<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1997
REGISTRATION NO. 333-29581
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
LAYNE CHRISTENSEN COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of Incorporation or Organization)
48-0920712
(I.R.S. Employer Identification Number)
1900 SHAWNEE MISSION PARKWAY
MISSION WOODS, KANSAS 66205
(913) 362-0510
(Address and telephone number of Registrant's principal executive offices)
--------------------------
KENT B. MAGILL, ESQ.
LAYNE CHRISTENSEN COMPANY
1900 SHAWNEE MISSION PARKWAY
MISSION WOODS, KANSAS 66205
(913) 362-0510
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
PETER F. KERMAN, ESQ. DAVID B. MILLER, ESQ.
Latham & Watkins Faegre & Benson LLP
75 Willow Road 2200 Norwest Center
Menlo Park, California 94025 90 South Seventh Street
(415) 328-4600 Minneapolis, Minnesota 55402-3901
(612) 336-3000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of the Form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 8 , 1997
PROSPECTUS
DATED , 1997
5,000,000 SHARES
[LOGO]
LAYNE CHRISTENSEN COMPANY
COMMON STOCK
Of the 5,000,000 shares of Common Stock offered hereby, 2,006,565 shares are
being sold by Layne Christensen Company, a Delaware corporation ("Layne
Christensen" or the "Company"), and 2,993,435 shares are being sold by the
Selling Stockholders. See "Principal and Selling Stockholders." The Company will
not receive any proceeds from the sale of shares by the Selling Stockholders.
The Common Stock is quoted on the Nasdaq National Market under the symbol
"LAYN." On August 5, 1997, the last reported sale price of the Common Stock was
$21 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount(1) Company(2) Stockholders
<S> <C> <C> <C> <C>
Per Share............................ $ $ $ $
Total(3)............................. $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
at $700,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 750,000 additional shares of Common Stock, solely to
cover over-allotments, if any, at the per share Price to Public less the
Underwriting Discount. If the Underwriters exercise this option in full, the
total Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriters, subject to prior
sale when, as and if delivered to and accepted by the Underwriters and subject
to their right to reject orders in whole or in part. It is expected that
delivery of the certificates representing shares of Common Stock will be made at
the offices of Piper Jaffray Inc. in Minneapolis, Minnesota on or about
, 1997.
PIPER JAFFRAY INC. DILLON, READ & CO. INC.
<PAGE>
LAYNE CHRISTENSEN COMPANY
WORLDWIDE LOCATIONS
Description of graphics on inside front cover of Prospectus: Map of world
with inset showing United States detail, with star indicating location of
corporate headquarters in Mission Woods, Kansas; white dots indicating locations
pending completion of Stanley Acquisition; and yellow dots showing the following
locations of sales and operations offices:
<TABLE>
<S> <C> <C>
Albany, GA Anchorage, AK Atlanta, GA
Aurora, IL Baton Rouge, LA Beecher, IL
Cedar Rapids, IA Chandler, AZ Cleveland, MS
Columbus, OH Denver, CO Edwardsburg, MI
Elk City, OK El Paso, TX Eunice, LA
Fontana, CA (2) Garden City, KS Grayson, KY
Houston, TX Jackson, MS Kearney, NE
Lakeland, FL Lansing, MI Las Vegas, NV
Louisville, KY Marshalltown, IA Memphis, TN
Milwaukee, WI Mission Woods, KS Omaha, NE
Pensacola, FL Pooler, GA St. Louis, MO (2)
Salt Lake City, UT San Antonio, TX Spokane, WA
Springfield, MO Stuttgart, AR Suffolk, VA
Tacoma, WA Tempe, AZ Tyler, TX
Wausau, WI West Monroe, LA Wichita, KS
Winchester, VA Woodland, CA Boston, MA
North Bay, Ontario, Canada Phoenix, AZ Calgary, Alberta, Canada
La Paz, Bolivia Hermosillo, Sonora, Mexico (2) Toluca, Mexico
Bangkok, Thailand (2) Antofagasto, Chile Santiago, Chile (2)
Lima, Peru (2) Stuttgart, Germany Nice, France
LOCATIONS PENDING COMPLETION OF STANLEY ACQUISITION (INDICATED
WITH WHITE DOTS):
Malaga Western Australia
Kalgoorlie/Boulder, Western Australia
Accra, West Africa
Obuasi, West Africa
Dar es Salaam, Tanzania
</TABLE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE
OFFERING. IN ADDITION, IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS
(AND SELLING GROUP MEMBERS) ALSO MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET, IN ACCORDANCE
WITH RULE 103 UNDER THE SECURITIES EXCHANGE ACT OF 1934. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. THE "STANLEY ACQUISITION"
REFERS TO (I) THE ACQUISITION BY THE COMPANY OF ALL THE OUTSTANDING CAPITAL
STOCK OF STANLEY MINING SERVICES LIMITED ("STANLEY") AND CERTAIN RELATED
TRANSACTIONS AND THE COSTS AND EXPENSES THEREOF AND (II) THE REPURCHASE BY
GLINDEMANN & KITCHING PTY LTD. ("G&K"), STANLEY'S 51% OWNED SUBSIDIARY, OF ALL
OF G&K'S CAPITAL STOCK NOT OWNED BY STANLEY, THEREBY MAKING G&K A WHOLLY OWNED
SUBSIDIARY OF STANLEY (THE "G&K ACQUISITION"). ALL REFERENCES TO A PARTICULAR
"FISCAL YEAR" OF THE COMPANY REFER TO THE TWELVE MONTHS ENDED JANUARY 31 OF THE
YEAR REFERENCED, UNLESS OTHERWISE NOTED. EXCEPT WHERE OTHERWISE INDICATED, THE
INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IS NOT EXERCISED. SEE "UNDERWRITING." SEE "RISK FACTORS"
FOR CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT
IN THE SHARES OF COMMON STOCK OFFERED HEREBY. ALL REFERENCES TO THE "COMPANY"
AND "LAYNE CHRISTENSEN" MEAN LAYNE CHRISTENSEN COMPANY, ITS DOMESTIC AND FOREIGN
CONSOLIDATED SUBSIDIARIES AND ITS UNCONSOLIDATED FOREIGN AFFILIATES, AND EXCLUDE
STANLEY AND G&K, UNLESS THE CONTEXT INDICATES OTHERWISE. UNLESS OTHERWISE
INDICATED, ALL CURRENCY INFORMATION IS DENOMINATED IN UNITED STATES DOLLARS.
THE COMPANY
Layne Christensen provides sophisticated drilling services and related
products and services in four principal markets: water supply, mineral
exploration, geotechnical construction and environmental. The Company believes
it is the largest provider in the United States of water well drilling, well
maintenance and environmental drilling services. The Company also believes it is
one of the world's largest providers of mineral exploration drilling services
and a world leader in diamond drill bit technology. Layne Christensen's
customers include municipalities, industrial companies, mining companies and
environmental consulting and engineering firms located principally in the United
States, Canada, Mexico and South America. Following consummation of the Stanley
Acquisition, the Company will gain entry into mineral exploration drilling
markets in Australia and West Africa.
After giving effect to the Stanley Acquisition, on a pro forma basis, the
Company would have had $278,070,000 in revenues for fiscal 1997. In addition,
the Company's share of foreign affiliate revenues in fiscal 1997 was
approximately $41,000,000. Including its share of foreign affiliate revenues, on
a pro forma basis after giving effect to the Stanley Acquisition, the Company's
domestic operations and international operations, respectively, would have
accounted for approximately 62% and 38% of fiscal 1997 revenues. Approximately
88% of the Company's revenues would have been allocated among the Company's
services approximately as follows: water well drilling and maintenance, 34%;
mineral exploration drilling, 42%; environmental drilling, 7%; and geotechnical
and other services, 5%. Approximately 12% of the Company's revenues would have
been attributable to product sales, primarily for mineral exploration drilling.
Layne Christensen believes it is one of only a few companies worldwide that
has the drilling expertise, financial resources, equipment and project
management skills to conduct large, highly complex drilling projects in the
Company's principal markets. As a result of providing water well and mineral
exploration drilling services for more than 100 years through its predecessor
companies, the Company has developed significant drilling expertise and project
management skills and has compiled a broad database of geological and other
technical information. The Company has substantial resources, including over 500
rigs and associated capital equipment, approximately 60 sales and operations
offices and approximately 1,800 employees (in each case excluding its foreign
affiliates).
In fiscal 1994, following a change in the Company's management, the Company
began a program to improve operating efficiencies and reduce costs through
office closures, reduced headcount, increased investment in
productivity-enhancing capital equipment and improved safety practices. At the
same time, it implemented steps to improve margins by emphasizing higher margin,
technically demanding work. The implementation of these programs resulted in the
Company's gross margin increasing from 23.4% for the
3
<PAGE>
twelve months ended January 31, 1994 to 27.5% for fiscal 1997 and its selling,
general and administrative expenses, as a percentage of revenues, decreasing
from 18.8% to 17.5% over the same period.
In addition to these operating initiatives, the Company implemented a
strategy focused on increasing revenues through acquisitions and internal
expansion into new geographical markets and new business lines. As a result of
this strategy, the Company's revenues have increased from $169,766,000 in the
twelve months ended January 31, 1994 to $222,853,000 in fiscal 1997. During this
period, revenues from mineral exploration products and services became a more
significant portion of the Company's business, the Company's water well drilling
and maintenance revenues remained relatively stable, and the Company's revenues
from environmental services declined as a result of an overall decline in the
market for such services and the Company's decision not to pursue lower margin,
less technically demanding projects.
