from the vendors of its Computer
Systems, that Cardinal's Computer Systems, when all upgrades are complete, will
function properly when handling date-related data in the Year 2000 and
thereafter.
Cardinal is currently assessing aspects of its business and operations
other than its Computer Systems to identify those areas that could be affected
by Year 2000 noncompliance, including vessel operation systems and other
computer-chip dependent electronic equipment used in providing services, as
well as telephones and other office equipment.
Cardinal is communicating with suppliers, service providers, and large
customers (collectively, third-party businesses) regarding their compliance
with Year 2000 requirements. Cardinal has received responses from a majority of
such parties. Since most of the responses indicated that efforts to comply with
Year 2000 requirements are ongoing, further communications with Cardinal's
major suppliers and service providers may be needed. If the third-party
businesses fail to comply in a timely manner with Year 2000 requirements, such
failures by third-party businesses could have a material adverse effect on
Cardinal's business, operations or financial condition.
Cardinal estimates the cost of its Year 2000 Efforts will not exceed $1
million, and will primarily result from the purchase of new software and
limited quantities of hardware, which will be capitalized. Through December 31,
1998, approximately $400,000 of these costs have been incurred and capitalized.
Cardinal expects that cash flow from operations and available advances under
the Credit Agreement will be sufficient to fund the costs associated with
Cardinal's Year 2000 Efforts.
While Cardinal expects its Year 2000 Efforts to be completed and tested
by August 1999, there can be no such assurances, and failure of Cardinal's
Computer Systems to function properly could have a material adverse effect on
Cardinal's business, operations or financial condition. As yet, Cardinal has
not developed a contingency plan in the event these efforts are not successful.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in Cardinal's market risk sensitivity
instruments is the potential loss arising from adverse changes in interest
rates. All financial instruments held by Cardinal and described below are held
for purposes other than trading.
Cardinal's Credit Agreement exposes earnings to changes in short-term
interest rates since the interest rates on the amounts due under the Credit
Agreement are variable. If (i) the variable rates on Cardinal's Credit
Agreement were to increase by 1% from the rate at December 31, 1998; (ii)
Cardinal borrowed the maximum amount available under its revolving credit
advances ($10,000,000) for all of 1999, and (iii) Cardinal made all required
payments of principal ($7,000,000) in 1999, solely as a result of the increase
in interest rates, Cardinal's interest expense would increase, resulting in a
$432,000 decrease in net income, assuming an effective tax rate of 36%. This
analysis does not consider the effects of the reduced level of overall economic
activity that could exist in such an environment. Further, in the event of a
change of such magnitude, management would likely take actions to further
mitigate its exposure to the change. The fair value of Cardinal's Senior
Subordinated Notes are not affected by changes in market interest rates.
<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL NO. 2)
VOTING PROCEDURE
Superior's Bylaws authorize the Board to fix the number of directors at
not less than three nor more than eleven. Pursuant thereto, the Board has
fixed the number of directors to be elected at the Meeting at six, and proxies
cannot be voted for a greater number of persons. Unless authority is withheld,
the persons named in the enclosed proxy will vote the shares represented by the
proxies received by them for the election of the six nominees named below to
serve until the next annual meeting and until their successors are duly elected
and qualified.
Unless authority to vote for the election of directors is withheld, the
proxies solicited hereby will be voted FOR the election of each individual
named below as a director or nominee. If any nominee should decline or be
unable to serve for any reason, votes will instead be cast for a substitute
nominee designated by the Board. The Board has no reason to believe that any
nominee will decline to be a candidate or, if elected, will be unable or
unwilling to serve. Under Superior's Bylaws, directors are elected by a
plurality vote.
INFORMATION ABOUT DIRECTORS
The following table sets forth certain information with respect to the
two directors selected for re-election by Superior and the four nominees for
director selected by Cardinal. The Merger is conditioned upon the election of
all six of these directors by Superior's stockholders. Likewise, the election
to Superior's Board of the four individuals designated by Cardinal is
conditioned upon consummation of the Merger. If, following the Meeting, the
Merger is not consummated for any reason, Superior will call a special meeting
of its stockholders to elect substitute nominees in replacement of the four
persons designated by Cardinal. Unless otherwise indicated, the person has
been engaged in the principal occupation shown for the past five years.
<TABLE>
<CAPTION>
Name and Age Position
<S> <C>
Terence E. Hall, 53 Chairman of the Board, Chief Executive Officer, President and Director of Superior
Justin L. Sullivan, 59 Director of Superior
William E. Macaulay, 53 Chairman and Chief Executive Officer of First Reserve Corporation
Ben A. Guill, 48 President of First Reserve Corporation
Robert E. Rose, 60 President, Chief Executive Officer and Chairman of the Board of Global Marine Inc.
Richard A. Bachmann, 54 President, Chief Executive Officer and Chairman of the Board of Energy Partners Ltd.
</TABLE>
__________________
Terence E. Hall has served as the Chairman of the Board, Chief
Executive Officer, President and a Director of Superior since December 1995.
Since 1989 he has also served as President and Chief Executive Officer of the
following wholly-owned subsidiaries of Superior: Superior Well Service, Inc.
("Superior Well") and Connection Technology, Ltd. Mr. Hall received his B.S.
and J.D. degrees from Tulane University.
Justin L. Sullivan has served as a Director of Superior since December
1995. Mr. Sullivan has been a private investor and has served as a business
consultant to various companies since May 1993. Prior to May 1993, Mr.
Sullivan held senior management positions with various companies in the forest
product industry. Mr. Sullivan has been an accounting faculty member of the
University of New Orleans and Tulane University. Mr. Sullivan received his
B.S. degree from Louisiana State University at New Orleans and his M.B.A. from
Tulane University, and is a Certified Public Accountant.
William E. Macaulay has served since 1983 as President or Chairman and
Chief Executive Officer of First Reserve, the indirect general partner of the
Funds, which own in the aggregate, approximately 63% of the outstanding
Cardinal Capital Stock. First Reserve is a corporate manager of private
investments focusing on the energy and energy-related sectors. Mr. Macaulay
also serves as a director of Weatherford International, Inc., an oilfield
service company, Maverick Tube Corporation, a manufacturer of steel pipe and
casing, National-Oilwell, Inc., a manufacturer and distributor of oil field
equipment and Cal Dive International, Inc., a subsea service provider.
Ben A. Guill is President of First Reserve. Prior to joining First
Reserve, Mr. Guill spent eighteen years with Simmons & Company International,
an investment banking firm, where he served as Managing Director and Co-Head of
Investment Banking. Mr. Guill also serves as a director of Range Resources
Group, an oil and gas company, Cal Dive International, Inc. and National-
Oilwell, Inc. Mr. Guill received his B.A. degree from Princeton University and
his Masters degree in finance from the Wharton Graduate School of Business at
the University of Pennsylvania.
Robert E. Rose has served as Director, President and Chief Executive
Officer of Global Marine Inc. since May 1998 and Chairman of the Board since
May 1999. Mr. Rose began his professional career with Global Marine Inc. in
1964. He left Global Marine in 1976, and began holding executive positions
with other offshore drilling companies, including more than a decade as
President and Chief Executive Officer of Diamond Offshore Drilling, Inc. and
its predecessor, Diamond M Company. He resigned from Diamond Offshore
Drilling, Inc. in April 1998 and served as President and Chief Executive
Officer of Cardinal from April 1998 to May 1998, and has continued to serve as
a director of Cardinal.
Richard A. Bachmann has served as Chairman, President and Chief
Executive Officer of Energy Partners, Ltd., an independent oil and gas
exploration company, since June 1998. Mr. Bachmann's career began at Standard
Oil of New Jersey where he moved through positions of increased responsibility
in the treasury department. Mr. Bachmann served as President and Chief
Operating Officer of The Louisiana Land and Exploration Company ("LL&E") from
October 1995 to January 1997, and served as a director of LL&E from 1989 to
1997. In addition to sitting on numerous Boards of charitable organizations,
Mr. Bachmann sits on the Board of Directors of the Penn Virginia Company. He
holds an MBA from the University of Wisconsin.
BOARD COMMITTEES
The Board has an Audit and Compensation Committee, but the Board does
not have a nominating committee. Following the Meeting, the newly elected
Board will reconstitute these committees. The current members of the Audit
Committee for fiscal 1998 were Messrs. Small, Sullivan and Hall. The Audit
Committee, which met one time during 1998, is responsible for (i) making
recommendations to the Board concerning the engagement of Superior's
independent public accountants, (ii) consulting with the independent public
accountants with regard to the plan of audit, (iii) consulting with Superior's
chief financial officer of Superior on any matter the Audit Committee or the
chief financial officer deems appropriate in connection with carrying out the
audit, (iv) reviewing the results of audits of Superior by its independent
public accountants, (v) reviewing all related party transactions and all other
potential conflict of interest situations, (vi) discussing audit
recommendations with management and reporting the results of its reviews to the
Board and (vii) performing such other functions as may be prescribed by the
Board.
The current members of the Compensation Committee for fiscal 1998 were
Messrs. Sullivan and Small. The Compensation Committee met two times during
1998. The Compensation Committee is responsible for administering Superior's
1995 Stock Incentive Plan and performing such other functions as may be
prescribed by the Board. The Compensation Committee will also administer the
Plan, assuming it is approved by the stockholders at the Meeting.
In 1998, the Board held eight meetings. Each director attended 75% or
more of the meetings of the board of directors and committees of which he was a
member which were held during the period in which he served.
DIRECTOR COMPENSATION
Each director who is not a full-time employee of Superior is paid a
director's fee of $15,000 annually, plus $1,000 for each Board and committee
meeting attended. Directors are also reimbursed for reasonable expenses
incurred in attending Board and committee meetings. Under the Plan, directors
who are not also full-time employees of Superior will receive options to
acquire 20,000 shares of Superior Common Stock on the date such person first
becomes a member of the Board and an option to acquire 5,000 shares of Superior
Common Stock on the day following each annual meeting of stockholders,
beginning with the 2000 annual meeting, if shares of Superior Common Stock
remain available for grant under the Plan.
INFORMATION ABOUT EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
persons, in addition to Mr. Hall, who are expected to serve as executive
officers of Superior following the Merger.
<TABLE>
<CAPTION>
Name and Age Position
<S> <C>
Kenneth Blanchard, 49 Vice President
Charles Funderburg, 44 Vice President
Robert S. Taylor, 45 Chief Financial Officer
James A. Holleman, 41 Vice President
Dale L. Mitchell, 36 Vice President
</TABLE>
__________________
Kenneth Blanchard has served as a Vice President of Superior since
December 1995. Prior to this, he served as Vice President of Connection
Technology, Ltd.
Charles Funderburg has served as a Vice President of Superior since
December 1995. Prior to this, he served as Vice President of Superior Well
Services, Inc.
Robert S. Taylor has served as Superior's Chief Financial Officer 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 1989 to May 1994 he served as Chief Financial Officer of Plywood
Panels, Inc. Prior thereto, Mr. Taylor served as controller for Plywood
Panels, Inc. and Corporate Accounting Manager of D.H. Holmes Company, Ltd., a
department store chain.
James A. Holleman has been active in Cardinal's business since 1981,
and has served as Chief Operating Officer since 1994. Prior to that time, he
was employed by Reading and Bates in Houston, Texas and Industrial Lift Trucks,
Inc. in Lafayette, Louisiana. Mr. Holleman holds a B.S. degree from Lamar
University.
Dale L. Mitchell joined the Cardinal organization in 1983 and has
served as Vice President of Marine Services since 1998. Prior to 1998, he
served in numerous operational and managerial roles within Cardinal's Marine
Services division.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table indicates the beneficial ownership, as of March 31,
1999, of Superior Common Stock by (i) each director and director nominee, (ii)
each Named Officer disclosed under the "Summary Compensation Table," (iii) each
person known by Superior to own more than 5% of the outstanding shares of
Superior Common Stock, and (iv) all directors and executive officers of
Superior as a group. Except as otherwise indicated below, all shares indicated
as beneficially owned are held with sole voting and investment power.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE
BENEFICIAL OWNER OF BENEFICIAL OWNER PERCENT OF CLASS
- ------------------- ------------------- ----------------
<S> <C> <C>
FMR Corp. 1,542,900(1) 5.4%
82 Devonshire Street
Boston, Massachusetts 02109
Ernest J. Yancey, Jr. 1,618,265(2)(3) 5.6%
131 LaLanne Road
Madisonville, Louisiana 70447
Terence E. Hall 1,588,515(3) 5.5%
James E. Ravannack 1,624,515(3) 5.6%
Kenneth Blanchard 210,500(4) *
Robert S. Taylor 115,000(5) *
Charles Funderburg 149,000(6) *
Justin L. Sullivan 10,000 *
William E. Macaulay 0 0
Ben A. Guill 0 0
Robert E. Rose 0 0
Richard A. Bachmann 0 0
All directors, director nominees,
executive officers as a group
(ten persons) 5,003,878(7) 17.1%
</TABLE>
__________________
* Less than 1%.
(1) Based on a Schedule 13G, dated February 1, 1999, filed with the
Securities and Exchange Commission. In its Schedule 13G, FMR Corp.
reported that, through its subsidiary, Fidelity Management & Research
Company, sole dispositive power with respect to all 1,542,900 shares as a
result of acting as investment advisor to various investment companies
registered under Section 8 of the Investment Company Act of 1940. FMR
Corp. does not have the power to vote the shares.
(2) Includes 24,000 shares of Superior Common Stock held by Mr. Yancey's
children, of which Mr. Yancey is deemed to be the beneficial owner, and
1,402,265 held by a limited liability company controlled by Mr. Yancey.
(3) Includes 44,000 shares of Superior Common Stock that may be acquired upon
the exercise of presently exercisable options.
(4) Includes 135,500 shares of Superior Common Stock that may be acquired
upon the exercise of presently exercisable options and 48,000 shares held
by Mr. Blanchard's children, of which Mr. Blanchard is deemed to be the
beneficial owner.
(5) Includes 110,000 shares of Superior Common Stock that may be acquired
upon the exercise of presently exercisable options.
(6) Includes 120,000 shares of Superior Common Stock that may be acquired
upon the exercise of presently exercisable options. Also includes 8,000
shares held by Mr. Funderburg's children, of which Mr. Funderburg is
deemed to be the beneficial owner.
(7) Includes 453,500 shares of Superior Common Stock that may be acquired
upon the exercise of presently exercisable options.
__________________
The following table indicates the estimated beneficial ownership
following the Merger, using an assumed number of 58,791,239 shares of Superior
Common Stock estimated to be outstanding after the Merger which is based on the
number of shares of Superior Common Stock issued and outstanding as of March
31, 1999, plus the number of shares of Superior Common Stock that would have
been issued in the Merger if calculated as of that date, by (i) each director
nominee, (ii) each person expected by Superior to own more than 5% of the
outstanding shares of Superior Common Stock following the Merger, (iii) each
executive officer following the Merger, and (iv) all directors and executive
officers of Superior following the Merger as a group. The shares shown below
as being owned by persons who are currently Cardinal stockholders assume that
such stockholders acquired their pro rata share of Cardinal Capital Stock
issued in the Equity Contribution. Except as otherwise indicated below, all
shares indicated as beneficially owned are held with sole voting and investment
power.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE
BENEFICIAL OWNER OF BENEFICIAL OWNER PERCENT OF CLASS
- ------------------- ------------------- ----------------
<S> <C> <C>
First Reserve Fund VII,
Limited Partnership(1) 10,955,328(2) 18.6%
475 Steamboat Road, 2nd Floor
Greenwich, Connecticut 06830
First Reserve Fund VIII, L.P.(1) 7,303,551(3) 12.4%
475 Steamboat Road, 2nd Floor
Greenwich, Connecticut 06830
John P. Kotts 7,028,610(4) 12.0%
650 Poydras Street, Suite 2525
New Orleans, LA 70130
Terence E. Hall 1,588,515(5) 2.7%
Justin L. Sullivan 10,000 *
William E. Macaulay 18,258,879(6) 31.0%
Ben A. Guill 0 0
Robert E. Rose 0 0
Richard A. Bachmann 0 0
Kenneth Blanchard 210,500(7) *
Robert S. Taylor 115,000(8) *
Charles Funderburg 149,000(9) *
James A. Holleman 20,542(10) *
Dale L. Mitchell 18,488(11) *
All directors and executive
officers after the Merger as
a group (twelve persons) 20,370,924(6)(12) 34.4%
</TABLE>
__________________
* Less than 1%.
(1) First Reserve Corporation is the indirect general partner of First
Reserve Fund VII, Limited Partnership and First Reserve Fund VIII, L.P.
and is deemed to beneficially own the shares held by both of the Funds.
(2) Includes 336,161 shares of Superior Common Stock held in escrow for the
benefit of John P. Kotts.
(3) Includes 224,107 shares of Superior Common Stock held in escrow for the
benefit of John P. Kotts.
(4) Includes 3,060,278 shares held by a family limited partnership, and
does not include 707,014 shares placed in escrow for the benefit of Mr.
Kotts by former Cardinal stockholders not affiliated with Mr. Kotts.
(5) Includes 44,000 shares of Superior Common Stock that may be acquired upon
the exercise of presently exercisable options.
(6) Includes the shares held by both of the Funds. Mr. Macaulay is a
controlling stockholder of First Reserve Corporation, the indirect
general partner of each of the Funds.
(7) Includes 135,500 shares of Superior Common Stock that may be acquired
upon the exercise of presently exercisable options and 48,000 shares held
by Mr. Blanchard's children, of which Mr. Blanchard is deemed to be the
beneficial owner.
(8) Includes 110,000 shares of Superior Common Stock that may be acquired
upon the exercise of presently exercisable options.
(9) Includes 120,000 shares of Superior Common Stock that may be acquired
upon the exercise of presently exercisable options. Also includes 8,000
shares held by Mr. Funderburg's children, of which Mr. Funderburg is
deemed to be the beneficial owner.
(10) Includes 630 shares of Superior Common Stock held in escrow for the
benefit of John P. Kotts.
(11) Includes 567 shares of Superior Common Stock held in escrow for the
benefit of John P. Kotts.
(12) Includes 409,500 shares of Superior Common Stock that may be acquired
upon the exercise of presently exercisable options.
_________________
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ended December 31, 1998,
1997 and 1996, the compensation of Superior's chief executive officer,
Superior's other executive officer and the three other most highly compensated
officers of Superior who were serving in such capacities at the year-end 1998.
The persons named in the table are referred to in this proxy statement as the
"Named Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
SECURITIES
NAME ANNUAL COMPENSATION UNDERLYING
AND --------------------------- OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS SARs COMPENSATION (1)
- ------------------- ---- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Terence E. Hall 1998 $ 346,570 $ 302,202 0 $ 3,939
Chairman, Chief 1997 316,669 392,470 0 4,843
Executive Officer 1996 300,264 137,500 0 3,419
James E. Ravannack 1998 140,406 133,970 0 3,939
Vice President 1997 127,749 173,987 0 4,355
1996 120,182 60,950 0 2,847
Kenneth Blanchard 1998 139,753 133,970 75,000 3,939
Vice President 1997 127,749 173,987 25,000 4,355
1996 120,129 60,950 17,500 2,848
Charles Funderburg{ (2)} 1998 140,421 133,970 75,000 3,939
Vice President 1997 127,650 173,987 45,000 3,939
1996 109,524 60,960 20,000 2,818
Robert S. Taylor{ (3)} 1998 125,493 77,000 60,000 3,939
Chief Financial Officer 1997 107,104 100,000 25,000 3,539
1996 82,262 25,000 25,000 2,654
</TABLE>
____________
(1) Comprised of Superior's matching contributions to the 401(k) Plan and
hospitalization insurance.
(2) Charles Funderburg became Vice President in May 1996.
(3) Robert S. Taylor became Chief Financial Officer in January 1996.
____________________
EXECUTIVE EMPLOYMENT AGREEMENTS
Superior entered into employment agreements in December 1995 with each of
Terence E. Hall, James E. Ravannack, Kenneth Blanchard and Charles Funderburg
(the "Executives"), providing for minimum annual salaries of $300,000,
$120,000, $120,000 and $120,000, respectively, with 5% increases over and above
the preceding year's salary during the term of the agreement. Under the
employment agreements, Messrs. Hall, Ravannack and Blanchard were granted ten-
year options to purchase 44,000, 44,000 and 18,000 shares of Superior Common
Stock, respectively, at $2.53 per share. Under the agreements, the Executives
were provided with benefits under any employee benefit plan maintained by
Superior for its employees generally, or for its executives and key management
employees in particular, on the same terms as are applicable to other senior
executives of Superior.
In addition to salary and benefits, each of Messrs. Hall, Ravannack and
Blanchard received an annual bonus calculated as a percentage of Superior's
year-end pre-tax, pre-bonus annual income ("Superior's Income") and Mr.
Funderburg received an annual bonus calculated as a percentage of one of
Superior's subsidiaries', Superior Well Service, Inc.'s year-end pre-tax, pre-
bonus annual income ("Superior Well's Income"). Mr. Hall's bonus was an amount
equal to 1% of Superior's Income if Superior's Income was greater than $1.8
million but less than or equal to $2.0 million, 2% of Superior's Income if
Superior's Income was greater than $2.0 million but less than or equal to $2.25
million, or 3% of Superior's Income if Superior's Income was greater than $2.25
million. If the Merger is approved by the stockholders, Mr. Hall's employment
agreement will be amended to delete the incentive bonus arrangement.
The bonus for each of Messrs. Ravannack and Blanchard was an amount equal
to .443% of Superior's Income if Superior's Income was greater than $1.8
million but less than or equal to $2.0 million, .886% of Superior's Income if
Superior's Income was greater than $2.0 million but less than or equal to $2.25
million, or 1.33% of Superior's Income if Superior's Income was greater than
$2.25 million. Mr. Funderburg's bonus was an amount equal to .443% of Superior
Well's Income that was greater than $1.8 million but less than or equal to $2.0
million, .886% of Superior Well's Income that was greater than $2.0 million but
less than or equal to $2.25 million, and 1.33% of Superior Well's Income that
was greater than $2.25 million.
The terms of the employment agreements, except for Mr. Hall's and Mr.
Funderburg's agreements, continued until December 13, 1998. The term of Mr.
Funderburg's employment agreement continued until April 30, 1999. The term of
Mr. Hall's employment agreement will continue until December 13, 2000 unless
earlier terminated as described below. The term of Mr. Hall's agreement will
automatically be extended for one additional year unless Superior gives at
least 90 days' prior notice that it does not wish to extend the term.
Each employment agreement provided for the termination of the Executive's
employment: (i) upon the Executive's death; (ii) by Superior or the Executive
upon the Executive's disability; (iii) by Superior for cause, which includes
willful and continued failure substantially to perform the Executive's duties,
or willful engaging in misconduct that is materially injurious to Superior,
provided, however, that prior to termination, the Board of Directors must find
that the Executive was guilty of such conduct; or (iv) by the Executive for
good reason, which includes a failure by Superior to comply with any material
provision of the agreement that has not been cured after ten days' notice. For
a period of two years after any termination, the Executive would be prohibited
from competing with Superior.
Upon termination due to death or disability, Superior would pay the
Executive all compensation owing through the date of termination and a benefit
in an amount equal to nine-month's salary. Upon termination by Superior for
cause or upon termination by the Executive for other than good reason, the
Executive would be entitled to all compensation owing through the date of
termination. Upon termination by the Executive for good reason, the Executive
would be entitled to all compensation owing through the date of termination
plus his current compensation and the highest annual amount payable to
Executive under Superior's compensation plans multiplied by the greater of two
or the number of years remaining in the term of the Executive's employment
under the agreement. In addition, if the termination were to arise out of a
breach by Superior, Superior would pay all other damages to which the Executive
may be entitled as a result of such breach.
In connection with the Merger, Superior will enter new employment
agreements with Messrs. Blanchard, Funderburg, and Taylor, and will amend Mr.
Hall's employment agreement. See "The Merger - Interests of Certain Persons in
the Merger."
<PAGE>
1998 STOCK OPTION AND STOCK APPRECIATION RIGHT GRANTS
The following table contains information concerning the grant of options
and stock appreciation rights ("SARs") granted to the Named Officers during
1998.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
PERCENT OF TOTAL
NO. OF SHARES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES EXERCISE OR EXPIRATION
NAME GRANTED IN 1998 BASE PRICE DATE
- ------------------- ---------------- ------------------- -------------- --------------
<S> <C> <C> <C> <C>
Terence E. Hall -- -- -- --
James E. Ravannack -- -- -- --
Kenneth Blanchard 25,000 5% $ 7.56 1/27/08
50,000 10 9.25 9/30/08
Charles Funderburg 25,000 5 7.56 1/27/08
50,000 10 9.25 9/30/08
Robert S. Taylor 35,000 7 7.56 1/27/08
25,000 5 9.25 9/30/08
</TABLE>
__________________
AGGREGATE OPTION EXERCISES DURING 1998 AND OPTION VALUES AT FISCAL YEAR END
The following table contains information concerning the aggregate option
exercises during 1998 and the value of outstanding options as of December 31,
1998.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
YEAR END (#) YEAR END ($)(1)
SHARES ------------ --------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
ON EXERCISE (#) REALIZED UNEXERCISABLE UNEXERCISABLE
---------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
Terence E. Hall -- $ 44,000/0 $ 13,807/0
James E. Ravannack -- 44,000/0 13,807/0
Kenneth Blanchard -- 135,500/0 10,615/0
Charles Funderburg 20,000 $ 172,447 120,000/0 0/0
Robert S. Taylor. -- 110,000/0 8,595/0
</TABLE>
___________________
(1) Based on the difference between the closing sale price of Superior Common
Stock of $2.8438 on December 31, 1998, as reported by the Nasdaq National
Market and the exercise price of such options.
__________________
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1996, Superior terminated an employment agreement with Kenneth
Boothe, who was a director of Superior at that time, and in settlement of the
employment agreement Superior entered into a consulting agreement pursuant to
which Superior paid Mr. Boothe $60,000 in each of 1996 and 1997, and agreed to
pay him $60,000 in 1998. In 1998, the consulting agreement was terminated and
Superior paid Mr. Boothe $60,000 and assigned to Mr. Boothe a note receivable
that Superior had fully reserved in prior years.
Superior paid Justin Sullivan, a director, financial consulting fees of
$10,000 and $13,000 in 1998 and 1997, respectively.
Superior paid Richard Lazes, a former director and employee, approximately
$69,000 and $70,000 in 1998 and 1997, respectively as rent for the headquarters
and operating facility used by Superior's wholly-owned subsidiary, Oil Stop,
Inc. Superior is obligated to make rent payments for these facilities to Mr.
Lazes in the amount of $69,000 in 1999 and 24,000 in 2000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Superior's
directors, executive officers and 10% stockholders to file with the Securities
and Exchange Commission reports of ownership and changes in ownership of equity
securities of Superior. Superior believes that during 1998 its directors and
executive officers complied with all these filing requirements except for one
transaction by Mr. Taylor that was inadvertently omitted and later reported
relating to options granted to him by Superior. In addition, Mr. Hall
inadvertently omitted and later reported gifts of common stock made by him.
<PAGE>
PROPOSED AMENDMENT TO CERTIFICATE OF INCORPORATION
TO INCREASE NUMBER OF AUTHORIZED SHARES
(PROPOSED NO. 3)
Superior's Board of Directors has unanimously approved a proposal to amend
the Certificate of Incorporation to increase the number of authorized shares of
Superior Common Stock from 40 million to 125 million, such amendment only to be
effected if the Merger is consummated. A copy of the Authorized Share
Amendment is attached hereto as Appendix C and is incorporated herein by
reference.
PURPOSES AND EFFECTS OF THE PROPOSAL
Superior is currently authorized under the Certificate of Incorporation to
issue up to 45 million shares of capital stock, of which 40 million shares have
been designated Superior Common Stock and 5 million shares have been designated
Preferred Stock. As of the Record Date, approximately [28,792,523] shares of
Superior Common Stock were outstanding and 1,651,500 shares were reserved for
issuance upon the exercise of outstanding stock options.
In order to consummate the Merger, Superior will issue a number of shares
of Superior Common Stock to the stockholders of Cardinal that will give the
stockholders of Cardinal 51% of the then outstanding shares of Superior Common
Stock on a fully diluted basis. The Board proposes to increase the authorized
number of shares of Superior Common Stock to 125 million in order to have
sufficient shares to consummate the Merger, and to provide for the issuance of
shares upon the exercise of new stock options proposed to be granted under the
Plan in connection with the Merger. See "Proposal to Approve the Superior
Energy Services, Inc. 1999 Stock Incentive Plan" and "The Merger - Interests of
Certain Persons in the Merger."
If the stockholders approve the Authorized Share Amendment to Superior's
Certificate of Incorporation, following the Merger, based on the number of
fully diluted shares of Superior Common Stock as of March 31, 1999, Superior
would have approximately 58,791,239 million shares of Superior Common Stock
outstanding and 5,190,117 shares reserved for issuance upon the exercise of
outstanding stock options.
VOTE REQUIRED
To be adopted, the proposal to amend the Certificate to increase
Superior's authorized stock must receive the affirmative vote of the holders of
a majority of the outstanding stock of Superior. If adopted, the Authorized
Share Amendment will become effective concurrently with the Closing Date and as
soon as Superior files with the Delaware Secretary of State the certificate
required under state law. Approval of this proposal is a condition to
consummation of the Merger. Likewise, the Authorized Share Amendment will only
be effected if the Merger is consummated.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR the
Authorized Shares Amendment.
<PAGE>
PROPOSED AMENDMENT TO CERTIFICATE OF INCORPORATION
TO RESTRICT OWNERSHIP BY NON-UNITED STATES CITIZENS
(PROPOSAL NO. 4)
GENERAL
The Merchant Marine Act of 1920, as amended, the Merchant Marine Act of
1936, as amended, and the Shipping Act, 1916, as amended (collectively, the
"Maritime Laws") provide that vessels may only transport passengers and
merchandise between points in the United States (defined as "operating in the
coastwise trade") if they are owned by Citizens of the United States. In order
for a corporation owning vessels operating in the coastwise trade to qualify as
a United States Citizen, at least 75% of the outstanding stock of the
corporation must be owned by persons or organizations that are United States
Citizens within the meaning of the Maritime Laws. These requirements currently
apply to Cardinal because it operates vessels in the coastwise trade, and,
after the Merger, these requirements will also apply to Superior. Accordingly,
if, following the Merger, persons or organizations that are not United States
Citizens ("Non-Citizens") were to own in the aggregate more than 25% of the
outstanding Superior Common Stock, the Maritime Laws would not permit Superior
to continue to operate Cardinal's vessels in the United States coastwise trade.
Continued operation of vessels in violation of the Maritime Laws could result
in the forfeiture of the vessels, their cargoes or their values to the United
States.
The Board of Directors of Superior has unanimously adopted a resolution
proposing an amendment to Superior's Certificate of Incorporation to enable
Superior to regulate the ownership of its capital stock by persons who are not
citizens of the United States, such amendment only to be effected upon
consummation of the Merger. A copy of the Citizenship Amendment is attached
hereto as Appendix D and is incorporated herein by reference.
BACKGROUND AND PURPOSE OF THE CITIZENSHIP AMENDMENT
As stated above, under the Maritime Laws, Superior must be a Citizen of
the United States in order for it to continue to operate Cardinal's vessels in
the coastwise trade. In order to be a Citizen, not less than 75% of Superior's
Capital Stock must be beneficially owned by Citizens. Under regulations issued
by the Secretary, a corporation may use the "fair inference test" in proving
its status as a Citizen. Under the fair inference test, the Secretary will
infer that the 75% ownership requirement has been satisfied if 95% of the
mailing addresses of the corporation's stockholders are within the United
States. Superior intends to monitor its stock ownership records to verify its
continuing compliance with the stock ownership requirements and intends to use
the fair inference test. However, it is possible that future changes in
ownership of Superior's Capital Stock (as defined below) would eliminate the
availability of the fair inference test. If the fair inference test is not
satisfied, the regulations require a corporation to prove that the ultimate
owners of at least 75% of its Capital Stock are Citizens. Moreover, the
regulations also require a corporation to supply citizenship information
regarding any stockholder owning 5% or more of its issued and outstanding
Capital Stock. In view of the potentially serious consequences of Superior's
failure to prove that it meets the citizenship requirements of the Maritime
Laws, and in view of the potential difficulty in establishing its status as a
Citizen if there is any material change in the composition of its stockholders,
the Board of Directors believes that implementation of the Citizenship
Amendment is highly desirable.
DESCRIPTION OF CITIZENSHIP AMENDMENT PROVISIONS
If the Amendment is adopted, any transfer or purported transfer of shares
of Capital Stock of Superior that would result in the ownership by Non-Citizens
of capital stock having more than 23% (the "Permitted Amount") of the Total
Voting Power (as defined below) of Superior would be void and would not be
effective against Superior except for the purpose of enabling Superior to
effect certain remedies that are described below. The Citizenship Amendment
defines Capital Stock as any class or series of capital stock of Superior
(other than such class or classes of Superior's stock, if any, that MARAD
permits to be excluded from the determination of whether Superior is in
compliance with the citizenship requirements of the Maritime Laws), and defines
Total Voting Power as the total number of votes that may be cast by shares of
Superior's capital stock with respect to the election of its directors.
The Citizenship Amendment further defines a Non-Citizen as any Person
(defined as including an individual, corporation, partnership, limited
liability company, trust, joint venture or other association) other than a
citizen, and a "Citizen" is defined as:
(i) any individual who is a citizen of the United States;
(ii) any corporation, partnership, association or limited liability
company (A) that is organized under the laws of the United States or of a
state, territory, district or possession thereof, (B) of which not less than
75% of its stock or equity interest is beneficially owned by Persons who are
Citizens, (C) whose president or chief executive officer, chairman of the board
of directors and all officers authorized to act in the absence or disability of
such Persons are Citizens (or, in the case of a partnership, all of its general
partners are Citizens), and (D) of which more than 50% of the number of its
directors, (or equivalent persons) necessary to constitute a quorum are
Citizens;
(iii) any joint venture (if not an association, corporation or
partnership) (A) that is organized under the laws of the United States or of a
state, territory, district or possession thereof and (B) all co-venturers of
which are Citizens; and
(iv) any trust (A) that is domiciled in and existing under the laws of
the United States or of a state, territory, district or possession thereof, (B)
the trustee of which is a Citizen, and (C) of which not less than a 75%
interest is held for the benefit of Citizens.
Under the Citizenship Amendment, voting rights will be denied to any
shares owned by Non-Citizens in excess of the Permitted Amount (the "Excess
Shares"), and dividends will be withheld by Superior with respect to such
Excess Shares, pending transfer of the Excess Shares to a Citizen or a
reduction in the aggregate number of shares owned by Non-Citizens to or below
the Permitted Amount. Superior's Board of Directors will have the power to
make a conclusive determination as to those shares of Superior Capital Stock
that constitute the Excess Shares. This determination will be made by
reference to the most recent acquisitions of shares of Capital Stock of
Superior by Non-Citizens.
In addition, the Citizenship Amendment would authorize, but not require,
Superior to redeem shares of Capital Stock owned by Non-Citizens in excess of
the Permitted Amount in order to reduce ownership by Non-Citizens to the
Permitted Amount. The redemption price would be equal to (i) the average of
the closing sales prices of such shares on the Nasdaq National Market (or, if
listed on a national security exchange, the average closing price of such
shares on such exchange, and if not listed on any national security exchange or
quoted on Nasdaq, the mean between the representative bid and ask prices as
quoted by Nasdaq or other generally recognized reporting systems, and if not so
quoted, as determined in good faith by the Board of Directors) during the 10
trading days prior to the notice of redemption and (ii) any dividend or other
distribution declared with respect to such shares prior to the date such shares
are called for redemption but which has been withheld by Superior. Superior
would have the option to pay the redemption price for any shares owned by Non-
Citizens in excess of the Permitted Amount in cash or by delivery of a
promissory note having a maturity of not more than ten years from the date of
issuance and bearing interest at a rate equal to the then current coupon rate
of a 10-year Treasury note.
The Citizenship Amendment would also authorize the Board of Directors to
implement in the future measures necessary or desirable to assure that it can
monitor effectively the citizenship of the holders of its Capital Stock. To
that end, the Board would have the authority to require proof of citizenship,
of existing or prospective stockholders, as well as to implement and maintain a
dual stock certificate system under which different forms of stock certificates
representing outstanding shares of Superior's Capital Stock would be issued to
Citizens or Non-Citizens. If a dual stock certificate system were to be
implemented, any stock certificate surrendered for transfer thereafter would
have to be accompanied by a citizenship certificate signed by the transferee
and any additional proof of citizenship requested by Superior or its transfer
agent, with the transfer agent then registering the transfer and issuance of a
new stock certificate designated as Citizen or Non-Citizen depending upon the
citizenship of the new owner. In addition, to the extent necessary to enable
Superior to determine the number of shares owned by Non-Citizens for purposes
of submitting the proof of United States citizenship required under the
Maritime Laws, Superior could require record holders and beneficial owners from
time to time to confirm their citizenship status and could, in the discretion
of the Board of Directors, temporarily withhold dividends payable, and deny
voting rights, with respect to the shares of Capital Stock held by any such
record holder and beneficial owner until confirmation of its citizenship status
is received. Superior's management has been advised by its transfer agent and
by certain nominee holders of Superior Common Stock (including The Depository
Trust Company) that dual stock certificate systems for other similarly situated
companies are currently in place and that the transfer agent would be able to
implement procedures pursuant to which Superior would be able to monitor the
citizenship of the beneficial owners of its securities following the
implementation of a dual stock certificate system.
Based on its current low level of stock ownership by Non-Citizens, the
Board of Directors has determined that it is unnecessary to implement a dual
stock certificate system at this time. However, the Board of Directors
intends to review periodically its level of stock ownership by Non-Citizens,
and it is possible that the Board would implement a dual stock certificate
system if the level of stock ownership by Non-Citizens materially increases in
the future. Stockholders should not seek to exchange their stock certificates
at this time. If a dual stock certificate system is implemented in the future,
instructions regarding the exchange of outstanding stock certificates for
"Citizen" and "Non-Citizen" stock certificates will be mailed to the
stockholders of Superior at that time.
EFFECT OF AMENDMENT ON STOCKHOLDERS
Although the implementation of the Citizenship Amendment will not affect
the rights of Superior's stockholders who are Citizens to hold its outstanding
Superior Common Stock, if the number of shares of Superior Common Stock held by
Non-Citizens approaches the Permitted Amount, the ability of stockholders of
Superior who are Citizens to sell Superior Common Stock to Non-Citizens may be
curtailed, which could have an adverse effect on the liquidity of their
holdings of Superior Common Stock. Because sales of Superior Common Stock by
Citizens and Non-Citizens to Citizens will not be affected by the
implementation of the Citizenship Amendment, any such effect is not expected to
be material.
Based on information supplied to Superior by its transfer agent, none of
the Superior Common Stock outstanding was held of record by Non-Citizens as of
the Record Date, and based on information supplied to Superior by Cardinal,
none of the Superior Common Stock estimated to be outstanding following the
Merger is expected to be held of record by Non-Citizens. Although record
ownership is not necessarily indicative of the beneficial ownership of such
shares, the Board of Directors has no reason to believe that the percentage of
the Superior Common Stock beneficially owned by Non-Citizens is materially
higher than the percentage reflected in its stock transfer records. Because
any remedies that may be imposed by Superior pursuant to the Citizenship
Amendment will be imposed solely on the Excess Shares, determined as described
above, and because it is not expected that there will be any Excess Shares at
the time the Citizenship Amendment is approved, the implementation of the
Citizenship Amendment is not expected to have any immediate effect on current
stockholders of Superior.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of
Superior Common Stock outstanding is required to approve the Citizenship
Amendment. If adopted, the Citizenship Amendment will become effective
concurrently with the Closing Date and as soon as Superior files with the
Delaware Secretary of State the certificate required under state law. Approval
of this proposal is a condition to consummation of the Merger. Likewise, the
Citizenship Amendment will only be effected if the Merger is consummated.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR the
Citizenship Amendment.
<PAGE>
PROPOSAL TO APPROVE THE SUPERIOR ENERGY SERVICES, INC.
1999 STOCK INCENTIVE PLAN
(PROPOSAL NO. 5)
GENERAL
The Board of Directors of Superior strongly believes that the growth of
Superior depends upon the efforts of its directors, officers, key employees,
consultants and advisers and that the Superior Energy Services, Inc. 1999 Stock
Incentive Plan (the "Plan") will provide an effective means of attracting and
retaining qualified key personnel and enhancing their long-term focus on
maximizing stockholder value. The Plan was adopted by the Board of Directors,
subject to approval by the stockholders at the Meeting, and to be effected only
upon consummation of the Merger. The principal features of the Plan are
summarized below. This summary is qualified in its entirety, however, by
reference to the Plan, a copy of which is attached to this Proxy Statement as
Appendix E.
Officers, key employees, consultants or advisers of Superior (including
officers who are also directors of Superior) will be eligible to receive awards
("Incentives") under the Plan when designated by the Compensation Committee.
After the Merger, Superior and its subsidiaries (including Cardinal and
and Cardinal Services, Inc.) will have approximately 28 officers, 232 key
employees and no consultants or advisers eligible to be granted Incentives
under the Plan. Incentives under the Plan may be granted in any one or a
combination of the following forms: (a) incentive stock options under Section
422 of the Internal Revenue Code (the "Code") and non-qualified stock options;
(b) restricted stock; and (c) other stock-based awards.
Directors of Superior who are not also full-time employees of Superior
("Outside Directors") will automatically be granted non-qualified stock options
through the Plan upon joining the Board and on an annual basis thereafter.
Superior currently has two Outside Directors. Immediately following the
Meeting and the Merger, Superior will have five Outside Directors.
PURPOSE OF THE PROPOSAL
The Board of Directors is committed to creating and maintaining a
compensation system based to a significant extent on grants of equity-based
awards. The Board of Directors believes that providing members of management
and key personnel with a proprietary interest in the growth and performance of
Superior is crucial to stimulating individual performance while at the same
time enhancing stockholder value. The Board further believes that the Plan
will provide Superior with the ability to attract, retain and motivate key
personnel and directors in a manner that is tied to the interests of
stockholders.
TERMS OF THE PLAN
SHARES ISSUABLE THROUGH THE PLAN. A total of 10% of the number of shares
of Superior Common Stock that will be issued and outstanding following the
Merger will be authorized to be issued under the Plan. There are currently
1,651,500 options outstanding under Superior's 1995 Stock Incentive Plan (the
"1995 Plan") and 64,000 shares remain available for grant under the 1995 Plan.
Shares of Superior Common Stock subject to Incentives that are cancelled,
terminated or forfeited prior to issuance, or shares of Superior Common Stock
that are issued as Incentives and forfeited or reacquired by Superior will
again be available for issuance under the Plan. Incentives that are paid in
cash are not counted against the total number of shares issuable through the
Plan. To the extent that shares are delivered to pay the exercise price of
options under the Plan, the number of shares delivered will again be available
for the grant of awards under the Plan, other than the grant of incentive stock
options under Section 422 of the Code. Under no circumstances may the number
of shares issued pursuant to incentive stock options exceed 250,000 shares.
The number of shares with respect to which awards of restricted stock and other
stock-based awards for which a per share purchase price of less than 100% of
fair market value is paid may not exceed 250,000 shares. The shares to be
delivered under the Plan will be made available from the authorized but
unissued shares of Superior Common Stock, from treasury shares or from shares
acquired by Superior on the open market or otherwise. No individual may
receive in any year awards under the Plan, whether payable in cash or shares,
that relate to more than 1,000,000 shares of Superior Common Stock.
The number and kind of shares of Superior Common Stock subject to the Plan
and subject to outstanding Incentives will be adjusted in the event of a change
in the capital structure of Superior in proportion to the change in the
outstanding shares of Superior Common Stock.
The closing sale price of a share of Superior Common Stock, as quoted on
the Nasdaq Stock Market on May 14, 1999, was $4.94.
ADMINISTRATION OF THE PLAN. The Compensation Committee will administer
the Plan and will have authority to award Incentives under the Plan, to
interpret the Plan, to establish any rules or regulations relating to the Plan
that it determines to be appropriate, to make any other determination that it
believes necessary or advisable for the proper administration of the Plan and
to delegate its authority as appropriate.
AMENDMENTS TO THE PLAN. The Board may amend or discontinue the Plan at
any time, except that no amendment or discontinuance may materially impair,
without the consent of the recipient thereof, an Incentive previously granted;
provided, however, that Superior retains the right to convert an incentive
stock option to a non-qualified stock option or to exercise all rights provided
in the Plan in the event of a change of control of Superior.
TYPES OF INCENTIVES. Each of the types of Incentives that may be granted
under the Plan is described below:
STOCK OPTIONS. The Compensation Committee may grant non-qualified stock
options or incentive stock options to purchase shares of Superior Common Stock.
The Compensation Committee will determine the number and exercise price of the
options, and the time or times that the options become exercisable, provided
that the option exercise price may not be less than the fair market value of
the Superior Common Stock on the date of grant. The term of an option will
also be determined by the Compensation Committee, provided that the term of an
incentive stock option may not exceed 10 years. The Compensation Committee may
accelerate the exercisability of any stock option at any time. The
Compensation Committee may also approve the purchase by Superior of an
unexercised stock option from the optionee by mutual agreement for the
difference between the exercise price and the fair market value of the shares
covered by the option.
The option exercise price may be paid in cash, in shares of Superior
Common Stock held for six months, in a combination of cash and shares of
Superior Common Stock or through a broker assisted exercise arrangement
approved in advance by Superior.
Incentive stock options will be subject to certain additional requirements
necessary in order to qualify as incentive stock options under <section>422 of
the Code.
RESTRICTED STOCK. Shares of Superior Common Stock may be granted by the
Compensation Committee to an eligible employee and made subject to restrictions
on sale, pledge or other transfer by the employee for a certain period (the
"Restricted Period"). A Restricted Period of at least three years is required,
except that if vesting of the shares is subject to the attainment of specified
performance goals, a Restricted Period of one year or more is permitted. All
shares of restricted stock will be subject to such restrictions as the
Compensation Committee may provide in an agreement with the employee,
including, among other things, that the shares are required to be forfeited or
resold to Superior in the event of termination of employment or in the event
specified performance goals or targets are not met. Subject to the
restrictions provided in the agreement and the Plan, a participant receiving
restricted stock shall have all of the rights of a stockholder as to such
shares.
OTHER STOCK-BASED AWARDS. The Plan also authorizes the Compensation
Committee to grant participants awards of Superior Common Stock and other
awards that are denominated in, payable in, valued in whole or in part by
reference to, or are otherwise based on the value of, Superior Common Stock
("Other Stock-Based Awards"). The Compensation Committee has discretion to
determine the participants to whom Other Stock-Based Awards are to be made, the
times at which such awards are to be made, the size of such awards, the form of
payment, and all other conditions of such awards, including any restrictions,
deferral periods or performance requirements. The terms of the Other Stock-
Based Awards will be subject to such rules and regulations as the Compensation
Committee determines. An Other Stock-Based Award, including an outright grant
of shares, may be made in lieu of the payment of cash compensation otherwise
due to a participant from Superior.