The Company's growth strategy is to continue to build upon its sophisticated
drilling expertise and technical qualifications and includes the following key
components:
EXPAND MINERAL EXPLORATION DRILLING INTERNATIONALLY. The Company
believes that its best mineral exploration drilling opportunities exist in
Australasia, Africa and South America. The Company's acquisition of
Christensen Boyles Corporation ("CBC") in December 1995 allowed it to enter
certain South American mineral exploration markets, including Chile and
Peru. The Stanley Acquisition will allow the Company to enter mineral
exploration markets in Australia and West Africa. The Company intends to
continue to expand its international mineral exploration drilling business
through internal expansion and acquisitions.
ACQUIRE WATER WELL DRILLING BUSINESSES IN THE UNITED STATES. Due to the
highly fragmented nature of the United States water well drilling industry,
the Company believes there are consolidation opportunities which may be
achieved through the acquisition of selected regional water well drilling
companies whose operations would benefit from the Company's expertise and
resources. For example, in July 1997 the Company acquired Stamm-Scheele
Inc., a water well drilling company based near Baton Rouge, Louisiana.
EXPAND WATER WELL DRILLING INTERNATIONALLY. The Company intends to
build its water well drilling business internationally by providing
dewatering and water supply services to its mining customers and by
responding to growing requirements of many developing countries to access
groundwater to satisfy their potable water needs. The Company is currently
undertaking water projects in Chile and Indonesia and intends to expand into
the water well drilling markets in Mexico, Thailand and certain other
foreign locations.
EXPAND PRESENCE IN GEOTECHNICAL CONSTRUCTION SERVICES. The Company is
increasing its activities in the geotechnical construction market, a
business line which leverages the Company's technical skills and other core
competencies. The Company's strategy is to focus on relatively larger,
technically demanding projects using its grouting and ground freezing
capabilities. For example, in April 1997, the Company entered into a
contract to design and construct the world's largest known groundfreeze
project for Echo Bay Mines Ltd.
RECENT DEVELOPMENT
On May 20, 1997, Layne Christensen, through its wholly-owned subsidiary
Layne Christensen Australia Pty Limited ("Layne Australia"), made a tender offer
to the security holders of Stanley, a company listed on the Australian Stock
Exchange. Stanley is a leading Australian mineral exploration drilling company
that provides services predominantly to gold mining companies in Australia and
West Africa, principally Ghana. As of October 1, 1996, the operations of Stanley
have included those of its 51% owned subsidiary, G&K, a leading drilling
contractor based and operating in Western Australia that specializes in diamond
core exploration drilling for gold projects. The purchase price of the Stanley
Acquisition is estimated at $57,990,000, consisting of a cash purchase price for
the tender offer estimated at $51,666,000
4
<PAGE>
and an estimated liability of $6,324,000 relating to G&K's obligation to
repurchase the remaining 49% of the outstanding capital stock of G&K. The tender
offer was consummated on July 25, 1997.
The Company believes that the Stanley Acquisition will provide the Company
with several strategic benefits. The Company will gain entry into the drilling
markets of Australia and West Africa, as well as access to the operational
expertise of Stanley and G&K, including Stanley's base of Australian expatriate
employees in West Africa. The Company believes that Stanley's experience in
drill and blast operations will offer the Company's affiliates in South America
an opportunity to provide these services in that region. In addition, G&K has
significant experience in the design and fabrication, for internal use, of
multi-purpose exploration rigs which can alternate between diamond core and
reverse circulation drilling; the Company believes this experience will enable
it to design improved products for this application. See "The Stanley
Acquisition."
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered:
By the Company........................... 2,006,565 shares
By the Selling Stockholders.............. 2,993,435 shares
Total.................................. 5,000,000 shares
Common Stock to be outstanding after the
offering................................... 10,950,522 shares (1)
Use of proceeds.............................. To repay indebtedness incurred in connection
with the Stanley Acquisition. See "Use of
Proceeds."
Nasdaq National Market symbol................ LAYN
</TABLE>
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(1) Includes 68,966 shares purchased by Mr. Stanley in connection with the
Stanley Acquisition, but does not include options to purchase 206,897 shares
of Common Stock granted to Mr. Stanley. Does not include options granted to
other key employees to purchase 657,642 shares of Common Stock outstanding
as of June 30, 1997 under the Company's stock option plans, 459,974 of which
were immediately exercisable or exercisable within 60 days of such date. See
"Unaudited Pro Forma Consolidated Financial Statements."
CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Such
statements may be found in the material set forth under "Prospectus Summary,"
"Risk Factors," "The Stanley Acquisition," "Unaudited Consolidated Pro Forma
Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" as well as in the Prospectus
generally (including the documents incorporated herein by reference) and are
indicated by words or phrases such as "anticipate," "estimate," "project,"
"believe," "forecast," "intend," "expect," "plan" and similar words or phrases.
Such statements are based on current expectations and are subject to certain
risks, uncertainties and assumptions, including but not limited to those
discussed in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Risk Factors." Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially and adversely from those anticipated,
estimated or projected. These forward-looking statements are made as of the date
of this Prospectus, and the Company assumes no obligation to update such
forward-looking statements or to update the reasons why actual results could
differ materially from those anticipated in such forward-looking statements.
5
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED APRIL 30, YEAR ENDED JANUARY 31,
----------------------------------- ----------------------------------------------
PRO FORMA(1) PRO FORMA(1)
1997 1997 1996 1997 1997 1996(2) 1995
------------- --------- --------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................... $71,368 $57,750 $53,773 $278,070 $222,853 $167,271 $166,830
Gross profit............... 19,443 15,605 14,070 77,139 61,251 45,193 43,016
Operating income........... 3,693 2,446 1,492 16,860 11,321 8,700 6,345
Equity in earnings of
foreign affiliates....... 820 820 1,102 3,895 3,895 -- --
Net income................. 2,052 1,683 1,103 10,287 8,017 4,587 2,960
Net income per common and
dilutive equivalent share
outstanding.............. $ 0.18 $ 0.18 $ 0.12 $ 0.91 $ 0.88 $ 0.61 $ 0.40
Weighted average number of
common and dilutive
equivalent shares
outstanding.............. 11,359,472(3) 9,234,000 8,912,000 11,271,472(3) 9,146,000 7,517,000 7,348,000
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
-------------------------- JANUARY 31,
PRO FORMA(4) -------------------------------
1997 1997 1997 1996(2) 1995
------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $ 51,674 $ 37,572 $ 29,643 $ 26,796 $ 13,578
Total assets............................................ 224,014 152,841 143,650 134,177 79,094
Long term debt.......................................... 54,790 35,783 30,314 28,428 --
Total stockholders' equity.............................. 105,331 64,500 62,664 53,972 40,273
</TABLE>
- ------------------------
(1) The unaudited pro forma income statement data reflects (i) the Stanley
Acquisition; (ii) Stanley's initial purchase of 51% of G&K; and (iii) the
offering and the application of the estimated net proceeds to the Company as
described in "Use of Proceeds" as if such transactions had occurred on
February 1, 1996. See "The Stanley Acquisition" and "Unaudited Pro Forma
Consolidated Financial Statements."
(2) In December 1995, the Company completed a merger with CBC which has been
accounted for under the purchase method of accounting (see Note 2 of the
Notes to the Company's Consolidated Financial Statements) and, accordingly,
the Company's consolidated results include the operations of CBC from the
date of acquisition.
(3) Reflects the number of shares of Common Stock issued in connection with the
Stanley Acquisition and the shares to be sold by the Company in the offering
contemplated hereby as if outstanding for the entire year. Amount includes
the dilutive effect (under the treasury stock method) of the option to
purchase 206,897 shares of Common Stock granted to Mr. Stanley. See "The
Stanley Acquisition."
(4) The unaudited pro forma balance sheet data reflects (i) the Stanley
Acquisition and (ii) the offering and the application of the estimated net
proceeds to the Company as described in "Use of Proceeds" as if such
transactions had occurred as of April 30, 1997. See "The Stanley
Acquisition" and "Unaudited Pro Forma Consolidated Financial Statements."
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES CERTAIN RISKS.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER ALL OF THE INFORMATION SET FORTH
IN THIS PROSPECTUS AND, IN PARTICULAR, SHOULD EVALUATE THE FOLLOWING RISK
FACTORS BEFORE MAKING AN INVESTMENT IN THE COMMON STOCK.
DEPENDENCE ON MINERAL EXPLORATION AND DEVELOPMENT
Demand for the Company's mineral exploration drilling services and products
depends in part upon the level of mineral exploration and development activities
conducted by mining companies, particularly with respect to gold and copper.
Mineral exploration is highly speculative and is influenced by a variety of
factors, including the prevailing prices for various metals which often
fluctuate widely. For example, the price of gold, which has recently declined
significantly, is affected by numerous factors, including international economic
trends, currency exchange fluctuations, expectations for inflation, speculative
activities, consumption patterns, purchases and sales of gold bullion holdings
by central banks and others, world production levels and political events. In
addition to prevailing prices for minerals, mineral exploration activity is
influenced by the economic feasibility of mineral exploration and production,
the discovery rate of new mineral reserves, national and international political
and economic conditions and the ability of mining companies to access or
generate sufficient funds to finance capital expenditures for their activities.
In this regard, recent fraudulent activities concerning junior Canadian mining
companies could damage the ability of smaller mining companies to raise the
capital necessary to conduct mineral exploration activities. These smaller
mining companies constitute a substantial portion of new mineral exploration
activity. A substantial reduction in mineral exploration and development
activity by these smaller mining companies would reduce demand for mineral
exploration drilling services and products and could have a material adverse
effect on the Company. See "Business--Services and Products" and "-- Customers
and Contracts."
DEPENDENCE ON FOREIGN OPERATIONS
The earnings of the Company are and are expected to be increasingly
dependent upon the results of its operations in foreign countries, including
among others, Argentina, Bolivia, Canada, Chile, Indonesia, Mexico and Peru and,
following the consummation of the Company's acquisition of Stanley, Australia
and certain countries in West Africa. Including the Company's share of foreign
affiliate revenues, in fiscal 1997, the percentage of the Company's revenues
generated by domestic operations and international operations, respectively, was
75% and 25%, and after giving effect to the Stanley Acquisition on a pro forma
basis, the percentages would have been 62% and 38%. The Company's foreign
operations are subject to certain risks beyond the control of the Company,
including political, social and economic instability; war and civil
disturbances; taking of property by nationalization or expropriation without
fair compensation; changes in government policies and regulations; tariffs,
taxes and other trade barriers; exchange controls and limitations on remittance
of dividends or other payments to the Company by its foreign subsidiaries and
affiliates; and devaluations and fluctuations in currency exchange rates. In
particular, land title claims by Australia's indigenous people could affect
mineral property rights, which could have an adverse impact on the demand for
Stanley's mineral exploration drilling services. Some of the Company's contracts
are not and will not be denominated in dollars, and the Company does not
currently engage in foreign currency hedging transactions. In addition, the
Company does not maintain political risk insurance and its business interruption
insurance does not extend to foreign operations. No assurance can be given that
any of these risks affecting foreign operations will not have a material adverse
effect on the Company.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company's business strategy includes growth through acquisitions in the
United States and internationally. In May 1997, the Company made a tender offer
for all of the outstanding capital stock of Stanley, a publicly held mineral
exploration company based in Australia with substantial operations in West
7
<PAGE>
Africa, principally Ghana. The Company acquired CBC in fiscal 1996, resulting in
the Company's expansion of its domestic and international mineral exploration
drilling activities as well as its entry into the products manufacturing market.
No assurance can be given that in the future the Company will successfully
identify suitable acquisition candidates, complete acquisitions or successfully
integrate the acquired operations into its existing operations. Moreover, once
integrated, acquired operations may not achieve levels of revenues or
profitability comparable to those achieved by the Company's existing operations
or otherwise perform as expected due to adversely changing operating results,
unforeseen liabilities and losses of customers and employees as a result of new
ownership as well as other factors beyond the Company's control. See
"Business--Business Strategy" and "The Stanley Acquisition."
Notwithstanding its own review and investigation, at the time of an
acquisition, the Company's management has and will have limited knowledge about
the business acquired in such acquisition, including its specific operating
history and financial condition. In addition, the scope of due diligence
investigations in connection with foreign acquisitions generally may be more
limited than is common for investigations in the United States, due to limited
access to information, limited documentation of material agreements and cultural
and other factors. Whether an acquired business is based in the United States or
abroad, no assurance can be given that the Company paid or will pay reasonable
prices for an acquired business or negotiated or will negotiate appropriate
contractual terms, including seller representations, warranties and indemnities.
In this regard, as is customary for tender offers in Australia, no
representations and warranties have been made with respect to the business,
assets or liabilities associated with Stanley, and the Company will have no
contractual recourse to Stanley's shareholders for undisclosed liabilities or
adverse changes in Stanley's operations. To the extent the Company must pay for
significant unanticipated obligations of Stanley or other acquired businesses,
the Company could be materially adversely affected.
OPERATING RISKS
The Company's drilling activities involve certain operating hazards that can
result in personal injury or loss of life, damage and destruction of property
and equipment, damage to the surrounding areas, release of hazardous substances
or wastes and other damage to the environment, interruption or suspension of
drill site operations and loss of revenues and future business. The magnitude of
these operating risks is amplified when the Company, as is frequently the case,
conducts a project on a fixed-price, "turnkey" basis in which the Company
delegates certain functions to subcontractors but remains responsible to the
customer for the subcontracted work. Whether or not the Company or its
subcontractor causes an accident, the Company could be named as a defendant in
lawsuits asserting large claims arising from such occurrences. Although the
Company maintains insurance protection that it considers economically prudent,
there can be no assurance that any such insurance will be sufficient or
effective under all circumstances or against all claims or hazards to which the
Company may be subject or that the Company will be able to continue to obtain
such insurance protection. A successful claim or damage resulting from a hazard
for which the Company is not fully insured could have a material adverse effect
on the Company. Furthermore, no assurance can be given that the Company will be
able to maintain adequate insurance in the future at rates that it considers
reasonable. See "Business--Potential Liability and Insurance." In addition, the
Company's operations are subject to curtailed or suspended operations as a
result of adverse weather conditions, natural disasters, work stoppages, mine
closings, force majeure and other similar events, which could have a material
adverse impact upon the Company. Moreover, the Company's foreign drill rigs are
often situated in remote locations with limited infrastructure support which
could hinder the supply and mobilization of rigs, supporting equipment and
supplies.
8
<PAGE>
NEED FOR SKILLED WORKERS
The Company's ability to remain productive, profitable and competitive
depends substantially upon its ability to retain and attract skilled drillers
and employees with expert geological knowledge and capabilities. The demand for
such workers is high and the supply is limited. The inability of the Company to
attract and retain trained drillers and other skilled employees in the United
States and overseas could have a material adverse effect on the Company.
COMPETITIVE BIDS; LOW BARRIERS TO ENTRY; COMPETITION
Contracts for the Company's services are awarded on a competitive bid or
negotiated basis. Principal factors considered in awarding a particular contract
may often include a firm's technical expertise, reputation, bonding capacity,
safety record, access to available equipment, project management skills,
scheduling estimates and price. In its water well drilling and maintenance
businesses, the Company competes with many smaller firms on a local or regional
level. There are no proprietary technologies or other significant factors which
prevent other firms from entering these local or regional markets or from
consolidating together into larger companies more comparable in size to the
Company. In its mineral exploration business, the Company competes with a number
of drilling companies, including the Boart Longyear Group, an indirect
subsidiary of Anglo-American Industrial Corporation, Ltd ("Boart Longyear"), and
Ausdrill Limited, as well as vertically integrated mining companies that conduct
their own exploration drilling or drill and blast activities; some of these
competitors have greater capital and other resources than the Company.
Additional competition could adversely affect the Company. See "Business--
Competition."
REGULATION OF DRILLING SERVICES
The services provided by the Company are subject to various licensing,
permitting, approval and reporting requirements imposed by federal, state, local
and foreign laws. Its operations are subject to inspection and regulation by
various governmental agencies, including the Department of Transportation,
Occupation and Safety Health Administration ("OSHA") and Mine Safety and Health
Administration of the Department of Labor ("MSHA") in the United States as well
as their counterparts in foreign countries. Such regulation also affects the
Company's mining customers and may influence their determination whether to
conduct mineral exploration and development; future changes in these laws,
domestically or in foreign countries, could have a material adverse impact on
the Company's customers, which in turn could have a material adverse impact on
the Company. See "Business--Regulatory and Environmental Matters."
POTENTIAL ENVIRONMENTAL LIABILITY
The Company's activities are subject to regulation under various
environmental laws regarding emissions to air, discharges to water and
management of wastes and hazardous substances. To the extent the Company fails
to comply with these various regulations, it could be subject to monetary fines,
suspension of operations and other penalties. In particular, in April 1997,
employees of the Company conducting a ground freeze project on the site of a
steel plant in Northwest Indiana were involved in a spill of approximately 2,000
gallons of ammonium hydroxide from a storage tank which resulted in a discharge
of the pollutant. In June 1997, the Company learned that the United States
Environmental Protection Agency (the "EPA"), Region V Office of Criminal
Investigation, was investigating the matter. To date the EPA has conducted
interviews of a limited number of employees. At this time, no written claims or
charges have been made against the Company or any of its employees. However,
there can be no assurance that civil or criminal charges will not result from
the investigation or that such charges will not have a material adverse effect
on the Company. In particular, criminal liability could impair the ability of
the Company to be awarded municipal and federal government contracts. See
"Business--Regulatory and Environmental Matters."
9
<PAGE>
DEPENDENCE ON MUNICIPAL SPENDING IN WATER WELL BUSINESS
Approximately 27% of the Company's fiscal 1997 revenues were derived from
water well drilling and maintenance contracts with local governmental entities
or agencies. Large reductions in such spending by a significant number of
municipalities or local governmental agencies could have a material adverse
effect on the Company. See "Business--Customers and Contracts."