PERFORMANCE-BASED COMPENSATION UNDER SECTION 162(M). For restricted stock
and Other Stock-Based Awards that are intended to qualify as performance-based
compensation under Section 162(m), the Compensation Committee will establish
specific performance goals for each performance period not later than 90 days
after the beginning of the performance period. The Compensation Committee will
also establish a schedule, setting forth the portion of the award that will be
earned or forfeited based on the degree of achievement, or lack thereof, of the
performance goals at the end of the performance period by Superior, an
operating division or a subsidiary. The Compensation Committee will use any or
a combination of the following performance measures: earnings per share, return
on assets, an economic value added measure, stockholder return, earnings,
return on equity, return on investment, cash provided by operating activities,
increase in cash flow or the safety record of Superior, an operating division
or a subsidiary. For any performance period, the performance objectives may be
measured on an absolute basis or relative to a group of peer companies selected
by the Compensation Committee, relative to internal goals, or relative to
levels attained in prior years.
In the event of a change of control of Superior or the retirement, death
or disability of a participant during the performance period, the Compensation
Committee may provide that all or a portion of the restricted stock and Other
Stock-Based Awards will vest, but if an Incentive vests in that manner, the
compensation will not qualify as performance-based compensation under Section
162(m). Prior to the payment of any Other Stock-Based Award or the release of
restrictions on performance-based restricted stock, the Compensation Committee
must certify in writing that the performance goals and all applicable
conditions have been met.
The Compensation Committee retains authority to change the performance
goal objectives with respect to future grants to any of those provided in the
Plan. As a result, the regulations under Section 162(m) require that the
material terms of the performance goals be reapproved by the stockholders five
years after initial stockholder approval.
GRANT OF OPTIONS TO OUTSIDE DIRECTORS. The Plan provides for the
automatic grant to each Outside Director of an option to acquire 20,000 shares
of Superior Common Stock on the date such person first becomes a member of the
Board and an option to acquire 5,000 shares of Superior Common Stock on the day
following each annual meeting of stockholders beginning with the 2000 annual
meeting, if shares of Superior Common Stock remain available for grant under
the Plan. The exact number to be granted each year shall be determined by the
Compensation Committee.
The options granted to Outside Directors become exercisable 25% per year
beginning one year after grant, but become immediately exercisable in full in
the event of a change of control of Superior or in the event of the Outside
Director's retirement from the Board on or after reaching age 65, death or
disability. No stock option granted to an Outside Director may be exercised
more than 10 years after the date of grant or more than one year after
termination of Board service. The exercise price of stock options granted to
Outside Directors shall be equal to the fair market value of a share of
Superior Common Stock on the date of grant.
TERMINATION OF EMPLOYMENT. If an employee participant ceases to be an
employee of Superior for any reason, including death, any Incentive may be
exercised or shall expire at such time or times as may be determined by the
Committee in the Incentive agreement.
CHANGE OF CONTROL. In the event of a change of control of Superior, as
defined in the Plan, all outstanding options granted pursuant to the Plan shall
become fully exercisable, all Incentives shall vest in full, all restrictions
or limitations on any Incentives shall lapse and all performance criteria and
other conditions relating to the payment of Incentives will be deemed to be
achieved.
In addition to the acceleration of exercisability and vesting upon the
occurrence of a change of control, the Compensation Committee will have the
authority to take a variety of actions regarding outstanding Incentives.
Within certain time periods, the Compensation Committee may (i) require that
all outstanding stock options remain exercisable only for a limited time, after
which time all such options will terminate, (ii) require the surrender to
Superior of some or all outstanding options in exchange for Superior Common
Stock or a cash payment for each option equal in value to the per-share change
of control value, calculated as described in the Plan, over the exercise price,
(iii) make any equitable adjustments to outstanding Incentives as the
Compensation Committee deems necessary to reflect the corporate change or (iv)
provide that an option shall become an option relating to the number and class
of shares of stock or other securities or property (including cash) to which
the participant would have been entitled in connection with the corporate
change if the participant had been a stockholder.
TRANSFERABILITY OF INCENTIVES. Incentives are not transferable except
(a) by will, (b) by the laws of descent and distribution, or (c) only in the
case of stock options, pursuant to a domestic relations order, to family
members, to a family partnership, to a family limited liability company or to a
trust for the benefit of family members, if permitted by the Compensation
Committee and so provided in the Incentive agreement.
AWARDS TO BE GRANTED
If the Plan is approved by stockholders and the Merger is consummated,
Superior proposes, subject to the review and final determination by the
Compensation Committee, to grant non-qualified stock options to executive
officers as described under "The Merger - Interests of Certain Persons in the
Merger." In addition, Superior proposes to grant an aggregate of approximately
1,700,000 non-qualified stock options to other officers and employees of the
combined company following consummation of the Merger.
FEDERAL INCOME TAX CONSEQUENCES OF STOCK OPTIONS
Under existing federal income tax provisions, a participant who is granted
a stock option will not normally realize any income, nor will Superior normally
receive any deduction for federal income tax purposes in the year the option is
granted.
When a non-qualified stock option granted pursuant to the Plan is
exercised, the employee will realize ordinary income measured by the difference
between the aggregate purchase price of the shares of Superior Common Stock as
to which the option is exercised and the aggregate fair market value of the
shares of Superior Common Stock on the exercise date and, subject to the
limitations of Section 162(m) of the Code, Superior will be entitled to a
deduction in the year the option is exercised equal to the amount the employee
is required to treat as ordinary income.
An employee generally will not recognize any income upon the exercise of
any incentive stock option, but the excess of the fair market value of the
shares at the time of exercise over the option price will be an item of tax
preference, which may, depending on particular factors relating to the
employee, subject the employee to the alternative minimum tax imposed by
Section 55 of the Code. The alternative minimum tax is imposed in addition to
the federal individual income tax, and it is intended to ensure that individual
taxpayers do not completely avoid federal income tax by using preference items.
An employee will recognize capital gain or loss in the amount of the difference
between the exercise price and the sale price on the sale or exchange of stock
acquired pursuant to the exercise of an incentive stock option, provided the
employee does not dispose of such stock within two years from the date of grant
and one year from the date of exercise of the incentive stock option (the
"required holding periods"). An employee disposing of such shares before the
expiration of the required holding period will recognize ordinary income
generally equal to the difference between the option price and the fair market
value of the stock on the date of exercise. The remaining gain, if any, will
be capital gain. Superior will not be entitled to a federal income tax
deduction in connection with the exercise of an incentive stock option, except
where the employee disposes of the Superior Common Stock received upon exercise
before the expiration of the required holding period.
If the exercise price of an option is paid by the surrender of previously
owned shares, the basis of the previously owned shares carries over to the
shares received in replacement therefor. If the option is a non-qualified
option, the income recognized on exercise is added to the basis. If the option
is an incentive stock option, the optionee will recognize gain if the shares
surrendered were acquired through the exercise of an incentive stock option and
have not been held for the applicable holding period. This gain will be added
to the basis of the shares received in replacement of the previously owned
shares.
If, upon a change in control of Superior, the exercisability or vesting of
an Incentive granted under the Plan is accelerated, any excess on the date of
the change in control of the fair market value of the shares or cash issued
under accelerated Incentives over the purchase price of such shares, if any,
may be characterized as Parachute Payments (within the meaning of Section 280G
of the Code) if the sum of such amounts and any other such contingent payments
received by the employee exceeds an amount equal to three times the "Base
Amount" for such employee. The Base Amount generally is the average of the
annual compensation of such employee for the five years preceding such change
in ownership or control. An Excess Parachute Payment, with respect to any
employee, is the excess of the Parachute Payments to such person, in the
aggregate, over and above such person's Base Amount. If the amounts received
by an employee upon a change in control are characterized as Parachute
Payments, such employee will be subject to a 20% excise tax on the Excess
Parachute Payment pursuant to Section 4999 of the Code, and Superior will be
denied any deduction with respect to such Excess Parachute Payment.
This summary of federal income tax consequences of non-qualified and
incentive stock options does not purport to be complete. Reference should be
made to the applicable provisions of the Code. There also may be state and
local income tax consequences applicable to transactions involving options.
VOTE REQUIRED
Approval of the Plan requires the affirmative vote, cast in person or by
proxy, of the holders of at least a majority of the shares of Superior Common
Stock present and entitled to vote at the Meeting. Approval of this Proposal
is a condition to consummation of the Merger. Likewise, the Plan will only be
effected if the Merger is consummated.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR approval
of the Plan.
RELATIONSHIP WITH INDEPENDENT
PUBLIC ACCOUNTANTS
KPMG LLP has been selected by the Board of Directors to serve as
Superior's independent public accountants for the fiscal year ending
December 31, 1999. A representative of KPMG LLP is expected to attend the
Meeting, will have an opportunity to make a statement if he wishes to do so,
and will be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Eligible stockholders who desire to present a proposal qualified for
inclusion in the proxy materials related to the 2000 annual meeting of
stockholders must forward such in writing to the Secretary of Superior at the
address set forth on the first page of this Proxy Statement, in time to arrive
at Superior prior to _______________, 2000 [120 DAYS PRIOR TO THE ANNIVERSARY
DATE OF THIS PROXY STATEMENT.] If such proposal is in compliance with all of
the requirements of Rule 14a-8 under the Exchange Act, it will be included in
the proxy statement and set forth on the form of proxy issued for such annual
meeting of stockholders. It is urged that any such proposals be sent by
certified mail, return receipt requested.
Stockholder proposals which are not submitted for inclusion in Superior's
proxy materials pursuant to Rule 14a-8 under the Exchange Act may be brought
before an annual meeting provided that the proposals are timely. Such
proposals will be considered timely under the following circumstances:
(i) If the Merger is consummated, Superior's By-laws will require that
any stockholder who desires to present a proposal before the 2000 annual
meeting must notify the Secretary of Superior of such intent no earlier than
___________ [270 DAYS BEFORE THE ANNIVERSARY DATE OF THE MEETING] and no later
than ______________, 2000. [120 DAYS PRIOR TO THE ANNIVERSARY DATE OF THE
MEETING].
(ii) If the Merger is not consummated, any stockholder who desires to
present a proposal before the 2000 annual meeting must notify the Secretary of
Superior of such intent no later than ______________, 2000. [45 DAYS PRIOR TO
THE ANNIVERSARY DATE OF THE MAILING OF THIS PROXY STATEMENT.]
By Order of the Board of Directors
Carolyn Plaisance
Secretary
Harvey, Louisiana
June ___, 1999
<PAGE>
INDEX TO FINANCIAL STATEMENTS
SUPERIOR ENERGY SERVICES, INC.
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and March 31,
1999 F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998, and the three months ended March 31, 1998 and 1999 F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1996, 1997 and 1998, and the three months ended March
31, 1999 F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998, and the three months ended March 31, 1998 and 1999 F-6
Notes to Consolidated Financial Statements F-7
CARDINAL HOLDING CORP.
Independent Auditors' Report F-19
Consolidated Balance Sheets as of December 31, 1997 and 1998 and March
31, 1999 F-20
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998, and the three months ended March 31, 1998 and 1999 F-21
Consolidated Statements of Shareholders' Equity (Capital Deficiency)
for the years ended December 31, 1996, 1997 and 1998, and the three
months ended March 31, 1999 F-22
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998, and the three months ended March 31, 1998 and 1999 F-23
Notes to Consolidated Financial Statements F-24
<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, 1997 and 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of Superior'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, 1997 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
KPMG LLP
New Orleans, Louisiana
March 9, 1999
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------------- ----------
1997 1998 1999
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,902 $ 737 $ 1,131
Accounts receivable - net of allowance
for doubtful accounts of $551,000 in
1997 and $798,000 in 1998 24,054 22,486 17,216
Inventories 1,778 2,972 3,030
Income tax receivable --- 2,568 ---
Other 1,513 1,892 1,928
---------- ---------- ----------
Total current assets 29,247 30,655 23,305
Property, plant and equipment - net 51,797 76,187 76,647
Goodwill - net 35,989 24,302 24,080
Patent - net 1,027 --- ---
---------- ---------- ----------
Total assets $ 118,060 $ 131,144 $ 124,032
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,976 $ 5,557 $ 3,118
Accrued expenses 3,872 6,316 3,035
Income taxes payable 893 --- 534
---------- ---------- ----------
Total current liabilities 10,741 11,873 6,687
Deferred income taxes 7,127 8,612 8,612
Long-term debt 11,339 27,955 25,006
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 and outstanding:
1997 - 29,173,390 shares;
1998 - 28,792,523 shares 29 29 29
Additional paid-in capital 78,590 78,794 78,794
Retained earnings 10,234 6,126 7,149
Treasury stock, at cost, 474,500 shares in 1998 --- (2,245) (2,245)
---------- ---------- ----------
Total stockholders' equity 88,853 82,704 83,727
---------- ---------- ----------
Total liabilities and stockholders'
equity $ 118,060 $ 131,144 $ 124,032
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ------------------------
(Unaudited)
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ 23,638 $ 54,256 $ 91,334 $ 22,702 $ 18,042
---------- ---------- ---------- ---------- ----------
Costs and expenses:
Costs of services 11,040 23,216 43,734 9,562 7,601
Depreciation and amortization 1,323 3,272 7,494 1,661 2,142
Special charges --- --- 13,763 --- ---
General and administrative 5,531 12,530 22,921 5,197 6,149
---------- ---------- ---------- ---------- ----------
Total costs and expenses 17,894 39,018 87,912 16,420 15,892
---------- ---------- ---------- ---------- ----------
Income from operations 5,744 15,238 3,422 6,282 2,150
Other income (expense):
Interest expense-net (127) (722) (1,490) (230) (500)
Merger termination --- --- (2,237) --- ---
Gain on sale of subsidiary --- --- 1,176 1,176 ---
---------- ---------- ---------- ---------- ----------
Income before income taxes 5,617 14,516 871 7,228 1,650
Provision for income taxes 1,685 5,061 4,979 2,747 627
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 3,932 $ 9,455 $ (4,108) $ 4,481 $ 1,023
========== ========== ========== ========== ==========
Earnings (loss) per share:
Basic $ 0.22 $ 0.44 $ (0.14) $ .15 $ .04
========== ========== ========== ========== ==========
Diluted $ 0.22 $ 0.43 $ (0.14) $ .15 $ .04
========== ========== ========== ========== ==========
Weighted average common shares
used in computing earnings (loss)
per share:
Basic 17,566 21,695 28,982 29,182 28,793
========== ========== ========== ========== ==========
Diluted 17,619 21,993 28,982 29,531 28,822
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(in thousands, except share data)
<TABLE>
<CAPTION>
COMMON ADDITIONAL
STOCK COMMON PAID-IN RETAINED TREASURY
SHARES STOCK CAPITAL EARNINGS STOCK TOTAL
---------- -------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 17,032,916 $ 17 $ 16,230 $ (3,153) $ --- $ 13,094
Net Income --- --- --- 3,932 --- 3,932
Acquisition of remaining
minority 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
Net income --- --- --- 9,455 --- 9,455
Acquisition of Nautilus Pipe
& Tool Rentals, Inc. 420,000 --- 1,837 --- --- 1,837
Acquisition of Tong Rentals &
Supply Co., Inc. 1,100,000 1 5,499 --- --- 5,500
Exercise of B warrants 4,466,509 4 14,468 --- --- 14,472
Sale of common stock 3,900,000 4 36,867 --- --- 36,871
Exercise of stock options 689,836 1 368 --- --- 369
---------- -------- ------------ ---------- ---------- ---------
Balance, December 31, 1997 29,173,390 29 78,590 10,234 --- 88,853
Net loss --- --- --- (4,108) --- (4,108)
Purchase of common stock for
treasury (474,500) --- --- --- (2,245) (2,245)
Exercise of stock options 93,633 --- 204 --- --- 204
---------- -------- ------------ ---------- ---------- ---------
Balance, December 31, 1998 28,792,523 29 78,794 6,126 (2,245) 82,704
Net Income (Unaudited) --- --- --- 1,023 --- 1,023
---------- -------- ------------ ---------- ---------- ---------
Balance, March 31, 1999
(Unaudited) 28,792,523 $ 29 $ 78,794 $ 7,149 $ (2,245) $ 83,727
========== ======== ============ ========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEARS ENDED DECEMBER 31, (UNAUDITED)
--------------------------------------- ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,932 $ 9,455 $ (4,108) $ 4,481 $ 1,023
Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
Depreciation and amortization 1,323 3,272 7,494 1,661 2,142
Unearned income (692) (392) --- --- ---
Gain on sale of subsidiary --- --- (1,176) (1,176) ---
Special charges --- --- 13,763 --- ---
Deferred income taxes 258 (65) 777 --- ---
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable (1,490) (7,707) 3,863 85 5,270
Inventories (229) (572) 550 (10) (58)
Other - net (56) (249) 955 163 198
Accounts payable (1,482) 403 (1,725) 307 (2,439)
Due to shareholders (302) (1,433) --- --- ---
Accrued expenses 751 1,083 1,047 (381) (3,281)
Income taxes payable 663 (1,452) (3,314) 1,885 3,102
------- ------- -------- ------- -------
Net cash provided by operating activities 2,676 2,343 18,126 7,015 5,957
------- ------- -------- ------- -------
Cash flows from investing activities:
Proceeds from sale of property and equipment 354 --- --- --- ---
Payments for purchases of property and equipment (1,965) (9,804) (29,120) (11,015) (2,614)
Deferred payment for acquisition of subsidiaries (2,000) --- (750) (750) ---
Acquisition of businesses, net of cash acquired (2,321) (47,793) (3,583) --- ---
Proceeds from sale of subsidiary --- --- 4,247 4,247 ---
------- ------- -------- ------- -------
Net cash used in investing activities (5,932) (57,597) (29,206) (7,518) (2,614)
------- ------- -------- ------- -------
Cash flows from financing activities:
Proceeds from notes payable-net (1,379) 5,011 11,956 826 (2,949)
Proceeds from exercise of stock options --- 369 204 57 ---
Purchase of common stock for treasury --- --- (2,245) --- ---
Proceeds from sale of common stock --- 36,871 --- --- ---
Proceeds from exercise of B warrants --- 14,472 --- --- ---
------- ------- -------- ------- -------
Net cash (used in) provided by financing activities (1,379) 56,723 9,915 883 (2,949)
------- ------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents (4,635) 1,469 (1,165) 380 394
Cash and cash equivalents at beginning of year 5,068 433 1,902 1,902 737
------- ------- -------- ------- -------
Cash and cash equivalents at end of year $ 433 $ 1,902 $ 737 $ 2,282 $ 1,131
======= ======= ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1997 and 1998
(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 (Superior).
All significant intercompany accounts and transactions are
eliminated in consolidation. Certain previously reported amounts
have been reclassified to conform to the 1998 presentation.
(b) BUSINESS
Superior 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 services, electric and mechanical
wireline services, tank cleaning, the manufacture and sale of
computerized electronic torque and pressure control equipment and
the manufacture and sale of oil spill containment equipment. A
majority of Superior's business is conducted with major oil and gas
exploration companies. Superior continually evaluates the financial
strength of their customers but does not require collateral to
support the customer receivables.
Superior's P&A , wireline and tank cleaning 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 on a day rate
basis. Superior derives a significant amount of its revenue from a
small number of major and independent oil and gas companies. In
1996, 1997 and 1998, one customer accounted for 34.5%, 27% and 12%,
respectively, of Superior's consolidated revenue primarily in the
rental and well services segments and another customer accounted
for 2%, 5% and 12%, respectively, of Superior's consolidated
revenue primarily in the rental segment. No other customer
accounted for 10% or more of revenue in 1996, 1997 or 1998. The
inability of Superior 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
Superior's business and financial condition.
(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.
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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:
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
Superior 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, Superior 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.
(e) GOODWILL
Superior amortizes costs in excess of fair value of net assets of
businesses acquired using the straight-line method over a period
not to exceed 30 years. Recoverability is reviewed by comparing the
undiscounted fair value of cash flows of the assets, to which the
goodwill applies to the net book value of the assets, including
goodwill.
(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
Superior considers all short-term deposits with a maturity of
ninety days or less to be cash equivalents.
(h) REVENUE RECOGNITION
For Superior's plug and abandonment (P&A), wireline and rental tool
operations and tank cleaning services, revenue is recognized when
services or equipment are provided. Superior contracts for P&A,
wireline and tank cleaning projects either on a day rate or turnkey
basis, with a majority of its projects conducted on a day rate
basis. Superior'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.
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i) INCOME TAXES
Superior 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) EARNINGS PER SHARE
Superior computes earnings per share in accordance with Statement
of Financial Accounting Standards (FAS) No. 128, Earnings Per Share
which requires the presentation of "basic" and "diluted" earnings
per share as defined, on the face of the income statement for all
entities with complex capital structures. The number of dilutive
stock options and warrants used in computing diluted earnings per
share were 53,000 in 1996 and 298,000 in 1997, and these securities
were anti-dilutive in 1998.
(l) FINANCIAL INSTRUMENTS
Superior's financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable and long-term
debt. The carrying amount of these financial instruments
approximates their fair values.
(m) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (FAS) No. 130,
Reporting Comprehensive Income. FAS No. 130 establishes standards
for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements.
Superior adopted this standard in 1998. Such adoption had no
effect on Superior's financial statement presentation as Superior
has no items of other comprehensive income.
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) SUPPLEMENTAL CASH FLOWS INFORMATION (IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Cash paid for:
Interest, net of amounts capitalized $ 106 $ 649 $ 1,481
============= ============= =============
Income taxes $ 994 $ 5,195 $ 7,050
============= ============= =============
Details of acquisitions:
Fair value of assets $ 8,439 76,245 11,822
------------- ------------- -------------
Fair value of liabilities 2,329 18,202 7,933
Common stock issued 3,288 7,338 ---
Note Payable 250 --- ---
------------- ------------- -------------
Cash paid 2,572 50,705 3,889
Less cash acquired 251 2,912 306
------------- ------------- -------------
Net cash paid for acquisitions $ 2,321 $ 47,793 $ 3,583
============= ============= =============
</TABLE>
(3) BUSINESS COMBINATIONS
In September 1998, Superior acquired all of the outstanding common stock
of Hydro-dynamics Oilfield Contractors, Inc. (Hydro-dynamics) for
$1,000,000 in cash. Payment of an additional $750,000 will be based on
the attainment of certain objectives. At the third anniversary of the
acquisition, additional cash consideration, if any, will be based upon a
multiple of four times Hydro-dynamics' average earnings before interest,
taxes, depreciation and amortization (EBITDA) over a three year period
from the date of acquisition. The contingent consideration, if paid,
will be capitalized as additional purchase price. In no event will the
total consideration paid exceed $22,000,000. The property plant and
equipment of Hydro-dynamics are valued at their estimated fair market
value of approximately $936,000. 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 Hydro-
dynamics of approximately $830,000 was allocated to goodwill.
In June 1998 Superior acquired all of the outstanding common stock of
Lamb Services, Inc. and Tong Specialty, Inc. for $2,857,000 cash.
Additional cash consideration, if any, will be based upon a multiple of
four times the combined companies' average EBITDA less certain
adjustments. The contingent consideration, if paid, will be capitalized
as additional purchase price. The additional consideration will be paid
on the second and third anniversary of the stock purchase agreement, and
in no event, will the total additional payments exceed $28,143,000. The
property, plant and equipment of Lamb Services, Inc. and Tong Specialty,
Inc. were valued at their estimated fair value of approximately $4.1
million. Deferred taxes have been provided for the difference between
the book and tax basis of the property. The remaining assets and
liabilities approximate their fair values. The excess purchase price
over the fair value of the net assets of Lamb Services and Tong Specialty
of approximately $627,000 was allocated to goodwill.
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) BUSINESS COMBINATIONS (CONTINUED)
In 1997, Superior acquired all of the outstanding common stock of six
companies for a combined $50,210,000 cash, 1,520,000 shares of Superior
Common Stock and promissory notes providing for payments of up to
$20,655,000. The amounts payable under the promissory notes are subject
to certain contingencies and are not reflected in the respective
company's purchase price.
In July 1996, Superior, pursuant to a statutory merger, acquired
Baytron, Inc. ("Baytron") for $1,100,000 cash and 550,000 shares of
Superior Common Stock (at a $2.00 per share market price on the date of
merger) 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 were 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.
The above acquisitions were accounted for as a purchase, and the results
of operations of the acquired companies have been included from their
respective acquisition dates.
The following unaudited pro forma information presents a summary of
consolidated results of operations as if the acquisitions had occurred
on January 1, 1998 and January 1, 1997 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>
1997 1998
-------- --------
<S> <C> <C>
Revenues $ 96,869 $ 99,362
======== ========
Net income (loss) $ 12,812 $ (4,538)
======== ========
Basic earnings (loss) per share $ 0.58 $ (0.16)
======== ========
Diluted earnings (loss) per share $ 0.57 $ (0.16)
======== ========
</TABLE>
The above pro forma financial information is not necessarily indicative
of the results of operations as they would have been had the acquisitions
been effected on the assumed date.
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment at December 31, 1997 and 1998
(in thousands) is as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Buildings $ 4,055 $ 6,050
Machinery and equipment 44,551 70,657
Automobiles, trucks, trailers and tractors 3,028 4,247
Furniture and fixtures 604 950
Construction-in-progress 2,356 1,447
Land 1,268 1,596
----------- -----------
55,862 84,947
Less accumulated depreciation 4,065 8,760
----------- -----------
Property, plant and equipment, net $ 51,797 $ 76,187
=========== ===========
</TABLE>
The cost of property, plant and equipment leased to third parties was
$5,266,000 at December 31, 1997 and 1998. Interest cost incurred during
the period of construction of plant and equipment is capitalized. The
interest cost capitalized on plant and equipment was none in 1996,
$167,000 in 1997, and none in 1998.
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) NOTES PAYABLE
Superior's notes payable as of December 31, 1997 and 1998 consist of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Revolving line of credit in the original amount
of $45,000,000 bearing interest based on
LIBOR plus 1.5% to 2.5% set quarterly
(7.31% at December 31, 1998) principal
due April 30, 2000 $ 10,350 $ 27,400
Other installment notes payable with interest
rates ranging from 7% to 10% due in monthly
installments through April, 2011 989 555
---------- ----------
11,339 27,955
Less current portion of notes payable --- ---
---------- ----------
Long-term debt $ 11,339 $ 27,955
========== ==========
</TABLE>
Superior maintains a revolving credit facility which provides for
borrowing of $45.0 million which matures on April 30, 2000, and bears
interest at an rate of LIBOR plus a margin that depends on Superior's
debt coverage ratio. A commitment fee ranging from .25% to .325% per
annum is payable on the unused portion of the credit. Borrowings under
the Bank Credit Facility are available for acquisitions, working capital,
letters of credit and general corporate purposes. Indebtedness under the
Bank Credit Facility is guaranteed by Superior's subsidiaries,
collateralized by substantially all of the assets of Superior and its
subsidiaries, and a pledge of all the common stock of Superior's
subsidiaries. Pursuant to the Bank Credit Facility, Superior has agreed
to maintain certain financial ratios. The Bank Cedit Facility also
imposes certain limitations on the ability of Superior to make capital
expenditures, pay dividends or other distributions to its stockholders,
make acquisitions or incur indebtedness outside of the Bank Credit
Facility. Superior is not required to maintain compensating balances
in connection with these agreements.
(6) INCOME TAXES
The components of income tax expense for the years ended December 31,
1996, 1997 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Current
Federal $ 1,382 $ 3,973 $ 3,346
State 54 621 349
---------- ---------- ----------
1,436 4,594 3,695
---------- ---------- ----------
Deferred:
Federal 242 404 1,223
State 7 63 61
---------- ---------- ----------
249 467 1,284
---------- ---------- ----------
$ 1,685 $ 5,061 $ 4,979
========== ========== ==========
</TABLE>
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Income Taxes (continued)
The significant components of deferred income taxes at December 31, 1997
and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 199 $ 295
Net operating loss carryforward 979 898
Other --- 496
---------- -----------
1,178 1,689
Valuation allowance (1,034) (957)
---------- -----------
Net deferred tax asset 144 732
---------- -----------
Deferred tax liabilities:
Property, plant and equipment (6,408) (8,675)
Patent (280) ---
Other (583) (669)
---------- -----------
(7,271) (9,344)
---------- -----------
$ (7,127) $ (8,612)
========== ===========
</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 change in
the valuation allowance for the years ended December 31, 1996, 1997
and 1998 was a decrease of $908,000, an increase of $42,000, and a
decrease of $77,000, respectively. 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, 1998, Superior had a net operating loss carryforward
of approximately $2.6 million which is available to reduce future
Federal taxable income through 2010. The utilization of the net
operating loss carryforward is limited to approximately $238,000 a year.
Income tax expense differs from the amounts computed by applying the US.
Federal income tax rate of 34% to income before income taxes as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Computed expected tax expense $ 1,910 $ 4,935 $ 296
Increase (decrease) in income taxes
resulting from:
Impairment charge --- --- 4,143
State income taxes (354) 432 480
Other 129 (306) 60
---------- ---------- ----------
Provision for income taxes $ 1,685 $ 5,061 $ 4,979
========== ========== ==========
</TABLE>
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) STOCKHOLDERS' EQUITY
In October 1995, Superior's 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
Superior (Eligible Employees). Under the Incentive Plan, as amended,
Superior may grant incentive stock options, non-qualified stock options,
restricted stock, stock awards or any combination thereof to Eligible
Employees for up to 1,900,000 shares of Superior Common Stock. In
connection with the signing of the merger agreement with Parker Drilling
Company, which was subsequently terminated, all of Superior's outstanding
options vested. 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.
A summary of stock options granted under the Incentive Plan for the years
ended December 31, 1996, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------------------------ ------------------------------ ----------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ------------ ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year 150,000 $ 2.53 531,500 $ 2.55 1,337,800 $ 3.84
===========
Granted 421,500 $ 2.56 860,500 $ 4.56 496,000 $ 7.96
===========
Exercised --- --- (54,200) $ 2.60 (80,300) $ 2.60
Forfeited (40,000) $ 2.56 --- --- (57,000) $ 5.07
=========== ------------ --------- ------------ --------- ------------
Outstanding at the end of year 531,500 $ 2.55 1,337,800 $ 3.84 1,696,500 $ 4.49
=========== ============ ========= ============ ========= ============
Exercisable at end of year 357,000 $ 2.55 443,300 $ 2.58 1,696,500 $ 4.49
=========== ============ ========= ============ ========= ============
Available for future grants 68,500 8,000 64,000
=========== ========= =========
</TABLE>
A summary of information regarding stock options outstanding at December
31, 1998 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ----------------------------------
RANGE OF REMAINING WEIGHTED WEIGHTED
EXERCISE PRICES SHARES CONTRACTURAL LIFE AVERAGE PRICE SHARES AVERAGE PRICE
- ----------------- -------- ------------------- --------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
$ 2.50 - $3.43 733,500 6 - 8 yrs $ 2.95 733,500 $ 2.95
$ 4.75 - $9.25 963,000 8.5 - 9.5 yrs $ 5.67 963,000 $ 5.67
</TABLE>
Additionally, at December 31, 1998, options relating to the 1995 share
exchange to purchase an aggregate of 65,000 shares of Superior Common
Stock at an exercise price of $3.60 per share were outstanding until
December 31, 2000.
Superior 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). However,
Statement of Financial Accounting Standards (FAS) No. 123 Accounting for
Stock-Based Compensation permits the continued use of the value based
method prescribed by Opinion No. 25 but requires 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. The pro forma data presented below is not representative
of the effects on reported amounts for future years (in thousands, except
per share amounts).
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) STOCKHOLDERS EQUITY (CONTINUED)
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
------------------------------------ -----------------------------------
1996 1997 1998 1996 1997 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 3,932 $ 9,455 $ (4,108) $ 3,798 $ 9,117 $ (5,337)
Basic earnings (loss) per share $ 0.22 $ 0.44 $ (0.14) $ 0.22 $ 0.42 $ (0.18)
Diluted earnings (loss) per share $ 0.22 $ 0.43 $ (0.14) $ 0.22 $ 0.41 $ (0.18)
Average fair value of grants during the year $ --- $ --- $ --- $ 0.58 $ 1.48 $ 4.71
======== ======== ======== ======== ======== ========
Black-Scholes option pricing model assumptions
Risk free interest rate 6.1% 6.1% 6.1%
Expected life (years) 3 2 2
Volatility 20.6% 73.0% 119.6%
Dividend yield -0- -0- -0-
======== ======== ========
</TABLE>
(8) COMMITMENTS AND CONTINGENCIES
Superior 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 $169,000, $331, 000 and $530,000
in 1996, 1997 and 1998, respectively. Future minimum lease payments under
non-cancelable leases for the five years ending December 31, 1999 through
2003 are as follows: $586,000, $458,000, $238,000, $178,000 and $51,000
respectively.
From time to time, Superior is involved in litigation arising out of
operations in the normal course of business. In management's opinion,
Superior is not involved in any litigation, the outcome of which would
have a material effect on the financial position, results of operations or
liquidity of Superior.
(9) RELATED PARTY TRANSACTIONS
Superior paid consulting fees to a director, who is not an employee, of
$23,000, $13,000 and $10,000 in 1996, 1997 and 1998, respectively. The
employment contract of a director, who is a former officer, was converted
into a consulting agreement in 1996. He was paid $60,000 in 1996 and 1997.
In 1998, this director's contract was terminated by paying $60,000 and a
note receivable Superior had fully reserved in prior years. Superior
also paid a director, who is also an employee and a shareholder rent of
approximately $46,000, $70,000 and $69,000 in 1996, 1997 and 1998,
respectively. Superior is obligated to make such rent payments in the
future as follows: $69,000 in 1999 and $24,000 in 2000.
(10) SEGMENT INFORMATION
In 1998, Superior adopted Statement of Financial Accounting Standard (FAS)
No. 131, Disclosures about Segments of an Enterprise and Related
Information. Superior's reportable segments are grouped by products and
services as follows: rental tools, well services and other. Each segment
offers unique products and services within the oilfield services industry.
The rental tools segment sells and rents specialized equipment for use
with onshore and offshore oil and gas well drilling, completion,
production and workover activities. The well services segment provides
plug and abandonment services, electric and mechanical wireline services
and tank cleaning to its customer base.
<PAGE>
SUPERIOR ENERGY SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) SEGMENT INFORMATION (CONTINUED)
The other segment manufactures and sells computerized electronic and
pressure control equipment for the oil and gas industry, and provides the
manufacturing, sale and rental of oil spill containment equipment. All of
the segments operate primarily in the Gulf Coast Region.
The accounting policies of the reportable segments are the same as those
described in Note 1 of the Notes to the Consolidated Financial Statements.
Superior evaluates the performance of its operating segments based on
operating profits or losses before special charges. Segment revenues
reflect direct sales of products and services for that segment, and each
segment records direct expenses related to its employees and its
operations. Identifiable assets are primarily those assets directly used
in the operations of each segment.
Summarized financial information concerning Superior's reportable segments
as of December 31, 1996, 1997 and 1998 is shown in the following tables
(in thousands):
<TABLE>
<CAPTION>
RENTAL WELL UNALLOCATED CONSOLIDATED
1996 TOOLS SERVICES OTHER TOTAL AMOUNT TOTAL
-------- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Identifiable assets $ 5,291 $ 12,183 $ 10,613 $ 28,087 $ 113 $ 28,200
Capital expenditures 562 1,217 186 1,965 --- 1,965
Revenues $ 2,843 $ 15,626 $ 5,169 $ 23,638 $ --- $ 23,638
Costs of services 416 8,705 1,919 11,040 --- 11,040
Depreciation and
amortization 522 234 567 1,323 --- 1,323
General and administrative 875 3,188 1,468 5,531 --- 5,531
Operating income 1,030 3,499 1,215 5,744 --- 5,744
Interest --- --- --- --- 127 127
-------- -------- -------- -------- -------- --------
Income before income taxes $ 1,030 $ 3,499 $ 1,215 $ 5,744 $ (127) $ 5,617
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
RENTAL WELL UNALLOCATED CONSOLIDATED
1997 TOOLS SERVICES OTHER TOTAL AMOUNT TOTAL
-------- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Identifiable assets $ 85,149 $ 20,635 $ 11,705 $ 117,489 $ 571 $ 118,060
Capital expenditures 4,850 3,983 971 9,804 --- 9,804
Revenues $ 19,697 $ 27,018 $ 7,541 $ 54,256 $ --- $ 54,256
Costs of services 5,889 14,689 2,638 23,216 --- 23,216
Depreciation and
amortization 1,960 592 720 3,272 --- 3,272
General and administrative 5,245 4,372 2,913 12,530 --- 12,530
Operating income 6,603 7,365 1,270 15,238 --- 15,238
Interest --- --- --- --- 722 722
-------- -------- -------- -------- -------- --------
Income before income taxes $ 6,603 $ 7,365 $ 1,270 $ 15,238 $ (722) $ 14,516
======== ======== ======== ======== ======== ========
</TABLE>
SUPERIOR ENERGY SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
RENTAL WELL UNALLOCATED CONSOLIDATED
1998 TOOLS SERVICES OTHER TOTAL AMOUNT TOTAL
-------- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Identifiable assets $ 101,581 $ 24,266 $ 4,206 $ 130,053 $ 1,091 $ 131,144
Capital expenditures 25,405 3,450 265 29,120 - 29,120
Revenues $ 56,289 $ 30,599 $ 4,446 $ 91,334 $ - $ 91,334
Costs of services 20,949 20,191 2,594 43,734 - 43,734
Depreciation and
amortization 6,070 982 442 7,494 - 7,494
General and administrative 16,273 4,881 1,767 22,921 - 22,921
Special charges 6,902 3,820 3,041 13,763 - 13,763
Operating income 6,095 725 (3,398) 3,422 - 3,422
Merger termination - - - - 2,237 2,237
Gain on sale of subsidiary - - 1,176 1,176 - 1,176
Interest - - - - 1,490 1,490
------------ ----------- ----------- ------------ ----------- ------------
Income before income taxes $ 6,095 $ 725 $ (2,222) $ 4,598 $ (3,727) $ 871
============ =========== =========== ============ =========== ============
</TABLE>
(11) Special Charges and Merger Termination
During the year ended December 31, 1998 Superior recorded a pre-tax
special charge of $14.4 million. The special charge consisted of $12.1
million of impairment of goodwill, $930,000 in patents and $690,000 in
associated inventory as a result of obsolescence and $650,000 of costs
associated with reduction in employees as a result of the general decline
in the industry. The portion of the special charge related to inventory
obsolescence is included in costs of services in the consolidated
statement of operations.
The non-cash writeoff of goodwill was recorded in accordance with FAS No.
121, which requires that long-lived assets and certain identifiable
intangibles held and used by Superior be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The severity as well as the duration of the
current oil and gas industry is such an event. 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 assets.
Superior's review of its long-lived assets indicated that the carrying
value of certain of Superior's assets in the well services, rental tools
and the oil containment boom businesses had been impaired. The fair value
of the assets was determined by discounting the estimated net cash flows
from the assets. The result was impairment charge of $12.1 million for
the year ended December 31, 1998 consisting entirely of goodwill.
The special charges of $930,000 in patents and $690,000 in associated
inventory are a result of obsolescence in the oil containment boom
business as evidenced by declining cash flows. Superior also authorized
and committed to terminating thirty employees during the fourth quarter
of 1998. As a result, included in the special charge, is $650,000 for
severance, unemployment contract and benefits costs for the terminated
employees.
At the beginning of the fourth quarter of 1998, Superior entered into an
agreement to merge with the Parker Drilling Company (Parker). Superior
and Parker subsequently jointly agreed to terminate the merger agreement.
As part of the termination, Superior agreed to pay Parker $2.125 million
and also incurred approximately $112,000 in costs associated with the
merger termination.
<PAGE>
Report of Independent Auditors
The Board of Directors
Cardinal Holding Corp.
We have audited the accompanying consolidated balance sheets of Cardinal
Holding Corp. as of December 31, 1997 and 1998, and the related
consolidated statements of operations, shareholders' equity (capital
deficiency), and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the
responsibility of Cardinal'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 consolidated financial position of
Cardinal Holding Corp. at December 31, 1997 and 1998, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
New Orleans, Louisiana
March 2, 1999,
except for the fourth paragraph of
Note 5, as to which the date is March 31, 1999
<PAGE>
Cardinal Holding Corp.
Consolidated Balance Sheets
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1997 1998 1999
-----------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ 421 $ 266
Accounts receivable - trade, less allowance of $569, $868
and $868 at December 31, 1997, 1998 and March 31 1999,
respectively 15,486 21,591 17,446
Advances to related parties 172 - -
Prepaid insurance and other 1,793 3,383 2,604
Income tax receivable - 151 151
Deferred tax asset - 481 624
----------------------------------------------------
Total current assets 17,451 26,027 21,091
Property, plant and equipment, net 43,737 60,328 59,661
Goodwill, less accumulated amortization of $226 and $334 at
December 31, 1998 and March 31, 1999, respectively - 17,163 17,055
Other assets, net 1,198 4,443 4,619
----------------------------------------------------
$ 62,386 $ 107,961 $ 102,426
LIABILITIES AND SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable $ 5,137 $ 6,069 $ 3,111
Accrued expenses 6,207 2,770 1,853
Deferred income taxes 234 - -
Notes payable 4,328 6,445 1,505
Current portion of long-term debt 5,507 7,096 7,595
----------------------------------------------------
Total current liabilities 21,413 22,380 14,064
Deferred income taxes 4,031 4,997 5,038
Long-term debt, less current portion 21,297 102,594 100,719
Senior subordinated note 10,000 17,930 17,868
Shareholders' equity (capital deficiency):
Class B preferred stock, $0.10 par value-22,500 shares
authorized, 22,500 shares issued and outstanding at
December 31, 1997 and no shares issued and outstanding at
December 31, 1998 and March 31, 1999, respectively, stated
at par value plus additional amount paid (liquidation
preference value) 250 - -
Class C preferred stock, $0.10 par value-25,000 shares
authorized, 3,417, 20,252 and 23,124 shares issued and
outstanding at December 31, 1997, 1998 and March 31, 1999,
respectively, stated at par value - 2 2
Class A common stock, $0.01 par value 1,000,000 shares
authorized, 55,000, 15,674 and 17,475 shares issued and
outstanding at December 31, 1997, 1998 and March 31, 1999,
respectively 1 - -
Class B common stock, $0.01 par value-authorized 100,000;
issued and outstanding 1,000 shares - - -
Additional paid-in capital 1,599 79,687 85,440
Retained earnings (deficit) 3,795 (119,629) (120,705)
----------------------------------------------------
Total shareholders' equity (capital deficiency) 5,645 (39,940) (35,263)
----------------------------------------------------
$ 62,386 $ 107,961 $ 102,426
====================================================
</TABLE>
See accompanying notes.
<PAGE>
Cardinal Holding Corp.
Consolidated Statements of Operations
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
1996 1997 1998 1998 1999
-------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating revenue $ 48,128 $ 63,412 $ 82,223 $ 18,982 $ 18,978
Operating expenses:
Labor 14,872 18,709 25,075 5,163 7,061
Maintenance 4,557 4,451 4,626 975 1,207
Insurance 2,681 2,503 3,746 697 734
Depreciation 3,509 4,207 6,118 1,195 1,810
Cost of goods sold 1,627 2,087 1,809 446 503
Other 4,219 5,386 9,350 1,576 1,714
------------------------------------------------------------------------
Total operating expenses 31,465 37,343 50,724 10,052 13,029
------------------------------------------------------------------------
Gross profit 16,663 26,069 31,499 8,930 5,949
General and administrative expenses 8,317 10,842 15,729 4,142 3,297
------------------------------------------------------------------------
Income from operations 8,346 15,227 15,770 4,788 2,652
Other income (expense):
Interest (3,448) (5,464) (12,641) (2,698) (3,201)
Consulting fees paid to related party (300) (1,150) - -
Other, net 2 58 (777) (515) (2)
------------------------------------------------------------------------
Income (loss) before income taxes and
extraordinary loss 4,600 8,671 2,352 1,575 (551)
Income taxes provision (benefit) 1,706 4,350 1,149 591 (98)
------------------------------------------------------------------------
Income (loss) before extraordinary loss 2,894 4,321 1,203 984 (453)
Extraordinary loss, net of $214 income
tax benefit - - (10,885) (10,885) -
------------------------------------------------------------------------
Net income (loss) $ 2,894 $ 4,321 $ (9,682) $ (9,901) $ (453)
========================================================================
INCOME (LOSS) PER SHARE OF COMMON STOCK:
Basic:
Income (loss) before extraordinary
loss $ 50.61 $ 76.64 $ 21.09 $ 24.11 $ (64.53)
Extraordinary loss - - (493.71) (266.72) -
------------------------------------------------------------------------
Net income (loss) $ 50.61 $ 76.64 $(472.62) $(242.61) $ (64.53)
========================================================================
Assuming dilution:
Income (loss) before extraordinary
loss $ 47.69 $ 72.23 $ 21.09 $ 20.25 $ (64.53)
Extraordinary loss - - (493.71) (203.75) -
------------------------------------------------------------------------
Net income (loss) $ 47.69 $ 72.23 $(472.62) $(199.35) $ (64.53)
========================================================================
Average shares outstanding:
Basic 56,000 56,000 22,047 40,811 16,674
========================================================================
Assuming dilution 59,420 59,420 22,047 48,595 16,674
========================================================================
</TABLE>
See accompanying notes.
<PAGE>
Cardinal Holding Corp.
Consolidated Statements of Shareholders' Equity (Capital Deficiency)
(In Thousands, except share data)
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS A CLASS B
PREFERRED PREFERRED COMMON COMMON ADDITIONAL RETAINED
STOCK STOCK STOCK STOCK PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 22,500 $ 250 3,417 $ - 55,000 $ 1 1,000 $ $ 599 $ (487) $ 363
Capital contribution - - - - - - - - 1,000 - 1,000
Cash dividends on Class B
preferred stock, $2.66 per
share - - - - - - - - - (60) (60)
Net income - - - - - - - - - 2,894 2,894
-------------------------------------------------------------------------------------------------
Balances at December 31, 1996 22,500 250 3,417 - 55,000 1 1,000 - 1,599 2,347 4,197
Cash dividends on Class B
preferred stock, $1.33 per
share - - - - - - - - - (30) (30)
Cash dividends on Class A
common stock, $51.69 per
share - - - - - - - - - (2,843) (2,843)
Net income - - - - - - - - - 4,321 4,321
-------------------------------------------------------------------------------------------------
Balances at December 31, 1997 22,500 250 3,417 - 55,000 1 1,000 - 1,599 3,795 5,645
Recapitalization (22,500) (250) 10,250 1 (41,333) (1) - - 55,753 (113,004) (57,501)
Stock issued under
Subordinated debt agreement - - 404 - 403 - - - 2,300 - 2,300
Stock awarded to management - - 137 - 137 - - - 800 - 800
Stock issued for cash - - 5,484 1 1,213 - - - 17,099 - 17,100
Stock issued to sellers of
acquired businesses - - 308 - 254 - - - 1,398 - 1,398
Class C preferred stock
dividends (5% per annum) - - 252 - - - - - 738 (738) -
Net loss - - - - - - - - - (9,682) (9,682)
-------------------------------------------------------------------------------------------------
Balances at December 31, 1998 - $ - 20,252 $ 2 15,674 $ - 1,000 $ - $ 79,687 $(119,629) $(39,940)
Stock issued under
subordinated debt agreement
(unaudited)
Stock issued for cash
(unaudited) - - 2,312 1,747 - - 5,000 5,000
Class C preferred stock
dividends (5% per annum) - - 506 - - - - - 623 (623) -
Stock issued under
subordinated debt agreement
(unaudited) - - 54 - 54 - - - 130 - 130
Net loss (unaudited) - - - - - - - - - (453) (453)
-------------------------------------------------------------------------------------------------
Balances at March 31, 1999
(unaudited) - $ - 23,124 $ 2 17,475 $ - 1,000 $ - $ 85,440 $(120,705) $(35,263)
=================================================================================================
</TABLE>
See accompanying notes.