CONTROL BY PRINCIPAL STOCKHOLDER
After the offering and based on shares of Common Stock outstanding as of
June 1, 1997, an aggregate of 2,120,436 shares of Common Stock, or approximately
19.4% (18.1% if the Underwriters' over-allotment option is exercised in full) of
the outstanding Common Stock, will be held by KKR Associates, L.P. ("KKR
Associates"), an affiliate of Kohlberg Kravis Roberts & Co., L.P. ("KKR"), and
Marley G.P., Inc., another KKR affiliate. Consequently, KKR and its affiliates
will be able to exercise significant influence over the business of the Company
by virtue of their existing representation on the Board of Directors of the
Company and their voting power with respect to the election of directors and
actions requiring stockholder approval. Moreover, in connection with the
Company's acquisition of CBC, certain former CBC stockholders holding an
aggregate of approximately 1,500,000 shares of Common Stock as of June 1, 1997,
approximately 725,000 of which will be sold in this offering, agreed to vote
their shares of Common Stock through December 2001 for a Board consisting of
five directors and the election as directors of four individuals designated by
KKR. In addition, KKR renders consulting and financial services to the Company
for which it receives an annual fee. See "Management" and "Principal and Selling
Stockholders."
FLUCTUATIONS IN QUARTERLY RESULTS
The Company historically has experienced fluctuations in its quarterly
results arising from the timing of the award and completion of contracts, the
recording of related revenues and unanticipated additional costs incurred on
projects. The Company's revenues on large drilling contracts are recognized on a
percentage of completion basis for individual contracts based upon the ratio of
costs incurred to total estimated costs at completion. Contract price and cost
estimates are reviewed periodically as work progresses and adjustments
proportionate to the percentage of completion are reflected in contract revenues
and gross profit in the reporting period when such estimates are revised.
Changes in job performance, job conditions and estimated profitability
(including those arising from contract penalty provisions) and final contract
settlements may result in revisions to costs and income and are recognized in
the period in which the revisions are determined. A significant number of the
Company's contracts contain fixed prices and generally assign responsibility to
the Company for cost overruns for the subject projects; as a result, revenues
and gross margin may vary from those originally estimated and, depending upon
the size of the project, variations from estimated contract performance could
affect the Company's operating results for a particular quarter. Many of the
Company's contracts are also subject to cancellation by the customer upon short
notice with limited damages payable to the Company. In addition, adverse weather
conditions, natural disasters, force majeure and other similar events can
curtail Company operations in various regions of the world throughout the year,
resulting in performance delays and increased costs. Moreover, the Company's
domestic drilling activities and related revenues and earnings tend to decrease
in the winter months when adverse weather conditions interfere with access to
drilling sites and the ability to drill; as a result, the Company's revenues and
earnings in its second and third quarters tend to be higher than revenues and
earnings in its first and fourth quarters. Accordingly, as a result of the
foregoing as well as other factors, quarterly results should not be considered
indicative of results to be expected for any other quarter or for any full
fiscal year. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and Notes thereto.
10
<PAGE>
PRICE VOLATILITY
The market price of the Common Stock could be subject to significant
fluctuations in response to quarter-to-quarter variations in the Company's
results of operations, changes in earnings estimates or recommendations by
analysts, other events or factors relating to the Company's performance or the
drilling or mining industries generally, factors influencing the demand and
supply of gold and copper and related mining activity, the sale or attempted
sale of a large amount of shares of Common Stock in the public market or the
registration for resale of any shares of Common Stock. After this offering, the
holders of approximately 3,200,000 shares of restricted Common Stock will
continue to have certain registration rights. The Company's executive officers
and directors and certain principal and other stockholders and other Selling
Stockholders, who hold in the aggregate approximately 3,300,000 shares of Common
Stock, after giving effect to the offering, will agree that for a period of 90
days after the date of this Prospectus, they will not, without the prior written
consent of Piper Jaffray Inc., dispose of any shares of Common Stock. Except for
such agreement, KKR Associates and Marley G.P., Inc. are under no obligation to
retain the shares of Common Stock held by them, which will represent
approximately 19.4% of the Company's outstanding Common Stock after giving
effect to the offering, and may distribute or dispose of them at any time. In
addition, the securities markets have experienced significant price and volume
fluctuations from time to time in recent years that have often been unrelated or
disproportionate to the operating performance of particular companies or
industries. These fluctuations may adversely affect the market price of the
Common Stock. See "Price Range of Common Stock," "Description of Capital Stock--
Registration and Other Rights" and "Underwriting."
CERTAIN ANTI-TAKEOVER EFFECTS
The Company's Restated Certificate of Incorporation and Bylaws, as well as
Delaware corporate law, contain certain provisions that could have the effect of
delaying, deferring or preventing a change of control of the Company that may be
in the best interest of stockholders. These provisions include the ability of
the Company to issue up to 5,000,000 shares of preferred stock having such
designations, preferences and rights as may be fixed by the Board of Directors,
without any stockholder approval, and a provision under which only the Board of
Directors may call meetings of stockholders. In addition, the directors are
divided into three classes, each having a term of three years, with the term of
one class expiring each year. These provisions could delay the replacement of a
majority of the directors and have the effect of making changes in the Board of
Directors more difficult than if such provisions were not in place. Under
certain conditions, Section 203 of the Delaware General Corporation Law would
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" (in general, a stockholder owning 15% or more of the
Company's outstanding voting stock) for a period of time. See "Description of
Capital Stock."
DIVIDENDS RESTRICTED
The Company has not paid any cash dividends on its Common Stock since the
Company's initial public offering in August 1992. Moreover, the Board of
Directors of the Company does not anticipate paying any cash dividends in the
foreseeable future. In addition, the Company's current credit arrangements
restrict its ability to pay dividends. See "Dividend Policy."
THE STANLEY ACQUISITION
On May 20, 1997, Layne Christensen, through its wholly-owned subsidiary
Layne Australia, made a tender offer to the security holders of Stanley, a
company listed on the Australian Stock Exchange. Stanley is a leading Australian
mineral exploration drilling company that provides services predominantly to
gold mining companies in Australia and West Africa, principally Ghana. As of
October 1, 1996, the operations of Stanley have included those of its 51% owned
subsidiary, G&K, a leading drilling contractor based and operating in Western
Australia that specializes in diamond core exploration drilling for gold
projects. The
11
<PAGE>
purchase price of the Stanley Acquisition is estimated at $57,990,000,
consisting of a cash purchase price for the tender offer estimated at
$51,666,000 and an estimated liability of $6,324,000 relating to G&K's
obligation to repurchase the remaining 49% of the outstanding capital stock of
G&K.
On July 7, 1997, the close of the tender offer period, 98% of the Stanley
shares then outstanding had been tendered. The tender offer was consummated on
July 25, 1997. Layne Australia will purchase the shares of Stanley that were not
tendered, at the tender offer share price, pursuant to legal procedures
available to corporations owning at least 90% of the shares of a target
corporation. The G&K Acquisition is expected to be completed by September 30,
1997.
The Company believes that the Stanley Acquisition will provide the Company
with several strategic benefits. The Company will gain entry into the drilling
markets of Australia and West Africa, as well as access to the operational
expertise of Stanley and G&K, including Stanley's base of Australian expatriate
employees in West Africa. The Company believes that Stanley's experience in
drill and blast operations will offer the Company's affiliates in South America
an opportunity to provide these services in that region. In addition, G&K has
significant experience in the design and fabrication, for internal use, of
multi-purpose exploration rigs which can alternate between diamond core and
reverse circulation drilling; the Company believes this experience will enable
it to design improved products for this application.
Stanley specializes in diamond core, reverse circulation and percussion
drilling techniques, principally in gold mines, and has recently expanded into
the iron ore market. Stanley also provides drill and blast services at
production-stage open pit mines, a business line not currently offered by the
Company. In drill and blast operations, the driller drills holes for the
placement of explosives; the explosives are then detonated to loosen and
dislodge earth, which is hauled away by the mining company for processing. Drill
and blast contracts typically have lower margins than traditional mineral
exploration drilling projects; however, they provide more stable revenues
because drill and blast contracts typically have a duration of three to five
years whereas traditional mineral exploration projects typically have
substantially shorter terms. For its fiscal year ended June 30, 1996,
approximately 49% of Stanley's revenues were derived from traditional
exploration drilling and 51% were derived from its drill and blast operations.
For the purposes of this Prospectus, the phrase "mineral exploration drilling"
includes drill and blast operations, unless otherwise noted. In addition,
Stanley has equity interests in mining companies with limited gold mining
concessions in Ghana and Cote D'Ivoire; the Company, however, does not presently
intend to expand this portion of Stanley's business. Stanley began its
operations in 1980 in Australia as an exploration drilling company, expanding
into drill and blast operations in 1990. Stanley established its presence in
Africa in 1991 as mining companies focused increasingly on that continent. As of
May 31, 1997, Stanley (excluding G&K) owned or leased 20 drill rigs in West
Africa and 21 drill rigs in Western Australia and employed in excess of 380
employees. G&K had over 150 employees and owned or leased 23 rigs as of May 31,
1997.
In connection with the Stanley Acquisition, the Company entered into a
three-year employment agreement with Ross F. Stanley, the principal founder of
Stanley. The Company and Mr. Stanley also agreed that he would purchase
$1,500,000 of the Company's Common Stock and would be granted options to
purchase three times the number of such purchased shares.
The Stanley Acquisition is being financed through a $100,000,000 reducing
revolving credit facility provided by Bank of America National Trust and Savings
Association ("Bank of America") and a syndicate arranged by BancAmerica
Securities, Inc. (the "New Credit Agreement"). The Company also borrowed funds
under the New Credit Agreement to refinance the Company's pre-existing
$30,000,000 credit facility. The Company intends to use the proceeds from the
sale of 2,006,565 shares of Common Stock offered hereby to reduce debt under the
New Credit Agreement. See "Use of Proceeds," "Unaudited Consolidated Pro Forma
Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview" and "--Liquidity and Capital
Resources."