<PAGE>
Cardinal Holding Corp.
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
1996 1997 1998 1998 1999
-----------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 2,894 $ 4,321 $ (9,682) $ (9,901) $ (453)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Extraordinary loss on early extinguishment of
debt - - 10,885 10,885 -
Loss (gain) on disposal of assets 460 22 (732) - -
Stock compensation awarded to management - - 800 - -
Deferred income taxes 890 1,930 (44) 50 (102)
Depreciation and amortization 3,694 4,422 7,107 1,298 2,213
Changes in operating assets and liabilities,
net of effects of businesses acquired:
Accounts receivable (2,137) (6,187) (3,913) (3,606) 4,197
Prepaid expenses and other current assets (365) 105 (1,261) (91) (160)
Accounts payable, accrued expenses,
accrued interest and current income taxes 2,008 4,655 434 (1,361) (3,391)
-----------------------------------------------------------------------
Net cash provided by operating activities 7,444 9,268 3,594 (2,726) 2,303
INVESTING ACTIVITIES
Purchases of property, plant and equipment (3,346) (18,980) (19,039) (8,927) (1,144)
Proceeds from sales of assets - - 2,700 - -
Intangible assets acquired - (250) - - -
Businesses acquired, net of cash acquired - - (22,373) - -
Advances to related parties (2,496) 2,658 - - -
-----------------------------------------------------------------------
Net cash used in investing activities (5,842) (16,572) (38,712) (8,927) (1,144)
FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings (1,168) 1,517 2,117 (1,782) (4,940)
Net increase (decrease) in bank overdraft - 1,370 (1,370) - -
Proceeds from long-term debt 1,500 10,829 133,500 125,000 -
Principal payments on long-term debt (3,599) (3,722) (40,615) (36,804) (1,375)
Debt acquisition costs (26) - (4,371) (3,940) -
Redemption of stock warrants - - (13,320) (13,320) -
Proceeds from issuance of common and preferred
stock - - 74,353 57,254 5,000
Payments to redeem stock - - (114,755) (114,755) -
Capital contribution 1,000 - - - -
Dividends paid - (2,843) - - -
-----------------------------------------------------------------------
Net cash provided by (used in) financing
activities (2,293) 7,151 35,539 11,653 (1,315)
-----------------------------------------------------------------------
Change in cash and cash equivalents (691) (153) 421 - (155)
Cash and cash equivalents at beginning of year 844 153 - - 421
-----------------------------------------------------------------------
Cash and cash equivalents at end of year $ 153 $ - $ 421 $ - $ 266
=======================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid on notes payable, long-term debt
and subordinated note payable $ 3,177 $ 3,428 $ 10,329 $ 2,811 $ 3,737
=======================================================================
Income taxes paid $ 760 $ 1,559 $ 2,846 $ 1,612 $ -
=======================================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Stock issued to acquire businesses $ - $ - $ 1,398 $ - $ -
=======================================================================
Long-term debt issued for covenant not to
compete $ - $ 402 $ - $ - $ -
=======================================================================
</TABLE>
See accompanying notes.
<PAGE>
Cardinal Holding Corp.
Notes to Consolidated Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Cardinal Holding Corp. (Cardinal), through its wholly owned subsidiary,
Cardinal Services, Inc. (CSI), is primarily engaged in offshore vessel rentals,
wireline services and plugging and abandonment services for the oil and gas
industry in the southern United States and the Gulf of Mexico. At December 31,
1998, Cardinal owned and operated 48 vessels which included 41 lift boats, 5
spud barges, and 2 supply vessels.
In December 1997, Cardinal acquired all of the common stock outstanding of
Cardinal Management Company (CMC) in exchange for 3,417 shares of Class C
preferred stock and 1,000 shares of Class B common stock of Cardinal. At the
effective date, CMC and Cardinal were under common control; therefore, the
consolidated financial statements have been restated to reflect the accounts of
Cardinal and CMC accounted for in a manner similar to a pooling-of-interests.
Significant intercompany accounts and transactions have been eliminated. In
February of 1998, CMC and CSI were combined into a single entity.
UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements as of March 31,
1999 and for the three months ended March 31, 1998 and 1999, have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Article 10 of Regulation S-
X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
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 amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
<PAGE>
Cardinal Holding Corp.
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand deposits with financial institutions
and short-term, highly liquid investments with maturities of three months or
less when purchased.
CONCENTRATION OF CREDIT RISK
Cardinal performs periodic credit evaluations of its customers'S financial
condition and generally does not require collateral. Credit losses have
historically been within management's expectations.
Cardinal's provision for doubtful accounts receivable was $569,000 and $750,000
in the years ended December 31, 1997 and 1998, respectively. Write-offs of
uncollectible accounts receivable against the allowance for doubtful accounts
were $0 and $451,000 in the years ended December 31, 1997 and 1998,
respectively. Prior to 1997, Cardinal's experience was such that no provision
for doubtful accounts receivable was necessary.
REVENUE RECOGNITION
Vessel and wireline revenue are earned and recognized on a daily basis.
Plugging and abandonment revenue is generally recognized based on the
percentage completed. Other operating revenue consists of goods and services
incidental to vessel, wireline and plugging and abandonment activities and is
recognized as the goods and services are provided.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Major improvements of vessels
and equipment are capitalized at cost and depreciated. Expenditures for
replacements, maintenance and repairs which do not improve or extend the lives
of the assets are expensed. Interest related to the construction of significant
assets is capitalized. Depreciation is computed using the straight-line method
over the estimated useful lives of the individual assets which are as follows:
<TABLE>
<CAPTION>
<S> <C>
Furniture and fixtures 3 years
Buildings 15 years
Equipment 3 - 7 years
Vessels 5 - 15 years
</TABLE>
<PAGE>
Cardinal Holding Corp.
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Cardinal accounts for income taxes using the liability method. Under this
method, deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting and the amounts used for income tax.
GOODWILL
Goodwill is amortized over its expected period of benefit, which ranges from 15
to 30 years, based on the characteristics of each individual business
combination. The recoverability of goodwill is assessed periodically and takes
into account whether the goodwill should be completely or partially written off
or the amortization period accelerated. In evaluating the value and future
benefits of goodwill, the recoverability from operating income is measured.
Under this approach, the carrying value of goodwill would be reduced if it is
probable that management's best estimate of future operating income before
goodwill amortization will be less than the carrying amount of goodwill over
the remaining amortization period. Cardinal assesses long-lived assets for
impairment under FASB Statement No. 121, Accounting for Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of (FAS 121). Under those
rules, goodwill associated with assets acquired in a purchase business
combination is included in impairment evaluations when events or circumstances
exist that indicate the carrying amounts of those assets may not be
recoverable. In 1998, Cardinal recorded goodwill amortization of $226,000.
OTHER ASSETS
Other assets consisted of deferred debt acquisition costs and a covenant not to
compete. Deferred debt acquisition costs are amortized over the term of the
related debt which is seven years. The covenant not to compete is amortized
over the term of the noncompete agreement which is four years.
FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash and cash
equivalents and advances to related parties approximate their fair values.
<PAGE>
Cardinal Holding Corp.
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cardinal had no outstanding warrants at December 31, 1998. The fair value of
Cardinal's outstanding warrants at December 31, 1997 was $13,320,000, which was
estimated based on the redemption price paid as part of the Recapitalization
and Refinancing (see Note 2).
The carrying values of Cardinal's long-term debt approximate their fair values
which are estimated using discounted cash flow analyses, based on Cardinal's
incremental borrowing rates for similar types of borrowing arrangements.
2. RECAPITALIZATION AND REFINANCING
On February 26, 1998, Cardinal completed a recapitalization (the
Recapitalization) which included (i) the issuance of 10,250 shares of Class A
common stock for $30 million, (ii) the issuance of 10,250 shares of Class C
preferred stock for $30 million, (iii) the redemption of 51,583 shares of Class
A common stock and Class B preferred stock for $114.8 million, and (iv) the
redemption of warrants related to 11,870 shares of CSI nonvoting common stock
in exchange for $13.32 million. In addition, Cardinal refinanced substantially
all of its long-term debt. The Recapitalization and Refinancing was funded
through the issuance of $105 million of senior secured debt, $20 million of
subordinated debt which included $2 million accounted for as original issue
discount relating to the issuance of 350 shares of Class A common stock and 350
shares of Class C preferred stock, and $60 million of equity investments
discussed in (i) and (ii) above. In connection with the Recapitalization and
Refinancing, Cardinal (a) recorded an increase in equity of $57,501,000 million
as a result of the net proceeds from the equity issuances discussed in (i) and
(ii) above; (b) incurred $7,117,000 of costs, $4,371,000 of which were recorded
as debt acquisition costs and $2,746,000 of which were recorded as a reduction
of net proceeds from the issuance of stock; (c) recorded a reduction in equity
of $114,755,000 as a result of the stock redemption discussed in (iii) above;
and (d) recorded an extraordinary loss of $10,884,000 which included the
unamortized estimated value of the warrants discussed in (iv) above of
$10,505,000 (which was nondeductible for income tax purposes and therefore had
no income tax benefit) and unamortized debt acquisition costs of $379,000 (net
of $213,000 income tax benefit).
<PAGE>
Cardinal Holding Corp.
Notes to Consolidated Financial Statements (continued)
3. Acquisitions of Businesses and Vessels
During 1998, Cardinal completed acquisitions of 100% of the outstanding common
stock of the businesses shown below, which were primarily engaged in providing
services for the oil and gas industry in the southern United States and the
Gulf of Mexico. These businesses were acquired with a combination of cash
and stock as consideration. Each of these acquisitions was accounted for using
the purchase method. The excess cost over the fair value of net assets
acquired has been recorded as goodwilland is being amortized on a straight-line
basis over periods ranging from 15 to 30 years. The operations of the acquired
businesses are included in the consolidated statements of operations from the
date of acquisition.
<TABLE>
<CAPTION>
SHARES ISSUED IN ACQUISITION
-------------------------------------------
CLASS A- CLASS C-
DATE COMPANY NAME PURCHASE PRICE COMMON PREFERRED VALUE
- ----------------------------------------------------------------------------------------------------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C>
May 1998 Moores Wireline, Inc. $ 10,888 - - $ -
May 1998 Moores Engineering, Inc. 4,846 69 69 398
September 1998 Gunn Wireline, Inc. 8,350 186 241 1,000
</TABLE>
<PAGE>
Cardinal Holding Corp.
Notes to Consolidated Financial Statements (continued)
4. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1997 1998 1999
--------------------------------------
(Unaudited)
<S> <C> <C> <C>
Property, plant and equipment:
Land $ 217 $ 313 $ 313
Furniture and fixtures 501 1,703 1,772
Buildings 1,782 2,684 2,696
Equipment 12,800 21,485 22,547
Vessels 45,010 56,300 56,300
-------------------------------------
60,310 82,485 83,628
Less accumulated depreciation 16,573 22,157 23,967
-------------------------------------
$ 43,737 $ 60,328 $ 59,661
=====================================
Other assets:
Debt acquisition costs $ 881 $ 4,566 $ 4,962
Covenant not to compete 651 651 651
-------------------------------------
1,532 5,217 5,613
Less accumulated amortization 334 774 994
-------------------------------------
$ 1,198 $ 4,443 $ 4,619
=====================================
Accrued expenses:
Interest $ 2,648 $ 911 $ 375
Wages, bonuses and related 2,299 1,493 1,004
taxes
Income taxes 1,260 - -
Other - 366 474
-------------------------------------
$ 6,207 $ 2,770 $ 1,853
=====================================
</TABLE>
5. Notes Payable, Long-Term Debt and Subordinated Note Payable
In connection with the Recapitalization, Cardinal entered into a Credit
Agreement with certain lenders. Amounts due under the Credit Agreement are
collateralized by substantially all the assets of Cardinal. The Credit
Agreement contains certain covenants which restrict Cardinal's ability to pay
dividends and require Cardinal to maintain certain levels of stockholders'
equity (net capital deficiency) and debt service ratios. At December 31, 1998,
Cardinal was in compliance with all such covenants.
<PAGE>
Cardinal Holding Corp.
Notes to Consolidated Financial Statements (continued)
5. NOTES PAYABLE, LONG-TERM DEBT AND SUBORDINATED NOTE PAYABLE (CONTINUED)
In addition to Term Loans A and B described below, the Credit Agreement
provides for up to $10 million of revolving credit advances, subject to an
accounts receivable borrowing base, bearing interest at floating rates and
maturing March 2004, and up to an additional $10 million of term loans (Term
C). At December 31, 1998, considering the borrowing base, there was $5,560,000
available under the revolver. Unused amounts under the revolving credit
commitment are subject to a floating availability fee ranging from .375% to
.50% of the unused balance. At December 31, 1998, no Term C loans were
outstanding. Effective March 31, 1999, the Term C loan facility was
eliminated.
NOTES PAYABLE
Notes payable consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1997 1998 1999
------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Revolving credit note payable to GECC,
interest payable monthly at floating
rates (8.09% per annum at December 31, $ - $ 4,440 $ -
1998)
Notes payable to insurance finance
company, interest at 7.63%, due in
monthly installments including interest
through December 31, 1998, unsecured and
cancelable upon termination of related
insurance policies 762 1,989 1,505
Revolving credit note payable to bank,
paid in 1998 as part of the Refinancing 3,566 - -
Other - 16 -
--------------------------------------
$ 4,328 $ 6,445 $ 1,505
======================================
</TABLE>
On March 31, 1999, in connection with an amendment to the Credit Agreement,
shareholders purchased 2,312 shares of Class C Preferred Stock and 1,747 shares
of Class A Common Stock for $5 million cash, which was used to prepay the
revolving credit note payable to GECC.
<PAGE>
Cardinal Holding Corp.
Notes to Consolidated Financial Statements (continued)
5. NOTES PAYABLE, LONG-TERM DEBT AND SUBORDINATED NOTE PAYABLE (CONTINUED)
LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1997 1998 1999
---------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Term Loan A-interest payable monthly
at floating rate (8.0% per annum at
December 31, 1998), due in quarterly
installments from June 1998 through
March 2004 $ - $ 51,250 $ 50,000
Term Loan B-interest payable monthly
at floating rate (8.25% per annum at
February 28, 1998), due in quarterly
installments from June 1998 through
March 2005 - 58,126 58,000
Noninterest-bearing note payable for
noncompete agreements due in annual
installments through August 1, 2001 402 314 314
Term loan note payable to Hibernia,
paid in 1998 as part of the
Refinancing 13,813 - -
Revolving construction credit
convertible to term loan note
payable to Hibernia, paid in 1998 as
part of the Refinancing 10,829 - -
Term loan note payable to New Iberia
Bank, paid in 1998 as part of the
Refinancing 1,310 - -
Term loan note payable for the
acquisition of vessels, paid in 1998
as part of the Refinancing 450 - -
-----------------------------------------
26,804 109,690 108,314
Less current portion 5,507 7,096 7,595
-----------------------------------------
$ 21,297 $ 102,594 $ 100,719
=========================================
</TABLE>
<PAGE>
Cardinal Holding Corp.
Notes to Consolidated Financial Statements (continued)
5. NOTES PAYABLE, LONG-TERM DEBT AND SUBORDINATED NOTE PAYABLE (CONTINUED)
Future minimum principal payments on long-term debt for each of the next five
years ending December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999 $ 7,095
2000 8,354
2001 10,114
2002 12,000
2003 32,750
</TABLE>
SENIOR SUBORDINATED NOTES
In connection with the Recapitalization, Cardinal borrowed $20 million under
the terms of a Senior Subordinated Notes Agreement. The Senior Subordinated
Notes bear interest at a rate of 11% and are due February 2006.
In connection with the Senior Subordinated Notes Agreement, Cardinal issued 350
shares of Class A common stock and 350 shares of Class C preferred stock to
certain parties to that agreement. The value of these shares at issuance was
approximately $2 million, which was recorded as a discount to the Senior
Subordinated Notes and an increase to the respective common stock, preferred
stock and additional paid-in capital accounts. The debt discount will be
amortized to interest expense over the term of the Senior Subordinated Notes.
Additionally, at six-month intervals beginning in August 1998, through February
2000, as long as there are amounts due under the Senior Subordinated Notes
Agreement, the Senior Subordinated Notes Agreement requires Cardinal to issue
54 shares of Class A common stock and 53 shares of Class C preferred stock to
certain parties to that agreement. These additional shares will be accounted
for in the same manner as the shares issued at the time of the
Recapitalization.
The Senior Subordinated Notes contain certain covenants which restrict
Cardinal's ability to pay dividends and require Cardinal to maintain certain
levels of stockholders' equity (net capital deficiency) and debt service
ratios. At December 31, 1998, Cardinal was in compliance with all such
covenants.
<PAGE>
Cardinal Holding Corp.
Notes to Consolidated Financial Statements (continued)
6. CAPITAL STOCK AND INCOME (LOSS) PER SHARE
At December 31, 1998, 50,000 shares of $0.10 par value Class A preferred stock
were authorized and unissued.
The Class C preferred stock is convertible at the option of the shareholder
into Class A common stock on the basis of one share of Class A common stock for
each full share of Class C preferred stock subject to adjustments for stock
dividends, stock splits and other potential transactions. The Class C preferred
stock is automatically convertible on the same basis described above at the
earlier of the date of an initial public offering or January 16, 2003.
Dividends on the Class C preferred stock are cumulative and payable
semiannually at a rate of 5% per annum on the liquidation preference value
($2,926.83 per share) in cash or equivalent shares of Class C preferred stock.
The holders of Class C preferred stock are entitled to vote together with the
common stock on any matter with respect to which the common stock is entitled
to vote. Each share of Class C preferred stock is entitled to a number of votes
equal to the number of common shares into which the Class C preferred stock is
convertible. On April 20, 1999, the Board of Directors voted to increase the
number of authorized Class C preferred stock from 25,000 to 75,000 (unaudited).
Dividends on common stock shall not be paid so long as there exists any
dividends or redemption payments in arrears related to any preferred stock and
without the consent of certain of Cardinal's lenders.
The Class B common stock is convertible at the option of the shareholder to
Class A common stock at the earlier of the effective date of an initial public
offering or the consummation date of a merger, consolidation, or sale of
securities or assets of Cardinal or CSI. The number of shares of Class A common
stock received upon conversion shall be calculated by dividing the Class B
conversion value ($10,000 per share) by the price per share paid for the Class
A common stock as a result of the transaction.
In 1998, pursuant to a stock awards plan adopted by the board of directors of
Cardinal, 137 shares of Class A common stock and 137 shares of Class C
preferred stock were awarded to certain members of management. The stock vested
immediately, although it will not be delivered to the employees until such time
as there is an initial public offering or the sale of Cardinal. Compensation
expense was recorded for fair value of these awards, as estimated based on
sales of similar stock.
<PAGE>
Cardinal Holding Corp.
Notes to Consolidated Financial Statements (continued)
6. CAPITAL STOCK AND INCOME (LOSS) PER SHARE (CONTINUED)
In accordance with FAS 128, Cardinal has presented basic earnings per share,
computed on the basis of the weighted average number of shares outstanding
during the period, and diluted earnings per share, computed on the basis of the
weighted average number of shares and all dilutive potential shares outstanding
during the year. A reconciliation between basic and diluted weighted average
number of shares outstanding is presented below (in thousands, except share
data):
<TABLE>
<CAPTION> THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
1996 1997 1998 1998 1999
-------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income before extraordinary loss $ 2,894 $ 4,321 $ 1,203 $ 984 $ (453)
Dividends on preferred stock (30) (60) (738) - (623)
-------------------------------------------------------------------
Numerator for basic and diluted earnings
per share before extraordinary loss
- income available to common
stockholders 2,864 4,391 465 984 (1,076)
Extraordinary loss - - (10,885) (10,885) -
-------------------------------------------------------------------
Numerator for basic and diluted earnings
per share - income available to common
stockholders $ 2,864 $ 4,391 $ (9,682) $(10,420) $(1,076)
===================================================================
Denominator:
Weighted average shares outstanding 56,000 56,000 22,047 40,811 16,674
Adjustment for Convertible
Class C Preferred Stock 3,420 3,420 15,809 7,784 -
-------------------------------------------------------------------
Denominator for diluted
earnings per share - adjusted weighted
average shares and assumed conversions 59,420 59,420 37,856 48,595 16,674
===================================================================
</TABLE>
<PAGE>
Cardinal Holding Corp.
Notes to Consolidated Financial Statements (continued)
7. Income Taxes
Significant components of the provisions for income taxes before the income tax
effect of the extraordinary loss were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1996 1997 1998
-------------------------------
<S> <C> <C> <C>
Current $ 816 $ 2,420 $ 1,193
Deferred (benefit) 890 1,930 (44)
-------------------------------
$ 1,706 $ 4,350 $ 1,149
===============================
</TABLE>
Significant components of Cardinal's deferred tax liabilities and assets
were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1997 1998
-----------------------
<S> <C> <C>
Deferred tax liabilities:
Basis of property, plant and equipment $ 6,888 $ 5,795
Prepaid expenses 368 360
-----------------------
Total deferred tax liabilities 7,256 6,155
Deferred tax assets:
Alternative minimum tax credit and
net operating loss carryforwards 2,857 776
Allowances and accrued expenses 134 863
-----------------------
Total deferred tax assets 2,991 1,639
-----------------------
Net deferred tax liabilities $ 4,265 $ 4,516
=======================
</TABLE>
At December 31, 1998, Cardinal had net operating loss carryforwards of
approximately $250,000 which expire in 2014, and alternative minimum tax credit
carryforwards of approximately $690,000, which have no expiration date.
<PAGE>
Cardinal Holding Corp.
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
The reconciliation of income tax computed at the federal statutory rates to
income tax expense, before the income tax effect of the extraordinary loss, was
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1997 1998
----------------------------------
<S> <C> <C> <C>
Tax, at statutory rate $ 1,564 $ 2,949 $ 800
Nondeductible interest related to warrants 95 739 130
Deferred tax liabilities of CMC - 320 -
Other, primarily state income taxes 47 342 219
----------------------------------
$ 1,706 $ 4,350 $ 1,149
==================================
</TABLE>
CMC (see Note 1) was an S corporation for income tax purposes prior to Cardinal
acquiring all of its common stock. All taxes were, therefore, the
responsibility of its shareholder and no income tax provision was recorded.
CMC's S corporation election was terminated when it was acquired by Cardinal.
As of that date, a deferred income tax liability was recognized in the amount
of approximately $320,000 for the basis differences between tax and book which
existed at that date.
8. Sales to Major Customers
Cardinal's customer base is primarily concentrated in the oil and gas industry.
Cardinal is not dependent on any one customer. Sales to a single customer
comprising 10% or more of Cardinal's total revenue were $6,686,000 and
$7,079,000 in 1996 and 1997, respectively. No single customer represented 10%
of Cardinal's total revenue in 1998.
9. Profit-Sharing Plan
Cardinal maintains a defined contribution profit-sharing plan for all employees
who have satisfied minimum service and age requirements. Employees may
contribute up to 15% of their earnings to the plan. Cardinal matches employee
contributions up to 5% of an employee's salary. Additionally, Cardinal may, at
the discretion of the board of directors, make an additional profit-sharing
contribution each year. Cardinal made contributions of $60,000, $208,000 and
$298,000, in 1996, 1997 and 1998, respectively.
<PAGE>
Cardinal Holding Corp.
Notes to Consolidated Financial Statements (continued)
10. LEASES AND RELATED PARTY TRANSACTIONS
Cardinal leases vehicles and facilities for its branches and corporate office
under noncancelable operating leases that expire in various years through 1999
but which have options to extend for various terms. Rental expense under such
operating leases was approximately $131,000 in 1996, $948,000 in 1997 and
$749,000 in 1998,. Included in lease expense for 1997 are payments of $600,000
for lease of an airplane from a related party, wholly owned by a shareholder,
which is leased on a month-to-month basis. The lease was canceled and there
were no such costs in 1998.
Cardinal also paid consulting fees to a related party, wholly owned by a
shareholder, totaling $300,000 and $1,150,000 in 1996 and 1997, respectively.
No such fees were paid in 1998.
11. COMMITMENTS AND CONTINGENCIES
In the normal course of business, Cardinal becomes involved as a defendant or
plaintiff in various lawsuits. Management is of the opinion that it maintains
insurance at levels generally consistent with industry standards to insure
itself against the normal risks of operations and these claims and legal
proceedings will be settled within Cardinal's insurance coverages.
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
Among
SUPERIOR ENERGY SERVICES, INC.,
SUPERIOR CARDINAL ACQUISITION COMPANY, INC.,
CARDINAL HOLDING CORP.,
FIRST RESERVE FUND VII, LIMITED PARTNERSHIP, and
FIRST RESERVE FUND VIII, LIMITED PARTNERSHIP
Dated as of April 20, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 DEFINED TERMS 1
Section 1.1 DEFINITIONS 1
ARTICLE 2 THE CLOSING; THE MERGER; EFFECTS OF THE MERGER 7
Section 2.1 CLOSING 7
Section 2.2 THE MERGER 8
Section 2.3 EFFECTS OF THE MERGER; CERTIFICATE OF INCORPORATION;
DIRECTORS AND OFFICERS 8
ARTICLE 3 MERGER CONSIDERATION; CONVERSION OF SHARES 8
Section 3.1 CONVERSION OF SHARES 8
Section 3.2 EXCHANGE OF STOCK CERTIFICATES; RECORD DATE 9
Section 3.3 NO FURTHER RIGHTS IN CARDINAL COMMON STOCK 10
ARTICLE 4 REPRESENTATIONS AND WARRANTIESOF CARDINAL 10
Section 4.1 ORGANIZATION; QUALIFICATION 10
Section 4.2 CAPITAL STOCK; SUBSIDIARIES 11
Section 4.3 CORPORATE AUTHORIZATION; ENFORCEABILITY 12
Section 4.4 NO CONFLICT 12
Section 4.5 CONSENTS 12
Section 4.6 CARDINAL FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES 13
Section 4.7 ACCOUNTS RECEIVABLE 13
Section 4.8 ABSENCE OF CERTAIN CHANGES 13
Section 4.9 MATERIAL CONTRACTS 14
Section 4.10 VESSELS 14
Section 4.11 REAL PROPERTY 15
Section 4.12 REAL PROPERTY LEASES 15
Section 4.13 PERSONAL PROPERTY 15
Section 4.14 COMPLIANCE WITH LAWS 16
Section 4.15 PERMITS 16
Section 4.16 LITIGATION 16
Section 4.17 ENVIRONMENTAL COMPLIANCE 17
Section 4.18 ERISA AND RELATED MATTERS 18
Section 4.19 TAXES 20
Section 4.20 CUSTOMERS AND SUPPLIERS 22
Section 4.21 INSURANCE 22
Section 4.22 SAFETY AND HEALTH 23
Section 4.23 LABOR MATTERS 23
Section 4.24 TRANSACTIONS WITH CERTAIN PERSONS 24
Section 4.25 PROPRIETY OF PAST PAYMENTS 24
Section 4.26 INTELLECTUAL PROPERTY 24
Section 4.27 DIRECTOR AND OFFICER INDEMNIFICATION 24
Section 4.28 BROKERS' AND FINDERS' FEE 25
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SESI 25
Section 5.1 ORGANIZATION; QUALIFICATION 25
Section 5.2 CAPITAL STOCK; SUBSIDIARIES 25
Section 5.3 CORPORATE AUTHORIZATION; ENFORCEABILITY 26
Section 5.4 NO CONFLICT 27
Section 5.5 CONSENTS 27
Section 5.6 SESI FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES 27
Section 5.7 ACCOUNTS RECEIVABLE 28
Section 5.8 ABSENCE OF CERTAIN CHANGES 28
Section 5.9 MATERIAL CONTRACTS 28
Section 5.10 CITIZENSHIP 29
Section 5.11 REAL PROPERTY 29
Section 5.12 REAL PROPERTY LEASES 29
Section 5.13 PERSONAL PROPERTY 30
Section 5.14 COMPLIANCE WITH LAWS 30
Section 5.15 PERMITS 30
Section 5.16 LITIGATION 30
Section 5.17 ENVIRONMENTAL COMPLIANCE 31
Section 5.18 ERISA AND RELATED MATTERS 31
Section 5.19 TAXES 34
Section 5.20 CUSTOMERS AND SUPPLIERS 36
Section 5.21 INSURANCE 36
Section 5.22 SAFETY AND HEALTH 37
Section 5.23 LABOR MATTERS 37
Section 5.24 TRANSACTIONS WITH CERTAIN PERSONS 37
Section 5.25 PROPRIETY OF PAST PAYMENTS 37
Section 5.26 INTELLECTUAL PROPERTY 38
Section 5.27 DIRECTOR AND OFFICER INDEMNIFICATION 38
Section 5.28 BROKERS' AND FINDERS' FEE 38
Section 5.29 COMMISSION FILINGS: FINANCIAL STATEMENTS 38
ARTICLE 6 COVENANTS 39
Section 6.1 LEGAL REQUIREMENTS 39
Section 6.2 STOCKHOLDER APPROVALS 39
Section 6.3 PROXY STATEMENT 40
Section 6.4 EQUITY CONTRIBUTION TO CARDINAL 41
Section 6.5 FINANCING 41
Section 6.6 REPAYMENT OF CERTAIN INDEBTEDNESS 42
Section 6.7 HART-SCOTT-RODINO 42
Section 6.8 ACCESS TO PROPERTIES AND RECORDS 42
Section 6.9 CONSULTATION AND REPORTING 42
Section 6.10 CONDUCT OF BUSINESS BY BOTH PARTIES PRIOR TO THE CLOSING
DATE 43
Section 6.11 PUBLIC STATEMENTS 45
Section 6.12 NO SOLICITATION 45
Section 6.13 RESTRICTION ON FUNDS 46
Section 6.14 UPDATE INFORMATION 46
Section 6.15 MAINTENANCE OF POLICIES 47
Section 6.16 DIRECTOR'S AND OFFICER'S INDEMNIFICATION AND INSURANCE 47
Section 6.17 NASDAQ FILING 47
Section 6.18 SESI EMPLOYEE BENEFITS 47
ARTICLE 7 CLOSING CONDITIONS 47
Section 7.1 CONDITIONS APPLICABLE TO ALL PARTIES 47
Section 7.2 CONDITIONS TO OBLIGATIONS OF SESI 49
Section 7.3 CONDITIONS TO OBLIGATIONS OF CARDINAL 49
ARTICLE 8 TERMINATION AND AMENDMENT 50
Section 8.1 TERMINATION 50
Section 8.2 EFFECT OF TERMINATION 51
ARTICLE 9 MISCELLANEOUS 52
Section 9.1 NOTICES 52
Section 9.3 HEADINGS; GENDER 52
Section 9.4 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES 52
Section 9.5 GOVERNING LAW 52
Section 9.6 ASSIGNMENT 52
Section 9.7 SEVERABILITY 53
Section 9.8 COUNTERPARTS 53
Section 9.9 AMENDMENT 53
Section 9.10 EXTENSION; WAIVER 53
Section 9.11 EXPENSES 53
Exhibits
A - Cardinal Disclosure Schedules
B - Superior Disclosure Schedules
C - Registration Rights Agreement - The Funds
D - Registration Rights Agreement - Other Cardinal Stockholders
E - Stockholders' Agreement
F - Agreement and Release
G - Superior Stock Incentive Plan
H - Form of Opinion of Gardere Wynne Sewell & Riggs, L.L.P.
I - Form of Opinion of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, LLP
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated as of April 20, 1999 is by
and among Superior Energy Services, Inc., a Delaware corporation ("SESI"),
Superior Cardinal Acquisition Company, Inc., a Delaware corporation and a
wholly-owned subsidiary of SESI ("Sub"), Cardinal Holding Corp., a Delaware
corporation ("Cardinal"), and First Reserve Fund VII, Limited Partnership
and First Reserve Fund VIII, Limited Partnership, each of which is a
Delaware limited partnership (together, the "Funds").
W I T N E S S E T H:
WHEREAS, the Board of Directors of Cardinal and the Board of Directors
of SESI have determined it to be desirable and mutually advantageous to
enter into a business combination to be effected by a merger of Sub with
and into Cardinal as a result of which the separate existence of Sub shall
cease and Cardinal shall be the surviving corporation, on the terms and
subject to the conditions set forth herein (the "Merger"); and
WHEREAS, the parties hereto intend that, for federal income tax
purposes, the Merger will constitute a reorganization within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of
1986, as amended, and that this Agreement constitutes a plan of
reorganization.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements herein contained, the parties hereto agree as
follows:
ARTICLE 1
DEFINED TERMS
Section 1.1 DEFINITIONS. In addition to the other defined terms
used herein, as used in this Agreement, the following terms when
capitalized have the meanings indicated.
"Affiliate" shall have the meaning ascribed by Rule 12b-2 promulgated
under the Exchange Act.
"Agreement" shall mean this Agreement and Plan of Merger, including
the Exhibits hereto, all as amended or otherwise modified from time to
time.
"Agreement and Release" shall mean the Agreement and Release to be
executed by the Cardinal Stockholders substantially in the form attached
hereto as Exhibit F.
"Applicable Law" shall mean any statute, law, rule or regulation or
any judgement, order, writ, injunction or decree of any Governmental Entity
to which a specified Person or its property is subject.
"Business Day" shall mean a day other than a Saturday, a Sunday or a
day on which national banks in New York are closed.
"Cardinal Annual Financial Statements" shall mean the audited
consolidated balance sheet and related audited consolidated statements of
income, stockholders equity and cash flows, and the related notes thereto
of Cardinal and its Subsidiaries as of and for the fiscal years ended
December 31, 1997 and 1998.
"Cardinal Benefit Program or Agreement" shall have the meaning
ascribed to it in Section 4.18(a) hereof.
"Cardinal Common Stock" shall mean any shares of the authorized common
stock of Cardinal that are issued and outstanding, at the time hereof or at
the Effective Time, including without limitation the common stock, $.01 par
value per share, denominated as either Class A or Class B Common Stock.
"Cardinal Disclosure Schedules" shall mean the disclosure schedules
and other documents attached to such schedules prepared by Cardinal in
connection with this Agreement and attached hereto as Exhibit A.
"Cardinal Financial Statements" shall mean the Cardinal Annual
Financial Statements and the Cardinal Interim Financial Statements,
collectively.
"Cardinal Interim Financial Statements" shall mean the unaudited
consolidated balance sheet and the related unaudited consolidated
statements of income and cash flows of Cardinal and its Subsidiaries as of
and for the two-month period ended February 28, 1999.
"Cardinal Leased Properties" shall have the meaning ascribed to it in
Section 4.12(a) hereof.
"Cardinal Owned Properties" shall have the meaning ascribed to it in
Section 4.11(a) hereof.
"Cardinal Policies" shall have the meaning ascribed to it in Section
4.21(a) hereof.
"Cardinal Preferred Stock" shall mean any shares of the authorized
preferred stock of Cardinal that are at the time hereof, or become prior to
the Closing, issued and outstanding, including without limitation the
Cardinal Class C preferred stock, $.10 par value per share.
"Cardinal Services" shall mean Cardinal Services, Inc., a Louisiana
corporation.
"Cardinal Stockholders" shall mean the Funds and the other holders of
Cardinal Common Stock and Cardinal Preferred Stock listed on Section 3.1 of
the Cardinal Disclosure Schedules, as it may be amended at Closing in
accordance with Sections 6.4, 6.13 and 7.1(l) hereof.
"Certificate of Merger" shall have the meaning ascribed to it in
Section 2.1(b) hereof.
"Charter Amendment" shall have the meaning ascribed to it in Section
6.2(a) hereof.
"Class A Group Shares" shall mean (i) the shares of Cardinal Class A
Common Stock issued and outstanding at the Effective Time and the
Management Common Shares, and (ii) the shares of Cardinal Class C Preferred
Stock, if any, issued and outstanding at the Effective Time and the
Management Preferred Shares (each share of which for purposes of Article 3
shall be deemed to be equivalent to a like number of shares of Cardinal
Class A Common Stock.
"Class A Group Exchange Ratio" shall mean the quotient, rounded to
four decimal places, of (a) (X) the number of Merger Shares less (Y) the
number of shares of SESI Common Stock into which shares of Cardinal Class B
Common Stock are convertible pursuant to Section 3.1, divided by (b) the
number of Class A Group Shares issued and outstanding at the Effective
Time.
"Closing" shall have the meaning ascribed to it in Section 2.1(a)
hereof.
"Closing Date" shall have the meaning ascribed to it in Section 2.1(a)
hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended. All
citations to the Code shall include any amendments or any substitute or
successor provisions thereto.
"DGCL" shall mean the Delaware General Corporation Law.
"Effective Date" and "Effective Time" shall have the meanings ascribed
to them in Section 2.1(b) hereof.
"Employee Plan" shall mean a plan or arrangement as defined in Section
3(3) of ERISA, that (A) is subject to any provision of ERISA, (B) is
maintained, administered or contributed to by the employer and (C) covers
any employee or former employee of the employer.
"Environmental Laws" shall mean all Applicable Laws relating to
pollution or the protection of the environment.
"Equity Contribution" shall have the meaning ascribed to it in Section
6.4(a) hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Extended Coverage Policy" shall have the meaning ascribed to it in
Section 6.16(b) hereof.
"Financing" shall have the meaning ascribed to it in Section 6.5(a)
hereof.
"GAAP" means generally accepted accounting principles.
"Governmental Entity" shall mean any court or tribunal in any
jurisdiction or any public, governmental or regulatory body, agency,
department, commission, board, bureau or other authority or
instrumentality.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"HSR Form" shall mean the notification and report form required to be
filed under the HSR Act.
"Knowledge" of any Person means the actual knowledge of such Person's
executive and financial officers in each case after reasonable inquiry of
such other officers of such Person with direct responsibility for the
Person's business relating to such knowledge.
"Leases" shall mean any executory lease having future rental payments
of more than $200,000 in the aggregate.
"Liens" shall mean pledges, liens, defects, leases, licenses,
conditional sales contracts, charges, claims, encumbrances, security
interests, easements, restrictions, chattel mortgages, mortgages or deeds
of trust, of any kind or nature whatsoever.
"Management Common Shares" shall mean shares of Cardinal Class A
Common Stock that certain management personnel of Cardinal and Cardinal
Services have the right to acquire pursuant to the Cardinal Holding Corp.
Stock Plan, as more fully described in Section 3.1 of the Cardinal
Disclosure Schedules.
"Management Preferred Shares" shall mean shares of Cardinal Class C
Preferred Stock that certain management personnel of Cardinal and Cardinal
Services have the right to acquire pursuant to the Cardinal Holding Corp.
Stock Plan, as more fully described in Section 3.1 of the Cardinal
Disclosure Schedules.
"March Contribution" shall have the meaning ascribed to it in Section
6.4(a) hereof.
"Material Adverse Effect" shall mean, with respect to a Person, any
fact, circumstance, event or condition that has or would have a material
adverse effect on the business, operations, assets, or financial condition
of such Person and its Subsidiaries, taken as a whole, or on such Person's
ability to carry out the transactions contemplated hereby, except for
changes affecting the United States economy or the energy services industry
generally.
"Material Contract" shall mean any executory contract, agreement or
other understanding, whether or not reduced to writing, to which a party
hereto or its property is subject, which provides for future payments by
such party of more than $200,000 in the aggregate.
"Merger Shares" shall mean a number of shares of SESI Common Stock
equal to 51% of the SESI Common Stock outstanding immediately after the
Effective Time (including without limitation giving effect to the issuance
of shares of SESI Common Stock pursuant to the Merger) calculated based on
the number of shares of SESI Common Stock used by SESI in calculating its
fully diluted earnings per share in accordance with GAAP for the quarter
ended June 30, 1999.
"Multiemployer Plan" shall mean a plan or arrangement as defined in
Section 4001(a)(3) and 3(37) of ERISA.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Nasdaq" shall mean The Nasdaq Stock Market, Inc.
"Permitted Liens" shall mean (a) Liens other than for borrowed money
that do not materially reduce the value or materially interfere with the
present use by the applicable Person of the property subject thereto or
affected thereby, (b) Liens for taxes, assessments or similar governmental
charges, which in each case constitute a Lien not yet due and payable or
which are being contested in good faith and by appropriate proceedings if
adequate reserves with respect thereto are maintained by the applicable
party on their books in accordance with GAAP, and (c) mechanic's,
workmen's, landlord's, operator's, materialmen's, maritime or other similar
Liens with respect to amounts not yet due and payable or which are being
contested in good faith by appropriate proceedings with adequate reserves
with respect thereto maintained on the applicable Person's books in
accordance with GAAP.
"Person" shall mean an individual, firm, corporation, general or
limited partnership, limited liability company, limited liability
partnership, joint venture, trust, governmental authority or body,
association, unincorporated organization or other entity.
"Personal Property" shall mean all machinery, equipment, furniture,
fixtures and other corporeal or incorporeal (tangible or intangible)
personal property used by Cardinal Services or SESI, as the case may be, to
carry on its business as presently conducted.
"Pre-Closing Periods" shall mean all Tax periods ending on or before
the Closing Date and, with respect to any Tax period that includes but does
not end on the Closing Date, the portion of such period that ends on and
includes the Closing Date.
"Proceedings" shall mean any suit, action, proceeding, dispute or
claim before or investigation by any Governmental Entity.
"Proxy Statement" shall have the meaning ascribed to it in Section 6.3
hereof.
"Registration Rights Agreements" shall mean (a) the Registration
Rights Agreement to be executed between SESI and the Funds in the form
attached hereto as Exhibit C, and the Registration Rights Agreement to be
executed between SESI and certain other stockholders of Cardinal in the
form attached hereto as Exhibit D.
"Returns" shall mean all returns, declarations, reports, estimates,
declarations and statements of any nature required to be filed in respect
of Taxes for any Pre-Closing Period, and any claims for refund of Taxes,
including any amendments or supplements to any of the foregoing. The term
"Return" means any of the foregoing Returns.
"Sale Transaction" shall mean with respect to SESI, Cardinal and
Cardinal Services (for purposes of this definition, each an "issuer") (a)
the acquisition (by direct issuance from the issuer, from existing security
holders or otherwise), by any Person or group of Persons deemed a "person"
under Section 13(a)(3) of the Exchange Act, of beneficial ownership of
securities representing a majority of the combined voting power of the
outstanding capital stock of the applicable issuer, generally or as a
separate class or series or together with one or more class or series of
shares or stock, in the election of directors of such issuer, the result of
which would give such Person or Persons (or group) the ability to elect a
majority of the Board of Directors of such issuer, (b) a reorganization,
recapitalization, merger, consolidation or similar business combination or
transaction involving the applicable issuer (unless the holders of the
outstanding securities of such issuer entitled to vote in the election of
directors prior to such transaction continue to own securities of the
entity resulting from or surviving such transaction (a "Surviving Entity")
entitled to vote in the election of directors sufficient to allow such
holders to elect a majority of the board of directors of the Surviving
Entity upon the completion of such transaction) or (c) a sale or other
disposition (in a single transaction or a series of related transactions)
of assets with an asset value in excess of 25% of the market value of the
assets of the applicable issuer and its Subsidiaries as a whole; provided,
however, such term shall not include the Equity Contribution or the
transactions contemplated by this Agreement, the Registration Rights
Agreements or the Stockholders' Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"SESI Annual Financial Statements" shall mean the audited consolidated
balance sheet and related audited consolidated statements of income,
stockholders' equity and cash flows, and the related notes thereto of SESI
and its Subsidiaries as of and for the fiscal years ended December 31, 1997
and 1998.
"SESI Annual Meeting" shall have the meaning ascribed to it in Section
6.2(a) hereof.
"SESI Benefit Program or Agreement" shall have the meaning ascribed to
it in Section 5.18(a) hereof.
"SESI Commission Filings" shall have the meaning ascribed to it in
Section 5.29 hereof.
"SESI Common Stock" shall mean the shares of common stock, $.001 par
value per share, of SESI.
"SESI Financial Statements" shall mean the SESI Annual Financial
Statements and the SESI Interim Financial Statements, collectively.
"SESI Interim Financial Statements" shall mean the unaudited
consolidated balance sheet and the related unaudited consolidated
statements of income and cash flows of SESI and its Subsidiaries as of and
for the two-month period ended February 28, 1999.
"SESI Leased Properties" shall have the meaning ascribed to it in
Section 5.12(a) hereof.
"SESI Owned Properties" shall have the meaning ascribed to it in
Section 5.11 hereof.
"SESI Policies" shall have the meaning ascribed to it in Section
5.21(a) hereof.
"SESI Stock Incentive Plan" means the 1999 Stock Incentive Plan to be
adopted by SESI following the SESI Annual Meeting in the form attached
hereto as Exhibit G.
"Settlement Agreement" shall mean that certain Settlement Agreement
executed effective as of March 16, 1999 by and among Cardinal Holding
Corp., the Funds and the other Persons specified therein.
"Stockholders' Agreement" shall mean the Stockholders' Agreement to be
executed by and among SESI and the Funds in the form attached hereto as
Exhibit E.
"Subsidiary" means, with respect to a Person, any corporation,
partnership, joint venture or other legal entity that is consolidated with
the Person in the Person's financial statements prepared using GAAP.
"Superior Disclosure Schedules" shall mean the disclosure schedules
and other documents attached to such schedules prepared by SESI in
connection with this Agreement and attached hereto as Exhibit B.
"Surviving Corporation" shall have the meaning ascribed to it in
Section 2.2 hereof.
"Taxes" shall mean any federal, state, local, foreign or other taxes
(including, without limitation, income, corporation, alternative minimum,
gross receipts, profits, capital stock, franchise, property, sales, use,
lease, excise, premium, payroll, wage, employment or withholding taxes,
estimated or other similar tax), fees, duties, assessments, withholdings or
governmental charges of any kind whatsoever in the nature of or in lieu of
any tax (including interest, penalties and additions to tax) and any
liability in respect of any tax as a result of being a member of any
affiliated, consolidated, combined, unitary or similar group.
"Vessels" shall have the meaning ascribed to it in Section 4.10
hereof.
ARTICLE 2
THE CLOSING; THE MERGER; EFFECTS OF THE MERGER
Section 2.1 CLOSING. (a) The closing of the transactions
contemplated herein (the "Closing") will take place, assuming satisfaction
or waiver of each of the conditions set forth in Article 7 hereof, at the
offices of Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P., 201 St. Charles Avenue, New Orleans, Louisiana, at 10:00 A.M.
(Central Time) on such date as may be mutually agreed upon between the
parties following satisfaction of the latest to occur of the conditions set
forth in Section 7.1, or if no date has been agreed to, on any date
specified by one party to the others upon three days' notice following
satisfaction of such conditions, provided, in each case, that the other
conditions set forth in Article 7 shall have been satisfied or waived as
provided in Article 7 at or prior to the Closing (the date of the Closing
being referred to herein as the "Closing Date").
(b) At the Closing, the parties shall (i) deliver the documents,
certificates and opinions required to be delivered by Article 7 hereof,
(ii) provide written evidence, if applicable, of the satisfaction or waiver
of each of the conditions to the other party's obligations set forth in
Article 7 hereof, (iii) cause the appropriate officer of Cardinal to
execute and deliver the certificate of merger in accordance with the
provisions of the DGCL (the "Certificate of Merger"), and (iv) consummate
the Merger by causing to be filed such properly executed Certificate of
Merger with the Secretary of State of the State of Delaware in accordance
with the provisions of the DGCL. The Merger shall be effective as of the
date and time the Certificate of Merger is duly filed with the Secretary of
State of the State of Delaware, or at such later time as may be specified
in the Certificate of Merger (such date and time being hereinafter referred
to respectively as the "Effective Date" and the "Effective Time").