12
<PAGE>
SUMMARY UNAUDITED STANLEY AND G&K HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
The following sets forth summary historical and pro forma consolidated
financial data prepared to reflect the combination of Stanley and G&K under the
purchase method of accounting as if Stanley had owned 100% of G&K. The financial
data below does not give effect to Layne Christensen's acquisition of Stanley.
The income statement data is prepared as if the combination had occurred as of
the beginning of the periods presented. The balance sheet data is prepared as if
the combination had occurred as of the balance sheet date indicated. The fiscal
year end of both Stanley and G&K is June 30.
The summary historical and pro forma consolidated financial data presented
is unaudited and does not purport to present the financial position or results
of operations of the companies had the transaction assumed herein occurred on
the dates indicated, nor are they necessarily indicative of the results of
operations which may be expected to occur in the future.
The summary historical and pro forma consolidated financial data is based
upon, and should be read in conjunction with, the separate financial statements
of Stanley and G&K and notes thereto (including US GAAP reconciliation
adjustments). The Company cannot predict whether the consummation of the G&K
Acquisition will conform to the assumptions used in the preparation of the
summary historical and pro forma consolidated financial data. In addition,
management has made a preliminary allocation of purchase price to the assets and
liabilities of G&K based on information currently available. Management intends
to obtain appraisals and other information which will be used to complete the
ultimate allocation of the purchase price. The final allocation of the purchase
price may be substantially different than the preliminary allocation.
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------------------------
1997 1996
------------------------------------------------ -----------------------------------------
STANLEY(2) G&K ADJUSTMENTS COMBINED STANLEY G&K ADJUSTMENTS COMBINED
---------- ------- --------------- -------- ------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:(1)
Revenues......................... $37,166 $15,386 $(10,531)(3) $42,021 $22,830 $12,294 $ -- $35,124
Depreciation..................... 2,989 520 (369)(3) 3,140 1,477 387 -- 1,864
Interest expense................. 222 53 (25)(3) 675 230 91 561(4) 882
425(4)
Income before taxes.............. 3,839 3,898 (2,580)(3) 4,695 2,906 1,777 (652)(4) 4,031
(462)(4)
Income tax expense............... 1,496 1,413 (938)(3) 1,795 1,141 664 (248)(5) 1,557
(176)(5)
Net income....................... 1,383 2,485 (1,642)(3) 2,900 1,765 1,113 (404)(4)(5) 2,474
(286)(4)(5)
960(6)
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JUNE 30, 1996
-----------------------------------------
STANLEY G&K ADJUSTMENTS COMBINED
------- ------- ------------ --------
<S> <C> <C> <C> <C>
Revenues................................... $32,596 $17,239 $ -- $49,835
Depreciation............................... 2,128 536 -- 2,664
Interest expense........................... 346 120 749(4) 1,215
Income before taxes........................ 4,006 1,997 (870)(4) 5,133
Income tax expense......................... 1,616 741 (331)(5) 2,026
Net income................................. 2,390 1,256 (539)(4)(5) 3,107
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997 JUNE 30, 1996
----------------------------------- ----------------------------------------
STANLEY ADJUSTMENTS COMBINED STANLEY G&K ADJUSTMENTS COMBINED
---------- ----------- -------- ------- ------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(7)
Working capital............................ $13,992 $ -- $13,992 $ 7,131 $1,887 $ -- $ 9,018
Total assets............................... 45,324 325(8) 45,649 27,323 8,591 3,030(9) 38,944
Long term debt............................. 998 6,324(8) 7,322 6,308 -- 9,980(9) 16,288
Total stockholders' equity................. 26,992 -- 26,992 12,771 4,254 (2,665)(9)(10) 14,360
</TABLE>
13
<PAGE>
- ------------------------------
(1) Reflects the results of operations of Stanley and G&K for the periods
denoted (in US GAAP). In addition, the columns designated "Adjustments"
include adjustments necessary to reflect the combined results of Stanley and
G&K as if Stanley had owned 100% of G&K as of the beginning of the periods
denoted. The Income Statement Data assumes conversion rates of $.7868,
$.7480 and $.7576 for the periods ended March 31, 1997, March 31, 1996 and
June 30, 1996, respectively. These were the average monthly conversion rates
during each of the periods.
(2) Includes the results of operations for G&K for the period from October 1,
1996 (the effective date of Stanley's acquisition of 51% of the common stock
of G&K) through March 31, 1997.
(3) Represents the elimination of the results of operations for G&K (already
included in Stanley's results of operations) for the period from October 1,
1996 through March 31, 1997.
(4) Represents interest expense at an assumed rate of 7.5% (which represents an
estimate of the variable rate under the New Credit Agreement) and
amortization of goodwill (based on a period of 25 years) assuming Stanley
owned 100% of G&K for the periods presented.
<TABLE>
<CAPTION>
MARCH 31,
-------------------- JUNE 30,
1997 1996 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest expense on borrowings..................................... $ 425,000 $ 561,000 $ 749,000
Goodwill amortization of excess purchase price over net assets of
G&K.............................................................. 37,000 91,000 121,000
--------- --------- ---------
Adjustment to income before taxes.................................. $ 462,000 $ 652,000 $ 870,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
(5) Tax effect at an assumed statutory rate of 38% on income before income
taxes.
(6) Reflects the elimination of the minority interest of G&K recorded by
Stanley.
(7) Reflects (in US GAAP) the consolidated financial position of Stanley as of
March 31, 1997 (including G&K) and the financial position of Stanley and G&K
as of June 30, 1996. The columns designated "Adjustments" include
adjustments necessary to reflect the combined results of Stanley and G&K as
if Stanley had owned 100% of G&K as of the dates denoted. The Balance Sheet
Data assumes a conversion rate of $.7860 and $.7875 at March 31, 1997 and
June 30, 1996, respectively.
(8) Represents the recording of goodwill resulting from the G&K Acquisition.
Management currently estimates that the excess purchase price over
historical cost of the G&K Acquisition will be allocated to goodwill based
on a preliminary review of the G&K financial statements.
<TABLE>
<S> <C>
Estimated purchase price of the 49% minority interest of G&K (borrowings)........... $ 6,324,000
Minority interest in G&K recorded by Stanley........................................ (5,999,000)
------------
Excess purchase price allocated to goodwill......................................... $ 325,000
------------
------------
</TABLE>
(9) Represents the recording of goodwill resulting from the Stanley purchase of
100% of G&K calculated as follows:
<TABLE>
<S> <C>
Initial 51% purchase of G&K (consisting of borrowings of $3,656,000 and Stanley
common stock of $1,589,000)....................................................... $ 5,245,000
51% of cost basis of net assets of G&K at October 1, 1996........................... (2,540,000)
------------
Excess purchase price allocated to goodwill......................................... 2,705,000
------------
Estimated purchase price of remaining 49% interest in G&K........................... 6,324,000
Minority interest in G&K recorded by Stanley........................................ (5,999,000)
------------
Excess purchase price allocated to goodwill......................................... 325,000
------------
Total excess purchase price allocated to goodwill................................... $ 3,030,000
------------
------------
</TABLE>
The total purchase price of $11,569,000 consisted of $9,980,000 of
borrowings and $1,589,000 of Stanley common stock.
(10) To eliminate the stockholders' equity of G&K.
14
<PAGE>
COMPARISON OF NINE MONTHS ENDED MARCH 31, 1997 TO NINE MONTHS ENDED MARCH 31,
1996
On a pro forma combined basis, revenues of Stanley and G&K increased
$6,897,000, or 19.6%, to $42,021,000 for the nine months ended March 31, 1997,
as compared to $35,124,000 for the nine month period in the prior year,
consisting of an increase of $3,805,000 for Stanley and $3,092,000 for G&K. The
increase was primarily the result of strong demand for Stanley's drill and blast
services in Australia and G&K's mineral exploration services in Australia,
partially offset by a decrease in revenues from Stanley's operations in Ghana.
The decrease in revenues from Ghana was the result of the decision by one of
Stanley's largest customers to perform drilling services internally and
terminate certain of its contracts with Stanley.
Depreciation on a pro forma combined basis increased $1,276,000, or 68.5%,
to $3,140,000 for the nine months ended March 31, 1997, as compared to
$1,864,000 for the same period in the prior year, consisting of an increase of
$1,143,000 for Stanley and $133,000 for G&K. The increase in depreciation for
Stanley was primarily the result of capital expenditures made in recent years in
connection with the expansion of operations in Africa.
Income before taxes on a pro forma combined basis increased $664,000, or
16.5%, to $4,695,000 for the nine months ended March 31, 1997, compared to
$4,031,000 for the same period in the prior year, consisting of a decrease of
$1,647,000 for Stanley and an increase of $2,311,000 for G&K. The decrease in
income before taxes for Stanley was the result of reduced revenues in Ghana as
compared to the prior period caused by the terminated contracts combined with
increased maintenance and mobilization costs associated with Stanley's
re-deployment of rigs previously utilized in the performance of those contracts.
In addition, the decrease was the result of a higher proportion of total
revenues coming from lower margin drill and blast services in Australia and
higher depreciation expense as compared to the same period in the prior year.
The increase in income before taxes for G&K was primarily the result of
operational efficiencies arising from greater rig utilization and higher margins
resulting from increased prices as compared to the prior period.