Section 2.2 THE MERGER. Subject to the terms and conditions of this
Agreement, Sub shall be merged with and into Cardinal at the Effective
Time. Following the Merger, the separate corporate existence of Sub shall
cease and Cardinal shall be the surviving corporation in accordance with
the provisions of the DGCL (the "Surviving Corporation").
Section 2.3 EFFECTS OF THE MERGER; CERTIFICATE OF INCORPORATION;
DIRECTORS AND OFFICERS.
(a) The Merger shall have the effects specified in the DGCL.
(b) The certificate of incorporation of Cardinal, as in effect
at the Effective Time, shall be amended in its entirety in the Certificate
of Merger to conform to the certificate of incorporation of Sub in every
respect except for the name of the corporation, which shall remain
"Cardinal Holding Corp.," and as so amended shall be the certificate of
incorporation of the Surviving Corporation thereafter unless and until
amended in accordance with its terms and as provided by the DCGL.
(c) The bylaws of Sub as in effect at the Effective Time shall
be the bylaws of the Surviving Corporation thereafter unless and until
amended in accordance with its terms, the terms of the certificate of
incorporation of the Surviving Corporation and as provided by law.
(d) The directors and officers of Sub at the Effective Time
shall be the directors and officers of the Surviving Corporation
thereafter, each to hold office in accordance with the certificate of
incorporation and bylaws of the Surviving Corporation until their
respective successors are duly elected and qualified.
ARTICLE 3
MERGER CONSIDERATION; CONVERSION OF SHARES
Section 3.1 CONVERSION OF SHARES.
(a) At the Effective Time, by virtue of the Merger and without
any further action on the part of SESI, Sub, Cardinal or the Surviving
Corporation, or any holder of any of the following securities:
(i) each share of common stock of Sub issued and
outstanding at the Effective Time shall be converted
into one share of the common stock of the Surviving
Corporation;
(ii) each of the Class A Group Shares shall be converted
into the right to receive a number of shares of SESI
Common Stock equal to the Class A Group Exchange Ratio;
(iii)all outstanding shares of Cardinal Class B Common Stock
shall be converted into the right to receive an
aggregate of 1 million shares of SESI Common Stock
(subject to adjustment for any stock splits,
combinations or recapitalizations relating to SESI
Common Stock effected after the date hereof); and
(iv) each issued share of Cardinal Common Stock that is held
in treasury by Cardinal or held by any subsidiary of
Cardinal shall be canceled and no stock of SESI or
other consideration shall be delivered in exchange
therefor.
(b) Upon conversion of the shares of the Class A Group Shares
and Cardinal Class B Common Stock into the right to receive the Merger
Shares in the manner described in paragraph 3.1(a) above, each holder of
shares of Class A Group Shares and Cardinal Class B Common Stock shall have
the right to receive in exchange therefor a certificate representing such
whole number of Merger Shares as is determined in accordance with the
exchange ratio applicable to such shares.
(c) In lieu of the issuance of fractional shares of Superior
Common Stock, each holder of record of issued and outstanding shares of
Class A Group Shares or Cardinal Class B Common Stock as of the Effective
Time that would otherwise be entitled to a fractional share pursuant to the
exchange ratio applicable to such shares shall be entitled to receive a
cash payment (without interest) equal to the fraction of a share of
Superior Common Stock to which such holder would be entitled but for this
provision multiplied by the closing price of the Superior Common Stock on
Nasdaq on the Effective Date.
Section 3.2 EXCHANGE OF STOCK CERTIFICATES; RECORD DATE.
(a) After the Closing Date, each holder of certificates
representing shares of Class A Group Shares and Cardinal Class B Common
Stock that were converted into Merger Shares pursuant to Section 3.1 hereof
shall surrender such certificates for cancellation to SESI, together with a
duly executed letter of transmittal in form and substance reasonably
satisfactory to SESI. In exchange therefor, SESI shall issue and deliver
to such holder of Class A Group Shares and Cardinal Class B Common Stock a
certificate representing the whole number of Merger Shares that such holder
has the right to receive pursuant to the provisions of Section 3.1(b) and a
check for any cash payment in lieu of a fractional Merger Share pursuant to
Section 3.1(c); provided, however, that (i) the holders of the Management
Common Shares or Management Preferred Shares shall not be required to
deliver a transmittal letter or stock certificates representing such
Management Common Shares or Management Preferred Shares, and (ii) SESI
shall deliver to such escrow agent as a holder of Class A Group Shares may
direct such portion of that Person's Merger Shares as the holder may
direct. The certificates representing shares of Class A Group Shares and
Cardinal Class B Common Stock so surrendered shall be canceled by SESI.
(b) In the event any certificate representing shares of Class A
Group Shares or Cardinal Class B Common Stock shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such certificate to be lost, stolen or destroyed, SESI shall cause
to be issued in exchange for such lost, stolen or destroyed certificate the
number of Merger Shares issuable in exchange therefor pursuant to Section
3.1(b) and to make any cash payment in lieu of a fractional Merger Share
pursuant to Section 3.1(c). The Board of Directors of SESI may, in its
discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate to indemnify SESI
against any claim that may be made against SESI with respect to the
certificate alleged to have been lost, stolen or destroyed.
(c) After the Closing Date, the Surviving Corporation shall
deliver to SESI a stock certificate (issued in the name of SESI and dated
as of the Effective Date) representing 1,000 shares of the common stock of
the Surviving Corporation in exchange for SESI's shares of Sub that were
converted into shares of the Surviving Corporation at the Effective Time in
the manner described in Section 3.1(a)(i). The certificate representing
the shares of Sub shall be canceled by SESI.
Section 3.3 NO FURTHER RIGHTS IN CARDINAL COMMON STOCK. As of the
Effective Time, all shares of Class A Group Shares and Cardinal Class B
Common Stock outstanding prior to the Effective Time shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing shares of Class A
Group Shares and Cardinal Class B Common Stock as of the Effective Time
shall cease to have any rights with respect thereto, except the right to
receive the number of Merger Shares into which such shares shall have been
converted upon surrender of such certificate as provided in Section 3.2.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF CARDINAL
Cardinal represents and warrants to SESI as follows with respect to
the matters set forth below.
Section 4.1 ORGANIZATION; QUALIFICATION. Each of Cardinal and
Cardinal Services is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation and has the
requisite corporate power and authority to own its property and to carry on
its business as it is now being conducted. No actions or proceedings to
dissolve either Cardinal or Cardinal Services are pending. Section 4.1 of
the Cardinal Disclosure Schedules sets forth the jurisdictions in which
each of Cardinal and Cardinal Services is qualified to do business as a
foreign corporation. Copies of the certificate or articles of
incorporation and by-laws of each of Cardinal and Cardinal Services, with
all amendments to the date hereof, have been furnished to SESI or its
representatives, and such copies are accurate and complete as of the date
hereof. Cardinal and Cardinal Services have made available to SESI
accurate and complete copies of the minutes of all meetings of their
respective boards of directors, any committees of such boards and
stockholders (and all consents in lieu of such meetings). Such records,
minutes and consents accurately reflect in all material respects all
actions taken by their respective boards of directors, committees and
stockholders as of the date hereof. Neither Cardinal nor Cardinal Services
is in violation of any provision of its certificate or articles of
incorporation or its by-laws other than such violations, that in the
aggregate, would not have a Material Adverse Effect on Cardinal.
Section 4.2 CAPITAL STOCK; SUBSIDIARIES.
(a) As of the date of this Agreement, the authorized capital
stock of Cardinal consists of 1,100,000 shares of Cardinal Common Stock, of
which 18,473.907 shares are issued and outstanding, 17,473.907 shares of
which are denominated as Class A, 1,000 shares of which are denominated as
Class B, and none are held in its treasury, and 47,500 shares of Cardinal
Preferred Stock, of which 23,123.616 shares are issued and outstanding and
denominated as Class C Preferred Stock and none are held in its treasury.
All issued and outstanding shares of Cardinal Common Stock and Cardinal
Preferred Stock have been duly authorized and are validly issued, fully
paid and non-assessable. All outstanding shares of Cardinal Common Stock
and Cardinal Preferred Stock are held of record and beneficially by the
Persons set forth in Section 3.1 of the Cardinal Disclosure Schedules, as
it may be amended as of the Closing Date in accordance with Sections 6.4,
6.13 and 7.1(l) hereof.
(b) The authorized capital stock of Cardinal Services consists
of 300,000 shares of Cardinal Services common stock (consisting of 150,000
shares designated as voting common stock and 150,000 shares designated as
non-voting common stock), of which 120,000 shares of voting common stock
are issued and outstanding, no shares of non-voting common stock are issued
and outstanding and none are held in its treasury. All issued and
outstanding shares of Cardinal Services common stock have been duly
authorized and are validly issued, fully paid and non-assessable, and are
held of record and beneficially by Cardinal.
(c) Except as set forth in Section 4.2 of the Cardinal
Disclosure Schedules, there are no outstanding stock options or other
rights to acquire any shares of the capital stock of Cardinal or Cardinal
Services or any security convertible into Cardinal Common Stock, and except
as contemplated by Sections 6.4, 6.13 or 7.1(l) hereof or as set forth in
Section 4.2 of the Cardinal Disclosure Schedules, neither Cardinal nor
Cardinal Services has any obligation or other commitment to issue, sell or
deliver any of the foregoing or any shares of its capital stock. All
issued and outstanding shares of Cardinal Common Stock and Cardinal
Services common stock have been issued in compliance with all legal
requirements and without violation of any preemptive or similar rights.
(d) Cardinal owns, directly or indirectly, no interest in any
Person other than Cardinal Services. Cardinal Services has no interest in
any other Person.
(e) Cardinal (i) was formed solely to own the Cardinal Services
common stock and engage in financing transactions relative to its
acquisition of Cardinal Services common stock, (ii) has never conducted any
business operations, (iii) has never had any employees, (iv) owns no assets
(other than the Cardinal Services common stock) and (v) has no material
liabilities that are not reflected in the Cardinal Financial Statements.
Section 4.3 CORPORATE AUTHORIZATION; ENFORCEABILITY.
(a) The execution, delivery and performance of this Agreement by
Cardinal has been duly authorized by the board of directors of Cardinal.
Upon an affirmative vote or consent of the holders of a (i) majority of the
outstanding Cardinal Common Stock, (ii) a majority of the outstanding
shares of Cardinal Common Stock designated as Class B voting as a separate
class and (iii) 80% of any outstanding shares of Cardinal Preferred Stock
voting as a separate class, approving this Agreement and the transactions
contemplated hereunder, and the conversion of the Cardinal Preferred Stock
into shares of Cardinal Common Stock as contemplated hereunder (or approval
by the holders of any outstanding shares of Cardinal Preferred Stock as
provided in subsection (a)(iii) above), no further vote or consent of
stockholders or directors of Cardinal and no further corporate acts or
other corporate proceedings are required of Cardinal for the due and valid
authorization, execution, delivery and performance of this Agreement or the
consummation of the Merger.
(b) This Agreement is the legal, valid and binding obligation of
Cardinal enforceable against it in accordance with its terms, except that
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and equitable principles which may limit the availability
of certain equitable remedies in certain instances.
Section 4.4 NO CONFLICT. Except as set forth in Section 4.4 of the
Cardinal Disclosure Schedules, neither the execution, delivery or
performance of this Agreement by Cardinal nor the consummation of the
transactions contemplated hereby will (a) if the requisite Cardinal
stockholder approval is obtained, conflict with or result in any breach of
the provisions of the certificate or articles of incorporation or by-laws
of Cardinal or Cardinal Services, (b) result in the violation or breach of,
or constitute (with or without due notice or the lapse of time or both) a
default (or give rise to any right of termination, cancellation or
acceleration) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, or any material license, contract,
agreement or other instrument or obligation to which either of Cardinal or
Cardinal Services is a party or by which either of them or their respective
properties or assets may be bound, except for such violations, breaches or
defaults that would not, individually or in the aggregate, have a Material
Adverse Effect on Cardinal, or (c) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Cardinal or Cardinal
Services or any of their respective properties or assets, except for such
violations, that in the aggregate, would not have a Material Adverse Effect
on Cardinal.
Section 4.5 CONSENTS. No consent, approval, order or
authorization of, or declaration, filing or registration with, any
Governmental Entity or other Person is required to be obtained or made by
Cardinal or Cardinal Services in connection with the execution, delivery or
performance by Cardinal or Cardinal Services of this Agreement or the
consummation by either Cardinal or Cardinal Services of the transactions
contemplated hereby except for (a) those required by the HSR Act, (b) as
set forth in Section 4.5 of the Cardinal Disclosure Schedules, (c) the
requisite Cardinal Stockholder approval and action set forth in Section
4.3(a) hereof and (d) such other consents, approvals, orders,
authorizations, declarations, filings, or registrations, the failure of
which to obtain or make would not have, in the aggregate, a Material
Adverse Effect on Cardinal.
Section 4.6 CARDINAL FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) The Cardinal Annual Financial Statements have been audited
by Ernst & Young, LLP, independent accountants, in accordance with
generally accepted auditing standards, have been prepared in accordance
with GAAP applied on a basis consistent with prior periods, and present
fairly the financial position of Cardinal and its Subsidiaries at such
dates and the results of operations and cash flows for the periods then
ended.
(b) The Cardinal Interim Financial Statements have been prepared
in accordance with GAAP on a basis consistent with the prior periods and
reflect all adjustments, consisting only of normal, recurring adjustments,
that are necessary for a fair statement of the results for the interim
period presented therein. To the Knowledge of Cardinal, except as
disclosed in Section 4.6 of the Cardinal Disclosure Schedules, none of
Cardinal, Cardinal Services, nor any of their respective assets, is subject
to any liability, commitment, debt or obligation that would be required to
be disclosed in financial statements prepared in accordance with GAAP,
except (i) as and to the extent reflected on the Cardinal Interim Financial
Statements, or (ii) as may have been incurred or may have arisen since the
date of the Cardinal Interim Financial Statements in the ordinary course of
business and that are permitted by this Agreement, or, in the aggregate,
would not have a Material Adverse Effect on Cardinal.
Section 4.7 ACCOUNTS RECEIVABLE. All of the accounts receivable
reflected on the Cardinal Interim Financial Statements or created
thereafter (a) have arisen only from bona fide transactions in the ordinary
course of business, (b) represent valid obligations owing to Cardinal
Services, (c) except as may be reserved against in the Cardinal Interim
Financial Statements, are subject to no material valid counterclaims or
setoffs, and (d) have been accrued in accordance with GAAP. Section 4.7 of
the Cardinal Disclosure Schedules sets forth a summary listing of all
accounts receivable of Cardinal Services as of the date specified therein
and reflects receivables aged less than 90 days from the date of invoice as
a group and sets forth all receivables aged more than 90 days individually
by customer, invoice and amount. No representation or warranty is made
that any account receivable will be collected when due or thereafter.
Section 4.8 ABSENCE OF CERTAIN CHANGES.
(a) Since February 28, 1999, Cardinal Services has operated in
the ordinary course of business consistent with past practice and there has
been no event or condition of any character that has had, or can reasonably
be expected to have, a Material Adverse Effect on Cardinal.
(b) Except as set forth in Section 4.8 of the Cardinal
Disclosure Schedules, since February 28, 1999, Cardinal Services has not
taken any actions of a type referred to in Section 6.10 that would have
required the consent of SESI if such action were to have been taken during
the period between the date hereof and the Closing Date.
Section 4.9 MATERIAL CONTRACTS.
(a) Section 4.9 of the Cardinal Disclosure Schedules contains a
list and brief description (including the names of the parties and the date
and nature of the agreement) of each Material Contract to which either
Cardinal or Cardinal Services is a party, or to which any of their
respective properties is subject. SESI has been provided a complete and
accurate copy of each Material Contract listed on Section 4.9 of the
Cardinal Disclosure Schedules. Except as set forth in Section 4.9 of the
Cardinal Disclosure Schedules, each such Material Contract is a legal,
valid, binding and enforceable obligation of Cardinal or Cardinal Services,
as the case may be, except to the extent that enforcement may be limited by
(i) bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the enforcement of creditors' rights
generally and (ii) general equitable principles.
(b) Except as set forth in Section 4.9 of the Cardinal
Disclosure Schedules, neither Cardinal nor Cardinal Services is in material
breach of or default (and, to the Knowledge of Cardinal, no event has
occurred which, with due notice or lapse of time or both, would constitute
such a breach or default) under any Material Contract except where any such
breaches or defaults, in the aggregate, would not have a Material Adverse
Effect on Cardinal, and no party to any Material Contract has given
Cardinal or Cardinal Services written notice of or made a claim in writing
with respect to any breach or default under any such Material Contract.
Section 4.10 VESSELS. Section 4.10 of the Cardinal Disclosure
Schedules sets forth a list of all vessels owned, leased, chartered or
managed by Cardinal Services on the date hereof (such vessels being
referred to herein as the "Vessels"). Cardinal Services has good and
marketable title to each Vessel free and clear of all Liens, except for (a)
Liens set forth in Section 4.10 of the Cardinal Disclosure Schedules (b)
Liens that collateralize indebtedness that is reflected in the Cardinal
Interim Financial Statements, and (c) Permitted Liens. All of the Vessels
are U.S. flagged vessels and are qualified to engage in the coastwise
trade. At all relevant times each of Cardinal Services and Cardinal has
been "a citizen of the United States" within the meaning of Section 2 of
the Shipping Act of 1916, as amended, and is qualified to own and operate
vessels in the coastwise trade. The Vessels are duly documented in the
name of Cardinal Services with the U.S. Coast Guard (to the extent
required) and each of the Vessels has current certificates of inspection
and documentation issued by the U.S. Coast Guard and all other certificates
and documentation required by any Governmental Entity to operate offshore
in the U.S. Gulf of Mexico, in each case free of reportable exceptions or
notations of record and each of the Vessels is currently operating within
the U.S. Gulf of Mexico. Except as provided in Section 4.10 of the
Cardinal Disclosure Schedules or where the failure to be in such condition
would not have a Material Adverse Effect on Cardinal, the Vessels taken as
a whole are in a good state of repair and operating condition, ordinary
wear and tear excepted, which is adequate to enable such Vessels to perform
the functions for Cardinal Services for which they have been historically
used and operated in the ordinary course of business.
Section 4.11 REAL PROPERTY.
(a) Section 4.11 of the Cardinal Disclosure Schedules sets forth
a true and complete list of all real property owned in fee simple title by
Cardinal Services (collectively, the "Cardinal Owned Properties"). Except
as set forth in Section 4.11 of the Cardinal Disclosure Schedules, Cardinal
Services has good and marketable title to all Cardinal Owned Properties.
Except as disclosed in Section 4.11 of the Cardinal Disclosure Schedules,
none of the Cardinal Owned Properties is subject to any Liens, except for
(i) Liens that collateralize indebtedness that is reflected in the Cardinal
Interim Financial Statements and (ii) Permitted Liens.
(b) Except as set forth in Section 4.11 of the Cardinal
Disclosure Schedules, all improvements on the Cardinal Owned Properties and
the operations therein conducted conform in all material respects to all
applicable health, fire, safety, zoning and building laws, ordinances and
administrative regulations, except for possible nonconforming uses or
violations which do not materially interfere with the present use,
operation or maintenance thereof or access thereto by Cardinal Services,
and, individually or in the aggregate, would not otherwise have a Material
Adverse Effect on Cardinal. The operating condition and state of repair of
all buildings, structures, improvements and fixtures on the Cardinal Owned
Properties are sufficient to permit the use and operation of all such
buildings, structures, improvements and fixtures as now used or operated by
Cardinal Services except where the failure to be in such condition would
not have a Material Adverse Effect on Cardinal.
Section 4.12 REAL PROPERTY LEASES.
(a) Section 4.12 of the Cardinal Disclosure Schedules sets
forth a list of all Leases with respect to all real properties in which
Cardinal Services has a leasehold, subleasehold, or other occupancy
interest (the "Cardinal Leased Properties"). Complete and accurate copies
of all such Leases and all amendments thereto have been provided to SESI.
All of the Leases for the Cardinal Leased Properties are valid and
effective against Cardinal Services in accordance with their respective
terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and
(ii) general equitable principles.
(b) Cardinal Services has not received written notice that it
is in material breach of or default (and, to the Knowledge of Cardinal, no
event has occurred, that, with due notice or lapse of time or both, would
constitute such a breach or default) under any Lease.
(c) Except as set forth in Section 4.12 of the Cardinal
Disclosure Schedules, no Cardinal Leased Property is subject to any
material sublease, license or other agreement granting to any Person any
right to the use, occupancy or enjoyment of Cardinal Leased Property or any
portion thereof through Cardinal Services.
Section 4.13 PERSONAL PROPERTY.
(a) Except as set forth in Section 4.13 of the Cardinal
Disclosure Schedules, Cardinal Services has good title to all Personal
Property (other than the Vessels) owned by Cardinal Services, free and
clear of all Liens other than (i) Liens that collateralize indebtedness
that is reflected in the Cardinal Interim Financial Statements and (ii)
Permitted Liens.
(b) Except as set forth in Section 4.13 of the Cardinal
Disclosure Schedules, Cardinal Services holds valid leaseholds in all of
the Personal Property leased by it, which leases are enforceable against
Cardinal Services in accordance with their respective terms, except that
the enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally, and (ii) general equitable
principles.
(c) Except as set forth in Section 4.13 of the Cardinal
Disclosure Schedules, Cardinal Services is not in breach of or default
(and, to the Knowledge of Cardinal, no event has occurred that, with due
notice or lapse of time or both, would constitute such a lapse or default)
under any lease of any item of Personal Property leased by it, except for
any such breach or default that would not, individually or in the
aggregate, have a Material Adverse Effect on Cardinal.
(d) Except as set forth in Section 4.13 of the Cardinal
Disclosure Schedules, the Personal Property (other than the Vessels) now
owned, leased or used by Cardinal Services is sufficient and adequate to
carry on its business as presently conducted and the operating condition
and the state of repair thereof is sufficient to permit Cardinal Services
to carry on its business as presently conducted except where the failure to
be in such condition would not have a Material Adverse Effect on Cardinal.
Section 4.14 COMPLIANCE WITH LAWS. Except as set forth in Sections
4.14, 4.17, 4.22 or 4.23 of the Cardinal Disclosure Schedules, neither
Cardinal nor Cardinal Services is in violation of any Applicable Law, nor
is it in default with respect to any order, writ, judgment, award,
injunction or other decree of any Governmental Entity applicable to it or
any of its respective assets, properties or operations except such
violations or defaults that, in the aggregate, would not have a Material
Adverse Effect on Cardinal.
Section 4.15 PERMITS. Except as set forth in Sections 4.15 or
4.17 of the Cardinal Disclosure Schedules, Cardinal Services has all
permits, licenses and governmental authorizations that are required for the
lease, ownership, occupancy or operation of its properties and assets and
the carrying on of its business except where the failure to have any such
permits, licenses or authorizations would not, in the aggregate, have a
Material Adverse Effect on Cardinal.
Section 4.16 LITIGATION.
(a) Except as set forth in Section 4.16 of the Cardinal
Disclosure Schedules, there are no Proceedings pending or, to the Knowledge
of Cardinal, threatened, against either Cardinal or Cardinal Services (i)
for which an indemnification claim has been asserted, (ii) that could
reasonably be expected to have a Material Adverse Effect on Cardinal or
(iii) that seeks to prohibit or restrict consummation of the transactions
contemplated by this Agreement.
(b) Except as set forth in Section 4.16 of the Cardinal
Disclosure Schedules, neither Cardinal, Cardinal Services nor any of their
respective assets or properties is subject to any material order, writ,
judgment, award, injunction or decree of any Governmental Entity.
Section 4.17 ENVIRONMENTAL COMPLIANCE.
(a) Except as set forth in Section 4.17 of the Cardinal
Disclosure Schedules, to the Knowledge of Cardinal, Cardinal Services
possesses all licenses, permits and other approvals and authorizations that
are required under, and at all times for the past two years has been in
compliance with, all Environmental Laws, including all Environmental Laws
governing the generation, use, collection, treatment, storage,
transportation, recover, removal, discharge or disposal of hazardous
substances or wastes, and all Environmental Laws imposing record-keeping,
maintenance, testing, inspection, notification and reporting requirements
with respect to hazardous substances or wastes except where noncompliance
would not, individually or in the aggregate, have a Material Adverse Effect
on Cardinal, and, to the Knowledge of Cardinal, except as set forth in
Section 4.17 of the Cardinal Disclosure Schedules, there is no condition
that would materially interfere with such compliance in the future. For
purposes of this Agreement, "hazardous substances" and "hazardous wastes"
are materials defined as "hazardous substances," "hazardous wastes," or
"hazardous constituents" in (i) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Sections 9601-9675, as
amended by the Superfund Amendments and Reauthorization Act of 1986, and
any amendments thereto and regulations thereunder; (ii) the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. Sections 6901-6992, as
amended by the Hazardous and Solid Waste Amendments of 1984, and any
amendments thereto and regulations thereunder; (iii) the Oil Pollution Act
of 1990, 33 U.S.C. Sections 2701-2761, and any amendments thereto and
regulations thereunder; and (iv) any other applicable Environmental Law.
(b) Except as set forth in Section 4.17 of the Cardinal
Disclosure Schedules, for the past two years neither Cardinal nor Cardinal
Services has been subject to any Proceeding pursuant to, or has received
any notice of any violation of, or claim alleging liability under, any
Environmental Laws. To the Knowledge of Cardinal, no facts or
circumstances exist that would reasonably be likely to result in a claim,
citation or allegation against either Cardinal or Cardinal Services for a
violation of, or alleging liability under any Environmental Laws, except
such violations or liabilities that would not, individually or in the
aggregate, have a Material Adverse Effect on Cardinal.
(c) Except as set forth in Section 4.17 of the Cardinal
Disclosure Schedules, to the Knowledge of Cardinal, there are no
underground tanks of any type (including tanks storing gasoline, diesel
fuel, oil or other petroleum products) or disposal sites for hazardous
substances, hazardous wastes or any other regulated waste, located on or
under the Cardinal Owned Properties or Cardinal Leased Properties.
(d) Except as set forth in Section 4.17 of the Cardinal
Disclosure Schedules, to the Knowledge of Cardinal, except in the ordinary
course of business, and in all cases in material compliance with all
Environmental Laws, Cardinal Services has not engaged any third party to
handle, transport or dispose of hazardous substances or wastes (including
for this purpose, gasoline, diesel fuel, oil or other petroleum products,
or bilge waste) on its behalf.
Section 4.18 ERISA AND RELATED MATTERS.
(a) Section 4.18 of the Cardinal Disclosure Schedules provides a
list of each of the following which Cardinal or Cardinal Services or any
corporation, trade, business or entity under common control with Cardinal
or a Cardinal Services within the meaning of section 414(b), (c), (m) or
(o) of the Code sponsors, maintains or contributes to, or has contingent
liability with respect thereto for the benefit of its current or former
employees, officers or directors as of the Closing Date:
(i) each Employee Plan; and
(ii) each personnel policy, stock option plan, collective
bargaining agreement, bonus plan or arrangement, incentive award plan or
arrangement, vacation policy, severance pay plan, policy or agreement,
deferred compensation agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement, employment agreement
and each other employee benefit plan, agreement, arrangement, program,
practice or understanding that is not described in Section 4.18(a)(i)
("Cardinal Benefit Program or Agreement").
True and complete copies of each of the Employee Plans, Cardinal
Benefit Programs or Agreements, current summary plan descriptions, related
trusts, if applicable, and all amendments thereto, have been or on request
will be furnished to SESI. Further, a copy of the most recent annual
report, if applicable, for each Employee Plan, Cardinal Benefit Program or
Agreement and all material communications received from or sent to the
Internal Revenue Service or the Department of Labor in the last two years
regarding any Employee Plan, Cardinal Benefit Program or Agreement will be
provided to SESI upon request.
(b) Benefits under any Employee Plan or Cardinal Benefit Program
or Agreement are as represented in said documents and have not been
increased or modified (whether written or not written) subsequent to the
dates of such documents. Neither Cardinal nor Cardinal Services has
communicated to any employee or former employee any intention or commitment
to modify any Employee Plan or Cardinal Benefit Program or Agreement or to
establish or implement any other employee or retiree benefit or
compensation arrangement.
(c) Neither Cardinal or Cardinal Services, nor any trade or
business under common control with Cardinal or Cardinal Services within the
meaning of Section 414(b) or (c) of the Code prior to the Closing Date
maintains or has ever maintained or become obligated to contribute to any
employee benefit plan (i) that is subject to Title IV of ERISA, (ii) to
which Section 412 of the Code applies, (iii) that is a Multiemployer Plan,
or (iv) in connection with any trust described in Section 501(c)(9) of the
Code. Neither Cardinal nor Cardinal Services has within the last five
years engaged in, or is a successor corporation to an entity that has
engaged in, a transaction described in Section 4069 of ERISA.
(d) Except as otherwise set forth in Section 4.18 of the
Cardinal Disclosure Schedules:
(i) each Employee Plan and each Cardinal Benefit Program or
Agreement has been administered, maintained and operated in all material
respects in accordance with the terms thereof and in compliance with its
governing documents and Applicable Law (including where applicable, ERISA
and the Code);
(ii) each of the Employee Plans intended to be qualified
under section 401 of the Code (A) satisfies in form the requirements of
such section except to the extent amendments are not required by law to be
made until a date after the Closing Date, (B) has received a favorable
determination letter from the Internal Revenue Service regarding such
qualified status, (C) has not, since receipt of the most recent favorable
determination letter, been amended, and (D) has not been operated in a way
that would adversely affect its qualified status;
(iii) no act, omission or transaction has occurred which
would result in the imposition on Cardinal or Cardinal Services of a breach
of fiduciary duty liability or damages under Section 409 of ERISA, a civil
penalty assessed pursuant to Subsections (c), (i) or (l) of Section 502 of
ERISA or a Tax imposed pursuant to Chapter 43 of Subtitle D of the Code;
(iv) neither Cardinal or Cardinal Services, nor any of their
directors, officers or employees has engaged in any transaction with
respect to an Employee Plan that could subject Cardinal or Cardinal
Services to a Tax, penalty or liability for a prohibited transaction, as
defined in Section 406 of ERISA or Section 4975 of the Code. None of the
assets of any Employee Plan are invested in employer securities or employer
real property.
(v) full payment has been made of all amounts which
Cardinal Services is or has been required to have paid as contributions to
or benefits due under any Employee Plan or Cardinal Benefit Program or
Agreement under Applicable Law or under the terms of any such plan or any
arrangement; and
(vi) there is no Proceeding or other dispute pending or, to
the Knowledge of Cardinal, threatened that involves any Employee Plan or
Cardinal Benefit Program or Agreement that could reasonably be expected to
result in a material liability to Cardinal or Cardinal Services.
(e) Except as set forth in Section 4.18 of the Cardinal
Disclosure Schedules, in connection with the consummation of the
transactions contemplated in this Agreement, no employee or former employee
of Cardinal or Cardinal Services will become entitled to any bonus,
retirement, severance, job security or similar benefit or enhanced benefit
(including acceleration of an award, vesting or exercise of an incentive
award) or any fee or payment of any kind solely as a result of any of the
transactions contemplated hereby, and no such disclosed payment constitutes
a parachute payment described in Section 280G of the Code.
(f) All group health plans of Cardinal or Cardinal Services have
at all times fully complied in all material respects with all applicable
notification and continuation coverage requirements of Section 4980B(f) of
the Code and Section 601 of ERISA. Neither Cardinal nor Cardinal Services
has any current or projected liability in respect of post-retirement or
post-employment welfare benefits for retired, current or former employees,
or for any stockholder or director who is not an employee, former employee
or beneficiary thereof, except to the extent otherwise required by the
continuation requirements of Section 4980B(f) of the Code and Section 601
of ERISA.
(g) All group health plans (within the meaning of Section
5000(b)(1) of the Code) of Cardinal or Cardinal Services have at all times
fully complied in all material respects with, and have been maintained and
operated in all material respects in accordance with (i) the health care
requirements relating to portability, access, and renewability of Sections
9801 through 9803 of the Code and Part 7 of Title I, Subtitle B of ERISA,
(ii) the health care requirements relating to the benefits for mothers and
newborns under Section 9811 of the Code and Section 711 of ERISA, and (iii)
the health care requirements relating to the parity provisions applicable
to mental health benefits under Section 9812 of the Code and Section 712 of
ERISA.
(h) Except as set forth in Section 4.18 of the Cardinal
Disclosure Schedules, no employee or former employee, officer or director
of Cardinal or Cardinal Services is or will become entitled to receive any
award under Cardinal's discretionary or other bonus plans except for
amounts reflected on the Cardinal Financial Statements.
Section 4.19 TAXES.
(a) Except as set forth in Section 4.19 of the Cardinal
Disclosure Schedules, all Returns required to be filed by or on behalf of
Cardinal and Cardinal Services have been duly filed and such Returns
(including all attached statements and schedules) are true, complete and
correct in all material respects. All Taxes due have been paid in full on
a timely basis, and no other Taxes are payable by Cardinal or Cardinal
Services with respect to items or periods covered by such Returns (whether
or not shown on or reportable on such Returns) or with respect to any
period prior to the Closing Date.
(b) Except as set forth in Section 4.19 of the Cardinal
Disclosure Schedules, each of Cardinal and Cardinal Services has withheld
and paid over all Taxes required to have been withheld and paid over
(including any estimated taxes and Taxes pursuant to Section 1441 or 1442
of the Code or similar provisions under any foreign laws), and has complied
in all material respects with all information reporting and backup
withholding requirements, including maintenance of required records with
respect thereto, in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party.
(c) Except as set forth in Section 4.19 of the Cardinal
Disclosure Schedules, there are no Liens on any of the assets of Cardinal
or Cardinal Services with respect to Taxes, other than Permitted Liens.
(d) Each of Cardinal and Cardinal Services has furnished or made
available to SESI true and complete copies of: (i) all federal and state
income and franchise tax returns of Cardinal and Cardinal Services for all
periods beginning on or after January 1, 1996, and (ii) all tax audit
reports, work papers, statements of deficiencies, closing or other
agreements received by Cardinal or Cardinal Services or on their behalf
relating to Taxes for all periods beginning on or after January 1, 1996.
(e) Except as disclosed in Section 4.19 of the Cardinal
Disclosure Schedules:
(i) The Returns of Cardinal and Cardinal Services have
never been audited by a Governmental Entity, nor is any such audit in
process, pending or, to the Knowledge of Cardinal, threatened (formally or
informally) except with respect to Returns where audits have been concluded
or for periods for which the applicable statutes of limitations have not
run.
(ii) No deficiencies exist or have been asserted (either in
writing or verbally, formally or informally) or, to the Knowledge of
Cardinal, are expected to be asserted with respect to Taxes of Cardinal or
Cardinal Services, and no notice (either formal or informal) has been
received by Cardinal or Cardinal Services that it has not filed a Return or
paid Taxes required to be filed or paid by it.
(iii) Neither Cardinal nor Cardinal Services is a party to
any pending Proceeding for assessment or collection of Taxes, nor has such
Proceeding been asserted or, to the Knowledge of Cardinal, threatened
(either formally or informally), against it or any of its assets.
(iv) Except as reflected in the Returns, no waiver or
extension of any statute of limitations is in effect with respect to Taxes
or Returns of Cardinal or Cardinal Services.
(v) There are no requests for rulings, subpoenas or
requests for information pending with respect to Cardinal or Cardinal
Services.
(vi) No power of attorney has been granted by Cardinal or
Cardinal Services with respect to any matter relating to Taxes.
(vii) The amount of liability for unpaid Taxes of Cardinal
or Cardinal Services for all periods ending on or before the Closing Date
will not, in the aggregate, exceed the amount of the current liability
accruals for Taxes (excluding reserves for deferred taxes), as such
accruals are reflected on the consolidated balance sheet of Cardinal as of
the Closing Date.
(f) Except as disclosed in Section 4.19 of the Cardinal
Disclosure Schedules:
(i) Neither Cardinal nor Cardinal Services has issued or
assumed any indebtedness that is subject to section 279(b) of the Code.
(ii) Neither Cardinal nor Cardinal Services has entered into
any compensatory agreements with respect to the performance of services
which payment thereunder would result in a nondeductible expense pursuant
to Section 280G or 162(m) of the Code or an excise tax to the recipient of
such payment pursuant to Section 4999 of the Code.
(iii) No election has been made under Section 338 of the
Code with respect to either Cardinal or Cardinal Services and no action has
been taken that would result in any income tax liability to either Cardinal
or Cardinal Services as a result of deemed election within the meaning of
Section 338 of the Code.
(iv) No consent under Section 341(f) of the Code has been
filed with respect to either Cardinal or Cardinal Services.
(v) Neither Cardinal nor Cardinal Services has agreed, nor
is it required, to make any adjustment under Code Section 481(a) by reason
of a change in accounting method or otherwise.
(vi) Neither Cardinal nor Cardinal Services has disposed of
any property that has been accounted for under the installment method.
(vii) Neither Cardinal nor Cardinal Services has made any of
the foregoing elections and is not required to apply any of the foregoing
rules under any comparable state or local income tax provisions.
(viii) Neither Cardinal nor Cardinal Services is a party to
any tax sharing or allocation agreement nor does either Cardinal or
Cardinal Services owe any amount under any tax sharing or allocation
agreement.
(ix) Neither Cardinal nor Cardinal Services has ever been
(or has any liability for unpaid Taxes because it once was) a member of an
affiliated group within the meaning of Section 1502 of the Code during any
part of any consolidated return year during any part of which year any
corporation other than Cardinal and Cardinal Services was also a member of
such affiliated group.
(g) Cardinal is not an investment company. For purposes of this
representation, the term "investment company" means a regulated investment
company, a real estate investment trust, or a corporation 50% or more of
the value of whose total assets are stock and securities and 80% or more of
the value of whose total assets are assets held for investment. In making
the 50% and the 80% determinations under the preceding sentence, stock and
securities in any subsidiary corporation will be disregarded and the parent
corporation will be deemed to own its ratable share of the subsidiary's
assets.
(h) Cardinal is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
Section 4.20 CUSTOMERS AND SUPPLIERS. Section 4.20 of the
Cardinal Disclosure Schedules sets forth a complete and correct list of all
customers whose purchases exceeded 5% of the aggregate net sales of
Cardinal Services for the fiscal year ended December 31, 1998.
Section 4.21 INSURANCE.
(a) Section 4.21 of the Cardinal Disclosure Schedules sets
forth a true and complete list of all policies of hull and machinery
insurance, increased value, protection and indemnity, title insurance,
liability and casualty insurance, property insurance, auto insurance,
business interruption insurance, tenant's insurance, workers' compensation,
life insurance, disability insurance, excess or umbrella insurance,
directors' and officers' liability insurance and any other type of
insurance insuring the properties, assets, employees or operations of
Cardinal Services (collectively the "Cardinal Policies"). Cardinal has
made available to SESI a true, complete and accurate copy of all Cardinal
Policies.
(b) All Cardinal Policies are in full force and effect except
where failures to have any Cardinal Policies in full force and effect would
not, in the aggregate, have a Material Adverse Effect on Cardinal.
(c) There is no claim by Cardinal or any other Person pending
under any of the Cardinal Policies as to which, to the Knowledge of
Cardinal, coverage has been denied or disputed by the underwriters or
issuers of such Cardinal Policies. Neither Cardinal Services nor Cardinal
has received any notice of default, and Cardinal Services is not in
default, under any provision of the Cardinal Policies where any such
defaults, in the aggregate, would have a Material Adverse Effect on
Cardinal.
(d) Cardinal has not since January 1, 1999 received any written
notice from or on behalf of any insurance carrier or other issuer issuing
such Cardinal Policies that insurance rates or other annual premiums or
fees in effect as of the date hereof will hereafter be materially
increased, that there will be a non-renewal, cancellation or increase in a
deductible (or a material increase in premiums in order to maintain an
existing deductible) of any of the Cardinal Policies in effect as of the
date hereof, or that material alteration of any equipment or any
improvements to any Vessel, the Cardinal Owned Properties or the Cardinal
Leased Properties, purchase of additional material equipment, or material
modification of any of the methods of doing business of Cardinal Services
will be required after the date hereof.
Section 4.22 SAFETY AND HEALTH. Except as set forth in Section
4.22 of the Cardinal Disclosure Schedules, to the Knowledge of Cardinal,
the property and assets of Cardinal Services have been and are being
operated in compliance in all respects with all Applicable Laws designed to
protect safety or health, or both, including without limitation, the
Occupational Safety and Health Act, and the regulations promulgated
pursuant thereto, except for any violations or deficiency that would not
have a Material Adverse Effect on Cardinal. Neither Cardinal nor Cardinal
Services has received any written notice of any violations, deficiency,
investigation or inquiry from any Governmental Entity, employer or third
party under any such law and, to the Knowledge of Cardinal, no such
investigation or inquiry is planned or threatened, which, if adversely
determined would, individually or in the aggregate, have a Material Adverse
Effect on Cardinal.
Section 4.23 LABOR MATTERS.
(a) Set forth in Section 4.23 of the Cardinal Disclosure
Schedules is a list of all: (i) outstanding employment, consulting or
management agreements or contracts with officers, directors or employees of
Cardinal Services (other than those that are terminable on no more than 30
days notice) that provide for the payment of any bonus or commission; (ii)
agreements, policies or practices that require Cardinal Services to pay
termination or severance pay to salaried, non-exempt or hourly employees in
excess of 30 days' salary and benefits to any employee upon termination of
such employee's employment (other than as required by law); and (iii)
collective bargaining agreements or other labor union contracts applicable
to persons employed by Cardinal Services. Cardinal Services has made
available to SESI complete and correct copies of all such employment and
labor agreements. Except as set forth in Section 4.23 of the Cardinal
Disclosure Schedules, to the Knowledge of Cardinal, Cardinal Services has
not breached or otherwise failed to comply in any material respect with any
provisions of any employment or labor agreement, and there are no
grievances outstanding thereunder.
(b) Except as set forth in Section 4.23 of the Cardinal
Disclosure Schedules: (i) Cardinal Services is in compliance in all
material respects with all Applicable Laws relating to employment and
employment practices, wages, hours, and terms and conditions of employment;
(ii) there is no unfair labor practice charge or complaint against Cardinal
Services pending before any Governmental Entity; (iii) there is no labor
strike, material slowdown or material work stoppage or lockout actually
pending or, to the Knowledge of Cardinal, threatened, against or affecting
Cardinal Services; (iv) there is no representation claim or petition
pending before any Governmental Entity; (v) there are no charges with
respect to or relating to Cardinal Services pending before any Governmental
Entity responsible for the prevention of unlawful employment practices; and
(vi) Cardinal Services has not had formal notice from any Governmental
Entity responsible for the enforcement of labor or employment laws of an
intention to conduct an investigation of Cardinal Services and, to the
Knowledge of Cardinal, no such investigation is in progress.
Section 4.24 TRANSACTIONS WITH CERTAIN PERSONS. Except as set
forth in Sections 4.23 or 4.24 of the Cardinal Disclosure Schedules, no
director, officer or employee of either Cardinal, Cardinal Services or any
of their respective Affiliates is presently a party to any transaction with
Cardinal Services, including any contract, agreement or other arrangement
providing for the furnishing of services by or the rental of real or
personal property from any such Person or from any of its Affiliates.
Section 4.25 PROPRIETY OF PAST PAYMENTS. Except as set forth in
Section 4.25 of the Cardinal Disclosure Schedules, neither Cardinal nor
Cardinal Services nor any director, officer, employee or agent of Cardinal
or Cardinal Services has (a) used any funds for unlawful contributions,
gifts, entertainment or other unlawful payments or expenses relating to
political activity or (b) made any bribe, rebate, payoff, influence
payment, kick-back or other unlawful payment that is in violation of
Applicable Law.
Section 4.26 INTELLECTUAL PROPERTY. Cardinal Services either owns
or has valid licenses to use all patents, copyrights, trademarks, software,
databases, and other technical information used in its business as
presently conducted, subject to limitations contained in the agreements
governing the use of same, which limitations are customary for companies
engaged in businesses similar to Cardinal Services. Cardinal Services is
in compliance with all such licenses and agreements except where any
noncompliance would not, in the aggregate, have a Material Adverse Effect
on Cardinal, and there are no pending or, to the Knowledge of Cardinal,
threatened Proceedings challenging or questioning the validity or
effectiveness of any license or agreement relating to such property or the
right of Cardinal Services to use, copy, modify or distribute the same.
Section 4.27 DIRECTOR AND OFFICER INDEMNIFICATION. The directors,
officers and employees of Cardinal and Cardinal Services are not entitled
to indemnification by either Cardinal or Cardinal Services, except to the
extent that indemnification rights are provided for generally by Applicable
Law or such corporation's charter, by-laws or directors' and officers'
liability insurance policies described in Section 4.21 of the Cardinal
Disclosure Schedules or in employment agreements described in Section 4.23
of the Cardinal Disclosure Schedules, and there are no pending claims for
indemnification by any such director, officer or employee.
Section 4.28 BROKERS' AND FINDERS' FEE. Except for Simmons &
Company International, no agent, broker, person or firm acting on behalf of
Cardinal or Cardinal Services or the Funds is or will be entitled to any
commission or brokers' or finders' fees payable by Cardinal or Cardinal
Services in connection with any of the transactions contemplated herein.
Section 4.29 NO OTHER REPRESENTATIONS OR WARRANTIES. There are no
representations or warranties, express or implied, made by or on behalf of
Cardinal, with respect to the assets of Cardinal and Cardinal Services,
except for the representations and warranties contained in this Agreement,
including, except as otherwise specifically provided for in this Agreement,
any representation or warranty with respect to the present condition of
Cardinal's and Cardinal Services' assets or the present or future
suitability thereof for any intended use by SESI. Cardinal and the Funds
make no representation or warranty except as expressly contained in this
Agreement (including the Cardinal Disclosure Schedules).
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SESI
SESI represents and warrants to Cardinal and the Funds as follows
(each of the representations and warranties made with respect to SESI,
unless stated to the contrary, includes all of SESI's Subsidiaries).
Section 5.1 ORGANIZATION; QUALIFICATION. Each of SESI and Sub is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authority to own its property and to carry on its business as it is now
being conducted. No actions or proceedings to dissolve SESI are pending.
Copies of the certificates of incorporation and by-laws of each of SESI and
Sub with all amendments to the date hereof, have been furnished to Cardinal
or its representatives, and such copies are accurate and complete as of the
date hereof. SESI has made available to Cardinal access to the minutes of
all meetings of its board of directors, any committees of such board and
stockholders (and all consents in lieu of such meetings). Such records,
minutes and consents accurately reflect in all material respects all
actions taken by the board of directors, committees and stockholders as of
the date hereof. Neither SESI nor Sub is in violation of any provision of
its certificate of incorporation or bylaws except for any such violations
that, in the aggregate, would not have a Material Adverse Effect on SESI.
Section 5.2 CAPITAL STOCK; SUBSIDIARIES.
(a) (i) As of the date of this Agreement, the authorized capital
stock of SESI consists of 40,000,000 shares of SESI Common Stock, of which
28,792,523 shares of SESI Common Stock are issued and outstanding and
474,500 shares are held in its treasury, and 5,000,000 shares of preferred
stock, $.01 par value per share, none of which are issued and outstanding
and none are held in its treasury. All issued and outstanding shares of
SESI Common Stock have been duly authorized and are validly issued, fully
paid and non-assessable.
(ii) Except as set forth in Section 5.2 of the SESI
Disclosure Schedules, there are no outstanding options or other rights to
acquire any shares of SESI Common Stock or any security convertible into
SESI Common Stock and SESI has no obligation or other commitment to issue,
sell or deliver any of the foregoing or any shares of SESI Common Stock.