Net income on a pro forma combined basis increased $426,000, or 17.2%, to
$2,900,000 for the nine months ended March 31, 1997, as compared to $2,474,000
for the nine month period in the prior year, consisting of a decrease of
$1,064,000 for Stanley and an increase of $1,490,000 for G&K, as a result of the
factors discussed above.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,006,565 shares of
Common Stock offered hereby are estimated to be $39,331,000 based upon an
assumed offering price per share of $21 ($54,293,000 if the Underwriters'
over-allotment option is exercised in full) after deducting the underwriting
discount and estimated offering expenses. The Company anticipates that its net
proceeds from this offering will be used to repay a portion of the $52,516,000
in debt (excluding the amount to be borrowed for the G&K Acquisition) incurred
by the Company under the New Credit Agreement in connection with the Stanley
Acquisition. As of August 7, 1997, the interest rate of such debt is 6.2625% and
the maturity date is July 25, 2002. See "The Stanley Acquisition," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Unaudited Pro Forma
Consolidated Financial Statements."
The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Stockholders.
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
"LAYN." The table below sets forth the high and low closing prices of the Common
Stock on the Nasdaq National Market for the periods indicated, as reported by
the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR ENDING JANUARY 31, 1998:
First Quarter......................... $17 3/4 $14 1/4
Second Quarter........................ 22 1/8 16
Third Quarter (through August 5,
1997)............................... 21 20 3/4
FISCAL YEAR ENDED JANUARY 31, 1997:
First Quarter......................... $12 $10 1/4
Second Quarter........................ 13 1/8 11
Third Quarter......................... 13 3/8 11
Fourth Quarter........................ 15 1/2 12 3/8
FISCAL YEAR ENDED JANUARY 31, 1996:
First Quarter......................... $ 7 7/8 $ 6 1/4
Second Quarter........................ 8 1/8 7 1/8
Third Quarter......................... 9 3/8 7 1/4
Fourth Quarter........................ 11 1/2 8 1/4
</TABLE>
On August 5, 1997, the last reported sale price of the Common Stock as
quoted on the Nasdaq National Market was $21 per share. As of June 1, 1997, the
Company had 207 stockholders of record.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since the
Company's initial public offering in August 1992. Moreover, the Board of
Directors of the Company does not anticipate paying any cash dividends in the
foreseeable future. The Company's future dividend policy will depend on a number
of factors including future earnings, capital requirements, financial condition
and prospects of the Company and such other factors as the Board of Directors
may deem relevant, as well as restrictions under the New Credit Agreement, the
Note Agreement between the Company and Massachusetts Mutual Life Insurance
Company, as amended, and other restrictions which may exist under other credit
arrangements existing from time to time. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and Note 8 of the Notes to the Company's Consolidated Financial
Statements.
16
<PAGE>
CAPITALIZATION
The following table sets forth (i) the historical consolidated short-term
debt and capitalization of the Company as of April 30, 1997, (ii) the pro forma
short-term debt and capitalization of the Company after giving effect to the
Stanley Acquisition and (iii) the pro forma short-term debt and capitalization
of the Company after giving effect to the Stanley Acquisition and the sale by
the Company of 2,006,565 shares of Common Stock offered by the Company hereby at
an assumed offering price of $21 per share and the application of the estimated
net proceeds therefrom. This table should be read in conjunction with the
Company's and Stanley's Consolidated Financial Statements and Notes thereto,
G&K's Financial Statements and Notes thereto and the "Unaudited Pro Forma
Consolidated Financial Statements" and Notes thereto included elsewhere in this
Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
APRIL 30, 1997
-----------------------------------------------
<S> <C> <C> <C>
PRO FORMA FOR
STANLEY
PRO FORMA FOR ACQUISITION
STANLEY AND THE
HISTORICAL ACQUISITION OFFERING
----------- ----------------- ---------------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short-term debt:
Mortgage loan................................................... $ 117 $ 117 $ 117
Stanley debt.................................................... -- 1,273 1,273
----------- -------- ---------------
Total short-term debt......................................... $ 117 $ 1,390 $ 1,390
----------- -------- ---------------
----------- -------- ---------------
Long-term debt:
Credit facility(1).............................................. $ 9,500 $ -- $ --
New Credit Agreement(2)(3)(4)................................... -- 66,840 27,509
6.75% Senior Notes due 2006(1).................................. 25,000 25,000 25,000
Mortgage loan(1)................................................ 1,283 1,283 1,283
Stanley debt.................................................... -- 998 998
----------- -------- ---------------
Total long-term debt.......................................... 35,783 94,121 54,790
Stockholders' equity:
Preferred Stock (par value $0.01 per share), 5,000,000 shares
authorized; no shares outstanding historical or pro forma .... -- -- --
Common Stock (par value $0.01 per share), 30,000,000 shares
authorized; 8,874,991 shares issued historical; 8,943,957
shares issued pro forma for the Stanley Acquisition; and
10,950,522 shares issued pro forma for the Stanley Acquisition
and the offering(3)(4)(5)..................................... 89 90 110
Additional paid-in capital(3)(4).................................. 39,407 40,906 80,217
Retained earnings................................................. 25,870 25,870 25,870
Other............................................................. (866) (866) (866)
----------- -------- ---------------
Total stockholders' equity.................................... 64,500 66,000 105,331
----------- -------- ---------------
Total capitalization.......................................... $ 100,283 $ 160,121 $ 160,121
----------- -------- ---------------
----------- -------- ---------------
</TABLE>
- ------------------------
(1) See Note 8 to the Company's Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for further information.
(2) See "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Unaudited Pro Forma Consolidated Financial Statements."
(3) Reflects $1,500,000 in proceeds from the purchase of 68,966 shares of Common
Stock (at a price per share of $21.75) by Mr. Stanley, anticipated to be
used to repay indebtedness under the New Credit Agreement.
(4) Reflects the sale of 2,006,565 shares of Common Stock offered by the Company
hereby at an assumed offering price of $21 per share. The estimated net
proceeds of $39,331,000 are anticipated to be used to repay indebtedness
under the New Credit Agreement.
(5) Does not include (i) options to purchase 657,642 shares of Common Stock that
were outstanding under the Company's stock option plans as of April 30,
1997, of which 440,345 were exercisable immediately or within 60 days of
such date or (ii) options to purchase 206,897 shares of Common Stock granted
to Mr. Stanley in connection with the Stanley Acquisition.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents (i) historical income statement data of the
Company for the three months ended April 30, 1997 and 1996, the fiscal years
ended January 31, 1997, 1996 and 1995, the twelve months ended January 31, 1994
and the fiscal year ended April 30, 1993 and (ii) historical balance sheet data
of the Company as of April 30, 1997, January 31, 1997, 1996, 1995 and 1994 and
April 30, 1993. The historical financial data for fiscal years ended January 31,
1997, 1996, and 1995 and April 30, 1993 have been derived from the Company's
audited consolidated financial statements. Such consolidated financial
statements were audited by Deloitte & Touche LLP, independent auditors, whose
report thereon appears elsewhere herein. Financial information as of April 30,
1997 and for the three months ended April 30, 1997 and 1996 has been derived
from unaudited consolidated financial statements. The Company changed its fiscal
year end to January 31 from April 30 during 1994; therefore, the consolidated
income statement data for the twelve months ended January 31, 1994 was derived
from unaudited consolidated financial statements. The unaudited consolidated
financial statements referred to above, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of such information. Results for the three months ended
April 30, 1997 may not be indicative of the results expected for the fiscal year
ending January 31, 1998. In December 1995, the Company completed a merger with
CBC which has been accounted for under the purchase method of accounting (see
Note 2 of the Notes to the Company's Consolidated Financial Statements) and,
accordingly, the Company's consolidated results include the operations of CBC
from the date of acquisition. The information below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED TWELVE MONTHS
APRIL 30, JANUARY 31, ENDED JANUARY
-------------------- ------------------------------- 31,
1997 1996 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................................................ $ 57,750 $ 53,773 $ 222,853 $ 167,271 $ 166,830 $ 169,766
Cost of revenues (exclusive of depreciation shown
below)................................................ 42,145 39,703 161,602 122,078 123,814 130,004
--------- --------- --------- --------- --------- --------------
Gross profit............................................ 15,605 14,070 61,251 45,193 43,016 39,762
Selling, general and administrative expenses............ 10,327 9,737 38,956 28,260 28,860 31,985
Depreciation............................................ 2,832 2,841 10,974 8,233 7,811 8,737
Restructuring charge(1)................................. -- -- -- -- -- 12,000
--------- --------- --------- --------- --------- --------------
Operating income (loss)................................. 2,446 1,492 11,321 8,700 6,345 (12,960)
Other income (expense):
Equity in earnings of foreign affiliates................ 820 1,102 3,895 -- -- --
Interest................................................ (614) (679) (2,447) (767) (779) (2,048)
Other, net.............................................. 62 90 161 407 (84) (198)
--------- --------- --------- --------- --------- --------------
Income (loss) before income taxes....................... 2,714 2,005 12,930 8,340 5,482 (15,206)
Income tax (benefit) expense............................ 1,031 902 4,913 3,753 2,522 (5,736)
--------- --------- --------- --------- --------- --------------
Net income (loss)....................................... $ 1,683 $ 1,103 $ 8,017 $ 4,587 $ 2,960 $ (9,470)
--------- --------- --------- --------- --------- --------------
--------- --------- --------- --------- --------- --------------
Net income (loss) per common and dilutive equivalent
share................................................. $ 0.18 $ 0.12 $ 0.88 $ 0.61 $ 0.40 $ (1.31)
--------- --------- --------- --------- --------- --------------
--------- --------- --------- --------- --------- --------------
<CAPTION>
FISCAL YEAR
ENDED APRIL
30,
1993
-----------
<S> <C>
INCOME STATEMENT DATA:
Revenues................................................ $ 168,688
Cost of revenues (exclusive of depreciation shown
below)................................................ 124,624
-----------
Gross profit............................................ 44,064
Selling, general and administrative expenses............ 30,595
Depreciation............................................ 8,203
Restructuring charge(1)................................. --
-----------
Operating income (loss)................................. 5,266
Other income (expense):
Equity in earnings of foreign affiliates................ --
Interest................................................ (2,012)
Other, net.............................................. (55)
-----------
Income (loss) before income taxes....................... 3,199
Income tax (benefit) expense............................ 1,407
-----------
Net income (loss)....................................... $ 1,792
-----------
-----------
Net income (loss) per common and dilutive equivalent
share................................................. $ 0.28
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
APRIL 30, ------------------------------------------
1997 1997 1996 1995 1994
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................................................... $ 37,572 $ 29,643 $ 26,796 $ 13,578 $ 29,545
Total assets............................................................ 152,841 143,650 134,177 79,094 90,250
Long-term debt.......................................................... 35,783 30,314 28,428 -- 18,900
Total stockholders' equity.............................................. 64,500 62,664 53,972 40,273 37,348
<CAPTION>
APRIL 30,
1993
-----------
<S> <C>
BALANCE SHEET DATA:
Working capital......................................................... $ 32,401
Total assets............................................................ 101,448
Long-term debt.......................................................... 22,000
Total stockholders' equity.............................................. 45,984
</TABLE>
- ------------------------
(1) During the twelve months ended January 31, 1994, the Company adopted a plan
to close certain locations and rightsize certain others that, in
management's opinion, would allow the Company to shift strategically to
areas that were more consistent with the Company's long-range objectives for
growth and return on investment. The Company-wide restructuring was a result
of the decision to move aggressively away from low end marginal services
across all product lines.