Except as set forth in Section 5.2 of the SESI Disclosure Schedules, no
Person has any registration rights with respect to any of SESI's capital
stock.
(iii) All issued and outstanding shares of common stock of
SESI's Subsidiaries have been duly authorized and are validly issued, fully
paid and non-assessable. All outstanding capital stock of SESI's
Subsidiaries are held of record and beneficially by SESI.
(iv) All shares of SESI Common Stock to be issued pursuant
to this Agreement will be, when issued in exchange for shares of Cardinal
Common Stock upon consummation of the Merger, duly authorized, validly
issued, fully paid and non-assessable.
(b) (i) The authorized capital stock of Sub consists of 1,000
shares of common stock, all of which are issued and outstanding and none
are held in its treasury. All issued and outstanding shares of Sub common
stock have been duly authorized and are validly issued, fully paid and non-
assessable and held by SESI.
(ii) There are no outstanding options or other rights to
acquire any shares of Sub common stock or any security convertible into Sub
common stock and Sub has no obligation or other commitment to issue, sell
or deliver any of the foregoing or any shares of Sub common stock.
(iii) Sub was formed solely for the purpose of engaging in
the transactions contemplated hereby, has engaged in no other business
activities and has conducted its operations only as contemplated hereby.
(c) Section 5.2 of the SESI Disclosure Schedules contains a list
of all of SESI's Subsidiaries. Except for its Subsidiaries, SESI owns,
directly or indirectly, no interest in any other Person.
Section 5.3 CORPORATE AUTHORIZATION; ENFORCEABILITY.
(a) The execution, delivery and performance of this Agreement by
SESI has been duly authorized by the board of directors of SESI. Upon an
affirmative vote of the holders of a majority of the outstanding shares of
SESI Common Stock present or represented at the SESI Annual Meeting
approving this Agreement and the transactions contemplated hereby, no
further vote or consent of stockholders or directors of SESI and no further
corporate acts or other corporate proceedings are required of SESI for the
due and valid authorization, execution, delivery and performance of this
Agreement or the consummation of the Merger.
(b) This Agreement is, and the Stockholders' Agreement and the
Registration Rights Agreements when executed by SESI in accordance with the
terms hereof will be, the legal, valid and binding obligations of SESI
enforceable against it in accordance with their respective terms, except
that enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and equitable principles which may limit the availability
of certain equitable remedies in certain instances.
(c) The execution, delivery and performance of this Agreement by
Sub has been duly authorized by the board of directors of Sub and approved
by SESI as sole stockholder of Sub and no further vote or consent of
stockholders or directors of Sub and no further corporate acts or other
corporate proceedings are required of Sub for the due and valid
authorization, execution, delivery and performance of this Agreement or the
consummation of the Merger.
Section 5.4 NO CONFLICT. Except as set forth in Section 5.4 of
the SESI Disclosure Schedules, neither the execution, delivery or
performance of this Agreement, the Stockholders' Agreement or the
Registration Rights Agreements by SESI, nor the consummation of the
transactions contemplated hereby or thereby, will (a) if the requisite SESI
stockholder approval set forth in Section 5.3(a) is obtained, conflict with
or result in any breach of the provisions of the certificate of
incorporation or by-laws of SESI, (b) result in the violation or breach of,
or constitute (with or without due notice or the lapse of time or both) a
default (or give rise to any right of termination, cancellation or
acceleration) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, or any material license, contract,
agreement or other instrument or obligation to which SESI is a party or by
which its properties or assets may be bound, except for such violations,
breaches or defaults that would not, individually or in the aggregate, have
a Material Adverse Effect on SESI, or (c) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to SESI or any
of its respective properties or assets, except for such violations that, in
the aggregate, would not have a Material Adverse Effect on SESI.
Section 5.5 CONSENTS. Except as set forth in Section 5.5 of the
SESI Disclosure Schedules, no consent, approval, order or authorization of,
or declaration, filing or registration with, any Governmental Entity or
other Person is required to be obtained or made by SESI in connection with
the execution, delivery or performance by SESI of this Agreement or the
consummation by SESI of the transactions contemplated hereby except for (a)
those required by the HSR Act and (b) any filings required to be made under
the Securities Act (i) in connection with the Financing or (ii) in
compliance with the Registration Rights Agreements, (c) the requisite SESI
stockholder approval set forth in Section 5.3(a) and (d) such other like
consents, approvals, orders, authorizations, declarations, filings or
registrations, the failure of which to obtain or make would not have, in
the aggregate, a Material Adverse Effect on SESI.
Section 5.6 SESI FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) The SESI Annual Financial Statements have been audited by
KPMG Peat Marwick, LLP, independent accountants, in accordance with
generally accepted auditing standards, have been prepared in accordance
with GAAP applied on a basis consistent with prior periods, and present
fairly the financial position of SESI at such dates and the results of
operations and cash flows for the periods then ended.
(b) The SESI Interim Financial Statements have been prepared in
accordance with GAAP on a basis consistent with the prior periods and
reflect all adjustments, consisting only of normal, recurring adjustments,
that are necessary for a fair statement of the results for the interim
period presented therein. Neither SESI nor any of its assets are subject
to any liability, commitment, debt or obligation that would be required to
be disclosed in financial statements prepared in accordance with GAAP,
except (i) as and to the extent reflected on the SESI Interim Financial
Statements, or (ii) as may have been incurred or may have arisen since the
date of the SESI Interim Financial Statements in the ordinary course of
business and that are permitted by this Agreement, or, in the aggregate,
would not have a Material Adverse Effect on SESI.
Section 5.7 ACCOUNTS RECEIVABLE. All of the accounts receivable
reflected on the SESI Interim Financial Statements or created thereafter
(a) have arisen only from bona fide transactions in the ordinary course of
business, (b) represent valid obligations owing to SESI, (c) except as may
be reserved against in the SESI Interim Financial Statements, are subject
to no valid material counterclaims or setoffs, and (d) have been accrued in
accordance with GAAP. Section 5.7 of the SESI Disclosure Schedules sets
forth a summary listing of all accounts receivable of SESI as of the date
specified therein and reflects receivables aged less than 90 days from the
date of invoice as a group and sets forth all receivables aged more than 90
days individually by customer, invoice and amount. No representation or
warranty is made that any account receivable will be collected when due or
thereafter.
Section 5.8 ABSENCE OF CERTAIN CHANGES.
(a) Since February 28, 1999, SESI has operated in the ordinary
course of business consistent with past practice and there has been no
event or condition of any character that has had, or can reasonably be
expected to have, a Material Adverse Effect on SESI.
(b) Since February 28, 1999, SESI has not taken any actions of
a type referred to in Section 6.10 that would have required the consent of
Cardinal if such action were to have been taken during the period between
the date hereof and the Closing Date.
Section 5.9 MATERIAL CONTRACTS.
(a) Section 5.9 of the SESI Disclosure Schedules contains a list
and brief description (including the names of the parties and the date and
nature of the agreement) of each Material Contract to which SESI is a party
or to which any of its properties is subject. Cardinal has been provided a
complete and accurate copy of each Material Contract listed on Section 5.9
of the SESI Disclosure Schedules. Each such Material Contract is a legal,
valid, binding and enforceable obligation of SESI except to the extent that
enforcement may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the enforcement
of creditors' rights generally and (ii) general equitable principles.
(b) Except as set forth in Section 5.9 of the SESI Disclosure
Schedules, SESI is not in material breach of or default (and, to the
Knowledge of SESI, no event has occurred which, with due notice or lapse of
time or both, would constitute such a breach or default) under any Material
Contract except where any such breaches or defaults, in the aggregate,
would not have a Material Adverse Effect on SESI, and no party to any
Material Contract has given SESI written notice of or made a claim in
writing with respect to any breach or default under any such Material
Contract.
Section 5.10 CITIZENSHIP. SESI is "a citizen of the United
States" within the meaning of Section 2 of the Shipping Act of 1916, as
amended, and is qualified to own and operate vessels in the coastwise
trade.
Section 5.11 REAL PROPERTY.
(a) Section 5.11 of the SESI Disclosure Schedules sets forth a
true and complete list of all real property owned in fee simple title by
SESI (collectively, the "SESI Owned Properties"). SESI has good and
marketable title to all SESI Owned Properties. None of the SESI Owned
Properties is subject to any Liens, except for (i) Liens that collateralize
indebtedness that is reflected in the SESI Interim Financial Statements and
(ii) Permitted Liens.
(b) Except as set forth in Section 5.11 of the SESI Disclosure
Schedules, all improvements on the SESI Owned Properties and the operations
therein conducted conform in all material respects to all applicable
health, fire, safety, zoning and building laws, ordinances and
administrative regulations, except for possible nonconforming uses or
violations which do not materially interfere with the present use,
operation or maintenance thereof or access thereto by SESI, and,
individually or in the aggregate, would not otherwise have a Material
Adverse Effect on SESI. The operating condition and state of repair of all
buildings, structures, improvements and fixtures on the SESI Owned
Properties are sufficient to permit the use and operation of all such
buildings, structures, improvements and fixtures as now used or operated by
SESI except where the failure to be in such condition would not have a
Material Adverse Effect on SESI.
Section 5.12 REAL PROPERTY LEASES.
(a) Section 5.12 of the SESI Disclosure Schedules sets forth a
list of all Leases with respect to all real properties in which SESI has a
leasehold, subleasehold, or other occupancy interest (the "SESI Leased
Properties"). Complete and accurate copies of all such Leases and all
amendments thereto have been provided to Cardinal. Except as set forth in
Section 5.12 of the SESI Disclosure Schedules, all of the Leases for the
SESI Leased Properties are valid and effective against SESI in accordance
with their respective terms, except that the enforcement thereof may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors' rights
generally and (ii) general equitable principles.
(b) SESI has not received written notice that it is in material
breach of or default (and, to SESI's Knowledge, no event has occurred,
that, with due notice or lapse of time or both, would constitute such a
breach or default) under any Lease.
(c) Except as set forth in Section 5.12 of the SESI Disclosure
Schedules, no SESI Leased Property is subject to any material sublease,
license or other agreement granting to any Person any right to the use,
occupancy or enjoyment of Leased Property or any portion thereof through
SESI.
Section 5.13 PERSONAL PROPERTY.
(a) Except as set forth in Section 5.13 of the SESI Disclosure
Schedules, SESI has good title to all Personal Property owned by SESI, free
and clear of all Liens other than (i) Liens that collateralize indebtedness
that is reflected in the SESI Interim Financial Statements and (ii)
Permitted Liens.
(b) Except as set forth in Section 5.13 of the SESI Disclosure
Schedules, SESI holds valid leaseholds in all of the Personal Property
leased by it, which leases are enforceable against SESI in accordance with
their respective terms, except that the enforcement thereof may be subject
to (i) bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting or relating to enforcement of creditors' rights generally,
and (ii) general equitable principles.
(c) Except as set forth in Section 5.13 of the SESI Disclosure
Schedules, SESI is not in breach of or default (and no event has occurred
that, with due notice or lapse of time or both, would constitute such a
lapse or default) under any lease of any item of Personal Property leased
by it, except for any such breach or default that would not, individually
or in the aggregate, have a Material Adverse Effect on SESI.
(d) Except as set forth in Section 5.13 of the SESI Disclosure
Schedules, the Personal Property now owned, leased or used by SESI is
sufficient and adequate to carry on its business as presently conducted and
the operating condition and the state of repair thereof is sufficient to
permit SESI to carry on its business as presently conducted except where
the failure to be in such condition would not have a Material Adverse
Effect on SESI.
Section 5.14 COMPLIANCE WITH LAWS. Except as set forth in
Sections 5.14, 5.17, 5.22 or 5.23 of the SESI Disclosure Schedules, SESI is
not in violation of any Applicable Law, nor is it in default with respect
to any order, writ, judgment, award, injunction or other decree of any
Governmental Entity applicable to it or any of its respective assets,
properties or operations except such violations or defaults that, in the
aggregate, would not have a Material Adverse Effect on SESI.
Section 5.15 PERMITS. Except as set forth in Sections 5.15 or
5.17 of the SESI Disclosure Schedules, SESI has all permits, licenses and
governmental authorizations that are required for the lease, ownership,
occupancy or operation of its properties and assets and the carrying on of
its business, except where the failure to have any such permits, licenses
or authorizations would not, in the aggregate, have a Material Adverse
Effect on SESI.
Section 5.16 LITIGATION.
(a) Except as set forth in Section 5.16 of the SESI Disclosure
Schedules, there are no Proceedings pending or, to the Knowledge of the
SESI, threatened, against SESI (i) for which an indemnification claim has
been asserted, (ii) that could reasonably be expected to have a Material
Adverse Effect on SESI or (iii) that seeks to prohibit or restrict
consummation of the transactions contemplated by this Agreement.
(b) Except as set forth in Section 5.16 of the SESI Disclosure
Schedules, neither SESI nor any of its assets or properties is subject to
any material order, writ, judgment, award, injunction or decree of any
Governmental Entity.
Section 5.17 ENVIRONMENTAL COMPLIANCE.
(a) Except as set forth in Section 5.17 of the SESI Disclosure
Schedules, to the Knowledge of SESI, SESI possesses all licenses, permits
and other approvals and authorizations that are required under, and at all
times for the past two years has been in compliance with, all Environmental
Laws, including all Environmental Laws governing the generation, use,
collection, treatment, storage, transportation, recover, removal, discharge
or disposal of hazardous substances or wastes and all Environmental Laws
imposing record-keeping, maintenance, testing, inspection, notification and
reporting requirements with respect to hazardous substances or wastes
except where noncompliance would not, individually or in the aggregate,
have a Material Adverse Effect on SESI, and, to the Knowledge of SESI,
there is no condition that would materially interfere with compliance in
the future.
(b) Except as set forth in Section 5.17 of the SESI Disclosure
Schedules, for the past two years SESI has not been subject to any
Proceeding pursuant to, nor has it received any notice of any violation of,
or claim alleging liability under, any Environmental Laws. To the
Knowledge of SESI, no facts or circumstances exist that would reasonably
be likely to result in a claim, citation or allegation against SESI for a
violation of, or alleging liability under any Environmental Laws, except
such violations or liabilities that would not, individually or in the
aggregate, have a Material Adverse Effect on SESI.
(c) Except as set forth in Section 5.17 of the SESI Disclosure
Schedules, to the Knowledge of SESI, there are no underground tanks of any
type (including tanks storing gasoline, diesel fuel, oil or other petroleum
products) or disposal sites for hazardous substances, hazardous wastes or
any other regulated waste, located on or under the SESI Owned Properties or
SESI Leased Properties.
(d) Except as set forth in Section 5.17 of the SESI Disclosure
Schedules, to the Knowledge of SESI, except in the ordinary course of
business, and in all cases in material compliance with all Environmental
Laws, SESI has not engaged any third party to handle, transport or dispose
of hazardous substances or wastes (including for this purpose, gasoline,
diesel fuel, oil or other petroleum products, or bilge waste) on its
behalf.
Section 5.18 ERISA AND RELATED MATTERS.
(a) Section 5.18 of the SESI Disclosure Schedules provides a
list of each of the following which SESI or any corporation, trade,
business or entity under common control with SESI within the meaning of
section 414(b), (c), (m) or (o) of the Code sponsors, maintains or
contributes to, or has contingent liability with respect thereto for the
benefit of its current or former employees, officers or directors as of the
Closing Date:
(i) each Employee Plan; and
(ii) each personnel policy, stock option plan, collective
bargaining agreement, bonus plan or arrangement, incentive award plan or
arrangement, vacation policy, severance pay plan, policy or agreement,
deferred compensation agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement, employment agreement
and each other employee benefit plan, agreement, arrangement, program,
practice or understanding that is not described in Section 5.18(a)(i)
("SESI Benefit Program or Agreement").
True and complete copies of each of the Employee Plans, SESI
Benefit Programs or Agreements, current summary plan descriptions, related
trusts, if applicable, and all amendments thereto, have been or on request
will be furnished to Cardinal. Further, a copy of the most recent annual
report, if applicable, for each Employee Plan, SESI Benefit Program or
Agreement and all material communications received from or sent to the
Internal Revenue Service or the Department of Labor in the last two years
regarding any Employee Plan, SESI Benefit Program or Agreement will be
provided to Cardinal upon request.
(b) Benefits under any Employee Plan or SESI Benefit Program or
Agreement are as represented in said documents and have not been increased
or modified (whether written or not written) subsequent to the dates of
such documents. SESI has not communicated to any employee or former
employee any intention or commitment to modify any Employee Plan or SESI
Benefit Program or Agreement or to establish or implement any other
employee or retiree benefit or compensation arrangement.
(c) Neither SESI nor any trade or business under common control
with SESI within the meaning of Section 414(b) or (c) of the Code prior to
the Closing Date maintains or has never maintained or become obligated to
contribute to any employee benefit plan (i) that is subject to Title IV of
ERISA, (ii) to which Section 412 of the Code applies, (iii) that is a
Multiemployer Plan, or (iv) in connection with any trust described in
Section 501(c)(9) of the Code. SESI has not within the last five years
engaged in, and is not a successor corporation to an entity that has
engaged in, a transaction described in Section 4069 of ERISA.
(d) Except as otherwise set forth in Section 5.18 of the SESI
Disclosure Schedules:
(i) each Employee Plan and each SESI Benefit Program or
Agreement has been administered, maintained and operated in all material
respects in accordance with the terms thereof and in compliance with its
governing documents and Applicable Law (including where applicable, ERISA
and the Code);
(ii) each of the Employee Plans intended to be qualified
under section 401 of the Code (A) satisfies in form the requirements of
such section except to the extent amendments are not required by law to be
made until a date after the Closing Date, (B) has received a favorable
determination letter from the Internal Revenue Service regarding such
qualified status, (C) has not, since receipt of the most recent favorable
determination letter, been amended, and (D) has not been operated in a way
that would adversely affect its qualified status;
(iii) no act, omission or transaction has occurred which
would result in the imposition on SESI of a breach of fiduciary duty
liability or damages under Section 409 of ERISA, a civil penalty assessed
pursuant to Subsections (c), (i) or (l) of Section 502 of ERISA or a Tax
imposed pursuant to Chapter 43 of Subtitle D of the Code;
(iv) neither SESI nor any of its directors, officers or
employees has engaged in any transaction with respect to an Employee Plan
that could subject SESI to a Tax, penalty or liability for a prohibited
transaction, as defined in Section 406 of ERISA or Section 4975 of the
Code. None of the assets of any Employee Plan are invested in employer
securities or employer real property.
(v) full payment has been made of all amounts which SESI is
or has been required to have paid as contributions to or benefits due under
any Employee Plan or SESI Benefit Program or Agreement under Applicable Law
or under the terms of any such plan or any arrangement; and
(vi) there is no Proceeding or other dispute pending or, to
the Knowledge of SESI, threatened that involves any Employee Plan or SESI
Benefit Program or Agreement that could reasonably be expected to result in
a material liability to SESI.
(e) In connection with the consummation of the transactions
contemplated in this Agreement, no employee or former employee of SESI will
become entitled to any bonus, retirement, severance, job security or
similar benefit or enhanced benefit (including acceleration of an award,
vesting or exercise of an incentive award) or any fee or payment of any
kind solely as a result of any of the transactions contemplated hereby, and
no such disclosed payment constitutes a parachute payment described in
Section 280G of the Code.
(f) All group health plans of SESI have at all times fully
complied in all material respects with all applicable notification and
continuation of coverage requirements of Section 4980B(f) of the Code and
Section 601 of ERISA. SESI does not have any current or projected
liability in respect of post-retirement or post-employment welfare benefits
for retired, current or former employees, or for any stockholder or
director who is not an employee, former employee or beneficiary thereof,
except to the extent otherwise required by the continuation requirements of
Section 4980B(f) of the Code and Section 601 of ERISA.
(g) All group health plans (within the meaning of Section
5000(b)(1) of the Code) of SESI have at all times fully complied in all
material respects with, and have been maintained and operated in all
material respects in accordance with (i) the health care requirements
relating to portability, access, and renewability requirements of Sections
9801 through 9803 of the Code and Part 7 of Title I, Subtitle B of ERISA,
(ii) the health care requirements relating to the benefits for mothers and
newborns under Section 9811 of the Code and Section 711 of ERISA, and (iii)
the health care requirements relating to the parity provisions applicable
to mental health benefits under Section 9812 of the Code and Section 712 of
ERISA.
(h) No employee or former employee, officer or director of SESI
is or will become entitled to receive any award under SESI's discretionary
or other bonus plans except for amounts reflected on the SESI Financial
Statements.
Section 5.19 TAXES.
(a) Except as set forth in Section 5.19 of the SESI Disclosure
Schedules, all Returns required to be filed by or on behalf of SESI have
been duly filed and such Returns (including all attached statements and
schedules) are true, complete and correct in all material respects. All
Taxes due have been paid in full on a timely basis, and no other Taxes are
payable by SESI with respect to items or periods covered by such Returns
(whether or not shown on or reportable on such Returns) or with respect to
any period prior to the Closing Date.
(b) Except as set forth in Section 5.19 of the SESI Disclosure
Schedules, SESI has withheld and paid over all Taxes required to have been
withheld and paid over (including any estimated taxes and Taxes pursuant to
Section 1441 or 1442 of the Code or similar provisions under any foreign
law), and has complied in all material respects with all information
reporting and backup withholding requirements, including maintenance of
required records with respect thereto, in connection with amounts paid or
owing to any employee, creditor, independent contractor, or other third
party.
(c) Except as set forth in Section 5.19 of the SESI Disclosure
Schedules, there are no Liens on any of the assets of SESI with respect to
Taxes, other than Permitted Liens.
(d) SESI has furnished or made available to Cardinal true and
complete copies of: (i) all federal and state income and franchise tax
returns of SESI for all periods beginning on or after January 1, 1996, and
(ii) all tax audit reports, work papers, statements of deficiencies,
closing or other agreements received by SESI or on its behalf relating to
Taxes for all periods beginning on or after January 1, 1996.
(e) Except as disclosed in Section 5.19 of the SESI Disclosure
Schedules:
(i) The Returns of SESI have never been audited by a
Governmental Entity, nor is any such audit in process, pending or, to the
Knowledge of the SESI, threatened (formally or informally) except with
respect to Returns where audits have been concluded or for Periods for
which the applicable statutes of limitations have not run.
(ii) No deficiencies exist or have been asserted (either in
writing or verbally, formally or informally) or, to the Knowledge of SESI,
are expected to be asserted with respect to Taxes of SESI and no notice
(either formal or informal) has been received by SESI that it has not filed
a Return or paid Taxes required to be filed or paid by it.
(iii) SESI is not a party to any pending Proceeding for
assessment or collection of Taxes, nor has such Proceeding been asserted
or, to the Knowledge of the SESI, threatened (either formally or
informally), against it or any of its assets.
(iv) Except as reflected in the Returns, no waiver or
extension of any statute of limitations is in effect with respect to Taxes
or Returns of SESI.
(v) There are no requests for rulings, subpoenas or
requests for information pending with respect to SESI.
(vi) No power of attorney has been granted by SESI with
respect to any matter relating to Taxes.
(vii) The amount of liability for unpaid Taxes of SESI for
all periods ending on or before the Closing Date will not, in the
aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred taxes), as such accruals are reflected on
the consolidated balance sheet of SESI as of the Closing Date.
(f) Except as disclosed in Section 5.19 of the SESI Disclosure
Schedules:
(i) SESI has not issued or assumed any indebtedness that is
subject to section 279(b) of the Code.
(ii) SESI has not entered into any compensatory agreements
with respect to the performance of services which payment thereunder would
result in a nondeductible expense pursuant to Section 280G or 162(m) of the
Code or an excise tax to the recipient of such payment pursuant to Section
4999 of the Code.
(iii) No election has been made under Section 338 of the
Code with respect to SESI and no action has been taken that would result in
any income tax liability to either SESI as a result of deemed election
within the meaning of Section 338 of the Code.
(iv) No consent under Section 341(f) of the Code has been
filed with respect to SESI.
(v) SESI has not agreed, nor is it required, to make any
adjustment under Code Section 481(a) by reason of a change in accounting
method or otherwise.
(vi) SESI has not disposed of any property that has been
accounted for under the installment method.
(vii) SESI has not made any of the foregoing elections and
is not required to apply any of the foregoing rules under any comparable
state or local income tax provisions.
(viii) SESI is not a party to any tax sharing or allocation
agreement nor does SESI owe any amount under any tax sharing or allocation
agreement.
(ix) SESI has never been (nor has any liability for unpaid
Taxes because it once was) a member of an affiliated group within the
meaning of Section 1502 of the Code during any part of any consolidated
return year during any part of which year any corporation other than SESI
was also a member of such affiliated group.
(g) SESI is not an investment company. For purposes of this
representation, the term "investment company" means a regulated investment
company, a real estate investment trust, or a corporation 50% or more of
the value of whose total assets are stock and securities and 80% or more of
the value of whose total assets are assets held for investment. In making
the 50% and the 80% determinations under the preceding sentence, stock and
securities in any subsidiary corporation will be disregarded and the parent
corporation will be deemed to own its ratable share of the subsidiary's
assets.
(h) SESI is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
Section 5.20 CUSTOMERS AND SUPPLIERS. Section 5.20 of the SESI
Disclosure Schedules sets forth a complete and correct list of all
customers whose purchases exceeded 5% of the aggregate net sales of SESI
for the fiscal year ended December 31, 1998.
Section 5.21 INSURANCE.
(a) Section 5.21 of the SESI Disclosure Schedules sets forth a
true and complete list of all policies of machinery insurance, increased
value, protection and indemnity, title insurance, liability and casualty
insurance, property insurance, auto insurance, business interruption
insurance, tenant's insurance, workers' compensation, life insurance,
disability insurance, excess or umbrella insurance, directors' and
officers' liability insurance and any other type of insurance insuring the
properties, assets, employees or operations of SESI (collectively the "SESI
Policies"). SESI has made available to Cardinal a true, complete and
accurate copy of all SESI Policies.
(b) All SESI Policies are in full force and effect except where
failures to have any SESI Policies in full force and effect would not in
the aggregate, have a Material Adverse Effect on SESI.
(c) Except as described in Section 5.21 of the SESI Disclosure
Schedules, there is no claim by SESI or any other Person pending under any
of the SESI Policies as to which coverage has been denied or disputed by
the underwriters or issuers of such SESI Policies. SESI has not received
any notice of default, and is not in default, under any provision of the
SESI Policies.
(d) SESI has not since January 1, 1999 received any written
notice from or on behalf of any insurance carrier or other issuer issuing
such SESI Policies that insurance rates or other annual premiums or fees in
effect as of the date hereof will hereafter be materially increased, that
there will be a non-renewal, cancellation or increase in a deductible (or a
material increase in premiums in order to maintain an existing deductible)
of any of the SESI Policies in effect as of the date hereof, or that
material alteration of any equipment or any improvements to the SESI Owned
Properties or the SESI Leased Properties, purchase of additional material
equipment, or material modification of any of the methods of doing business
of SESI will be required after the date hereof.
Section 5.22 SAFETY AND HEALTH. To the Knowledge of SESI, the
property and assets of SESI have been and are being operated in compliance
in all respects with all Applicable Laws designed to protect safety or
health, or both, including without limitation, the Occupational Safety and
Health Act, and the regulations promulgated pursuant thereto, except for
any violations or deficiency that would not have a Material Adverse Effect
on SESI. SESI has not received any written notice of any violations,
deficiency, investigation or inquiry from any Governmental Entity, employer
or third party under any such law and, to the Knowledge of SESI, no such
investigation or inquiry is planned or threatened, which, if adversely
determined would, individually or in the aggregate, have a Material Adverse
Effect on SESI.
Section 5.23 LABOR MATTERS.
(a) Set forth in Section 5.23 of the SESI Disclosure Schedules
is a list of all: (i) outstanding employment, consulting or management
agreements or contracts with officers, directors or employees of SESI
(other than those that are terminable on no more than 30 days notice) that
provide for the payment of any bonus or commission; (ii) agreements,
policies or practices that require SESI to pay termination or severance pay
to salaried, non-exempt or hourly employees in excess of 30 days' salary
and benefits to any employee upon termination of such employee's employment
(other than as required by law); and (iii) collective bargaining agreements
or other labor union contracts applicable to persons employed by SESI.
SESI has made available to Cardinal complete and correct copies of all such
employment and labor agreements. SESI has not breached or otherwise failed
to comply in any material respect with any provisions of any employment or
labor agreement, and there are no grievances outstanding thereunder.
(b) Except as set forth in Section 5.23 of the SESI Disclosure
Schedules: (i) SESI is in compliance in all material respects with all
Applicable Laws relating to employment and employment practices, wages,
hours, and terms and conditions of employment; (ii) there is no unfair
labor practice charge or complaint against SESI pending before any
Governmental Entity; (iii) there is no labor strike, material slowdown or
material work stoppage or lockout actually pending or, to the Knowledge of
SESI threatened, against or affecting SESI; (iv) there is no representation
claim or petition pending before any Governmental Entity; (v) there are no
charges with respect to or relating to SESI pending before any Governmental
Entity responsible for the prevention of unlawful employment practices; and
(vi) SESI has not had formal notice from any Governmental Entity
responsible for the enforcement of labor or employment laws of an intention
to conduct an investigation of SESI and, to the Knowledge of SESI, no such
investigation is in progress.
Section 5.24 TRANSACTIONS WITH CERTAIN PERSONS. Except as set
forth in Section 5.24 of the Disclosure Schedules, no director, officer or
employee of SESI or any of its respective Affiliates is presently a party
to any transaction with SESI, including any contract, agreement or other
arrangement providing for the furnishing of services by or the rental of
real or personal property from any such Person or from any of its
Affiliates.
Section 5.25 PROPRIETY OF PAST PAYMENTS. Neither SESI or any of
its Subsidiaries nor any director, officer, employee or agent of SESI or
any of its Subsidiaries has (a) used any funds for unlawful contributions,
gifts, entertainment or other unlawful payments or expenses relating to
political activity or (b) made any bribe, rebate, payoff, influence
payment, kick-back or other unlawful payment that is in violation of
Applicable Law.
Section 5.26 INTELLECTUAL PROPERTY. SESI either owns or has valid
licenses to use all patents, copyrights, trademarks, software, databases,
and other technical information used in its business as presently
conducted, subject to limitations contained in the agreements governing the
use of same, which limitations are customary for companies engaged in
businesses similar to SESI. SESI is in compliance with all such licenses
and agreements except where any noncompliance would not, in the aggregate,
have a Material Adverse Effect on SESI and there are no pending or, to the
Knowledge of SESI, threatened Proceedings challenging or questioning the
validity or effectiveness of any license or agreement relating to such
property or the right of SESI to use, copy, modify or distribute the same.
Section 5.27 DIRECTOR AND OFFICER INDEMNIFICATION. The directors,
officers and employees of SESI are not entitled to indemnification by SESI
except to the extent that indemnification rights are provided for generally
by Applicable Law or SESI's charter, by-laws or directors' and officers'
liability insurance policies as described in Section 5.21 of the SESI
Disclosure Schedules or in employment agreements described in Section 5.23
of the SESI Disclosure Schedules, and there are no pending claims for
indemnification by any such director, officer or employee.
Section 5.28 BROKERS' AND FINDERS' FEE. Except for the firm of
Johnson Rice & Company LLC, no agent, broker, person or firm acting on
behalf of SESI is or will be entitled to any commission or brokers' or
finders' fees payable by SESI in connection with any of the transactions
contemplated herein.
Section 5.29 COMMISSION FILINGS: FINANCIAL STATEMENTS. SESI has
timely filed all reports, registration statements and other filings,
together with any amendments required to be made with respect thereto, that
it has been required to file with the SEC under the Securities Act and the
Exchange Act. All reports, registration statements and other filings
(including all notes, exhibits and schedules thereto and documents
incorporated by reference therein) filed by SESI with the SEC since January
1, 1997 through the date of this Agreement, together with any amendments
thereto, are sometimes collectively referred to as the "SESI Commission
Filings." As of the respective dates of their filing with the Commission,
the SESI Commission Filings complied in all material respects with the
Securities Act or the Exchange Act, as applicable, and the rules and
regulations of the SEC thereunder, 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 made therein, in light of the
circumstances under which they were made, not misleading.
Section 5.30 TAKEOVER LAWS. The Board of Directors of Superior has
taken all action required to be taken by it in order to exempt this
Agreement, and the transactions contemplated hereby from, and this
Agreement and the transactions contemplated hereby are exempt from, the
requirements of any "moratorium," "control share," "fair price," "affiliate
transaction," "business combination" or other antitakeover laws and
regulations of any state, including, without limitation, the State of
Delaware, and including, without limitation, Section 203 of the DGCL and as
a result, any requirements of such antitakeover laws and regulations are
inapplicable to this Agreement and the transactions contemplated by this
Agreement.
Section 5.31 NO OTHER REPRESENTATIONS OR WARRANTIES. There are no
representations or warranties, express or implied, made by or on behalf of
SESI with respect to the assets of SESI except for the representations and
warranties contained in this Agreement, including, except as otherwise
specifically provided for in this Agreement, any representation or warranty
with respect to the present condition of SESI's assets or the present or
future suitability thereof for any intended use by SESI. SESI makes no
representation or warranty except as expressly contained in this Agreement
(including the SESI Disclosure Schedules).
ARTICLE 6
COVENANTS
Section 6.1 LEGAL REQUIREMENTS. Subject to the conditions set
forth in Section 7 and to the other terms and provisions of this Agreement,
each of the parties to this Agreement agrees to take, or cause to be taken,
all reasonable actions necessary to comply promptly with all legal
requirements applicable to it with respect to the transactions contemplated
by this Agreement and will promptly cooperate with and furnish information
to each other in connection with any such requirements imposed upon any of
them. Without limiting the preceding sentence, each of SESI, Cardinal and
the Funds agrees to take all reasonable actions necessary to (a) obtain,
and cooperate with each other in obtaining, any consent, authorization,
order or approval of, or any exemption by, any Governmental Entity or other
public or private party, required to be obtained or made by it or the
taking of any action contemplated by this Agreement, including, without
limitation, preparation of any registration statement under the Securities
Act that may be filed in connection with the Financing, and (b) effect the
Merger at the earliest possible date.
Section 6.2 STOCKHOLDER APPROVALS.
(a) As soon as practicable following the date of this Agreement,
SESI shall convene an annual meeting of its stockholders (the "SESI Annual
Meeting") for the purposes of: (i) approving the adoption of this
Agreement, (ii) approving the amendment of SESI's certificate of
incorporation to (A) increase the number of authorized shares of SESI
Common Stock to 125 million shares and (B) impose limits on ownership of
SESI Common Stock by non-U.S. citizens as required by Section 2 of the
Shipping Act of 1916, as amended (the "Charter Amendment"), (iii) approving
the SESI Stock Incentive Plan, and (iv) electing the slate of directors as
shall have been nominated pursuant to the procedures described in Section
6.2(b) hereof to the Board of Directors of SESI. Subject to the terms and
conditions of Section 6.13, the Board of Directors of SESI shall (i)
recommend at such SESI Annual Meeting that the stockholders of SESI adopt
and approve all such matters; (ii) use its reasonable efforts to solicit
from the stockholders of SESI proxies in favor of such adoption and
approval; and (iii) take all other actions reasonably necessary to secure a
vote of its stockholders in favor of adoption and approval of all such
other matters. SESI shall give notice to Cardinal and the Funds by
facsimile transmission of the outcome of the vote of its stockholders no
later than the end of business on the day of the SESI Annual Meeting.
(b) Prior to the SESI Annual Meeting, the Board of Directors of
SESI shall nominate a slate of directors to be elected at the SESI Annual
Meeting which shall consist of (i) two individuals designated by SESI, one
of whom shall be the Chief Executive Officer of SESI, (ii) two individuals
designated by Cardinal, and (iii) two individuals who shall be independent
of both SESI and Cardinal and who shall be designated by Cardinal. If at
any time prior to the Effective Time any individual who is nominated
pursuant to the provisions hereof shall be unable or unwilling to serve as
a director at the Effective Time, the party that designated such individual
as provided herein shall designate a replacement for such individual.
(c) As soon as practicable after the date of this Agreement,
Cardinal shall submit this Agreement for approval by the Cardinal
Stockholders at either a special meeting of stockholders or by written
consent in lieu of a meeting. Subject to the terms and conditions of
Section 6.12 hereof, the Board of Directors of Cardinal shall recommend
that the Cardinal Stockholders approve the adoption of this Agreement and
take all other actions reasonably necessary to secure a vote of the
Cardinal Stockholders in favor of adoption of this Agreement. Cardinal
shall give notice to SESI by facsimile transmission of the outcome of the
vote of the Cardinal Stockholders, no later than the end of business on the
day the special meeting is held or the consent is executed.
(d) In connection with the stockholder approvals provided for
herein, each party agrees to cooperate with the other and take all actions
reasonably necessary or appropriate to obtain such approvals.
(e) In the event the SESI stockholders approve the SESI Stock
Incentive Plan and the Charter Amendment at the SESI Annual Meeting, SESI
shall adopt the SESI Stock Incentive Plan and shall cause the Charter
Amendment to be effected in accordance with the DGCL.
Section 6.3 PROXY STATEMENT.
(a) As soon as practicable after the date of this Agreement,
SESI shall prepare and file with the Commission under the Exchange Act, and
shall use its reasonable efforts to have cleared by the Commission, a proxy
statement with respect to the SESI Annual Meeting (the "Proxy Statement").
SESI shall cause the Proxy Statement (except with respect to information
concerning Cardinal and Cardinal Services furnished in writing by or on
behalf of Cardinal specifically for use therein, for which information
Cardinal shall be responsible) to comply as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations adopted thereunder, and the Proxy Statement (except with
respect to the information concerning Cardinal furnished in writing by or
on behalf of Cardinal specifically for use therein, for which information
Cardinal shall be responsible) to not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein necessary to make the statements therein not misleading. SESI will
advise Cardinal promptly in writing if prior to the Closing Date it shall
obtain Knowledge of any facts that would make it necessary to amend or
supplement the Proxy Statement in order to make the statements therein not
misleading or to comply with Applicable Law.
(b) In connection with the Proxy Statement, Cardinal shall
cooperate in good faith and take all actions reasonably necessary or
appropriate, including providing necessary information with respect to
Cardinal, to assist SESI in preparing the Proxy Statement.
(c) None of the information to be supplied by Cardinal for
inclusion in the Proxy Statement will, (i) at the time the Proxy Statement
is filed, (ii) at the time the Proxy Statement, or any amendment or
supplement thereto, is first mailed to the stockholders of SESI, or (iii)
at the time such stockholders vote on approval and adoption of this
Agreement, contain any untrue statement of a material fact or omit to state
any material fact required to be made therein or necessary in order to make
the statements made therein, in light of the circumstances under which they
were made, not misleading.
Section 6.4 EQUITY CONTRIBUTION TO CARDINAL.
(a) In March 1999, Cardinal completed an offering of $5 million
of equity to the current holders of Cardinal Common Stock and Cardinal
Preferred Stock (the "March Contribution"). Between the date hereof and
the Closing Date, Cardinal shall complete an offering (or offerings) of an
aggregate of $45 million of equity to the current holders of Cardinal
Common Stock and Cardinal Preferred Stock or other institutional investors
on a private placement basis (the "Equity Contribution"), all of the net
proceeds of which Equity Contribution and March Contribution shall be used
to reduce Cardinal's indebtedness at Closing, and Section 3.1 of the
Cardinal Disclosure Schedules shall be amended accordingly to reflect the
results of such Equity Contribution. Prior to Cardinal's accepting the
Equity Contribution, Cardinal and the Funds shall notify SESI of the terms
and conditions of the proposed Equity Contribution, and Cardinal shall not
accept such Equity Contribution unless its terms and conditions are
reasonably acceptable to SESI.
(b) In connection with the Equity Contribution SESI shall
cooperate in good faith and take all actions reasonably necessary or
appropriate, including providing necessary information with respect to
SESI, to assist Cardinal in completing the offering in connection with the
Equity Contribution, including (i) providing prompt assistance in the
preparation of an offering or information memorandum and other materials
for the Equity Contribution, (ii) providing all information about SESI
reasonably deemed necessary by Cardinal to complete the Equity
Contribution, (iii) assisting the participants in the Equity Contribution
in connection with their confirmation of the accuracy and completeness of
the materials and information referenced in clauses (i) and (ii) above, and
(iv) causing SESI's senior management to participate in meetings and
conference calls with potential participants in the Equity Contribution at
such times and places as Cardinal may reasonably request.
Section 6.5 FINANCING.
(a) Prior to the Closing, SESI shall obtain a new credit
facility, which may be in the form of an offering of senior notes, or
secured or unsecured bank debt, or any other form reasonably satisfactory
to Cardinal and the Funds, containing usual and customary covenants, and on
terms that are mutually agreed upon by SESI and Cardinal, in a principal
amount (the "Financing") that will produce proceeds sufficient to repay or
refinance the indebtedness referred to in Section 6.6 hereof.
(b) Cardinal and Cardinal Services agree to provide, and will
cause their respective officers, employees and advisors to provide, all
reasonable cooperation in connection with the arrangement of the Financing,
including (i) providing prompt assistance in the preparation of any
offering or information memorandum and other offering materials for the
Financing, (ii) providing all information reasonably deemed necessary by
any syndication agent to complete the Financing, (iii) assisting the
providers of the Financing in connection with their confirmation of the
accuracy and completeness of the materials and information referenced in
clauses (i), (ii) above, and (iv) causing Cardinal's and Cardinal Services'
senior management to participate in meetings and conference calls with
potential participants in the Financing at such times and places as any
syndication agent for the Financing may reasonably request.
Section 6.6 REPAYMENT OF CERTAIN INDEBTEDNESS. Prior to the
Closing, SESI shall either repay or refinance all outstanding indebtedness
(together with any applicable premium) of Cardinal and Cardinal Services
specified in Section 6.6 of the Cardinal Disclosure Schedules and the
indebtedness of SESI specified in Section 6.6 of the SESI Disclosure
Schedules, together with all accrued and unpaid interest thereon, with the
proceeds of the Financing and the Equity Contribution.
Section 6.7 HART-SCOTT-RODINO.
(a) Cardinal, the Funds and SESI shall cooperate in good faith
and take all actions reasonably necessary or appropriate to file, and
expeditiously and diligently prosecute to a favorable conclusion, the HSR
Forms required to be filed by each of them in connection herewith with the
Federal Trade Commission and the Department of Justice pursuant to the HSR
Act.
(b) Cardinal, the Funds and SESI agree that from the date of
this Agreement through the Effective Time, neither party nor any of its
subsidiaries or Affiliates shall enter into any transaction with a third
party or take any other action that would have the effect of impeding the
ability to obtain HSR Act clearance for the transactions contemplated by
this Agreement.
Section 6.8 ACCESS TO PROPERTIES AND RECORDS. Until the Closing
Date, each of SESI and Cardinal shall, and shall cause each of its
Subsidiaries to, allow the other party and its authorized representatives
full access, during normal business hours and on reasonable notice, to all
of its properties, offices, vehicles, equipment, inventory and other
assets, documents, files, books and records, in order to allow the other
party a full opportunity to make such investigation and inspection as the
other party desires of its business and assets. Each of SESI and Cardinal
shall, and shall cause each of its Subsidiaries to, (a) further use its
reasonable best efforts to cause its employees, counsel and regular
independent certified public accountants to be available upon reasonable
notice to answer questions of the other party's representatives concerning
its business and affairs and (b) further use its reasonable best efforts to
cause them to make available all relevant books and records in connection
with such inspection and examination, including without limitation work
papers for all audits and reviews of its financial statements.
Section 6.9 CONSULTATION AND REPORTING. During the period from
the date of this Agreement to the Closing Date, each of Cardinal and SESI
will, subject to any applicable legal or contractual restrictions, confer
on a regular and frequent basis with the other to report material
operational matters and to report on the general status of ongoing
operations. Each of Cardinal and SESI will notify the other of any
unexpected emergency or other change in the normal course of its business
or in the operation of its properties and of any governmental complaints,
investigations, adjudicatory proceedings or hearings (or communications
indicating that the same may be contemplated) and will keep the other fully
informed of such events and permit its representatives prompt access to all
materials prepared by or on behalf of such party or served on them, in
connection therewith. Immediately following the Effective Time, the Funds
shall escrow or cause to be escrowed 892,000 shares of SESI Common Stock in
accordance with the terms of the Settlement Agreement.
Section 6.10 CONDUCT OF BUSINESS BY BOTH PARTIES PRIOR TO THE
CLOSING DATE. During the period from the date of this Agreement to Closing
Date, Cardinal and SESI shall each use its reasonable best efforts to
preserve the goodwill of suppliers, customers and others having business
relations with it and its Subsidiaries and to do nothing knowingly to
impair its ability to keep and preserve its business as it exists on the
date of this Agreement. Without limiting the generality of the foregoing,
except as otherwise specifically provided in this Agreement, during the
period from the date of this Agreement to the Closing Date neither SESI
(and SESI shall cause its Subsidiaries not to) nor Cardinal shall (and
Cardinal shall cause Cardinal Services not to), without the prior written
consent of the other:
(a) except for dividends that Cardinal may be required to pay
in kind pursuant to obligations set forth in Section 4.2 of the Disclosure
Schedule, declare, set aside, increase or pay any dividend (including any
stock dividends), or declare or make any distribution on, or directly or
indirectly combine, redeem, reclassify, purchase, or otherwise acquire, any
shares of its capital stock;
(b) other than as contemplated by Section 6.2 hereof or as
described in Section 6.10 of the Cardinal Disclosure Schedules, amend its
certificate or articles of incorporation or by-laws, or adopt or amend any
resolution or agreement concerning indemnification of its directors,
officers, employees or agents;
(c) commit any act which act would cause any representation or
warranty contained in this Agreement to become untrue in any material
respect, as if each such representation and warranty were continuously made
from and after the date hereof;
(d) violate any Applicable Law that would have a Material
Adverse Effect on such party;
(e) fail to maintain its books, accounts and records in the
usual manner on a basis consistent with that heretofore employed in all
material respects;
(f) fail to pay, or to make adequate provision in all material
respects for the payment of, all Taxes, interest payments and penalties due
and payable (for all periods up to the Closing Date, including that portion
of its fiscal year to and including the Closing Date) to any city, parish,
state, the United States, foreign or any other taxing authority, except
those being contested in good faith by appropriate proceedings and for
which sufficient reserves have been established, or make any elections with
respect to Taxes;
(g) make any material change in the conduct of its businesses
and operations or enter into any transaction other than in the ordinary
course of business consistent with past practices;
(h) except for the Equity Contribution and the conversion, if
any, of Cardinal Preferred Stock into Cardinal Common Stock in accordance
with Section 7.1(l) hereof, issue any additional shares of capital stock or
equity securities or grant any option, warrant or right to acquire any
capital stock or equity securities; issue any security convertible into or
exchangeable for its capital stock; alter any material term of any of its
outstanding securities or make any change in its outstanding shares of
capital stock or other ownership interests or its capitalization, whether
by reason of exchange or readjustment of shares, stock dividend or
otherwise; PROVIDED, HOWEVER, that SESI may issue shares of SESI Common
Stock pursuant to the exercise of options, if any, set forth in Section 5.2
of the SESI Disclosure Schedules, and Cardinal may issue shares of Cardinal
Common Stock and Cardinal Preferred Stock pursuant to obligations set forth
in Section 4.2 of the Cardinal Disclosure Schedules;
(i) except for the Financing, incur, assume or guarantee any
indebtedness for borrowed money or any other obligation of any other
Person, issue any notes, bonds, debentures or other corporate debt
securities or grant any option, warrant or right to purchase any thereof
other than for working capital under an existing line of credit and to fund
capital expenditures disclosed in such party's Disclosure Schedules;
(j) make any sale, assignment, transfer, abandonment or other
conveyance of any of its material assets or any part thereof, except
transactions pursuant to existing contracts set forth in such party's
Disclosure Schedules and dispositions of worn-out or obsolete equipment for
fair or reasonable value in the ordinary course of business consistent with
past practices;
(k) subject any of its assets or properties to a Lien other
than a Permitted Lien;
(l) make or commit to make capital expenditures that in the
aggregate are in excess of $500,000 except as described in Section 6.10(l)
of either party's Disclosure Schedules;
(m) except for loans by Cardinal to Cardinal Services or by SESI
to one or more of its Subsidiaries, make any loan, advance or capital
contribution to or investment in, or sell, transfer or lease any properties
or assets to, or enter into any agreement or arrangement with, any of its
Affiliates other than in the ordinary course of business;
(n) make any change in any method of accounting or accounting
principle, method, estimate or practice except for any such change required
by reason of a concurrent change in generally accepted accounting
principles or write down the value of any inventory or write off as
uncollectible any accounts receivable except in the ordinary course of
business consistent with past practices;
(o) enter into or modify any employment, severance or similar
agreement or arrangement with any director or employee, or grant any
increase in the rate of wages, salaries, bonuses or other compensation or
benefits of any executive officer or other employee other than increases in
wages, salaries, bonuses, compensation or benefits (i) required by
contracts, agreements, policies or collective bargaining agreements set
forth in Sections 4.2, 4.18 and 4.23 of the Cardinal Disclosure Schedules
with respect to Cardinal and Cardinal Services, and Sections 5.18 and 5.23
of the SESI Disclosure Schedules with respect to SESI, or (ii) to field or
operating employees made in the ordinary course of business;
(p) enter into any new line of business;
(q) make any Tax election that is inconsistent with any
corresponding election made on a prior Return or settle or compromise any
Tax liability for an amount in excess of the liability therefor that is
reflected on the Cardinal Financial Statements or the SESI Financial
Statements, as the case may be; or
(r) authorize any of, or agree or commit to do any of, the
foregoing actions.