18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following sets forth the Unaudited Pro Forma Consolidated Statements of
Income for the three months ended April 30, 1997 and the fiscal year ended
January 31, 1997 and the Unaudited Pro Forma Consolidated Balance Sheet as of
April 30, 1997 which were prepared to reflect the Stanley Acquisition under the
purchase method of accounting and the offering. The fiscal year end of both
Stanley and G&K is June 30. The columns designated "Pro Forma for G&K
Acquisition" adjust the historical consolidated financial statements of Stanley
to reflect the G&K Acquisition as if it had occurred on February 1, 1996 (in the
case of the Unaudited Pro Forma Consolidated Statements of Income) and on April
30, 1997 (in the case of the Unaudited Pro Forma Consolidated Balance Sheet).
The columns designated "Pro Forma for Stanley Acquisition" adjust the historical
consolidated financial statements of the Company to reflect the Stanley
Acquisition as if it had occurred on February 1, 1996 (in the case of the
Unaudited Pro Forma Consolidated Statements of Income) and on April 30, 1997 (in
the case of the Unaudited Pro Forma Consolidated Balance Sheet). The columns
designated "Pro Forma for Stanley Acquisition and the Offering" include the
effect of the offering as if it had occurred on February 1, 1996 (in the case of
the Unaudited Pro Forma Consolidated Statements of Income) and on April 30, 1997
(in the case of the Unaudited Pro Forma Consolidated Balance Sheet). The tender
offer was consummated on July 25, 1997. G&K's repurchase of the remaining 49% of
its common stock is expected to be completed by September 30, 1997.
The Unaudited Pro Forma Consolidated Financial Statements of the Company do
not purport to present the financial position or results of operations of the
Company had the transactions assumed herein occurred on the dates indicated, nor
are they necessarily indicative of the results of operations which may be
expected to occur in the future.
The Unaudited Pro Forma Consolidated Financial Statements are based upon,
and should be read in conjunction with, the Consolidated Financial Statements of
the Company and Stanley and Notes thereto, as well as the Financial Statements
and Notes thereto of G&K, included elsewhere in this Prospectus. The Stanley and
G&K financial information is derived from unaudited financial statements and
notes thereto (including US GAAP reconciliation adjustments) provided to the
Company. The Company cannot predict whether the consummation of the Stanley
Acquisition or the offering will conform to the assumptions used in the
preparation of the Unaudited Pro Forma Consolidated Financial Statements. In
addition, management has made a preliminary allocation of purchase price to the
assets and liabilities of Stanley and G&K, based on information currently
available. Management intends to obtain appraisals and other information which
will be used to complete the ultimate allocation of the purchase price. The
final allocation of the purchase price may be substantially different than the
preliminary allocation.
For purposes of the Unaudited Pro Forma Consolidated Financial Statements
only, the terms "Stanley Acquisition" and "G&K Acquisition" include Stanley's
initial purchase of 51% of the outstanding capital stock of G&K.
19
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED APRIL 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA FOR STANLEY ACQUISITION
---------------------------------------------------------
PRO FORMA FOR G&K
LAYNE ACQUISITION
CHRISTENSEN STANLEY G&K --------------------------
HISTORICAL(1) HISTORICAL(2) HISTORICAL(2) ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
------------- ------------- ------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Service and
product
revenues..... $ 57,750 $13,618 $ 5,137 $ (5,137)(3) $13,618 $ 71,368
Other
revenues..... 1,673 (16) 16(3) 1,673 $ (1,673)(7)
------------- ------------- ------------- ----------- --------- ----------- ---------
Total
revenues..... 57,750 15,291 5,121 (5,121) 15,291 (1,673) 71,368
Cost of
revenues..... 42,145 9,780(7) 51,925
Operating
costs........ 12,665 4,083 (4,083)(3) 12,665 (12,665)(7)
------------- ------------- ------------- ----------- --------- ----------- ---------
Gross profit... 15,605 2,626 1,038 (1,038) 2,626 1,212 19,443
Selling,
general and
administrative
expenses..... 10,327 (100)(8) 11,513
91(9)
1,195(7)
Amortization
expense...... 3(4) 3 249(4) 282
30(10)
Depreciation... 2,832 1,123 195 (195)(3) 1,123 3,955
------------- ------------- ------------- ----------- --------- ----------- ---------
Operating
income....... 2,446 1,503 843 (846) 1,500 (253) 3,693
Other
income(expense):
Equity in
earnings of
foreign
affiliates... 820 820
Interest..... (614) (89) (4) 4(3) (208) (957)(11) (1,779)
(119)(5)
Other income,
net........ 62 (3) 392 (392)(3) (3) (17)(7) 42
------------- ------------- ------------- ----------- --------- ----------- ---------
Income before
income
taxes........ 2,714 1,411 1,231 (1,353) 1,289 (1,227) 2,776
Income tax
expense...... 1,031 662 448 (448)(3) 616 (466)(6) 1,181
(46)(6)
Minority
interest..... 595 (595)(3)
------------- ------------- ------------- ----------- --------- ----------- ---------
Net income..... $ 1,683 $ 154 $ 783 $ (264) $ 673 $ (761) $ 1,595
------------- ------------- ------------- ----------- --------- ----------- ---------
------------- ------------- ------------- ----------- --------- ----------- ---------
Net income per
common
and dilutive
equivalent
share........ $ 0.18 $ 0.17
------------- ---------
------------- ---------
Weighted
average
number of
common and
dilutive
equivalent
shares
outstanding... 9,234,000 118,907(12) 9,352,907
------------- ---------
------------- ---------
<CAPTION>
PRO FORMA FOR STANLEY
ACQUISITION AND THE OFFERING
-----------------------------
ADJUSTMENTS PRO FORMA
----------- ----------
<S> <C> <C> <C>
Service and
product
revenues..... $ 71,368
Other
revenues.....
----------- ----------
Total
revenues..... 71,368
Cost of
revenues..... 51,925
Operating
costs........
----------- ----------
Gross profit... 19,443
Selling,
general and
administrative
expenses..... 11,513
Amortization
expense...... 282
Depreciation... 3,955
----------- ----------
Operating
income....... 3,693
Other
income(expense)
Equity in
earnings of
foreign
affiliates... 820
Interest..... $ 737(13) (1,042)
Other income,
net........ 42
----------- ----------
Income before
income
taxes........ 737 3,513
Income tax
expense...... 280(6) 1,461
Minority
interest.....
----------- ----------
Net income..... $ 457 $ 2,052
----------- ----------
----------- ----------
Net income per
common
and dilutive
equivalent
share........ $ 0.18
----------
----------
Weighted
average
number of
common and
dilutive
equivalent
shares
outstanding... 2,006,565(14) 11,359,472
----------
----------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Income
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED APRIL 30, 1997
(1) The column designated "Layne Christensen Historical" reflects the
consolidated results of operations of the Company for the three months ended
April 30, 1997.
(2) The column designated "Stanley Historical" reflects the results of
operations of Stanley for the three months ended March 31, 1997 (in US GAAP)
including the results of operations of G&K for the three months ended March
31, 1997. The column designated "G&K Historical" reflects the results of
operations of G&K for the three months ended March 31, 1997 (in US GAAP).