Section 6.11 PUBLIC STATEMENTS. Prior to the Closing Date, none
of the parties to this Agreement shall (and each party shall use its best
efforts so that none of its advisors, officers, directors or employees
shall) except with the prior consent of the other parties, which consent
shall not be unreasonably withheld, publicize, announce or describe to any
third person (except their respective advisors and employees) the execution
or terms of this Agreement, the parties hereto or the transactions
contemplated hereby, except that SESI may make such disclosures and
announcements as may be necessary or advisable under applicable securities
laws after giving reasonable prior notice to Cardinal of any such
disclosure or announcement and allowing Cardinal to comment on the same.
Section 6.12 NO SOLICITATION.
(a) None of SESI and its Subsidiaries, Cardinal and Cardinal
Services will (nor will they permit any of their respective Affiliates,
officers, directors, representatives, or agents to), prior to the earlier
of the Closing Date or the termination of this Agreement pursuant to
Section 8.1, directly or indirectly, (i) solicit, initiate or encourage the
submission of any proposal for a Sale Transaction, (ii) enter into any
agreement with respect to any Sale Transaction or give any approval with
respect to any Sale Transaction, or (iii) participate in any discussions or
negotiations regarding, or furnish to any Person any information with
respect to or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to
lead to, any Sale Transaction or any proposal for a Sale Transaction.
Notwithstanding the preceding sentence, if at any time the Board of
Directors of SESI or Cardinal determines in good faith, based on the advice
of outside counsel, that it is necessary to do so in order to comply with
its fiduciary duties to its stockholders under Applicable Law, SESI or
Cardinal (and their respective officers, directors, representatives or
agents) may in response to a written proposal for a Sale Transaction not
solicited on or after the date hereof, subject to compliance with Section
6.12(c), (A) furnish information with respect to itself or a Subsidiary
pursuant to a customary confidentiality agreement to any Person making such
proposal, and (B) participate in negotiations regarding such proposal.
Without limiting the foregoing, it is understood that any violations of the
restrictions set forth in this Section 6.12(a) by any of a party's
officers, directors, representatives, agents, Affiliates or Subsidiaries,
whether or not such Person is purporting to act on behalf of such party or
any of its Subsidiaries or otherwise, shall be deemed to be a breach of
this Section 6.12(a) by such party.
(b) Neither of the Boards of Directors of SESI or Cardinal shall
(i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to the approval (including, without limitation, the Board of
Directors' resolution providing for such approval) of this Agreement or the
transactions contemplated hereby or (ii) approve or recommend, or propose
to approve or recommend, any Sale Transaction, except in the event the
Board of Directors of a party determines in good faith, based on the advice
of outside counsel, that it is necessary to do so in order to comply with
its fiduciary duties to its stockholders under Applicable Law, and then
only at or after the termination of this Agreement pursuant to Section
8.1(f) or 8.1(g).
(c) In addition to the obligations set forth in subsections (a)
and (b) of this Section 6.12, each party promptly shall advise the others
orally and in writing of any request for information or of any proposed
Sale Transaction or any inquiry with respect to or which could reasonably
be expected to lead to any proposed Sale Transaction, the identity of the
Person making any such request, proposed Sale Transaction or inquiry and
the terms and conditions thereof. Each party will keep the others fully
informed of the status and details (including amendments or proposed
amendments) of any such request, proposed Sale Transaction or inquiry, and
each party shall keep confidential such information provided to it by
another party pursuant to this Section 6.12(c), subject to any judicial or
other legal order, directions or obligations to disclose such information.
(d) Nothing contained in this Section 6.12 shall prohibit SESI
from taking and disclosing to its stockholders a position contemplated by
Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act.
Section 6.13 RESTRICTION ON FUNDS.
(a) Each of the Funds hereby covenants and agrees that, prior to
the Closing, it shall not sell, transfer or otherwise dispose of all or any
part of the shares of Cardinal Common Stock owned by it or grant any proxy
relating thereto other than to existing Cardinal Stockholders as of the
date hereof. In the event of any transfer by operation of law with respect
to the Cardinal Common Stock owned by the Funds, the provisions of this
Section 6.13 are intended to be binding upon the transferee, and such
transferee will be bound hereby. If any transfers of Cardinal Common Stock
are made pursuant to this Section 6.13, Section 3.1 of the Cardinal
Disclosure Schedules shall be amended accordingly.
(b) So long as this Agreement remains in effect, the Funds agree
and undertake to vote or cause to be voted all of the shares of Cardinal
Common Stock as to which the Funds have voting power at any meeting or
meetings (including any adjournments thereof) before which, or on any
written consents with respect to which, the Agreement or any similar
agreement may come for consideration by the Cardinal Stockholders, in favor
of the approval of this Agreement and against any similar agreement unless
SESI then is in breach or default in any material respect with respect to
any covenant, representation or warranty to an extent that would permit
Cardinal to terminate this Agreement.
Section 6.14 UPDATE INFORMATION. Each party hereto will promptly
disclose to the other any information contained in its representations and
warranties that because of an event occurring after the date hereof is
incomplete or no longer correct; provided, however, that except as
contemplated by Sections 6.4, 6.13 and 7.1(l) hereof relative to Section
3.1 of the Cardinal Disclosure Schedules, none of such disclosures will be
deemed to modify, amend, or supplement the representations and warranties
of such party, unless the other party consents to such modification,
amendment, or supplement in writing. Each party shall promptly advise the
other party orally and in writing of any change or event having or which
insofar as reasonably can be foreseen would have, a Material Adverse Effect
on the party providing such notification.
Section 6.15 MAINTENANCE OF POLICIES. SESI and Cardinal shall
maintain the coverage under the SESI Policies and the Cardinal Policies
respectively, in full force and effect until the Closing Date.
Section 6.16 DIRECTOR'S AND OFFICER'S INDEMNIFICATION AND
INSURANCE.
(a) For four years after the Effective Time, SESI shall
indemnify and hold harmless the present and former officers and directors
of Cardinal or Cardinal Services in respect of acts or omissions prior to
the Effective Time to the fullest extent provided under Cardinal's
Certificate of Incorporation in effect on the date hereof or pursuant to
any agreements set forth in Section 4.23 of the Disclosure Schedule;
PROVIDED THAT such indemnification shall be subject to any limitation
imposed from time to time under Applicable Law.
(b) SESI shall pay the insurance premiums required for any
extension of Cardinal's officers' and directors' liability insurance policy
that is in force at the date hereof following the Closing Date for a
"discovery" period elected under such insurance policy covering the
officers and directors of Cardinal (the "Extended Coverage Policy") for a
period of four years or shall provide substantially similar coverage for
the same period under SESI's directors' and officers' insurance policy for
all directors and officers of Cardinal or Cardinal Services.
Section 6.17 NASDAQ FILING. SESI shall timely file with Nasdaq
the notice of issuance of the Merger Shares as required pursuant to NASD
Rule 4310(c)(17), and in connection therewith, remit the fee specified in
NASD Rule 4510(b)(2).
Section 6.18 SESI EMPLOYEE BENEFITS. As soon as practicable after
the Effective Time, those employees of Cardinal and Cardinal Services who
become employees of the Surviving Corporation or a Subsidiary of the
Surviving Corporation or SESI or an SESI Subsidiary shall be entitled to
participate in all employee benefit plans of SESI, including, without
limitation, its 401(k) savings plan, in respect of their service after the
Effective Time to the same extent that employees of SESI who are employed
in comparable positions are entitled to participate. SESI and Cardinal
further agree that any such employees shall be credited for their service
with Cardinal or Cardinal Services, as the case may be, for purposes of
eligibility, benefit entitlement and vesting in the plans provided by SESI.
Such employees' benefits under the SESI's medical benefit plan shall not be
subject to any exclusions for any pre-existing conditions (to the extent
such exclusions did not apply under Cardinal's medical benefit plan), and
credit shall be received for any deductibles or out-of-pocket amounts
previously paid.
ARTICLE 7
CLOSING CONDITIONS
Section 7.1 CONDITIONS APPLICABLE TO ALL PARTIES. The respective
obligations of each party to consummate the transactions contemplated by
this Agreement shall be subject to the satisfaction or, where permissible,
waiver by such party of the following conditions at or prior to the Closing
Date:
(a) No statute, rule, regulation, executive order, decree,
preliminary or permanent injunction or restraining order shall have been
enacted, entered, promulgated or enforced by any court of competent
jurisdiction or other Governmental Entity which prohibits or restricts the
consummation of the transactions contemplated by this Agreement, and no
Proceeding shall have been commenced and be pending which seeks to prohibit
or restrict the consummation of the transactions contemplated by this
Agreement.
(b) The SESI stockholders shall have met and (i) approved this
Agreement, the Charter Amendment and the SESI Stock Incentive Plan, and
(ii) elected the slate of directors designated pursuant to Section 6.2(b)
hereof.
(c) The Cardinal Stockholders shall have approved this
Agreement.
(d) SESI and Cardinal shall have received an opinion of Jones,
Walker, Waechter, Poitevent, Carrere & Denegre L.L.P. to the effect
that the Merger constitutes a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code, that the Cardinal Stockholders
will recognize no gain or loss for federal income tax purposes with respect
to SESI Common Stock received by them in connection with the Merger, and
that no gain or loss for federal income tax purposes will be recognized by
SESI or Cardinal as a result of the Merger.
(e) SESI shall have completed the Financing on terms reasonably
acceptable to Cardinal.
(f) Cardinal shall have received the Equity Contribution on
terms reasonably acceptable to SESI.
(g) SESI and the Funds shall have executed and delivered to each
other the Stockholders' Agreement.
(h) The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(i) All Cardinal Stockholders as of the Closing Date shall have
executed and delivered the Agreement and Release to SESI.
(j) All consents and approvals of third parties necessary for
consummation of the transactions contemplated by this Agreement shall have
been obtained.
(k) The Merger Shares shall have been approved for listing,
subject to notice of official issuance, on the Nasdaq National Market.
(l) All issued and outstanding shares of Cardinal Preferred
Stock shall have been either redeemed by Cardinal or converted into
Cardinal Common Stock by the holders of such Cardinal Preferred Stock, and
there shall be no shares of Cardinal Preferred Stock issued and outstanding
at the Effective Time and Section 3.1 of the Cardinal Disclosure Schedules
shall have been amended to reflect any such conversion, or the holders
thereof shall have approved this Agreement as provided in Section 6.2(c).
(m) The Escrow Agreement (as defined in the Settlement
Agreement) shall have been executed and delivered and arrangements shall
have been made to escrow thereunder 892,000 shares of SESI Common Stock
issued in connection with the Merger.
Section 7.2 CONDITIONS TO OBLIGATIONS OF SESI. The obligations of
SESI to consummate the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions unless waived by
SESI:
(a) Each of the representations and warranties of Cardinal and
the Funds set forth in this Agreement that is qualified as to materiality
shall be true and correct, and each of such representations and warranties
that is not so qualified as to materiality shall be true and correct in all
material respects, as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date, except as otherwise
contemplated by this Agreement, and Cardinal and the Funds shall have
performed in all material respects all obligations required to be performed
by them under this Agreement at or prior to the Closing Date.
(b) SESI shall have received an opinion of Gardere, Wynne,
Sewell & Riggs, L.L.P., counsel for Cardinal, substantially in the form
attached hereto as Exhibit F.
Section 7.3 CONDITIONS TO OBLIGATIONS OF CARDINAL. The
obligations of Cardinal to consummate the transactions contemplated by this
Agreement are subject to the satisfaction for the following conditions,
unless waived by Cardinal and the Funds:
(a) Each of the representations and warranties of SESI set forth
in this Agreement that is qualified as to materiality shall be true and
correct, and each of such representations and warranties that is not so
qualified as to materiality shall be true and correct in all material
respects, as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except as otherwise contemplated
by this Agreement, and SESI shall have performed in all material respects
all obligations required to be performed by it under this Agreement on or
prior to the Closing Date.
(b) Cardinal shall have received an opinion of Jones, Walker,
Waechter, Poitevent, Carrere & Denegre, L.L.P., counsel for SESI,
substantially in the form attached hereto as Exhibit G.
(c) SESI shall have executed and delivered the Registration
Rights Agreements.
(d) Cardinal shall have received evidence satisfactory to them
that the Extended Coverage Policy is in force.
(e) SESI shall have fulfilled the covenants contained in Section
6.2(e).
ARTICLE 8
TERMINATION AND AMENDMENT
Section 8.1 TERMINATION. This Agreement may be terminated and
abandoned at any time prior to the Closing Date:
(a) by mutual consent of SESI and Cardinal;
(b) by SESI, if there shall have been a breach of any
representation, warranty, covenant or agreement on the part of Cardinal or
the Funds that is qualified as to materiality, or a material breach of any
such representation, warrant, covenant or agreement that is not so
qualified as to materiality, which breach shall not have been cured prior
to the earlier of (i) 30 days following notice of such breach and (ii) the
Closing Date;
(c) by Cardinal, if there shall have been a breach of any
representation, warranty, covenant or agreement on the part of SESI that is
qualified as to materiality, or a material breach of any such
representation, warrant, covenant or agreement that is not so qualified as
to materiality, which breach shall not have been cured prior to the earlier
of (i) 30 days following notice of such breach and (ii) the Closing Date;
(d) by either SESI on the one hand, or Cardinal on the other
hand, if any permanent injunction or other order of a court or other
competent Governmental Entity preventing the transactions contemplated by
this agreement shall have become final and nonappealable;
(e) by either SESI on the one hand, or Cardinal on the other
hand, if the transactions contemplated by this Agreement shall not have
been consummated on or before October 15, 1999; provided, that the right to
terminate this Agreement under this Section 8.1(e) shall not be available
to any party whose breach of its representations and warranties in this
Agreement or whose failure to perform any of its covenants and agreements
under this Agreement has resulted in the failure of the transactions
contemplated by this agreement to occur on or before such date;
(f) by SESI, if (i) the Board of Directors of Cardinal
withdraws, modifies or changes its recommendation of this Agreement or the
Merger or shall have resolved to do any of the foregoing or the Board of
Directors of Cardinal shall have recommended to the stockholders of
Cardinal any proposed Sale Transaction or resolved to do so; (ii) a tender
offer or exchange offer for 30% or more of the outstanding shares of
Cardinal Common Stock is commenced and the Board of Directors of Cardinal,
within 10 Business Days after such tender offer or exchange offer is so
commenced, either fails to recommend against acceptance of such tender or
exchange offer by its stockholders or takes no position with respect to the
acceptance of such tender or exchange offer by its stockholders; or (iii)
except as contemplated by this Agreement, any person shall have acquired
beneficial ownership or the right to acquire beneficial ownership of, or
any "group" (as such term is defined under Section 13(d) of the Exchange
Act and the regulations promulgated thereunder), shall have been formed
which beneficially owns, or has the right to acquire beneficial ownership
of, 30% or more of the then outstanding shares of Cardinal Common Stock;
(g) by Cardinal if (i) the Board of Directors of SESI withdraws,
modifies or changes its recommendation of this Agreement or the Merger or
shall have resolved to do any of the foregoing or the Board of Directors of
SESI shall have recommended to the stockholders of SESI any proposed Sale
Transaction or resolved to do so; (ii) a tender offer or exchange offer for
30% or more of the outstanding shares of SESI Common Stock is commenced and
the Board of Directors of SESI, within 10 Business Days after such tender
offer or exchange offer is so commenced, either fails to recommend against
acceptance of such tender or exchange offer by its stockholders or takes no
position with respect to the acceptance or such tender or exchange offer by
its stockholders; or (iii) except as contemplated by this Agreement, any
person shall have acquired beneficial ownership or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under
Section 13(d) of the Exchange Act and the regulations promulgated
thereunder), shall have been formed which beneficially owns, or has the
right to acquire beneficial ownership of, 30% or more of the then
outstanding shares of SESI Common Stock;
(h) by either SESI on the one hand, or Cardinal on the other
hand, if
(i) Cardinal accepts a proposed Sale Transaction, which
shall have been approved by Cardinal's Board of Directors in accordance
with Section 6.12(b);
(ii) SESI accepts a proposed Sale Transaction, which shall
have been approved by SESI's Board of Directors in accordance with Section
6.12(b);
(iii) if the required approval of the stockholders of SESI
of this Agreement is not received at the SESI Annual Meeting; or
(iv) if the required approval of the Cardinal stockholders
of this Agreement is not obtained.
Section 8.2 EFFECT OF TERMINATION. (a) Except as provided in
this Section 8.2, in the event of a termination of this Agreement as
provided in Section 8.1, this Agreement shall forthwith become void, the
representations and warranties shall not survive, and there shall be no
further liability or obligation under any provisions hereof on the part of
the parties hereto or their respective officers, directors or stockholders.
(b) To the extent that a termination of this Agreement pursuant
to Section 8.1(b) or (c) results from a willful breach of any of a party's
representations, warranties, covenants or agreements set forth in this
Agreement, the injured party shall have a right to recover its damages
caused thereby, provided, however, that such injured party, shall not be
entitled to consequential or punitive damages.
(c) In the event of a termination of this Agreement pursuant to
Sections 8.1(b), 8.1(f) or 8.1(h)(iv) and within three months of any such
termination, Cardinal accepts a written offer or enters into a written
agreement to consummate a Sale Transaction and such Sale Transaction is
ultimately consummated, then Cardinal shall at the closing of such Sale
Transaction (and as a condition of such closing) pay to SESI a termination
fee equal to $3 million.
(d) In the event of a termination of this Agreement pursuant to
Sections 8.1(c), 8.1(g) or 8.1(h)(iii) and within three months of any such
termination, SESI accepts a written offer or enters into a written
agreement to consummate a Sale Transaction and such Sale Transaction is
subsequently consummated, then SESI shall at the closing of such Sale
Transaction (and as a condition of such closing) pay to Cardinal a
termination fee equal to $3 million.
(e) In the event of a termination of this Agreement pursuant to
Section 8.1(h)(i) or (ii) hereof, then the party who has accepted a
proposed Sale Transaction shall pay to the other immediately a termination
fee equal to $3 million.
ARTICLE 9
MISCELLANEOUS
Section 9.1 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing or by telex, telephone or facsimile
transmission with subsequent written confirmation, and may be personally
served or sent by United States mail and shall be deemed to have been given
upon receipt by the party notified. For purposes hereof, the addresses of
the parties hereto (until notice of a change thereof is delivered as
provided in this Section 9.1) shall be as set forth opposite each party's
name on the signature page hereof.
Section 9.2 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the parties shall not survive the
Closing.
Section 9.3 HEADINGS; GENDER. When a reference is made in this
Agreement to a section, exhibit or schedule, such reference shall be to a
section, exhibit or schedule of this Agreement unless otherwise indicated.
The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All personal pronouns used in this
Agreement shall include the other genders, whether used in the masculine,
feminine or neuter gender, and the singular shall include the plural and
vice versa, whenever and as often as may be appropriate.
Section 9.4 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement (including the documents, exhibits and instruments referred to
herein) (a) constitutes the entire agreement and supersedes all prior
agreements, and understandings and communications, both written and oral,
among the parties with respect to the subject matter hereof, and (b) except
as provided in Section 6.16 hereof, is not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder.
Section 9.5 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware without
regard to any applicable principles of conflicts of law.
Section 9.6 ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties.
Section 9.7 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by reason of
any rule of law or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so long
as the economic or legal substance of the transactions contemplated hereby
is not affected in any adverse manner to either party. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible, and
in any case such term or provision shall be deemed amended to the extent
necessary to make it no longer invalid, illegal or unenforceable.
Section 9.8 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original and all of
which taken together shall constitute one and the same document.
Section 9.9 AMENDMENT. This Agreement may not be amended except
by an instrument in writing signed by each of the parties hereto.
Section 9.10 EXTENSION; WAIVER. At any time prior to the Closing
Date, the parties hereto may, in their respective sole discretion and to
the extent legally allowed, (a) extend the time for the performance of any
of the obligations or other acts of the other parties hereto; (b) waive any
inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant thereto; and (c) waive compliance with any
of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only
if set forth in a written instrument signed by or on behalf of such party.
Section 9.11 EXPENSES. Except as provided in Section 8.2, whether
or not the transactions contemplated herein are consummated, payment for
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be made by the party incurring such
costs and expenses.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed themselves or by their respective duly authorized officers as of
the date first written above.
Address: SUPERIOR ENERGY SERVICES, INC.
1105 Peters Road
Harvey, Louisiana 70058
Attn: Terence E. Hall By: /S/ TERENCE E. HALL
Fax: 504-362-1818 Terence E. Hall
President
Address: SUPERIOR CARDINAL ACQUISITION
1105 Peters Road COMPANY, INC.
Harvey, Louisiana 70058
Attn: Terence E. Hall By: /S/ TERENCE E. HALL
Fax: 504-362-1818 Terence E. Hall
President
Address: CARDINAL HOLDING CORP.
600 Travis, Suite 6000
Houston, Texas 77002
Attn: Ben A. Guill
Fax: 713-224-077l By: /S/ BEN A. GUILL
Ben A. Guill
Interim Chief Executive Officer
Address: FIRST RESERVE FUND VII,
600 Travis, Suite 6000 LIMITED PARTNERSHIP
Houston, Texas 77002 By: First Reserve GP VII, L.P., its General
Attn: Ben A. Guill Partner
Fax: 713-224-0771
By: First Reserve Corporation, its
General Partner
By: /S/ BEN A. GUILL
Ben A. Guill
President
Address: FIRST RESERVE FUND VIII,
600 Travis, Suite 6000 LIMITED PARTNERSHIP
Houston, Texas 77002 By: First Reserve GP VIII, L.P., its General
Attn: Ben A. Guill Partner
Fax: 713-224-0771
By: First Reserve Corporation, its
General Partner
By: /S/ BEN A. GUILL
Ben A. Guill
President
<PAGE>
Exhibit "A"
CARDINAL DISCLOSURE SCHEDULES
(Intentionally Omitted)
<PAGE>
Exhibit "B"
SUPERIOR DISCLOSURE SCHEDULES
(Intentionally Omitted)
<PAGE>
Exhibit "C"
REGISTRATION RIGHTS AGREEMENT
Among
SUPERIOR ENERGY SERVICES, INC.
And
FIRST RESERVE FUND VII, LIMITED PARTNERSHIP
FIRST RESERVE FUND VIII, LIMITED PARTNERSHIP
, 1999
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into
this day of April ______, 1999, by and among Superior Energy Services,
Inc., a Delaware corporation ("Superior"), and First Reserve Fund VII,
Limited Partnership, a Delaware limited partnership, and First Reserve
Fund VIII, Limited Partnership, a Delaware limited partnership (each a
"First Reserve Fund" and, collectively, the "First Reserve Funds").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Agreement and Plan of Merger (the
"Merger Agreement") dated April ____, 1999 entered into by and among,
INTER ALIA, Superior, Cardinal Holding Corp. ("Cardinal") and the First
Reserve Funds, each First Reserve Fund received upon consummation of the
Merger contemplated by the Merger Agreement, shares of Superior Common
Stock in exchange for the shares of common stock of Cardinal it holds; and
WHEREAS, the parties hereto desire to set forth certain additional
agreements among them relating to the Registrable Securities owned by the
First Reserve Funds.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto agree as follows:
1. DEFINED TERMS. The following capitalized terms when used in this
Agreement shall have the following meanings:
"Cardinal Holders" means the holders of registerable securities in
accordance with the terms of the Cardinal Registration Rights Agreement.
"Cardinal Registration Rights Agreement" means that certain
Registration Rights Agreement, dated as of the date hereof, by and among
Superior and all of Cardinal's stockholders other than the First Reserve
Funds.
"Common Stock" means the common stock, $.001 par value per share, of
Superior.
"Demand Registration" means a demand registration as defined in
Section 2(a) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holders" means the holders of the Registrable Securities in
accordance with the terms of this Agreement.
"Person" means an individual, corporation, partnership, limited
liability company, business trust, joint stock company, unincorporated
association, or other entity of whatever nature.
"Piggyback Registration" means a piggyback registration as defined in
Section 2(b) hereof.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A under the
Securities Act), as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and all other amendments
and supplements to the prospectus, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by
reference in such prospectus.
"Registrable Securities" means (a) all shares of Common Stock issued
to the First Reserve Funds pursuant to the Merger Agreement and (b) any
other securities issued by Superior after the date hereof with respect to
such shares of Common Stock by means of exchange, reclassification,
dividend, distribution, split up, combination, subdivision,
recapitalization, merger, spin-off, reorganization or otherwise; provided,
however, that as to any Registrable Securities, such securities shall cease
to constitute Registrable Securities for the purposes of this Agreement if
and when: (i) a Registration Statement with respect to the sale of such
securities shall have been declared effective by the SEC and such
securities shall have been sold pursuant thereto; (ii) such securities
shall have been sold in compliance with of all applicable resale provisions
of Rule 144 under the Securities Act; or (iii) such securities cease to be
issued and outstanding for any reason.
"Registration Statement" means any registration statement filed by
Superior that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus included therein,
amendments and supplements to such registration statement, including post-
effective amendments, all exhibits, and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
"SEC" means the Securities and Exchange Commission, or any successor
agency thereto.
"Securities Act" means the Securities Act of 1933, as amended.
2. REGISTRATION RIGHTS
(a) Demand Registration. (i) At any time after _______, 2000
[one year from date of Agreement], the First Reserve Funds may at any time
and from time to time make a written request for registration under the
Securities Act of not less than 20% of the Registrable Securities owned by
them (a "Demand Registration"); provided that Superior shall not be
obligated to effect more than one Demand Registration in any 12-month
period or more than an aggregate of four Demand Registrations pursuant to
this Section 2(a). Such request will specify the number of shares of
Registrable Securities proposed to be sold and will also specify the
intended method of disposition thereof. A registration will not count as a
Demand Registration until the Registration Statement filed pursuant to such
registration has been declared effective by the SEC and remains effective
for the period specified in Section 2(e)(i).
(ii) If the First Reserve Funds so elect, the offering of
such Registrable Securities pursuant to such Demand Registration shall be
in the form of an underwritten offering. The First Reserve Funds shall
select the managing underwriters and any additional investment bankers and
managers to be used in connection with the offering; provided that the lead
managing underwriter must be reasonably satisfactory to Superior.
(iii) Neither Superior nor any of its security holders
(other than the holders of Registrable Securities in such capacity) shall
be entitled to include any of Superior's securities in a Registration
Statement initiated as a Demand Registration under this Section 2(a)
without the consent of The First Reserve Funds.
(b) Piggyback Registration. If Superior proposes to file a
registration statement under the Securities Act with respect to an offering
of Common Stock (i) for Superior's own account (other than a registration
statement on Form S-4 or S-8 (or any substitute form that may be adopted by
the SEC for transactions traditionally registered on Form S-4 or S-8)) or
(ii) for the account of any of its holders of Common Stock (other than
pursuant to a Demand Registration under Section 2(a)), except for the Shelf
Registration (as that term is defined in the Cardinal Registration Rights
Agreement, then Superior shall give written notice of such proposed filing
to the First Reserve Funds as soon as practicable (but in no event later
than the earlier to occur of (i) the tenth day following receipt by
Superior of notice of exercise of other Demand Registration rights and (ii)
30 days before the filing date), and such notice shall offer the First
Reserve Funds the opportunity to register such number of shares of
Registrable Securities as the First Reserve Funds may request within 20
days after receipt by the First Reserve Funds of Superior's notice on the
same terms and conditions as Superior's or such holder's Common Stock (a
"Piggyback Registration"). The First Reserve Funds will be permitted to
withdraw all or any part of their Registrable Securities from a Piggyback
Registration at any time prior to the date the Registration Statement filed
pursuant to such Piggyback Registration becomes effective with the SEC.
(c) Reduction of Offering. Notwithstanding anything contained
herein, if the Piggyback Registration is an underwritten offering and the
lead managing underwriter of such offering delivers a written opinion to
Superior that the size of the offering that Superior, the First Reserve
Funds, the Cardinal Holders and any other Persons whose securities are
proposed to be included in such offering is such that the offering or the
offering price would be materially and adversely affected, Superior will
include in such Piggyback Registration in the following order of priority
(i) first, all of the Registrable Securities requested by the First Reserve
Funds and the Cardinal Holders, on a pro rata basis based on the amount of
securities sought to be registered, and (ii) second, the securities
proposed to be registered by any other Persons; provided, that in no event
shall the number of securities included in a Piggyback Registration for
Persons pursuant to Section (c)(ii) be reduced below the lesser of (i) the
number of securities such persons would be entitled to include in such
Piggyback Registration if, in the event of a reduction of the size of the
offering pursuant to this Section 2(c), they were entitled, notwithstanding
the terms of this Section 2(c), to include their securities in such
Piggyback Registration on a pro rata basis with the First Reserve Funds and
the Cardinal Holders based on the amount of securities sought to be
registered and (ii) 20% of the total amount of securities included in such
offering for Persons other than Superior and the Persons, if any, demanding
such registration.
(d) Filings; Information. Whenever the First Reserve Funds
request that any Registrable Securities be registered pursuant to Section
2(a) hereof, Superior will use its reasonable best efforts to effect the
registration of such Registrable Securities and to permit the sale of such
Registrable Securities in accordance with the intended method of
disposition thereof, as promptly as is practicable, and in connection with
any such request:
(i) Superior will as expeditiously as possible, but in no
event later than 30 days after receipt of a request to file a
registration statement with respect to such Registrable
Securities, prepare and file with the SEC a Registration
Statement on any form for which Superior then qualifies and which
counsel for Superior shall deem appropriate and available for the
sale of the Registrable Securities to be registered thereunder in
accordance with the intended method of distribution thereof and
which is reasonably satisfactory to the First Reserve Funds, and
use its reasonable best efforts to cause such Registration
Statement to become and remain effective for a period of not less
than 90 days (or such shorter period which will terminate when
all Registrable Securities covered by such Registration Statement
have been sold); provided that if at the time Superior receives a
request to file a registration statement with respect to
Registrable Securities, Superior is engaged in confidential
negotiations or other confidential business activities,
disclosure of which would be required in such registration
statement (but would not be required if such registration
statement were not filed) and the board of directors of Superior
determines in good faith that such disclosure would be materially
detrimental to Superior and its stockholders, Superior shall have
a period of not more than 120 days (less the number of days
during the previous 12 months that the use of a Prospectus was
suspended pursuant to Section 2(d)(vi) and/or this Section
2(d)(i)) within which to file such registration statement
measured from the date of Superior's receipt of the First Reserve
Funds's request for registration in accordance with Section 2(a)
hereof. The filing of a registration statement may only be
deferred once for any potential transaction or event or related
transactions or events that could arise as a result of
negotiations or other activities and any registration statement
whose filing has been deferred as a result shall be filed
forthwith if the negotiations or other activities are disclosed
or terminated. In order to defer the filing of a registration
statement pursuant to this Section 2(d)(i), Superior shall
promptly, upon determining to seek such deferral, deliver to the
First Reserve Funds a certificate signed by the President or
Chief Financial Officer of Superior stating that Superior is
deferring such filing pursuant to this Section 2(d)(i).
(ii) Superior will prepare and file with the SEC such
amendments and supplements to such Registration Statement and the
Prospectus used in connection therewith as may be necessary to
keep such Registration Statement effective for the period set
forth in Section 2(d)(i) and comply with the provisions of the
Securities Act with respect to the disposition of all securities
covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement.
(iii) Superior will, if requested, prior to filing a
Registration Statement or any amendment or supplement thereto,
furnish to the First Reserve Funds and each applicable managing
underwriter, if any, copies thereof, and thereafter furnish to
the First Reserve Funds and each such underwriter, if any, such
number of copies of such Registration Statement, amendment and
supplement thereto (in each case including all exhibits thereto
and documents incorporated by reference therein) and the
Prospectus included in such Registration Statement (including
each preliminary Prospectus) as the First Reserve Funds or each
such underwriter may reasonably request in order to facilitate
the sale of the Registrable Securities.
(iv) After the filing of the Registration Statement,
Superior will promptly notify the First Reserve Funds of any stop
order issued or, to Superior's knowledge, threatened to be issued
by the SEC and take all reasonable actions required to prevent
the entry of such stop order or to remove it as soon as possible
if entered.
(v) Superior will use its reasonable best efforts to qualify
the Registrable Securities for offer and sale under such other
securities or blue sky laws of such jurisdictions in the United
States as the First Reserve Funds reasonably request; provided
that Superior will not be required to (A) qualify generally to do
business in any jurisdiction where it would not otherwise be
required to qualify but for this subparagraph 2(d)(v), (B)
subject itself to taxation in any such jurisdiction or (C)
consent to general service of process in any such jurisdiction.
(vi) Superior will as promptly as is practicable notify the
First Reserve Funds, at any time when a Prospectus is required by
law to be delivered in connection with sales by an underwriter or
dealer, of the occurrence of any event requiring the preparation
of a supplement or amendment to such Prospectus so that, as
thereafter delivered to the purchasers of such Registrable
Securities, such Prospectus will not contain an untrue statement
of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading and promptly make available to the First Reserve Funds
and to the underwriters any such supplement or amendment. The
First Reserve Funds agree that, upon receipt of any notice from
Superior of the occurrence of any event of the kind described in
the preceding sentence, the First Reserve Funds will forthwith
discontinue the offer and sale of Registrable Securities pursuant
to the Registration Statement covering such Registrable
Securities until receipt by the First Reserve Funds and the
underwriters of the copies of such supplemented or amended
Prospectus and, if so directed by Superior, the First Reserve
Funds will deliver to Superior all copies, other than permanent
file copies, then in the First Reserve Funds' possession of the
most recent Prospectus covering such Registrable Securities at
the time of receipt of such notice. In the event Superior shall
give such notice, Superior shall extend the period during which
such Registration Statement shall be maintained effective as
provided in Section 2(e)(i) by the number of days during the
period from and including the date of the giving of such notice
to the date when Superior shall make available to the First
Reserve Funds such supplemented or amended Prospectus.
(vii) Superior will enter into customary agreements
(including an underwriting agreement in customary form) and take
such other actions as are reasonably required in order to
expedite or facilitate the sale of such Registrable Securities.
(viii) Superior will furnish to the First Reserve Funds and
to each underwriter a signed counterpart, addressed to the First
Reserve Funds or such underwriter, of an opinion or opinions of
counsel to Superior and a comfort letter or comfort letters from
Superior's independent public accountants, each in customary form
and covering such matters of the type customarily covered by
opinions or comfort letters, as the case may be, as the First
Reserve Funds or the managing underwriter reasonably requests.
(ix) Superior will make generally available to its security
holders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months
after the effective date of the Registration Statement, which
earnings statement shall satisfy the provisions of Section 11(a)
of the Securities Act and the rules and regulations of the SEC
thereunder.
(x) Superior will use its reasonable best efforts to cause
all such Registrable Securities to be listed on each securities
exchange or market on which the Common Stock is then listed.
Superior may require the First Reserve Funds to furnish promptly
in writing to Superior such information regarding the First Reserve Funds,
the plan of distribution of the Registrable Securities and other
information as Superior may from time to time reasonably request or as may
be legally required in connection with such registration.
(e) Registration Expenses. In connection with any Demand
Registration or any Piggyback Registration, Superior shall pay the
following expenses incurred in connection with such registration: (i)
filing fees with the SEC; (ii) fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities); (iii) printing expenses; (iv) fees and expenses incurred in
connection with the listing of the Registrable Securities; (v) fees and
expenses of counsel and independent certified public accountants for
Superior and (vi) the reasonable fees and expenses of any additional
experts retained by Superior in connection with such registration. In
connection with the preparation and filing of a Registration Statement
pursuant to Section 2(a), Superior will also pay the reasonable fees and
expenses of a single legal counsel chosen by the First Reserve Funds. The
First Reserve Funds shall pay any underwriting fees, discounts or
commissions attributable to the sale of Registrable Securities and any
other expenses of the First Reserve Funds.
(f) Participation in Underwritten Registrations. No Person may
participate in any underwritten registered offering contemplated hereunder
unless such Person (a) agrees to sell its securities on the basis provided
in any underwriting arrangements approved by the Persons entitled hereunder
to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents reasonably required under the terms of such
underwriting arrangements and this Agreement.
(g) Holdback Agreements. The First Reserve Funds agree not to
effect any public sale (including a sale pursuant to Rule 144 of the
Securities Act) of any Registrable Securities, or any securities
convertible into or exchangeable or exercisable for such securities, during
the 14 days prior to, and during the 120-day period beginning on, the
effective date of any underwritten Demand Registration or any underwritten
Piggyback Registration in which the First Reserve Funds participate, other
than the Registrable Securities to be sold pursuant to such registration
statement.
3. INDEMNIFICATION
(a) Indemnification by Superior. Superior agrees to indemnify
and hold harmless the First Reserve Funds, its general partner and their
officers and directors, and each Person, if any, who controls the First
Reserve Funds within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act from and against any and all losses,
claims, damages, liabilities and expenses arising out or based upon any
untrue statement or alleged untrue statement of a material fact contained
in any Registration Statement or prospectus relating to the Registrable
Securities or any preliminary Prospectus, or arising out of or based upon
any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities and
expenses are caused by any untrue statement or omission or alleged untrue
statement or omission based upon information relating to the First Reserve
Funds or the plan of distribution furnished in writing to Superior by or on
behalf of the First Reserve Funds expressly for use therein; provided that
the foregoing indemnity with respect to any preliminary Prospectus shall
not inure to the benefit of the First Reserve Funds if a copy of the most
current Prospectus at the time of the delivery of the Registrable
Securities was not provided to the purchaser, Superior had previously
furnished the First Reserve Funds with a sufficient number of copies of the
current Prospectus and such current Prospectus would have cured the defect
giving rise to such loss, claim, damage or liability. Superior also agrees
to indemnify any underwriters of the Registrable Securities, their officers
and directors and each Person who controls such underwriters on
substantially the same basis as that of the indemnification of the First
Reserve Funds provided in this Section 3(a).
(b) Indemnification by The First Reserve Funds. The First
Reserve Funds agree to indemnify and hold harmless Superior, its officers
and directors, and each Person, if any, who controls Superior within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from Superior to
the First Reserve Funds, but only with reference to information relating to
the First Reserve Funds or the plan of distribution furnished in writing by
or on behalf of the First Reserve Funds expressly for use in any
Registration Statement or Prospectus, or any amendment or supplement
thereto, or any preliminary Prospectus. The First Reserve Funds also agree
to indemnify and hold harmless any underwriters of the Registrable
Securities, their officers and directors and each person who controls such
underwriters on substantially the same basis as that of the indemnification
of Superior provided in this Section 3(b).
(c) Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant
to Section 3(a) or Section 3(b), such Person (the "Indemnified Party")
shall promptly notify the Person against whom such indemnity may be sought
(the "Indemnifying Party") in writing and the Indemnifying Party shall have
the right to assume the defense of such proceeding and retain counsel
reasonably satisfactory to such Indemnified Party to represent such
Indemnified Party and any others the Indemnifying Party may designate in
such proceeding and shall pay the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any Indemnified Party
shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless
(i) the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any
such proceeding (including any impleaded parties) include both the
Indemnified Party and the Indemnifying Party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
Indemnifying Party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses
of more than one separate firm of attorneys (in addition to any local
counsel) at any time for all such Indemnified Parties, and that all such
fees and expenses shall be reimbursed as they are incurred. In the case of
any such separate firm for the Indemnified Parties, such firm shall be
designated in writing by 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 shall indemnify
and hold harmless such Indemnified Parties from and against any loss or
liability (to the extent stated above) by reason of such settlement or
judgment.
(d) Contribution. If the indemnification provided for in this
Agreement is unavailable to an Indemnified Party in respect of any losses,
claims, damages, liabilities or expenses referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of Superior and,
the First Reserve Funds and the underwriters in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities. The relative fault of Superior and, the First Reserve Funds
and the underwriters shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by such party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
Superior and the First Reserve Funds agree that it would not be
just and equitable if contribution pursuant to this Section 3(d) were
determined by pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an
Indemnified Party as a result of the losses, claims, damages or liabilities
referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
4. RULE 144. Superior covenants that it will file any reports
required to be filed by it under the Securities Act and the Exchange Act
and that it will take such further action as the First Reserve Funds may
reasonably request to the extent required from time to time to enable the
First Reserve Funds to sell Registrable Securities without registration
under the Securities Act within the limitation of the exemptions provided
by Rule 144 under the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the SEC.
Upon the request of the First Reserve Funds, Superior will deliver to the
First Reserve Funds a written statement as to whether it has complied with
such reporting requirements.
5. MISCELLANEOUS.
(a) NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing or by telex, telephone or facsimile
transmission with subsequent written confirmation, and may be personally
served or sent by United States mail and shall be deemed to have been given
upon receipt by the party notified. For purposes hereof, the addresses of
the parties hereto (until notice of a change thereof is delivered as
provided in this Section 5) shall be as set forth opposite each party's
name on the signature page hereof.
(b) TERMINATION. This Agreement will terminate upon the earlier
of (i) the date upon which the Company and the First Reserve Funds mutually
agree in writing to terminate this Agreement and (ii) the first date on
which there ceases to be any Registrable Securities.
(c) TRANSFER OF REGISTRATION RIGHTS. The rights of Holders
hereunder may be assigned by Holders to a transferee or assignee of any
Registrable Securities provided that Superior is given written notice at
the time of or within a reasonable time after said transfer, stating the
name and address of such transferee or assignee and identifying the
securities with respect to which such registration rights are being
assigned; and provided further that the registration rights granted by
Superior in Section 2 may only be transferred to, and the definition of
"Holders" shall only include, transferees who meet either of the following
criteria: such transferee is (i) a holder of 100,000 or more shares of
the Registrable Securities before giving effect to the transfer, (ii) any
partner of the First Reserve Funds, or (iii) a bank, trust company or other
financial institution, any pension plan, any investment company, any
insurance company, any broker or dealer, or any other similar financial
institution or entity, regardless of legal form. To the extent the rights
under Section 2(a) of this Agreement are assigned to multiple Holders, all
rights hereunder that may be exercised by the First Reserve Funds may only
be exercised by one or more Holders holding 50% or more of the Registrable
Securities in the aggregate.
(d) WAIVERS AND AMENDMENTS; NONCONTRACTUAL REMEDIES;
PRESERVATION OF REMEDIES. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by
a written instrument signed by Superior and the Holders of a majority of
the Registrable Securities or, in the case of a waiver, by the party
waiving compliance. No delay on the part of any party in exercising a
right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any party of any such right, power or
privilege, nor any single or partial exercise of any such right, power or
privilege, preclude a further exercise thereof or the exercise of any other
such right, power or privilege. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that any party
may otherwise have at law or in equity. The rights and remedies of any
party based upon, arising out of or otherwise in respect of any breach of
any provision of this Agreement shall in no way be limited by the fact that
the act, omission, occurrence or other state of facts upon which any claim
of any such breach is based may also be the subject matter of any other
provision of this Agreement (or of any other Agreement between the parties)
as to which there is no breach.
(e) SEVERABILITY. If any provision of this Agreement or the
applicability of any such provision to a person or circumstances shall be
determined by any court of competent jurisdiction to be invalid or
unenforceable to any extent, the remainder of this Agreement or the
application of such provision to Persons or circumstances other than those
for which it is so determined to be invalid and unenforceable, shall not be
affected thereby, and each provision of this Agreement shall be valid and
shall be enforced to the fullest extent permitted by law. To the extent
permitted by applicable law each party hereto hereby waives any provision
or provisions of law which would otherwise render any provision of this
Agreement invalid, illegal or unenforceable in any respect.
(f) COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts and when so executed shall constitute one
Agreement, notwithstanding that all parties are not signatories to the same
counterpart.
(g) GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware applicable
to agreements made and to be performed entirely within such state.
(h) SUCCESSORS AND ASSIGNS. Subject to Section 5(c), this
Agreement shall be binding upon and inure to the benefit of and be
enforceable by the successors and assigns of the parties hereto.
(i) OTHER REGISTRATION RIGHTS AGREEMENTS. Without the prior
written consent of the First Reserve Funds, Superior will neither enter
into any new registration rights agreements that conflict with the terms of
this Agreement nor permit the exercise of any other registration rights in
a manner that conflicts with the terms of the registration rights granted
hereunder.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date
the First above written.
Addresses: SUPERIOR ENERGY SERVICES, INC.
1105 Peters Road
Harvey, Louisiana 70058 By: __________________________________
Attn: Terence E. Hall Terence E. Hall
Fax: 504-362-1818 President
FIRST RESERVE FUND VII, LIMITED
600 Travis - Suite 6000 PARTNERSHIP
Houston, Texas 77002
Attn: Ben A. Guill By: First Reserve GP VII, L.P., its
Fax: 713-224-0771 General Partner
By: First Reserve Corporation, its
General Partner
By: _____________________________
Ben A. Guill
President
FIRST RESERVE FUND VIII, LIMITED
PARTNERSHIP
By: First Reserve GP VIII, L.P., its
General Partner
By: First Reserve Corporation, its
General Partner
By: _____________________________
Ben A. Guill
President
<PAGE>
Exhibit "D"
REGISTRATION RIGHTS AGREEMENT
Among
SUPERIOR ENERGY SERVICES, INC.
And
THE PARTIES SPECIFIED HEREIN
, 1999
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into
this ______ day of ________ 1999, by and among Superior Energy Services,
Inc., a Delaware corporation ("Superior"), and the parties listed on the
signature page hereof under the heading "Shareholders" (each a
"Shareholder" and, collectively, the "Shareholders").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Agreement and Plan of Merger (the
"Merger Agreement") dated April ______, 1999 entered into by and between,
INTER ALIA, Superior and Cardinal Holding Corp. ("Cardinal"), each
Shareholder received upon consummation of the merger contemplated by the
Merger Agreement, shares of Superior Common Stock in exchange for the
shares of common stock of Cardinal it holds; and
WHEREAS, the parties hereto desire to set forth certain additional
agreements among them relating to the Registrable Securities owned by the
Shareholders.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto agree as follows:
1. DEFINED TERMS. The following capitalized terms when used in this
Agreement shall have the following meanings:
"Affiliate" shall have the meaning ascribed by Rule 12b-2 promulgated
under the Exchange Act.
"Common Stock" means the common stock, $.001 par value per share, of
Superior.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"First Reserve Funds" means First Reserve Fund VII, Limited
Partnership and First Reserve Fund VIII, Limited Partnership, both Delaware
limited partnerships.
"Fully Diluted Basis" means all issued and outstanding shares of
Common Stock, plus all shares of Common Stock issuable upon the exercise of
any warrants, options or rights to acquire Common Stock which are then
outstanding, regardless of whether such warrants, options or other rights
are at the time exercisable.
"Holders" means the holders of the Registrable Securities in
accordance with the terms of this Agreement.
"Person" means an individual, corporation, partnership, limited
liability company, joint venture, or other business trust, joint stock
company, trust, unincorporated association or other legal entity of
whatever nature.
"Piggyback Registration" means a piggyback registration as defined in
Section 2(b) hereof.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A under the
Securities Act), as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and all other amendments
and supplements to the prospectus, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by
reference in such prospectus.
"Registrable Securities" means (a) all shares of Common Stock issued
to the Shareholders pursuant to the Merger Agreement and (b) any other
securities issued by Superior after the date hereof with respect to such
shares of Common Stock by means of exchange, reclassification, dividend,
distribution, split up, combination, subdivision, recapitalization, merger,
spin-off, reorganization or otherwise; provided, however, that as to any
Registrable Securities, such securities shall cease to constitute
Registrable Securities for the purposes of this Agreement if and when (i) a
Registration Statement with respect to the sale of such securities shall
have been declared effective by the SEC and such securities shall have been
sold pursuant thereto; (ii) such securities shall have been sold in
compliance with all applicable resale provisions of Rule 144 under the
Securities Act; or (iii) such securities cease to be issued and outstanding
for any reason.
"Registration Statement" means any registration statement filed by
Superior that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus included therein,
amendments and supplements to such registration statement, including post-
effective amendments, all exhibits, and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
"SEC" means the Securities and Exchange Commission, or any successor
agency thereto.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration" means the shelf registration as defined in
Section 2(a).
"Suspension Period" means a period of time (a) commencing on the date
on which Superior provides notice that the Registration Statement for the
Shelf Registration is no longer effective, the Prospectus included therein
no longer complies with the requirements prescribed by Section 10(a) of the
Securities Act or the occurrence of any event requiring the preparation of
a supplement or amendment to the Prospectus included so that, as thereafter
delivered to the purchasers of such Registrable Securities, such Prospectus
will not contain an untrue statement of a material fact or omit to state
any 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, and (b) ending on the date when each Shareholder
either receives copies of the supplemented or amended Prospectus
contemplated by subparagraph (a) above or otherwise is advised in writing
by the Company that the use of the Prospectus may be resumed.
2. REGISTRATION RIGHTS
(a) Shelf Registration. (i) Superior shall prepare and file with
the SEC within 90 days after the date hereof, a Registration Statement
relating to the resale from time to time of the Registrable Securities by
the Shareholders in accordance with the plan and method of distribution set
forth in the Prospectus forming part of such Registration Statement (the
"Shelf Registration").
(ii) Superior agrees to use its reasonable best efforts to keep the
Shelf Registration continuously effective until the first to occur of (A)
_______, 2001 [the second anniversary of the date hereof] and (B) the date
on which all of the Registrable Securities covered by the Shelf
Registration have been sold pursuant thereto or may be sold pursuant to
Rule 144(k) under the Securities Act (or any successor rule thereof).
(iii) Each Shareholder agrees that it will not sell any Registrable
Securities pursuant to the Shelf Registration during any Suspension Period.
Superior agrees to cause any Suspension Period to end as soon as reasonably
practicable.
(iv) No Shareholder shall sell pursuant to the Shelf Registration a
greater number of Registrable Securities than could be sold without
registration under the Securities Act pursuant to Rule 144(e) as presently
in effect.
(b) Piggyback Registration. If Superior proposes to file a
registration statement under the Securities Act with respect to an offering
of Common Stock (i) for Superior's own account (other than a registration
statement on Form S-4 or S-8 (or any substitute form that may be adopted by
the SEC for transactions traditionally registered on Forms S-4 or S-8)) or
(ii) for the account of any of its holders of Common Stock [other than the
First Reserve Funds], then Superior shall give written notice of such
proposed filing to the Shareholders as soon as practicable (but in no event
later than 30 days before the filing date), and such notice shall offer the
Shareholders the opportunity to register such number of shares of
Registrable Securities as the Shareholders may request within 20 days after
receipt by the Shareholders of Superior's notice on the same terms and
conditions as Superior's or such Holder's Common Stock (a "Piggyback
Registration"). The Shareholders will be permitted to withdraw all or any
part of their Registrable Securities from a Piggyback Registration at any
time prior to the date the Registration Statement filed pursuant to such
Piggyback Registration becomes effective with the SEC.
Notwithstanding anything contained herein, if the Piggyback
Registration is an underwritten offering and the lead managing underwriter
of such offering delivers a written opinion to Superior that the size of
the offering that Superior, the First Reserve Funds, the Holders and any
other Persons whose securities are proposed to be included in such offering
is such that the offering or the offering price would be materially and
adversely affected, Superior will include in such Piggyback Registration in
the following order of priority (i) first, all of the Registrable
Securities requested by the First Reserve Funds and the Holders, on a pro
rata basis based on the amount of securities sought to be registered, and
(ii) second, the securities proposed to be registered by any other Persons;
provided, that in no event shall the number of securities included in a
Piggyback Registration for Persons pursuant to Section (c)(ii) be reduced
below the lesser of (i) the number of securities such Persons would be
entitled to include in such Piggyback Registration if, in the event of a
reduction of the size of the offering pursuant to this Section 2(c), they
were entitled, notwithstanding the terms of this Section 2(c), to include
their securities in such Piggyback Registration on a pro rata basis with
the First Reserve Funds and the Cardinal Holders based on the amount of
securities sought to be registered and (ii) 20% of the total amount of
securities included in such offering for Persons other than Superior and
the Persons, if any, demanding such registration.
(c) Filings; Information. In connection with the Shelf
Registration:
(i) Superior will prepare and file with the SEC a
Registration Statement on any form of the SEC for which Superior
then qualifies and which counsel for Superior shall deem
appropriate and available for the sale of the Registrable
Securities to be registered thereunder in accordance with the
intended method of distribution thereof.
(ii) Superior will prepare and file with the SEC such
amendments and supplements to the Registration Statement and
Prospectus used in connection therewith as may be necessary to
keep the Registration Statement effective for the period
specified in Section 2(a)(ii) and comply with the provisions of
the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during such
period in accordance with the intended methods of disposition by
the sellers thereof set forth in such Registration Statement.
(iii) Superior will, if requested, prior to filing the
Registration Statement or any amendment or supplement thereto,
furnish to any Shareholder, copies thereof, and thereafter
furnish to each Shareholder, such number of copies of such
Registration Statement, amendment and supplement thereto (in each
case including all exhibits thereto and documents incorporated by
reference therein) and the Prospectus included in the
Registration Statement as such Shareholder may reasonably request
in order to facilitate the sale of the Registrable Securities.
(iv) Superior will promptly notify each Shareholder when the
SEC declares the Registration Statement effective.
(v) Superior will promptly notify the Shareholders of any
stop order issued or, to Superior's knowledge, threatened to be
issued by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it as soon as
practicable if entered.
(vi) Superior will use its reasonable best efforts to
qualify the Registrable Securities for offer and sale under such
other securities or blue sky laws of such jurisdictions in the
United States as the Shareholders reasonably request; provided
that Superior will not be required to (A) qualify generally to do
business in any jurisdiction where it would not otherwise be
required to qualify but for this subparagraph 2(c)(vi), (B)
subject itself to taxation in any such jurisdiction or (C)
consent to general service of process in any such jurisdiction.
(vii) Superior will notify the Shareholders of the
commencement and termination of a Suspension Period. The
Shareholders agree that during any Suspension Period, the
Shareholders will forthwith discontinue the offer and sale of
Registrable Securities pursuant to the Registration Statement
until receipt by the Shareholders of the copies of such
supplemented or amended Prospectus as may be required and, if so
directed by Superior, the Shareholders will deliver to Superior
all copies, other than permanent file copies, then in the
Shareholders' possession of the most recent Prospectus at the
time of receipt of such notice.
(viii) Superior will enter into customary agreements and
take such other actions as are reasonably required in order to
expedite or facilitate the sale of the Registrable Securities
pursuant to the Registration Statement.
(ix) Superior will make generally available to the
Shareholders, as soon as reasonably practicable, but not later
than the first day of the fifteenth full calendar month following
the effective date of the Registration Statement, an earnings
statement covering a period of 12 months, beginning within three
months after the effective date of the Registration Statement,
which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and the rules and regulations of the
SEC thereunder.
(x) Superior will use its reasonable best efforts to cause
all such Registrable Securities to be listed on each securities
exchange or market on which the Common Stock is then listed.
(xi) Superior will furnish to each Shareholder a signed
counterpart, addressed to the Shareholder, of an opinion or
opinions of counsel of Superior and a comfort letter or comfort
letters from Superior's independent public accountants, each in
customary form and covering such matters of the type customarily
covered by opinions or comfort letters delivered to underwriters
in underwritten public offerings of securities.
Superior may require the Shareholders to furnish promptly in
writing to Superior such information regarding the Shareholders, the plan
of distribution of the Registrable Securities and other information as
Superior may from time to time reasonably request or as may be legally
required in connection with the Registration Statement.
(d) Registration Expenses. In connection with the Shelf
Registration or any Piggyback Registration, Superior shall pay the
following expenses incurred in connection with such registration: (i)
filing fees with the SEC; (ii) fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities); (iii) printing expenses; (iv) fees and expenses incurred in
connection with the listing of the Registrable Securities; (v) fees and
expenses of counsel and independent certified public accountants for
Superior and (vi) the reasonable fees and expenses of any additional
experts retained by Superior in connection with such registration. The
Shareholders shall pay any underwriting fees, discounts or commissions
attributable to the sale of Registrable Securities and any other
out-of-pocket expenses of the Shareholders.
(e) Participation in Underwritten Registrations. No Person may
participate in any underwritten registered offering contemplated hereunder
unless such Person (a) agrees to sell its securities on the basis provided
in any underwriting arrangements approved by the Persons entitled hereunder
to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents reasonably required under the terms of such
underwriting arrangements and this Agreement.
(f) Holdback Agreements. Any Shareholder owning more than 2% of
the Common Stock on a Fully Diluted Basis agrees not to offer, sell,
contract to sell or otherwise dispose of any Registrable Securities, or any
securities convertible into or exchangeable or exercisable for such
securities, during the 14 days prior to, and during the 120-day period
beginning on, the effective date of any underwritten Piggyback Registration
in which such Shareholder participates other than the Registrable
Securities to be sold pursuant to such registration statement.
3. INDEMNIFICATION
(a) Indemnification by Superior. Superior agrees to indemnify
and hold harmless the Shareholders, their respective general partners or
managers, if any, and their respective officers and directors, and each
Person, if any, who controls the Shareholders within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages, liabilities and expenses
arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
prospectus relating to the Registrable Securities or any preliminary
Prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or expenses are caused by any
untrue statement or omission or alleged untrue statement or omission based
upon information relating to the Shareholders or the plan of distribution
furnished in writing to Superior by or on behalf of the Shareholders
expressly for use therein; provided that the foregoing indemnity with
respect to any preliminary Prospectus shall not inure to the benefit of the
Shareholders if a copy of the most current Prospectus at the time of the
delivery of the Registrable Securities was not provided to the purchaser,
Superior had previously furnished the Shareholders with a sufficient number
of copies of the current Prospectus and such current Prospectus would have
cured the defect giving rise to such loss, claim, damage, liability or
expense. Superior also agrees to indemnify any underwriters of the
Registrable Securities, their officers and directors and each Person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Shareholders provided in this Section 3(a).
(b) Indemnification by The Shareholders. The Shareholders agree
to indemnify and hold harmless Superior, its officers and directors, and
each Person, if any, who controls Superior within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act to the
same extent as the foregoing indemnity from Superior to the Shareholders,
but only with reference to information relating to the Shareholders or the
plan of distribution furnished in writing by or on behalf of the
Shareholders expressly for use in any Registration Statement or Prospectus,
or any amendment or supplement thereto, or any preliminary Prospectus. The
Shareholders also agree to indemnify and hold harmless any underwriters of
the Registrable Securities, their officers and directors and each Person
who controls such underwriters on substantially the same basis as that of
the indemnification of Superior provided in this Section 3(b).
(c) Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant
to Section 3(a) or Section 3(b), such Person (the "Indemnified Party")
shall promptly notify the Person against whom such indemnity may be sought
(the "Indemnifying Party") in writing and the Indemnifying Party shall have
the right to assume the defense of such proceeding and retain counsel
reasonably satisfactory to such Indemnified Party to represent such
Indemnified Party and any others the Indemnifying Party may designate in
such proceeding and shall pay the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any Indemnified Party
shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless
(i) the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any
such proceeding (including any impleaded parties) include both the
Indemnified Party and the Indemnifying Party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
Indemnifying Party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses
of more than one separate firm of attorneys (in addition to any local
counsel) at any time for all such Indemnified Parties, and that all such
fees and expenses shall be reimbursed as they are incurred. In the case of
any such separate firm for the Indemnified Parties, such firm shall be
designated in writing by 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 shall indemnify
and hold harmless such Indemnified Parties from and against any loss or
liability (to the extent stated above) by reason of such settlement or
judgment.
(d) Contribution. If the indemnification provided for in this
Agreement is unavailable to an Indemnified Party in respect of any losses,
claims, damages, liabilities or expenses referred to herein, then each
such Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as
a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of Superior and
the Shareholders and the underwriters in connection with the statements or
omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative fault of Superior and the Shareholders and the underwriters shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by such
party and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
Superior and the Shareholders agree that it would not be just and
equitable if contribution pursuant to this Section 3(d) were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Party as
a result of the losses, claims, damages or liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably
incurred by such Indemnified Party in connection with investigating or
defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any Person who was not guilty
of such fraudulent misrepresentation.
4. RULE 144. Superior covenants that it will file any reports
required to be filed by it under the Securities Act and the Exchange Act,
maintain registration of the Common Stock under the Exchange Act and take
such further action as the Shareholders may reasonably request to the
extent required from time to time to enable the Shareholders to sell
Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by Rule 144 under the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC. Upon the request of the
Shareholders, Superior will deliver to the Shareholders a written statement
as to whether it has complied with such reporting requirements.
5. MISCELLANEOUS.
(a) NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing or by telex, telephone or facsimile
transmission with subsequent written confirmation, and may be personally
served or sent by United States mail and shall be deemed to have been given
upon receipt by the party notified. For purposes hereof, the addresses of
the parties hereto (until notice of a change thereof is delivered as
provided in this Section 5) shall be as set forth opposite each party's
name on the signature page hereof.
(b) TERMINATION. This Agreement will terminate upon the earlier
of (i) the date upon which the Company and Shareholders owning a majority
of the Registrable Securities mutually agree in writing to terminate this
Agreement and (ii) the first date on which there ceases to be any
Registrable Securities.
(c) TRANSFER OF REGISTRATION RIGHTS. The rights of the Holders
hereunder may be assigned by Holders to a transferee or assignee of any
Registrable Securities provided that Superior is given written notice at
the time of or within a reasonable time after said transfer, stating the
name and address of such transferee or assignee and identifying the
securities with respect to which such registration rights are being
assigned; and provided further that the registration rights granted by
Superior in Section 2 may only be transferred to transferees who meet the
following criteria: such transferee is (i) a holder of 100,000 shares of
the Registrable Securities before giving effect to the transfer, (ii) a
family limited partnership, trust or similar entity formed solely for the
benefit of the Holder, for such Holder's spouse, or their children (any
such entity, a "Holder's Trust"), PROVIDED that such Holder acts as sole
general partner, trustee, managing member or in such other unilaterally
authoritative capacity as is applicable and retains the sole power to
direct voting and disposition of such Registrable Securities, and PROVIDED,
FURTHER, that any such Holder's Trust shall agree in a writing in form and
substance reasonably satisfactory to Superior to be bound and shall become
bound by the terms of this Agreement, or (iii) an Affiliate of a Holder.
(d) WAIVERS AND AMENDMENTS; NONCONTRACTUAL REMEDIES;
PRESERVATION OF REMEDIES. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by
a written instrument signed by Superior and Shareholders holding two-thirds
or more of the Registrable Securities in the aggregate or, in the case of a
waiver, by the party waiving compliance. No delay on the part of any party
in exercising a right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any such
right, power or privilege, nor any single or partial exercise of any such
right, power or privilege, preclude a further exercise thereof or the
exercise of any other such right, power or privilege. The rights and
remedies herein provided are cumulative and are not exclusive of any rights
or remedies that any party may otherwise have at law or in equity. The
rights and remedies of any party based upon, arising out of or otherwise in
respect of any breach of any provision of this Agreement shall in no way be
limited by the fact that the act, omission, occurrence or other state of
facts upon which any claim of any such breach is based may also be the
subject matter of any other provision of this Agreement (or of any other
Agreement between the parties) as to which there is no breach.
(e) SEVERABILITY. If any provision of this Agreement or the
applicability of any such provision to a person or circumstances shall be
determined by any court of competent jurisdiction to be invalid or
unenforceable to any extent, the remainder of this Agreement or the
application of such provision to Persons or circumstances other than those
for which it is so determined to be invalid and unenforceable, shall not be
affected thereby, and each provision of this Agreement shall be valid and
shall be enforced to the fullest extent permitted by law. To the extent
permitted by applicable law each party hereto hereby waives any provision
or provisions of law which would otherwise render any provision of this
Agreement invalid, illegal or unenforceable in any respect.
(f) COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts and when so executed shall constitute one
agreement, notwithstanding that all parties are not signatories to the same
counterpart.
(g) GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware applicable
to agreements made and to be performed entirely within such state.
(h) SUCCESSORS AND ASSIGNS. Subject to Section 5(c), this
Agreement shall be binding upon and inure to the benefit of and be
enforceable by the successors and assigns of the parties hereto.
(i) REGISTRATION RIGHTS AGREEMENTS. Without the prior written
consent of one or more Shareholders holding two-thirds or more of the
Registrable Securities in the aggregate, Superior will neither enter into
any new registration rights agreements that conflict with the terms of this
Agreement nor permit the exercise of any other registration rights in a
manner that conflicts with the terms of the registration rights granted
hereunder.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
the First above written.
Addresses: SUPERIOR ENERGY SERVICES, INC.
1105 Peters Road
Harvey, Louisiana 70058
Attn: Terence E. Hall By: _________________________________________
Fax: 504-362-1818 Terence E. Hall
President
SHAREHOLDERS:
[Addresses to come] GENERAL ELECTRIC CAPITAL CORPORATION
By: _________________________________________
Name:
Title:
DLJ INVESTMENT PARTNERS, L.P.
By: DLJ Investment Partners, Inc.,
its Managing General Partner
By: _________________________________________
Name:
Title:
DLJ INVESTMENT FUNDING, INC.
By: _________________________________________
Name:
Title:
DLJ ESC II L.P.
By: DLJ LBO Plans Management Corporation
By: _________________________________________
Name:
Title:
HIBERNIA CAPITAL CORPORATION
By: _________________________________________
Name:
Title:
HIBERNIA CORPORATION
By: _________________________________________
Name:
Title:
KOTTS CAPITAL HOLDINGS, LIMITED
PARTNERSHIP
By: _________________________________________
Name:
Title:
_____________________________________________
Keith Acker
_____________________________________________
John R. Gunn
_____________________________________________
Robert J. Gunn
_____________________________________________
John F. Kerker
[Other Shareholders to be included at
Closing]
<PAGE>
Exhibit "E"
STOCKHOLDERS' AGREEMENT
Among
SUPERIOR ENERGY SERVICES, INC.
And
FIRST RESERVE FUND VII, LIMITED PARTNERSHIP
FIRST RESERVE FUND VIII, LIMITED PARTNERSHIP
, 1999
<PAGE>
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement (this "Agreement") is entered into this
_____ day of _______ 1999, is by and among Superior Energy Services, Inc.,
a Delaware corporation ("Superior"), and First Reserve Fund VII, Limited
Partnership, a Delaware limited partnership, and First Reserve Fund VIII,
Limited Partnership, a Delaware limited partnership (each a "First Reserve
Fund" and, collectively, the "First Reserve Funds").
W I T N E S S E T H
WHEREAS, pursuant to that certain Agreement and Plan of Merger (the
"Merger Agreement") dated as of April __, 1999 entered into by and among,
INTER ALIA, the First Reserve Funds and Superior, each of the First Reserve
Funds received upon consummation of the Merger contemplated by the Merger
Agreement, shares of Superior Common Stock in exchange for the shares of
common stock of Cardinal Holding Corp. owned by it; and
WHEREAS, the parties hereto desire to set forth certain additional
agreements among them relating to the First Reserve Group's (as defined
below) acquisition and ownership of Superior Securities.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto agree as follows:
ARTICLE 1
Defined Terms
Section 1.1 DEFINED TERMS. The following capitalized terms when
used in this Agreement shall have the following meanings:
"Affiliate" shall have the respective meanings assigned thereto in
Rule 405 as presently promulgated under the Securities Act.
"beneficial ownership" and "group" shall have the respective meanings
assigned thereto in Rules 13d-3 and 13d-5 as presently promulgated under
the Exchange Act.
"Board" means the Board of Directors of Superior.
"Common Stock" means the common stock, $.001 par value per share, of
Superior.
"Director" means any member of the Board.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"First Reserve Group" means, collectively, the First Reserve Funds and
their respective Affiliates; provided, however, that a Person shall not be
deemed a member of the First Reserve Group if the only reason that such
Person would be deemed an Affiliate of the First Reserve Funds is because
it is (a) a limited partner of either or both of the First Reserve Funds,
(b) an operating company in which either or both of the First Reserve Funds
(and/or any other fund or funds similar to the First Reserve Funds that is
controlled by, controlling or under common control with the First Reserve
Funds) have an investment, but in which the First Reserve Funds and such
other funds do not, in the aggregate (i) have at least a majority of the
voting power (defined in a manner consistent with the definition of Voting
Power set forth herein with respect to Superior) of the securities of such
operating company, or (ii) the contractual right to designate at least a
majority of the members of the board of directors (or similar governing
body) of such operating company, or (c) an Affiliate of an operating
company described in clause (b) who is not otherwise an Affiliate of the
First Reserve Group.
"Fund Directors" shall have the meaning assigned to it in Section
2.1(b) hereof.
"Independent Director" means, at any time, any Director who both (a)
would qualify as an "independent director" within the meaning given to such
term under the rules of the principal securities exchange or market on
which the Common Stock is then listed or admitted for trading and (b) is
not an Affiliate of either Superior or the First Reserve Funds (other than
solely as the result of being a director of Superior).
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or other entity of whatever
nature.
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated the date hereof among Superior and the First Reserve Funds,
as amended, modified or supplemented from time to time.
"Securities Act" means the Securities Act of 1933, as amended.
"Superior Securities" means, collectively, the Common Stock and any
class or series of Superior's preferred stock, and any other securities,
warrants or options or rights of any nature (whether or not issued by
Superior) that are convertible into, exchangeable for, or exercisable for
the purchase of, or otherwise give the holder thereof any rights in respect
of common stock, or any class or series of Superior preferred stock that is
entitled to vote generally for the election of directors or otherwise.
"Termination Date" means , 2009 [ten years from the
date of this Agreement].
"Voting Power" means, at, any measurement date, the total number of
votes that could have been cast in an election of directors of Superior had
a meeting of the stockholders of Superior been duly held based upon a
record date as of the measurement date if all Superior Securities then
outstanding and entitled to vote at such meeting were present and voted to
the fullest extent possible at such meeting.
Section 1.2 OTHER DEFINITIONAL PROVISIONS. The words "hereof"
"herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and section references are to this
Agreement unless otherwise specified. The meanings given to terms defined
herein shall be equally applicable to both the singular and plural forms of
such terms.
ARTICLE 2
Board of Directors; Voting
Section 2.1 ELECTION OF DIRECTORS. Each of the First Reserve
Funds hereby agrees that it shall vote all of the Superior Securities over
which it has voting control and shall take, and cause all other members of
the First Reserve Group to take, all other necessary or desirable actions
within its control (whether in its capacity as a stockholder or otherwise)
in order to cause the following:
(a) The Board shall at all times consist of six Directors.
(b) The election to the Board of: (i) two designees of the First
Reserve Funds (the designees of the First Reserve Funds are
collectively referred to as the "Fund Directors"); (ii) two
designees of the First Reserve Funds who are Independent
Directors and acceptable to the Board as evidenced by a majority
vote of the Board; (iii) Superior's Chief Executive Officer; and
(iv) subject to the provisions of Section 2.1(c), such number of
Independent Directors as may be designated from time to time by a
majority vote of the Board in order to complete the Board and
fill any vacancies as contemplated by this Section 2.1(b);
provided, however, that if at any time (A) the First Reserve
Funds cease to beneficially own, in the aggregate, at least 15%
of the Voting Power, the First Reserve Funds shall cease to have
the right to designate any Independent Directors pursuant to
Section 2.1(b)(ii) and (B) the First Reserve Funds cease to
beneficially own, in the aggregate, at least 5% of the Voting
Power, unless the Board otherwise consents, all of the Fund
Directors shall immediately resign.
(c) The reelection to the Board at the first annual meeting of the
stockholders that is held after the date of this Agreement of one
incumbent Director to be designated by Superior's Chief Executive
Officer, which Director will serve in lieu of one of the
Independent Directors to be elected pursuant to Section
2.1(b)(iv) until the termination of such Director's term at the
second annual meeting of Superior's stockholders.
(d) In the event that any Director designated pursuant to Section
2.1(b) for any reason ceases to serve as a member of the Board
during his term of office, the Person or Persons who previously
designated such Director pursuant to Section 2.1(b) shall be
entitled to designate a successor Director to fill the vacancy
created thereby on the terms and subject to the conditions of
this Section 2.1. If and to the extent that the remaining
members of the Board are entitled to fill vacancies on the Board,
upon the occurrence of any vacancy, the Board will promptly take
any actions necessary to fill such vacancies in accordance with
the foregoing provision.
(e) The First Reserve Funds shall cause their designees on the Board
to take all necessary or appropriate action to assist in the
nomination for election as Directors of such other nominees as
may be selected in accordance with Section 2.1(b), and the First
Reserve Funds shall vote, and cause all Superior Securities
beneficially owned by any member of the First Reserve Group to be
voted, for the election of such other nominees as well as for the
election of all nominees of the First Reserve Group designated by
them pursuant to Section 2.1(b).
Section 2.2 SUPERIOR ACTIONS. Superior hereby agrees to take all
necessary or appropriate action to assist in the nomination for election as
Directors the person or persons designated pursuant to the provisions of
Section 2.1. Superior hereby agrees not to take any action inconsistent
with the provisions of Section 2.1. Superior shall vote all management
proxies in favor of such nominees, except for such proxies that
specifically indicate to the contrary. Superior's Board shall recommend
that its stockholders vote in favor of such nominees, and shall use
reasonable best efforts to solicit from its stockholders proxies voted in
favor of such nominees.
ARTICLE 3
Acquisition and Sale of Superior Securities
Section 3.1 SUPERIOR SECURITIES. The First Reserve Funds covenant
and agree with Superior that except for the Superior Securities acquired
pursuant to the Merger Agreement, no member of the First Reserve Group
shall, directly or indirectly, acquire any Superior Securities, if the
effect of such acquisition, agreement or other action would be to increase
the aggregate beneficial ownership of Superior Securities by the First
Reserve Group (without considering the Superior Securities acquired by the
First Reserve Group pursuant to the Merger Agreement and any Superior
Securities issued pursuant to a stock split, stock dividend or
recapitalization with respect to such Superior Securities) to 10% or more
of either the Voting Power or the number of outstanding shares of any class
or series of Superior Securities.
Section 3.2 DISTRIBUTION OF SUPERIOR SECURITIES. Each of the
First Reserve Funds covenants that it shall not, and that it shall cause
each other member of the First Reserve Group not to, directly or
indirectly, sell, transfer any beneficial interest in, or beneficial
ownership of, pledge, hypothecate or otherwise dispose of any Superior
Securities, except by conversion, exchange or exercise of such Superior
Securities pursuant to their terms in a manner not otherwise in violation
of Section 3.1 or pursuant to:
(a) a bona fide pledge of or the granting of a security interest
or any other lien or encumbrance in such Superior Securities to a lender
that is not a member of the First Reserve Group to secure a bona fide loan
for money borrowed made to one or more members of the First Reserve Group,
the foreclosure of such pledge or security interest or any other lien or
encumbrance that may be placed involuntarily upon any Superior Securities,
or the subsequent sale or other disposition of such Superior Securities by
such lender or its agent;
(b) a transfer, assignment, sale or disposition of such Superior
Securities to another member of the First Reserve Group that has signed
this Agreement;
(c) a distribution of Superior Securities to any partner of a
First Reserve Fund; provided that any distributee that is a member of the
First Reserve Group has signed this Agreement; and provided, further that
any arrangements coordinated or initiated by or on behalf of a First
Reserve Fund to assist its limited partners in the sale of Superior
Securities distributed to them must comply with the provisions of this
Section 3.2;
(d) sales in public offerings registered under the Securities
Act;
(e) sales effected in compliance with the provisions of Rule 144
under the Securities Act;
(f) other privately negotiated sales of Superior Securities;
(g) upon consummation of or otherwise in connection with a
business combination or similar transaction involving Superior that is
approved by the Board; or
(h) sales provided for in Section 3.6.
Notwithstanding anything to the contrary in this Section 3.2, in effecting
any sale, transfer of any beneficial interest in or other disposition of
Superior Securities pursuant to Sections 3.2 (c) and (f), above, the
members of the First Reserve Group selling, transferring or disposing such
Superior Securities shall, unless the Board consents otherwise, use their
reasonable best efforts to refrain from knowingly selling, transferring or
disposing of such number of Superior Securities as represent either the
right to acquire or ownership of 5% or more of the Voting Power to any one
Person or group of Persons.
Section 3.3 PROXY SOLICITATIONS. As a stockholder, the First
Reserve Group shall vote or cause to be voted all Superior Securities of
which any member of the First Reserve Group is the beneficial owner with
respect to each matter submitted to Superior's stockholders providing for,
involving, expected to facilitate or that could reasonably be expected to
result in a business combination or other change in control of Superior
that has not been approved by the Board (including without limitation the
election or removal of one or more Superior directors or one or more
nominees for director proposed by the Board), in the manner recommended by
the Board.
Section 3.4 GROUPS. Each of the First Reserve Funds covenants
that it shall not, and that no other member of the First Reserve Group
shall, join a partnership, limited partnership, syndicate or other group,
or otherwise act in concert with any other Person, for the purpose of
acquiring, holding, voting or disposing of any Superior Securities, other
than the First Reserve Group itself.
Section 3.5 TAKEOVER OFFERS. Each of the First Reserve Funds
covenants that it shall not, and that no other member of the First Reserve
Group shall, directly or indirectly advise, assist, act as a financing
source for or otherwise invest in any other Person in connection with a
transaction or group of transactions that would result in a change of
control of Superior (as such term is defined in Superior's 1999 Stock
Incentive Plan), publicly disclose any intention, plan or arrangement
inconsistent with the foregoing, or initiate, induce or attempt to induce
any other Person to initiate any proposal that can reasonably be expected
to result in a change of control of Superior. Subject to compliance with
this Section 3.5, on and after the eleventh business day after commencement
of a tender or exchange offer made by a Person who is not a member of the
First Reserve Group for outstanding Superior Securities (a "Qualifying
Offer"), any member of the First Reserve Group may tender or exchange any
Superior Securities beneficially owned by it pursuant to such Qualifying
Offer, provided the Qualifying Offer shall have been approved, or not
opposed, by the Board. If a Qualifying Offer is opposed by the Board,
then, from and after the eleventh business day after commencement of such
Qualifying Offer, any member of the First Reserve Group may tender or
exchange shares of Superior Securities pursuant to such Qualifying Offer
only if (i) no tender or exchange of, or indication of an intention to
tender or exchange, Superior Securities is made by any member of the First
Reserve Group earlier than 24 hours prior to the expiration of any time
after which Superior Securities tendered may be treated less favorably than
other Superior Securities tendered or exchanged prior thereto, and (ii) a
binding agreement is reached with the bidder or offeror prior to any tender
or exchange specifying that only such number of Superior Securities
submitted for tender or exchange shall be accepted by the bidder or offeror
as are equal to (A) the percentage of such Superior Securities not
beneficially owned by the First Reserve Group that have been tendered or
exchanged, multiplied by (B) the total number of such Superior Securities
beneficially owned by the member of the First Reserve Group.
Notwithstanding the foregoing, the provisions of this Section 3.5 shall
terminate upon the earlier of the fifth anniversary of this Agreement or
such time as the First Reserve Group beneficially owns less than 15% of the
Voting Power.
Section 3.6 LIMITATION ON COVENANTS. Notwithstanding any
provision to the contrary in this Agreement, during any period that any
person designated by the First Reserve Funds to serve as a Director in
accordance with the provisions of Section 2.1(b) is not serving as a
Director as a result of the failure of Superior or the Board to comply with
the terms of this Agreement, or if any such designee is not elected by the
stockholders (and Section 2.1(b) is complied with), then the covenants set
forth in this Article 3 shall cease to be effective during such period;
provided, however, that if a person designated by the First Reserve Funds
ceases to be a Director by reason of death or resignation, then the
provisions of this Section 3.6 shall not apply if the Board appoints First
Reserve Funds' designated replacement to fill an such vacancy within 15
business days after Superior receives notice of such designation. The
provisions of this Section 3.6 shall be in addition to any other remedies
that the First Reserve Funds may have in connection with a breach of the
provisions of Article 2 hereof.
ARTICLE 4
Legend And Stop Transfer Order
Section 4.1 LEGEND AND STOP TRANSFER ORDER. To assist in
effectuating the provisions of this Agreement, the First Reserve Funds
hereby consent: (a) to the placement, on certificates issued with respect
to the shares of Common Stock issued to them pursuant to the Merger
Agreement or otherwise promptly after any Superior Securities become
subject to the provisions of this Agreement, of the following legend on all
certificates representing ownership of Superior Securities owned of record
by any member of the First Reserve Group or by any Person where a member
of the First Reserve Group is the beneficial owner thereof, until such
shares are sold, transferred or disposed in a manner permitted hereby to a
Person who is not then a member of the First Reserve Group:
The shares represented by this certificate are subject to the
provisions of an Agreement among, inter alia, Superior Energy
Services, Inc. and First Reserve Fund VII, Limited Partnership,
and First Reserve Fund VIII, Limited Partnership, and may not be
voted, sold, transferred, pledged, hypothecated or otherwise
disposed of except in accordance therewith. Copies of the
Agreement are on file at the office of the Corporate Secretary of
Superior Energy Services, Inc.
;and (b) to the entry of stop transfer orders with the transfer agent or
agents of Superior Securities against the transfer of Superior Securities
except in compliance with the requirements of this Agreement, or if
Superior acts as its own transfer agent with respect to any Superior
Securities, to the refusal by Superior to transfer any such securities
except in compliance with the requirements of this Agreement. Superior
agrees to remove promptly all legends and stop transfer orders with respect
to the transfer of Superior Securities being made to a Person who is not
then a member of the First Reserve Group in compliance with the provisions
of this Agreement.
ARTICLE 5
Miscellaneous
Section 5.1 TERMINATION. Except as provided in this Section 5.1,
the respective covenants and agreements of the First Reserve Funds and
Superior contained in this Agreement will continue in full force and effect
until the earliest to occur of either of the following: (i) the
Termination Date, or (ii) the sale or other disposition in accordance with
this Agreement by the First Reserve Group of such number of Superior
Securities such that, solely as a result of such sale or other disposition,
the First Reserve Group beneficially owns in the aggregate Superior
Securities representing less than 5% of the Voting Power. Upon any
termination of this Agreement pursuant to this Section 5.1 all of the
obligations of Superior and the First Reserve Funds hereunder shall
terminate.
Section 5.2 NOTICES. Any notice or other communication required
or permitted hereunder shall be in writing or by telex, telephone or
facsimile transmission with subsequent written confirmation, and may be
personally served or sent by United States mail and shall be deemed to have
been given upon receipt by the party notified. For purposes hereof, the
addresses of the parties hereto (until notice of a change thereof is
delivered as provided in this Section 5.2) shall be as set forth opposite
each party's name on the signature page hereof.
Section 5.3 WAIVERS AND AMENDMENTS; NONCONTRACTUAL REMEDIES;
PRESERVATION OF REMEDIES. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by
a written instrument signed by Superior and the holders of a majority of
the Superior Securities held by the First Reserve Funds or, in the case of
a waiver, by the party waiving compliance. No delay on the part of any
party in exercising a right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any waiver on the part of any party of any such
right, power or privilege, nor any single or partial exercise of any such
right, power or privilege, preclude a further exercise thereof or the
exercise of any other such right, power or privilege. The rights and
remedies herein provided are cumulative and are not exclusive of any rights
or remedies that any party may otherwise have at law or in equity. The
rights and remedies of any party based upon, arising out of or otherwise in
respect of any breach of any provision of this Agreement shall in no way be
limited by the fact that the act, omission, occurrence or other state of
facts upon which any claim of any such breach is based may also be the
subject matter of any other provision of this Agreement (or of any other
agreement between the parties) as to which there is no breach.
Section 5.4 SEVERABILITY. If any provision of this Agreement or
the applicability of any such provision to a person or circumstances shall
be determined by any court of competent jurisdiction to be invalid or
unenforceable to any extent, the remainder of this Agreement or the
application of such provision to persons or circumstances other than those
for which it is so determined to be invalid and unenforceable, shall not be
affected thereby, and each provision of this Agreement shall be valid and
shall be enforced to the fullest extent permitted by law. To the extent
permitted by applicable law each party hereto hereby waives any provision
or provisions of law which would otherwise render any provision of this
Agreement invalid, illegal or unenforceable in any respect.
Section 5.5 COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts and when so executed shall
constitute one Agreement, notwithstanding that all parties are not
signatories to the same counterpart.
Section 5.6 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware applicable
to agreements made and to be performed entirely within such state, without
giving effect to the conflict of laws principles of such state.
Section 5.7 SUCCESSORS AND ASSIGNS. Subject to Section 4, this
Agreement shall be binding upon and inure to the benefit of and be
enforceable by the successors and assigns of the parties hereto.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
Address: SUPERIOR ENERGY SERVICES, INC.
1105 Peters Road
Harvey, Louisiana 70058 By: ________________________________________
Attn: Terence E. Hall Terence E. Hall
Fax: 504-362-1818 President
Address: FIRST RESERVE FUND VII, LIMITED
600 Travis, Suite 6000 PARTNERSHIP
Houston, Texas 77002
Attn: Ben A. Guill By: First Reserve GP VII, L.P., its
Fax: 713-224-0771 General Partner
Attn: Ben A. Guill
By: First Reserve Corporation, its
General Partner
By: ___________________________________
Ben A. Guill
President
FIRST RESERVE FUND VIII, LIMITED
PARTNERSHIP
By: First Reserve GP VIII, L.P., its
General Partner
By: First Reserve Corporation, its
General Partner
By: ___________________________________
Ben A. Guill
President
<PAGE>
Exhibit "F"
AGREEMENT AND RELEASE
This Agreement and Release (the "Release"), dated ______, 1999, is by
the undersigned Stockholder of Cardinal Holding Corp., a Delaware
corporation ("Cardinal").
RECITALS
WHEREAS, Cardinal, Superior Energy Services, Inc. a Delaware
corporation ("Superior") and Superior Cardinal Acquisition Company, Inc., a
Delaware corporation, among others, have entered into an Agreement and Plan
of Merger dated as of April ____, 1999 (the "Merger Agreement"); and
WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Merger Agreement, that the undersigned Stockholder
provide the agreements, representations, waivers and releases provided
herein;
NOW THEREFORE, in consideration of the benefits to be derived by
Cardinal and its stockholders pursuant to the transactions contemplated by
the Merger Agreement, the undersigned Stockholder hereby agrees with
Superior and Cardinal and the other stockholders of Cardinal as follows:
1. DEFINITIONS. All capitalized terms used herein but not defined
herein shall have the meaning ascribed to such terms in the Merger
Agreement.
2. INVESTMENT REPRESENTATIONS.
(1) The Stockholder will acquire SESI Common Stock in the Merger
for investment for his or its own account and not with a view to, or for
sale or other disposition in connection with, any distribution of all or
any part thereof except (i) in an offering covered by a registration
statement filed with the Securities and Exchange Commission under the
Securities Act covering SESI Common Stock acquired by the Stockholder or
(ii) pursuant to an applicable exemption under the Securities Act. In
receiving SESI Common Stock, such Stockholder is not offering or selling,
and will not offer and sell, for SESI in connection with any distribution
of such SESI Common Stock, except in compliance with Applicable Law, and
such Stockholder does not have any contract, undertaking, agreement or
arrangement with any person for the distribution of SESI Common Stock and
will not participate in any undertaking or in any underwriting of such an
undertaking except in compliance with Applicable Law.
(2) The Stockholder is an "accredited investor" as that term is
defined in Rule 501 of Regulation D under the Securities Act.
(3) The Stockholder has received from SESI and has reviewed with
his or its representatives a copy of each of the SESI Commission Filings
that the Stockholder has requested. The Stockholder has also been afforded
access to information about SESI and SESI's financial position, results of
operations, business, property and management sufficient to enable him or
it to evaluate an investment in SESI Common Stock, and has had the
opportunity to ask questions of and has received satisfactory answers from
SESI concerning the foregoing matters.
(4) The Stockholder understands that shares of SESI Common Stock
acquired pursuant hereto have not been registered under the Securities Act
on the basis that the sale provided for in the Merger Agreement and the
issuance of SESI's Common Stock upon consummation of the Merger is exempt
from registration under the Securities Act, and that SESI's reliance on
such exemption is based, in part, upon such Stockholder's representations
set forth herein.
3. CONVERSION OF CLASS C PREFERRED STOCK. The Stockholder
acknowledges and agrees that Section 3.1 of the Cardinal Disclosure
Schedules sets forth all shares of Class C Cardinal Preferred Stock
currently owned by the Stockholder or which may be issuable to the
Stockholder prior to the Closing Date. The execution of this Release shall
constitute the "Conversion Notice" contemplated by the Certificate of
Incorporation of Cardinal and the election by the Stockholder to convert
all of the shares of Class C Cardinal Preferred Stock held by the
Stockholder (including any such shares of Class C Cardinal Preferred Stock
which may be issuable to the Stockholder prior to the Closing Date) into
Class A Common Stock, on the basis of one share of Class A Common Stock for
each full share of Class C Cardinal Preferred Stock to be converted (and to
receive cash in lieu of any fractional shares of Class A Common Stock that
would otherwise be issuable pursuant to such conversion). The Stockholder
further acknowledges and agrees that Exhibit 1attached hereto accurately
sets forth the number of shares of Class A Common Stock which are to be
issued to the Stockholder as a result of such conversion. Attached hereto
are the stock certificates evidencing the Class C Cardinal Preferred Stock
to be converted by the Stockholder, properly endorsed for transfer or
accompanied by duly executed stock powers, in either case executed in
blank, or in favor of Cardinal or its nominee. Notwithstanding anything to
the contrary, the foregoing conversion of the Stockholder's Class C
Cardinal Preferred Stock shall be null and void and have no force and
effect if the Merger is not consummated prior to October 15, 1999. [MAY BE
OMITTED IF HOLDERS OF CLASS C CARDINAL PREFERRED VOTE IN FAVOR OF THE
MERGER AND CONVERT DIRECTLY TO MERGER SHARES.]
4. RELEASE OF CARDINAL. Such Stockholder hereby releases and
discharges Cardinal, its Subsidiaries, and its officers and directors, from
any obligations (including indemnification obligations) arising under
charter documents, any contract (other than the Merger Agreement), the
Delaware General Corporation Law, or the Louisiana Business Corporation
Law, in each case, to the extent relating to actions or omissions of
Cardinal, its Subsidiaries, or any acts or omissions of the directors,
stockholders or officers (former or present) including those committed
while serving in their capacity as stockholders, directors, officers,
employees or similar capacities of Cardinal or its Subsidiaries prior to
the Closing. Each Stockholder further hereby waives any preemptive rights
that he or it may have, or ever had, with respect to any of the capital
stock of Cardinal or any of its Subsidiaries, or any other claim the
Stockholder may have relating to the dilution of its interest in Cardinal
or any other claim to receive any additional securities of Cardinal, and
waives any right that he or it may have under the constituent documents of
Cardinal, or its Subsidiaries, or otherwise to acquire any shares of
capital stock of Cardinal being exchanged pursuant to, or as contemplated
by, the Merger Agreement or any transfer that occurred prior to the date
hereof, including the $45,000,000 of Class A Cardinal Common Stock to be
issued as part of the Equity Contribution as contemplated by the Merger
Agreement, the offering price for which issuance shall be determined on the
basis of the price per share of the Superior Common Stock on April 20, 1999
($3.875 per share), and the Stockholder consents and approves of such
issuance in all respects, subject to the right of the Stockholder to
acquire a portion of the securities to be offered in connection with the
Equity Contribution to the extent that such Stockholder has heretofore
exercised its preemptive rights provided for in the Cardinal Stockholders
Agreement in connection with such issuance.
5. ACCEPTANCE OF MERGER SHARES. The Stockholder hereby acknowledges
that the portion of the Merger Shares received by such Stockholder, and
cash in lieu of any fractional share to which such Stockholder would be
entitled pursuant to the Merger, represents full payment by SESI for the
Class A Group Shares and/or Cardinal Class B Common Stock owned by such
Stockholder (including any such portion delivered into escrow pursuant to
the instructions of the Stockholder). The Stockholder waives all rights of
appraisal with respect to Class A Group Shares and/or Cardinal Class B
Common Stock under charter documents, any contract, the Delaware General
Corporation Law, or the Louisiana Buisness Corporation Law.
6. TERMINATION OF REGISTRATION RIGHTS AND STOCKHOLDER AGREEMENT. By
execution of this Release, the Stockholder hereby agrees that (a) all
registration rights, if any, that such Stockholder has with respect to any
of the capital stock of Cardinal are hereby terminated, and (b) the
Stockholders Agreement by and among Cardinal and its stockholders dated
February 26, 1998, as amended, is hereby terminated and of no other force
or effect, except as expressly provided to the contrary in Section 6.1(c)
of such Stockholders Agreement. Notwithstanding anything to the contrary,
the foregoing termination of the Stockholder's registration rights and the
Cardinal Stockholders Agreement shall be null and void and have no force
and effect if the Merger is not consummated prior to October 15, 1999.
7. REPRESENTATIONS AND WARRANTIES. The Stockholder hereby
represents and warrants to and agrees with SESI as follows:
(1) OWNERSHIP. The Stockholder is the record and beneficial
owner of the number of shares of Cardinal Common Stock shown opposite his
or its name in Exhibit 1. The Stockholder has good and valid title to all
such shares and the absolute right to deliver such shares in accordance
with the terms hereof, free and clear of all Liens, except for restrictions
on transfer under federal and state securities laws, and any Liens that may
be created by SESI.
(2) AUTHORITY. The Stockholder has full legal right, power and
authority to execute, deliver and perform this Agreement and to consummate
the transactions contemplated hereby and by the Merger Agreement. This
Agreement and each other agreement, instrument or document executed or to
be executed by such Stockholder in connection with the transactions
contemplated by the Merger Agreement, has been duly executed and delivered
by such Stockholder and constitutes, a valid and legally binding obligation
of such Stockholder, enforceable against such Stockholder in accordance
with their respective terms, except that such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights generally and equitable principles
which may limit the availability of certain equitable remedies in certain
instances.
(3) NONCONTRAVENTION. The execution, delivery and performance
by the Stockholder of this Agreement and the consummation by the
Stockholder of the transactions contemplated hereby and by the Merger
Agreement do not (i) result in the creation or imposition of any Lien upon
the Cardinal Shares held by such Stockholder or (ii) violate any Applicable
Law binding upon such Stockholder.
The undersigned Stockholder has executed this Agreement as of the date
first set forth above.
___________________________________
<PAGE>
Exhibit "G"
SUPERIOR ENERGY SERVICES, INC. 1999 STOCK INCENTIVE PLAN
(Intentionally Omitted)
<PAGE>
Exhibit "H"
FORM OF GARDERE WYNNE SEWELL & RIGGS, L.L.P. OPINION
(Intentionally Omitted)
<PAGE>
Exhibit "I"
FORM OF JONES, WALKER, WAECHTER, POITEVENT,
CARRERE & DENEGRE, L.L.P. OPINION
(Intentionally Omitted)
<PAGE>
APPENDIX B
April 16, 1999
Board of Directors
Superior Energy Services, Inc.
1105 Peters Road
Harvey, LA 70058
Gentlemen:
You have asked our opinion as investment bankers as to the fairness
from a financial point of view of the terms and consideration to be given
to shareholders of Superior Energy Services, Inc., a Louisiana corporation
(the "Company") by the proposed merger with Cardinal Services, Inc.
("Cardinal").
Johnson Rice & Company L.L.C. ("Johnson Rice"), as a part of its
investment banking business, is regularly engaged in the valuation of
businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements and valuations for estate,
corporate and other purposes. Neither Johnson Rice nor its principals have
a material ownership interest in the Company or Cardinal.
In connection with the opinion described below, we have reviewed
certain business and financial information relating to the Company and
Cardinal and performed the following functions:
1. Reviewed the historical financial statements of Cardinal over the
last three years;
2. Discussed with certain members of the senior management of the
Company concerning certain business operations, the financial condition and
future prospects of Cardinal;
3. Discussed the terms of the Merger including the methodology used
in determining the Merger value with the senior management of the Company;
4. Analyzed the pro forma effect of the proposed Merger on both
Cardinal and the Company utilizing information provided by Cardinal
management and the Company; and,
5. Considered and analyzed the public information with respect to the
terms of certain other transactions in the Company's industry.
In addition, we have considered such other information and have
conducted such other analyses as we deemed appropriate under the
circumstances. In connection with our review, we have relied upon and
assumed the accuracy and completeness of the financial and other
information furnished to us by the Company and Cardinal and/or their
representatives. We have not independently verified the accuracy or
completeness of such information and have not made any independent
evaluation or appraisal of the assets or liabilities of Cardinal.
Our opinion is limited in that it relates solely to the fairness from
a financial point of view of the terms and consideration to be given to the
shareholders of the Company in the Merger. We express no opinion as to the
market value of Cardinal or any security constituting a part thereof, prior
to, on the date of, or after consummation of, the Merger. Our opinion
herein is based upon conditions and circumstances existing on the date
hereof, including current public and private equity markets, and is subject
to considerable uncertainty concerning such conditions and circumstances in
the future.
Subject to the foregoing and based upon our experience as investment
bankers and other factors we deemed relevant, we are of the opinion that,
as of the date hereof, the terms and consideration to be received by the
Company's shareholders in the Merger are fair from a financial point of
view to the shareholders of the Company.
Sincerely,
/S/ JOHNSON RICE & COMPANY L.C.C.
Johnson Rice & Company L.L.C.
<PAGE>
APPENDIX C
AUTHORIZED SHARE AMENDMENT
The Board of Directors of the Superior Energy Services, Inc. (the
"Corporation"), at a meeting on April 13, 1999, did duly adopt resolutions
setting forth the proposed amendment to the first sentence of paragraph
FOURTH of the Certificate of Incorporation of the Corporation, resolving
that said amendment become effective upon consummation of the Merger,
declaring said amendment to be advisable and directing that the proposed
amendment be submitted to a vote of the Corporation's stockholders.
FOURTH: The aggregate number of shares which the Corporation
shall have authority to issue is One Hundred Thirty Million
(130,000,000) shares, of which One Hundred Twenty-Five Million
(125,000,000) shares shall be designated Common Stock, par value
$.001 per share, and Five Million (5,000,000) shares shall be
designated Preferred Stock, par value $.01 per share.
<PAGE>
APPENDIX D
CITIZENSHIP AMENDMENT
The Board of Directors of the Superior Energy Services, Inc. (the
"Corporation"), at a meeting on April 13, 1999, did duly adopt resolutions
setting forth the proposed amendment adding a new paragraph TWELFTH to the
Certificate of Incorporation of the Corporation, resolving that the
amendment become effective upon consummation of the Merger, declaring said
amendment to be advisable and directing that the proposed amendment be
submitted to a vote of the Corporation's stockholders.
TWELFTH: A. PURPOSE. The provisions of this Article TWELFTH
are intended to assure that the Corporation remains in
continuous compliance with the citizenship requirements of the
Merchant Marine Act, 1920, as amended, the Merchant Marine Act,
1936, as amended, the Shipping Act, 1916, as amended, and the
regulations promulgated thereunder, as such laws and regulations
are amended from time to time (collectively, the "Maritime
Laws"). It is the policy of the Corporation that Non-Citizens
should not Beneficially Own, individually or in the aggregate,
any shares of the Corporation's Capital Stock in excess of the
Permitted Amount. If the Board of Directors of the Corporation
should conclude in its sole discretion at any time that Non-
Citizens have become, or are about to become, the Beneficial
Owners, individually or in the aggregate, of shares of Capital
Stock in excess of the Permitted Amount, the Board of Directors
may by resolution duly adopted declare that any or all of the
provisions of subparagraphs C, D and E of this Article TWELFTH
shall apply. Certificates representing shares of the Capital
Stock of the Corporation shall bear a legend concerning the
restrictions on ownership by Non-Citizens contained in this
Article TWELFTH.
B. DEFINITIONS. For purposes of this Article TWELFTH, the
following terms shall have the meanings specified below:
1. A Person shall be deemed to be the "Beneficial
Owner" of, or to "Beneficially Own," shares of Capital Stock to
the extent such Person would be deemed to be the beneficial owner
thereof pursuant to Rule 13d-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as
such rule may be amended from time to time.
2. "Capital Stock" shall mean any class or series of
capital stock of the Corporation other than any class or series
of capital stock of the Corporation that is permitted by the
Maritime Administration of the United States Department of
Transportation ("MARAD") to be excluded from the determination of
whether the Corporation is in compliance with the citizenship
requirements of the Maritime Laws.
3. "Citizen" shall mean:
(a) any individual who is a citizen of the United
States, by birth, naturalization or as otherwise authorized by
law;
(b) any corporation (i) that is organized under
the laws of the United States or of a state, territory, district
or possession thereof, (ii) not less than 75% of the capital
stock of which is Beneficially Owned by Persons who are Citizens,
(iii) whose president or chief executive officer, chairman of the
board of directors and all officers authorized to act in the
absence or disability of such Persons are Citizens and (iv) of
which more than 50% of the number of its directors necessary to
constitute a quorum are Citizens;
(c) any partnership (i) that is organized under
the laws of the United States or of a state, territory, district
or possession thereof, (ii ) all general partners of which are
Citizens and (iii) not less than a 75% interest in which is
Beneficially Owned by Persons who are Citizens;
(d) any association or limited liability company
(i) that is organized under the laws of the United States or of a
state, territory, district or possession thereof, (ii) whose
president or chief executive officer (or the Person serving in an
equivalent position), chairman of the board of directors (or
equivalent position) and all Persons authorized to act in the
absence or disability of such Persons are Citizens, (iii) not
less than a 75% interest in which or 75% of the voting power of
which is Beneficially Owned by Citizens and (iv) of which more
than 50% of the number of its directors (or the Persons serving
in equivalent positions) necessary to constitute a quorum are
Citizens;
(e) any joint venture (if not an association,
corporation or partnership) (i) that is organized under the laws
of the United States or of a state, territory, district or
possession thereof and (ii) all co-venturers of which are
Citizens; and
(f) any trust (i) that is domiciled in and
existing under the laws of the United States or of a state,
territory, district or possession thereof, (ii) the trustee of
which is a Citizen and (iii) of which not less than a 75% of the
beneficial interests in both income and principal are held for
the benefit of Citizens.
4. "Non-Citizen" shall mean any Person other than a
Citizen.
5. "Permitted Amount" shall mean shares of Capital
Stock that, individually or in the aggregate (a) have Voting
Power not in excess of 23% of Total Voting Power or (b)
constitute not more than 23% of the total number of the issued
and outstanding shares of Capital Stock; provided that, if the
Maritime Laws are amended to change the amount of Capital Stock
that a Non-Citizen may own or have the power to vote, then the
Permitted Amount shall be changed to a percentage that is two
percentage points less than the percentage that would cause the
Corporation to be no longer qualified under the Maritime Laws,
after giving effect to such amendment, as a Citizen qualified to
(i) engage in coastwise trade, (ii) participate in MARAD's Title
XI or comparable financing programs, or (iii) participate in
operating differential subsidies or similar programs.
6. "Person" shall mean an individual, partnership,
corporation, limited liability company, trust, joint venture or
other entity.
7. "Total Voting Power" shall mean the total number of
votes that may be cast by all outstanding shares of Capital Stock
having Voting Power.
8. "Voting Power" shall mean the power to vote with
respect to the election of the Corporation's directors.
C. RESTRICTIONS ON TRANSFER.
1. Any transfer, or attempted or purported transfer, of
any shares of the Capital Stock of the Corporation or any
interest therein or right thereof, that would result in the
Beneficial Ownership by Non-Citizens, individually or in the
aggregate, of shares of Capital Stock in excess of the Permitted
Amount will, until such excess no longer exists, be void and
ineffective as against the Corporation and the Corporation will
not recognize, with respect to those shares that caused the
Permitted Amount to be exceeded, the purported transferee as a
stockholder of the Corporation for any purpose other than the
transfer by the purported transferee of such excess to a person
who is not a Non-Citizen or to the extent necessary to effect any
other remedy available to the Corporation under this Article
TWELFTH.
2. The Board of Directors is hereby authorized to
effect any and all measures necessary or desirable (consistent
with applicable law and the provisions of this Certificate of
Incorporation) to fulfill the purpose and implement the
provisions of this Article TWELFTH, including without limitation,
obtaining, as a condition to recording the transfer of shares on
the stock records of the Corporation, affidavits or other proof
as to the citizenship of existing or prospective stockholders on
whose behalf shares of the Capital Stock of the Corporation or
any interest therein or right thereof are or are to be held, or
establishing and maintaining a dual stock certificate system
under which different forms of stock certificates representing
outstanding shares of the Capital Stock of the Corporation are
issued to Citizens or Non-Citizens.
D. SUSPENSION OF VOTING, DIVIDEND AND DISTRIBUTION RIGHTS
WITH RESPECT TO EXCESS SHARES. If any shares of Capital Stock in
excess of the Permitted Amount are Beneficially Owned by Non-
Citizens, individually or in the aggregate, any such excess
shares determined in accordance with this subparagraph D (the
"Excess Shares"), shall, until such excess no longer exists, not
be entitled to (1) receive any dividends or distributions of
assets declared payable or paid to the holders of the Capital
Stock of the Corporation during such period or (2) vote with
respect to any matter submitted to a vote of the stockholders of
the Corporation, and such Excess Shares shall not be deemed to be
outstanding for purposes of determining the vote required on any
matter properly submitted to a vote of the stockholders of the
Corporation. At such time as the Permitted Amount is no longer
exceeded, full voting rights shall be restored to any shares
previously deemed to be Excess Shares, and any dividends or
distributions with respect thereto that have been withheld shall
be due and paid to the holders of such shares. If the number of
shares of Capital Stock Beneficially Owned by Non-Citizens is in
excess of the Permitted Amount, the shares deemed to be Excess
Shares for purposes of this Article TWELFTH will be those shares
Beneficially Owned by Non-Citizens that the Board of Directors
determines became so Beneficially Owned most recently, and such
determination shall be conclusive.
E. REDEMPTION OF EXCESS SHARES. The Corporation shall have
the power, but not the obligation, to redeem Excess Shares
subject to the following terms and conditions:
1. The per share redemption price (the "Redemption
Price") to be paid for the Excess Shares to be redeemed shall be
the sum of (a) the average closing sales price of the Capital
Stock and (b) any dividend or distribution declared with respect
to such shares prior to the date such shares are called for
redemption hereunder but which has been withheld by the
Corporation pursuant to subparagraph D. As used herein, the term
"average closing sales price" shall mean the average of the
closing sales prices of the Capital Stock as quoted on the Nasdaq
National Market during the 10 trading days immediately prior to
the date the notice of redemption is given, or if not so quoted,
on the New York Stock Exchange, or on any other national
securities exchange selected by the Corporation on which such
Capital Stock is listed, or if not so quoted or listed on any
national securities exchange, the mean between the representative
bid and ask prices as quoted by Nasdaq or another generally
recognized reporting system, on each of such 10 trading days, and
if not so quoted, as may be determined in good faith by the Board
of Directors.
2. The Redemption Price may be paid in cash or by
delivery of a promissory note of the Corporation, at the election
of the Corporation. Any such promissory note shall have a
maturity of not more than 10 years from the date of issuance and
shall bear interest at the rate equal to the then current coupon
rate of a 10-year Treasury note as such rate is published in THE
WALL STREET JOURNAL or comparable publication.
3. A notice of redemption shall be given by first class
mail, postage prepaid, mailed not less than 10 days prior to the
redemption date to each holder of record of the shares to be
redeemed, at such holder's address as the same appears on the
stock records of the Corporation. Each such notice shall state
(a) the redemption date, (b) the number of shares of Capital
Stock to be redeemed from such holder, (c) the Redemption Price,
and the manner of payment thereof, (d) the place where
certificates for such shares are to be surrendered for payment of
the Redemption Price, and (e) that dividends on the shares to be
redeemed will cease to accrue on such redemption date.
4. From and after the redemption date, dividends on the
shares of Capital Stock called for redemption shall cease to
accrue and such shares shall no longer be deemed to be
outstanding and all rights of the holders thereof as stockholders
of the Corporation (except the right to receive from the
Corporation the Redemption Price) shall cease. Upon surrender of
the certificates for any shares so redeemed in accordance with
the requirements of the notice of redemption (properly endorsed
or assigned for transfer if the notice shall so state), such
shares shall be redeemed by the Corporation at the Redemption
Price. In case fewer than all shares represented by any such
certificate are redeemed, a new certificate shall be issued
representing the shares not redeemed without cost to the holder
thereof.
5. Such other terms and conditions as the Board of
Directors may reasonably determine.
APPENDIX E
SUPERIOR ENERGY SERVICES, INC. 1999 STOCK INCENTIVE PLAN
1. PURPOSE. The purpose of the 1999 Stock Incentive Plan (the
"Plan") of Superior Energy Services, Inc. ("Superior") is to increase
stockholder value and to advance the interests of Superior and its
subsidiaries (collectively, the "Company") by furnishing a variety of
equity incentives (the "Incentives") designed to attract, retain and
motivate officers, directors, key employees, consultants and advisers and
to strengthen the mutuality of interests between such persons and Superior
stockholders. Incentives may consist of opportunities to purchase or
receive shares of common stock, $.001 par value per share, of Superior (the
"Common Stock"), on terms determined under the Plan.
2. ADMINISTRATION.
2.1. COMPOSITION. The Plan shall be administered by the
compensation committee of the Board of Directors of Superior, or by a
subcommittee of the compensation committee. The committee or
subcommittee that administers the Plan shall hereinafter be referred
to as the "Committee". The Committee shall consist of not fewer than
two members of the Board of Directors, each of whom shall (a) qualify
as a "disinterested person" under Rule 16b-3 under the Securities
Exchange Act of 1934 (the "1934 Act"), as currently in effect or any
successor rule, and (b) qualify as an "outside director" under Section
162(m) of the Internal Revenue Code (the "Code"), as currently in
effect or any successor provision.
2.2. AUTHORITY. The Committee shall have plenary authority to
award Incentives under the Plan, to interpret the Plan, to establish
any rules or regulations relating to the Plan that it determines to be
appropriate, to enter into agreements with participants as to the
terms of the Incentives (the "Incentive Agreements") and to make any
other determination that it believes necessary or advisable for the
proper administration of the Plan. Its decisions in matters relating
to the Plan shall be final and conclusive on the Company and
participants. The Committee may delegate its authority hereunder to
the extent provided in Section 3 hereof.
3. ELIGIBLE PARTICIPANTS.
3.1. OFFICERS, KEY EMPLOYEES, CONSULTANTS AND ADVISERS. Officers
(including officers who also serve as directors of the Company), key
employees, consultants and advisers to the Company shall become
eligible to receive Incentives under the Plan when designated by the
Committee. Participants may be designated individually or by groups
or categories, as the Committee deems appropriate. With respect to
participants not subject to Section 16 of the 1934 Act or Section
162(m) of the Code, the Committee may delegate to appropriate
personnel of the Company its authority to designate participants, to
determine the size and type of Incentives to be received by those
participants and to determine or modify performance objectives for
those participants.
3.2. OUTSIDE DIRECTORS. Members of the Board of Directors of
Superior who are not also full-time employees of the Company ("Outside
Directors") may receive awards under the Plan only as specifically
provided in Section 9 hereof.
4. SHARES SUBJECT TO THE PLAN.
4.1. NUMBER OF SHARES.
(A) Subject to adjustment as provided in Section 10.6, a
total of ________ [an amount equal to 10% of the outstanding
common stock on a fully diluted basis after giving effect to the
Merger] shares of Common Stock are authorized to be issued under
the Plan. Awards that by their terms may be paid only in cash
shall not be counted against such share limit.
(B) Subject to adjustment as provided in Section 10.6,
Incentives with respect to no more than 1,000,000 shares of
Common Stock may be granted through the Plan to a single
participant in one calendar year.
(C) In the event that a stock option or other award granted
hereunder expires or is terminated or cancelled prior to exercise
or issuance of shares, any shares of Common Stock that were
issuable thereunder may again be issued under the Plan.
(D) In the event that shares of Common Stock are issued as
Incentives under the Plan and thereafter are forfeited or
reacquired by the Company pursuant to rights reserved upon
issuance thereof, such forfeited and reacquired shares may again
be issued under the Plan.
(E) The number of shares of Common Stock that may be issued
pursuant to incentive stock options under Section 422 of the Code
may not exceed 250,000 shares.
(F) Subject to the other provisions of this Section 4.1, the
maximum number of shares of Common Stock with respect to which
awards may be issued in the form of restricted stock and Other
Stock-Based Awards (as defined herein) payable in shares of
Common Stock shall be 250,000 shares.
(G) If the exercise price of any option is satisfied by
tendering shares of Common Stock to the Company, only the number
of shares issued net of the shares tendered shall be deemed
issued for purposes of determining the maximum number of shares
available for issuance under Section 4.1.A. However, all of the
shares issued upon exercise shall be deemed issued for purposes
of determining the maximum number of shares that may be issued
pursuant to incentive stock options under Section 4.1.E.
(H) Additional rules for determining the number of shares
granted under the Plan may be made by the Committee, as it deems
necessary or appropriate.
4.2. TYPE OF COMMON STOCK. Common Stock issued under the Plan
may be authorized and unissued shares or issued shares held as
treasury shares, including shares acquired in the open market or
otherwise obtained by the Company.
5. TYPES OF INCENTIVES. Incentives may be granted under the Plan to
eligible participants in any of the following forms, either individually or
in combination, (a) incentive stock options and non-qualified stock
options; (b) restricted stock; and (c) other stock-based awards.
6. STOCK OPTIONS. A stock option is a right to purchase shares of
Common Stock from Superior. Stock options granted under this Plan may be
incentive stock options under Section 422 of the Code, as amended (the
"Code") or non-qualified stock options. Any option that is designated as a
non-qualified stock option shall not be treated as an incentive stock
option. Each stock option granted by the Committee under this Plan shall
be subject to the following terms and conditions:
6.1. PRICE. The exercise price per share shall be determined by
the Committee, subject to adjustment under Section 10.6; provided that
in no event shall the exercise price be less than the Fair Market
Value of a share of Common Stock on the date of grant.
6.2. NUMBER. The number of shares of Common Stock subject to the
option shall be determined by the Committee, subject to Section 4.1
and subject to adjustment as provided in Section 10.6.
6.3. DURATION AND TIME FOR EXERCISE. The term of each stock
option shall be determined by the Committee. Subject to the automatic
acceleration of exercisability under Section 10.12, each stock option
shall become exercisable at such time or times during its term as
shall be determined by the Committee. Notwithstanding the foregoing,
the Committee may accelerate the exercisability of any stock option at
any time.
6.4. REPURCHASE. Upon approval of the Committee, the Company may
repurchase a previously granted stock option from a participant by
mutual agreement before such option has been exercised by payment to
the participant of the amount per share by which: (i) the Fair Market
Value (as defined in Section 10.13) of the Common Stock subject to the
option on the business day immediately preceding the date of purchase
exceeds (ii) the exercise price.
6.5. MANNER OF EXERCISE. A stock option may be exercised, in
whole or in part, by giving written notice to the Company, specifying
the number of shares of Common Stock to be purchased. The exercise
notice shall be accompanied by the full purchase price for such
shares. The option price shall be payable in United States dollars
and may be paid by (a) cash; (b) uncertified or certified check; (c)
unless otherwise determined by the Committee, by delivery of shares of
Common Stock held by the optionee for at least six months, which
shares shall be valued for this purpose at the Fair Market Value on
the business day immediately preceding the date such option is
exercised; (d) delivering a properly executed exercise notice together
with irrevocable instructions to a broker approved in advance by
Superior (with a copy to Superior) to promptly deliver to Superior the
amount of sale or loan proceeds to pay the exercise price; or (e) in
such other manner as may be authorized from time to time by the
Committee. In the case of delivery of an uncertified check upon
exercise of a stock option, no shares shall be issued until the check
has been paid in full. Prior to the issuance of shares of Common
Stock upon the exercise of a stock option, a participant shall have no
rights as a stockholder.
6.6. INCENTIVE STOCK OPTIONS. Notwithstanding anything in the
Plan to the contrary, the following additional provisions shall apply
to the grant of stock options that are intended to qualify as
incentive stock options (as such term is defined in Section 422 of the
Code):
(A) Any incentive stock option agreement authorized under
the Plan shall contain such other provisions as the Committee
shall deem advisable, but shall in all events be consistent with
and contain or be deemed to contain all provisions required in
order to qualify the options as incentive stock options.
(B) All incentive stock options must be granted within ten
years from the date on which this Plan is adopted by the Board of
Directors.
(C) Unless sooner exercised, all incentive stock options
shall expire no later than ten years after the date of grant.
(D) No incentive stock options shall be granted to any
participant who, at the time such option is granted, would own
(within the meaning of Section 422 of the Code) stock possessing
more than 10% of the total combined voting power of all classes
of stock of the employer corporation or of its parent or
subsidiary corporation.
(E) The aggregate Fair Market Value (determined with respect
to each incentive stock option as of the time such incentive
stock option is granted) of the Common Stock with respect to
which incentive stock options are exercisable for the first time
by a participant during any calendar year (under the Plan or any
other plan of Superior or any of its subsidiaries) shall not
exceed $100,000. To the extent that such limitation is exceeded,
such options shall not be treated, for federal income tax
purposes, as incentive stock options.
7. RESTRICTED STOCK
7.1. GRANT OF RESTRICTED STOCK. The Committee may award shares
of restricted stock to such persons as the Committee determines to be
eligible pursuant to the terms of Section 3. An award of restricted
stock may be subject to the attainment of specified performance goals
or targets, restrictions on transfer, forfeitability provisions and
such other terms and conditions as the Committee may determine,
subject to the provisions of the Plan. To the extent restricted stock
is intended to qualify as performance based compensation under Section
162(m) of the Code, it must meet the additional requirements imposed
thereby.
7.2. THE RESTRICTED PERIOD. The Committee shall establish a
period of time during which the transfer of the shares of restricted
stock shall be restricted (the "Restricted Period"). Each award of
restricted stock may have a different Restricted Period. The
expiration of the Restricted Period shall also occur under the
conditions described in Section 10.12 hereof and may occur upon death,
disability or retirement, if so determined by the Committee. A
Restricted Period of at least three years is required, except that if
vesting of the shares is subject to the attainment of specified
performance goals, a Restricted Period of one year or more is
permitted. The expiration of the Restricted Period shall also occur
as provided under Section 10.12.
7.3. ESCROW. The participant receiving restricted stock shall
enter into an Incentive Agreement with the Company setting forth the
conditions of the grant. Certificates representing shares of
restricted stock shall be registered in the name of the participant
and deposited with the Company, together with a stock power endorsed
in blank by the participant. Each such certificate shall bear a
legend in substantially the following form:
The transferability of this certificate and the shares of
Common Stock represented by it are subject to the terms and
conditions (including conditions of forfeiture) contained in
the Superior Energy Services, Inc. 1999 Stock Incentive Plan
(the "Plan"), and an agreement entered into between the
registered owner and Superior Energy Services, Inc.
thereunder. Copies of the Plan and the agreement are on
file at the principal office of the Company.
7.4. DIVIDENDS ON RESTRICTED STOCK. Any and all cash and stock
dividends paid with respect to the shares of restricted stock shall be
subject to any restrictions on transfer, forfeitability provisions or
reinvestment requirements as the Committee may, in its discretion,
prescribe in the Incentive Agreement.
7.5. FORFEITURE. In the event of the forfeiture of any shares of
restricted stock under the terms provided in the Incentive Agreement
(including any additional shares of restricted stock that may result
from the reinvestment of cash and stock dividends, if so provided in
the Incentive Agreement), such forfeited shares shall be surrendered
and the certificates cancelled. The participants shall have the same
rights and privileges, and be subject to the same forfeiture
provisions, with respect to any additional shares received pursuant to
Section 10.6 due to a recapitalization, merger or other change in
capitalization.
7.6. EXPIRATION OF RESTRICTED PERIOD. Upon the expiration or
termination of the Restricted Period and the satisfaction of any other
conditions prescribed by the Committee, the restrictions applicable to
the restricted stock shall lapse and a stock certificate for the
number of shares of restricted stock with respect to which the
restrictions have lapsed shall be delivered, free of all such
restrictions and legends, except any that may be imposed by law, to
the participant or the participant's estate, as the case may be.
7.7. RIGHTS AS A STOCKHOLDER. Subject to the terms and
conditions of the Plan and subject to any restrictions on the receipt
of dividends that may be imposed in the Incentive Agreement, each
participant receiving restricted stock shall have all the rights of a
stockholder with respect to shares of stock during any period in which
such shares are subject to forfeiture and restrictions on transfer,
including without limitation, the right to vote such shares.
7.8. PERFORMANCE-BASED RESTRICTED STOCK. The Committee shall
determine at the time of grant if a grant of restricted stock is
intended to qualify as "performance-based compensation" as that term
is used in Section 162(m) of the Code. Any such grant shall be
conditioned on the achievement of one or more performance measures.
The performance measures pursuant to which the restricted stock shall
vest shall be any or a combination of the following: earnings per
share, return on assets, an economic value added measure, stockholder
return, earnings, return on equity, return on investment, cash
provided by operating activities, increase in cash flow, or safety
performance of the Company, a division of the Company or a Subsidiary.
For any performance period, such performance objectives may be
measured on an absolute basis or relative to a group of peer companies
selected by the Committee, relative to internal goals or relative to
levels attained in prior years. For grants of restricted stock
intended to qualify as "performance-based compensation," the grants of
restricted stock and the establishment of performance measures shall
be made during the period required under Section 162(m).
8. OTHER STOCK-BASED AWARDS.
8.1. GRANT OF OTHER STOCK-BASED AWARDS. The Committee is
authorized to grant "Other Stock-Based Awards," which shall consist of
awards the value of which is based in whole or in part on the value of
shares of Common Stock, that is not an instrument or award specified
in Sections 6 of 7 of the Plan. Other Stock-Based Awards may be
awards of shares of Common Stock or may be denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or
related to, shares of Common Stock (including, without limitation,
restricted stock units or securities convertible or exchangeable into
or exercisable for shares of Common Stock ), as deemed by the
Committee consistent with the purposes of the Plan. The Committee
shall determine the terms and conditions of any such Other Stock-Based
Award and may provide that such awards would be payable in whole or in
part in cash. An Other Stock-Based Award may be subject to the
attainment of such specified performance goals or targets as the
Committee may determine, subject to the provisions of the Plan. To
the extent that an Other Stock-Based Award is intended to qualify as
"performance-based compensation" under Section 162(m) of the Code, it
must meet the additional requirements imposed thereby. Except in the
case of an Other Stock-Based Award granted in assumption of or in
substitution for an outstanding award of a company acquired by the
Company or with which the Company combines, the price at which
securities may be purchased pursuant to any Other Stock-Based Award
granted under this Plan, or the provision, if any, of any such Award
that is analogous to the purchase or exercise price, shall not be less
than 100% of the fair market value of the securities to which such
Award relates on the date of grant. An Other-Stock Based Award,
including an outright grant of shares of Common Stock, may be made in
lieu of the payment of cash compensation otherwise due to a
participant.
8.2. PERFORMANCE-BASED OTHER STOCK-BASED AWARDS. The Committee
shall determine at the time of grant if the grant of an Other Stock-
Based Award is intended to qualify as "performance-based compensation"
as that term is used in Section 162(m) of the Code. Any such grant
shall be conditioned on the achievement of one or more performance
measures. The performance measures pursuant to which the Other Stock-
Based Award shall vest shall be any or a combination of the following:
earnings per share, return on assets, an economic value added measure,
stockholder return, earnings, return on equity, return on investment,
cash provided by operating activities, increase in cash flow, or the
safety record of the Company, a division of the Company or a
Subsidiary. For any performance period, such performance objectives
may be measured on an absolute basis or relative to a group of peer
companies selected by the Committee, relative to internal goals or
relative to levels attained in prior years. For grants of Other
Stock-Based Awards intended to qualify as "performance-based
compensation," the grants of Other Stock-Based Awards and the
establishment of performance measures shall be made during the period
required under Section 162(m) of the Code.
9. STOCK OPTIONS FOR OUTSIDE DIRECTORS
9.1. ELIGIBILITY. Each person who serves as an Outside Director
shall be entitiled to participate and automatically granted (a) a
non-qualified stock option to acquire 20,000 shares of Common Stock
on the day that such person first becomes a member of the Board and
(b) a non-qualified stock option to acquire 5,000 shares of Common
Stock on the day following the 2000 annual meeting of stockholders
and thereafter on the day following subsequent annual meetings of
stockholders, for as long as the Plan remains in effect and shares of
Common Stock remain available for grant under Section 4.1 hereof. The
exact number of shares with respect to which options shall be granted
each year to utside Directors within the range specified above shall
be determined by the Committee.
9.2. EXERCISABILITY OF STOCK OPTIONS. The stock options granted
to Outside Directors under this Section 9 shall become exercisable as
follows:
25% of the total number of shares covered by the stock
options beginning one year after the date of grant;
50% of the total number of shares covered by the stock
options beginning two years after the date of grant,
less any shares previously issued;
75% of the total number of shares covered by the stock
options beginning three years after the date of grant,
less any shares previously issued;
100% of the total number of shares covered by the stock
options beginning four years after the date of grant,
less any shares previously issued;
provided, however, that such stock options shall become immediately
exercisable under <section>10.12 hereof and in the event of retirement
from the Board on or after reaching age 65, death or disability. No
stock option granted to an Outside Director under the terms of this
Section 9 may be exercised more than [TEN] years after the date of
grant.
9.3. EXERCISE PRICE. The per share exercise price of stock
options granted to Outside Directors shall be equal to 100% of the
Fair Market Value as defined in the Plan, of a share of Common Stock
on the date of grant.
9.4. EXERCISE AFTER TERMINATION OF BOARD SERVICE. In the event
that an Outside Director ceases to serve on the Board of Directors for
any reason, the stock options granted hereunder must be exercised, to
the extent otherwise exercisable at the time of termination of
service, within one year from the date of termination of Board
service, but in no event later than [TEN] years after the date of
grant.
10. GENERAL.
10.1. DURATION. Subject to Section 10.11, the Plan shall remain
in effect until all Incentives granted under the Plan have either been
satisfied by the issuance of shares of Common Stock or terminated
under the terms of the Plan and all restrictions imposed on shares of
Common Stock in connection with their issuance under the Plan have
lapsed.
10.2. TRANSFERABILITY OF INCENTIVES. Options granted under the
Plan shall not be transferable except:
(A) by will;
(B) by the laws of descent and distribution; or
(C) in the case of stock options only, if permitted by the
Committee and so provided in the Incentive Agreement or an
amendment thereto, (i) pursuant to a domestic relations order, as
defined in the Code, (ii) to Immediate Family Members, (iii) to a
partnership in which Immediate Family Members, or entities in
which Immediate Family Members are the sole owners, members or
beneficiaries, as appropriate, are the only partners, (iv) to a
limited liability company in which Immediate Family Members, or
entities in which Immediate Family Members are the sole owners,
members or beneficiaries, as appropriate, are the only members,
or (v) to a trust for the sole benefit of Immediate Family
Members. "Immediate Family Members" shall be defined as the
spouse and natural or adopted children or grandchildren of the
participant and their spouses. To the extent that an incentive
stock option is permitted to be transferred during the lifetime
of the participant, it shall be treated thereafter as a non-
qualified stock option.
Any attempted assignment, transfer, pledge, hypothecation or other
disposition of an Incentive, or levy of attachment or similar process
upon the Incentive not specifically permitted herein, shall be null
and void and without effect.
10.3. DIVIDEND EQUIVALENTS. In the sole and complete discretion
of the Committee, an Incentive may provide the holder thereof with
dividends or dividend equivalents, payable in cash, shares, other
securities or other property on a current or deferred basis.
10.4. EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH. In the event
that a participant, other than an Outside Director, ceases to be an
employee of the Company or to provide services to the Company for any
reason, including death, disability, early retirement or normal
retirement, any Incentives may be exercised, shall vest or shall
expire at such times as may be determined by the Committee in the
Incentive Agreement.
10.5. ADDITIONAL CONDITION. Anything in this Plan to the
contrary notwithstanding: (a) the Company may, if it shall determine
it necessary or desirable for any reason, at the time of award of any
Incentive or the issuance of any shares of Common Stock pursuant to
any Incentive, require the recipient of the Incentive, as a condition
to the receipt thereof or to the receipt of shares of Common Stock
issued pursuant thereto, to deliver to the Company a written
representation of present intention to acquire the Incentive or the
shares of Common Stock issued pursuant thereto for his own account for
investment and not for distribution; and (b) if at any time the
Company further determines, in its sole discretion, that the listing,
registration or qualification (or any updating of any such document)
of any Incentive or the shares of Common Stock issuable pursuant
thereto is necessary on any securities exchange or under any federal
or state securities or blue sky law, or that the consent or approval
of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with the award of any Incentive, the
issuance of shares of Common Stock pursuant thereto, or the removal of
any restrictions imposed on such shares, such Incentive shall not be
awarded or such shares of Common Stock shall not be issued or such
restrictions shall not be removed, as the case may be, in whole or in
part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions
not acceptable to the Company.
10.6. ADJUSTMENT. In the event of any recapitalization, stock
dividend, stock split, combination of shares or other change in the
Common Stock, the number of shares of Common Stock then subject to the
Plan, including shares subject to outstanding Incentives, shall be
adjusted in proportion to the change in outstanding shares of Common
Stock. In the event of any such adjustments, the purchase price of
any option shall be adjusted as and to the extent appropriate, in the
reasonable discretion of the Committee, to provide participants with
the same relative rights before and after such adjustment.
10.7. INCENTIVE AGREEMENTS. The terms of each Incentive shall be
stated in an agreement or notice approved by the Committee. The
Committee may also determine to enter into agreements with holders of
options to reclassify or convert certain outstanding options, within
the terms of the Plan, as incentive stock options or as non-qualified
stock options.
10.8. WITHHOLDING. At any time that a participant is required to
pay to the Company an amount required to be withheld under the
applicable tax laws in connection with the issuance of shares of
Common Stock under the Plan or upon the lapse of restrictions on
shares of restricted stock, the participant may, subject to the
Committee's right of disapproval, satisfy this obligation in whole or
in part by electing (the "Election") to have the Company withhold
from the distribution shares of Common Stock having a value equal to
the amount required to be withheld. The value of the shares withheld
shall be based on the Fair Market Value of the Common Stock on the
date that the amount of tax to be withheld shall be determined (the
"Tax Date").
Each Election must be made prior to the Tax Date. The Committee
may disapprove of any Election or may suspend or terminate the right
to make Elections. If a participant makes an election under Section
83(b) of the Code with respect to shares of restricted stock or an
Other Stock-Based Award, an Election is not permitted to be made.
A participant may also satisfy his or her total tax liability
related to the Incentive by delivering shares of Common Stock that
have been owned by the participant for at least six months. The value
of the shares delivered shall be based on the Fair Market Value of the
Common Stock on the Tax Date.
10.9. NO CONTINUED EMPLOYMENT. No participant under the Plan
shall have any right, because of his or her participation, to continue
in the employ of the Company for any period of time or to any right to
continue his or her present or any other rate of compensation.
10.10. DEFERRAL PERMITTED. Distribution of shares of Common
Stock or cash to which a participant is entitled under any Incentive
shall be made as provided in the Incentive Agreement. Payment may be
deferred at the option of the participant if provided in the Incentive
Agreement.
10.11. AMENDMENT OF THE PLAN. The Board may amend or discontinue
the Plan at any time. In addition, no amendment or discontinuance
shall, subject to adjustments permitted under Section 10.6, materially
impair, without the consent of the recipient, an Incentive previously
granted, except that the Company retains the right to (a) convert any
outstanding incentive stock option to a non-qualified stock option, or
(b) exercise all rights under Section 10.12.
10.12. CHANGE OF CONTROL.
(A) A Change of Control shall mean:
(i) the acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934
Act) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of more than 30% of the
outstanding shares of the Common Stock; provided, however, that
for purposes of this subsection (i), the following acquisitions
shall not constitute a Change of Control:
a) any acquisition of Common Stock directly from
the Company,
b) any acquisition of Common Stock by the Company,
c) any acquisition of Common Stock by any employee
benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company, or
d) any acquisition of Common Stock by any
corporation pursuant to a transaction that complies with
clauses a), b) and c) of subsection (iii) of this Section
10.12(A); or
(ii) individuals who, as of the date this Plan was
adopted by the Board of Directors (the "Approval Date"),
constitute the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to
the Approval Date whose election, or nomination for election by
the stockholders of the Company, was approved by a vote of at
least a majority of the directors then comprising the Incumbent
Board shall be considered a member of the Incumbent Board, unless
such individual's initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a person
other than the Incumbent Board; or
(iii) consummation of a reorganization, merger or
consolidation, or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in each case, unless, following such Business
Combination,
a) all or substantially all of the individuals and
entities who were the beneficial owners of the outstanding
Common Stock and the voting securities of the Company
entitled to vote generally in the election of directors
immediately prior to such Business Combination have direct
or indirect beneficial ownership, respectively, of more than
50% of the then outstanding shares of common stock, and more
than 50% of the combined voting power of the then
outstanding voting securities entitled to vote generally in
the election of directors, of the corporation resulting from
such Business Combination (which, for purposes of this
clause a) and clauses b) and c), shall include a corporation
that as a result of such transaction owns the Company or all
or substantially all of the assets of the Company either
directly or through one or more subsidiaries), and
b) except to the extent that such ownership
existed prior to the Business Combination, no person
(excluding any corporation resulting from such Business
Combination or any employee benefit plan or related trust of
the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20%
or more of the then outstanding shares of common stock of
the corporation resulting from such Business Combination or
20% or more of the combined voting power of the then
outstanding voting securities of such corporation, and
c) at least a majority of the members of the board
of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action
of the Board, providing for such Business Combination; or
(iv) approval by the stockholders of the Company of a
plan of complete liquidation or dissolution of the Company.
(B) Upon a Change of Control, or immediately prior to the
closing of a transaction that will result in a Change of Control
if consummated, all outstanding options granted pursuant to the
Plan shall automatically become fully exercisable, all
restrictions or limitations on any Incentives shall lapse and all
performance criteria and other conditions relating to the payment
of Incentives shall be deemed to be achieved and waived by the
Company, without the necessity of action by any person.
(C) No later than 30 days after the approval by the Board of
a Change of Control of the types described in subsections (iii)
or (iv) of Section 10.12(A) and no later than 30 days after a
Change of Control of the type described in subsections (i) and
(ii) of Section 10.12(A), the Committee (as the Committee was
composed immediately prior to such Change of Control and
notwithstanding any removal or attempted removal of some or all
of the members thereof as directors or Committee members), acting
in its sole discretion without the consent or approval of any
participant, may act to effect one or more of the alternatives
listed below and such act by the Committee may not be revoked or
rescinded by persons not members of the Committee immediately
prior to the Change of Control:
(i) require that all outstanding options be exercised
on or before a specified date (before or after such Change
of Control) fixed by the Committee, after which specified
date all unexercised options shall terminate,
(ii) make such equitable adjustments to Incentives then
outstanding as the Committee deems appropriate to reflect
such Change of Control (provided, however, that the
Committee may determine in its sole discretion that no
adjustment is necessary),
(iii) provide for mandatory conversion of some or all
of the outstanding options held by some or all participants
as of a date, before or after such Change of Control,
specified by the Committee, in which event such options
shall be deemed automatically cancelled and the Company
shall pay, or cause to be paid, to each such participant an
amount of cash per share equal to the excess, if any, of the
Change of Control Value of the shares subject to such option
or, as defined and calculated below, over the exercise
price(s) of such options or, in lieu of such cash payment,
the issuance of Common Stock or securities of an acquiring
entity having a Fair Market Value equal to such excess, or
(iv) provide that thereafter upon any exercise of an
option the participant shall be entitled to purchase under
such option, in lieu of the number of shares of Common Stock
then covered by such option, the number and class of shares
of stock or other securities or property (including, without
limitation, cash) to which the participant would have been
entitled pursuant to the terms of the agreement providing
for the reorganization, merger, consolidation or asset sale,
if, immediately prior to such Change of Control, the
participant had been the holder of record of the number of
shares of Common Stock then covered by such options.
(v) For the purposes of paragraph (iii) of this Section
10.12(C) the "Change of Control Value" shall equal the
amount determined by whichever of the following items is
applicable:
a) the per share price to be paid to stockholders
of Superior in any such merger, consolidation or other
reorganization.
b) the price per share offered to stockholders of
Superior in any tender offer or exchange offer whereby
a Change of Control takes place, or
c) in all other events, the Fair Market Value per
share of Common Stock into which such options being
converted are exercisable, as determined by the
Committee as of the date determined by the Committee to
be the date of conversion of such options.
d) in the event that the consideration offered to
stockholders of Superior in any transaction described
in this Section 10.12 consists of anything other than
cash, the Committee shall determine the fair cash
equivalent of the portion of the consideration offered
that is other than cash.
10.13. DEFINITION OF FAIR MARKET VALUE. Whenever "Fair Market
Value" of Common Stock shall be determined for purposes of this Plan,
it shall be determined as follows: (i) if the Common Stock is listed
on an established stock exchange or any automated quotation system
that provides sale quotations, the closing sale price for a share of
the Common Stock on such exchange or quotation system on the
applicable date; (ii) if the Common Stock is not listed on any
exchange or quotation system, but bid and asked prices are quoted and
published, the mean between the quoted bid and asked prices on the
applicable date, and if bid and asked prices are not available on such
day, on the next preceding day on which such prices were available;
and (iii) if the Common Stock is not regularly quoted, the fair market
value of a share of Common Stock on the applicable date as established
by the Committee in good faith.
11. STOCKHOLDER APPROVAL. Adoption of this plan by the Board of
Directors is subject to approval by the holders of a majority of the Common
Stock present and voting at a meeting of the stockholders to be held no
later than the date of the first annual meeting after the date of the
adoption hereof by the Board of Directors.
<PAGE>
[FRONT]
SUPERIOR ENERGY SERVICES, INC.
1105 PETERS ROAD
HARVEY, LOUISIANA 70058
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF SUPERIOR ENERGY SERVICES, INC.
The undersigned hereby appoints __________________, or any of them, as
proxies, each with full power of substitution, and hereby authorizes each of
them to represent and to vote, as designated below, all shares of common stock
of Superior Energy Services, Inc. ("SUPERIOR") held of record by the
undersigned on ____________, 1999 at the annual meeting of shareholders to be
held on ____________, 1999, or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSALS BY CHECKING THE BOX
MARKED "FOR":
1. Approval of the issuance of a number of shares of SUPERIOR common
stock equal to 51% of the outstanding shares after giving effect to
such issuance, calculated on a fully diluted basis, in accordance
with the terms of an Agreement and Plan of Merger, pursuant to
which a wholly-owned subsidiary of SUPERIOR would merge (the
"Merger") with and into CARDINAL HOLDING CORP. ("CARDINAL") and
CARDINAL would become a wholly-owned subsidiary of SUPERIOR;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. The election of six directors;
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all
below) nominees listed
below
INSTRUCTIONS: To withhold authority to vote for any nominee, strike
a line through the nominee's name listed below.
Terence E. Hall Justin L. Sullivan Richard A. Bachmann
William E. Macaulay Ben A. Guill Robert E. Rose
3. Approval of an amendment to SUPERIOR'S Certificate of Incorporation
to increase the number of authorized shares of SUPERIOR common
stock to 125,000,000;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of an amendment to SUPERIOR'S Certificate of Incorporation
to regulate the ownership of the capital stock of SUPERIOR by
persons who are not citizens of the United States;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Approval of the Superior Energy Services, Inc. 1999 Stock Incentive
Plan; and
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. In their discretion, to transact such other business as may properly
come before the meeting and any adjournments thereof.
<PAGE>
[REVERSE SIDE]
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTIONS ARE GIVEN, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 THROUGH 5. THE PROXY HOLDERS NAMED ABOVE WILL VOTE IN
THEIR DISCRETION ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING.
Date:____________________, 1999
_____________________________________________
Signature of Stockholder
_____________________________________________
Additional Signature, if held jointly
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON.
WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE
GIVE FULL TITLE AS SUCH. IF A CORPORATION,
PLEASE SIGN FULL CORPORATE NAME BY PRESIDENT
OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME
BY AUTHORIZED PERSON.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.