The Unaudited Pro Forma Consolidated Statement of Income assumes a
conversion rate of $.7802 representing the average monthly conversion rate
for the three months ended March 31, 1997.
(3) Represents the elimination of the operating results of G&K for the three
months ended March 31, 1997 (already included in Stanley's historical
results of operations), and related minority interest.
(4) Represents three months of amortization of goodwill based on a period of 25
years. See Notes 3 and 4 to the Unaudited Pro Forma Consolidated Balance
Sheet.
(5) Represents three months of interest expense at an assumed rate of 7.5%
(which represents an estimate of the variable rate under the New Credit
Agreement) on net borrowings of $6,324,000 undertaken for G&K's obligation
to repurchase the remaining 49% of the outstanding capital stock of G&K.
(6) Tax effect at an assumed statutory rate of 38% on income before income
taxes.
(7) Represents a reclassification of Stanley and G&K revenues and expenses to
conform with the Company's classifications for financial reporting purposes.
Gross profit in the Stanley Historical and G&K Historical columns would not
be reflective of gross profit determined under US GAAP as neither Stanley
nor G&K classifies cost of revenues separately from operating costs.
Management has used an Australian GAAP to US GAAP reconciliation as provided
in unaudited historical financial statements of Stanley and G&K and other
information to determine reclassifications and assumed selling, general and
administrative expenses for Stanley and G&K to be approximately 10% of
service revenues prior to Australian GAAP to US GAAP adjustments.
(8) Represents cost reductions identified as a result of the Stanley
Acquisition, including the elimination of directors' fees, Australian public
filing fees and expenses and printing costs resulting from Stanley no longer
being publicly traded in Australia.
(9) Represents compensation expense associated with options granted to Mr.
Stanley under his employment agreement. The expense is based upon (i) an
exercise price of $16.50 per share, (ii) the closing price of $21.75 for the
Common Stock on June 25, 1997 (the effective date of the option grant) and
(iii) the issuance of options (with a three year vesting period) to purchase
206,897 shares of Common Stock.
(10) Represents three months of amortization of deferred financing costs related
to the New Credit Agreement based on a period of five years.
(11) Represents three months of interest expense at an assumed interest rate of
7.5% (which represents an estimate of the variable rate on the New Credit
Agreement) on net borrowings undertaken for the Stanley tender offer and the
repayment of borrowings from the proceeds of the issuance of Common Stock to
Mr. Stanley as follows:
<TABLE>
<S> <C>
Interest expense on borrowings of $52,516,000 for the tender offer...................................... ($ 985,000)
Reduction in interest expense attributed to receipt of proceeds from purchase of Common Stock
($1,500,000) by Mr. Stanley........................................................................... 28,000
----------
Pro forma adjustment to interest expense................................................................ ($ 957,000)
----------
----------
</TABLE>
(12) Reflects the number of shares of Common Stock purchased by Mr. Stanley
(68,966) in connection with the Stanley Acquisition as if such shares were
outstanding for the entire period and options to purchase 206,897 shares of
Common Stock granted to Mr. Stanley, as calculated under the treasury stock
method.
(13) Represents the reduction in interest expense attributable to the
application of the estimated net proceeds from the sale of 2,006,565 shares
of Common Stock offered by the Company hereby of $39,331,000 (based on an
assumed offering price of $21 per share and the underwriting discount and
estimated expenses totalling $2,807,000) to repay borrowings under the New
Credit Agreement at an assumed interest rate of 7.5%.
(14) Reflects the number of shares of Common Stock to be issued by the Company
in connection with the offering as if such shares were outstanding for the
entire period.
21
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED JANUARY 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA FOR STANLEY ACQUISITION
--------------------------------------------------
PRO FORMA FOR G&K
LAYNE ACQUISITION
CHRISTENSEN STANLEY G&K -----------------------
HISTORICAL(1) HISTORICAL(2) HISTORICAL(2) ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
------------- ------------- ------------- ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Service and product revenues.... $ 222,853 $41,013 $19,494 $(5,290)(3) $55,217 $278,070
Other revenues.................. 1,977 1,348 3,325 $(3,325)(7)
------------- ------------- ------------- ----------- --------- ------------ ---------
Total revenues.................. 222,853 42,990 20,842 (5,290) 58,542 (3,325) 278,070
Cost of revenues................ 161,602 39,329(7) 200,931
Operating costs................. 35,528 16,333 (3,779)(3) 48,082 (48,082)(7)
------------- ------------- ------------- ----------- --------- ------------ ---------
Gross profit.................... 61,251 7,462 4,509 (1,511) 10,460 5,428 77,139
Selling, general and
administrative expenses....... 38,956 (400)(8) 44,708
362(9)
5,790(7)
Amortization expense............ 94(4) 94 997(10) 1,211
120(11)
Depreciation.................... 10,974 3,130 609 (353)(3) 3,386 14,360
------------- ------------- ------------- ----------- --------- ------------ ---------
Operating income................ 11,321 4,332 3,900 (1,252) 6,980 (1,441) 16,860
Other income(expense):
Equity in earnings of
foreign affiliates.......... 3,895 3,895
Interest...................... (2,447) (304) (140) 22(3) (1,102) (3,826)(12) (7,375)
(680)(5)
Other income, net............. 161 (446) (446) 362(7) 77
------------- ------------- ------------- ----------- --------- ------------ ---------
Income before income taxes...... 12,930 4,028 3,314 (1,910) 5,432 (4,905) 13,457
Income tax expense.............. 4,913 1,499 1,158 (413)(3) 1,950 (1,864)(6) 4,999
(294)(6)
Minority interest............... 356 (356)(3)
------------- ------------- ------------- ----------- --------- ------------ ---------
Net income...................... $ 8,017 $ 2,173 $ 2,156 $ (847) $ 3,482 $(3,041) $ 8,458
------------- ------------- ------------- ----------- --------- ------------ ---------
------------- ------------- ------------- ----------- --------- ------------ ---------
Net income per common
and dilutive equivalent
share......................... $ 0.88 $ 0.91
------------- ---------
------------- ---------
Weighted average number of
common and dilutive equivalent
shares outstanding............ 9,146,000 118,907(13) 9,264,907
------------- ---------
------------- ---------
<CAPTION>
PRO FORMA FOR STANLEY
ACQUISITION AND THE
OFFERING
--------------------------
ADJUSTMENTS PRO FORMA
------------- ----------
<S> <C> <C>
Service and product revenues.... $ 278,070
Other revenues..................
------------- ----------
Total revenues.................. 278,070
Cost of revenues................ 200,931
Operating costs.................
------------- ----------
Gross profit.................... 77,139
Selling, general and
administrative expenses....... 44,708
Amortization expense............ 1,211
Depreciation.................... 14,360
------------- ----------
Operating income................ 16,860
Other income(expense):
Equity in earnings of
foreign affiliates.......... 3,895
Interest...................... $ 2,950(14) (4,425)
Other income, net............. 77
------------- ----------
Income before income taxes...... 2,950 16,407
Income tax expense.............. 1,121(6) 6,120
Minority interest...............
------------- ----------
Net income...................... $ 1,829 $ 10,287
------------- ----------
------------- ----------
Net income per common
and dilutive equivalent
share......................... $ 0.91
----------
----------
Weighted average number of
common and dilutive equivalent
shares outstanding............ 2,006,565(15) 11,271,472
----------
----------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Income
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED JANUARY 31, 1997
(1) The column designated "Layne Christensen Historical" reflects the
consolidated results of operations of the Company for the fiscal year ended
January 31, 1997.
(2) The column designated "Stanley Historical" reflects the results of
operations of Stanley for the twelve months ended December 31, 1996 (in US
GAAP) including the results of operations of G&K for the three months ended
December 31, 1996. The column designated "G&K Historical" reflects the
results of operations of G&K for the twelve months ended December 31, 1996
(in US GAAP). The Unaudited Pro Forma Consolidated Statement of Income
assumes a conversion rate of $.7806 representing the average monthly
conversion rate for the year ended December 31, 1996.
(3) Represents the elimination of the operating results of G&K for the three
months ended December 31, 1996 (already included in Stanley's historical
results of operations), and related minority interest.
(4) Represents amortization of goodwill associated with the acquisition of G&K
by Stanley based on a period of 25 years. The goodwill consists of:
<TABLE>
<S> <C>
Initial 51% purchase of G&K by Stanley............................................. $ 5,245,000
51% of the cost basis of net assets of G&K at October 1, 1996...................... (2,540,000)
-------------
Excess purchase price allocated to goodwill........................................ 2,705,000
-------------
Estimated purchase price of the 49% minority interest of G&K....................... 6,324,000
Minority interest in G&K recorded by Stanley as of March 31, 1997.................. (5,999,000)
-------------
Excess purchase price allocated to goodwill........................................ 325,000
-------------
Total excess purchase price allocated to goodwill.................................. $ 3,030,000
-------------
-------------
</TABLE>
The adjustment to amortization expense represents the amortization of
the $2,705,000 of goodwill related to the initial purchase of 51% of
G&K for the period from January 1, 1996 through September 30, 1996
(the period prior to the effective date of the purchase) and the
amortization of $325,000 of goodwill related to the purchase of the
remaining 49% of G&K for the entire year.
(5) Represents interest expense at an assumed rate of 7.5% (which represents an
estimate of the variable rate under the New Credit Agreement) on net
borrowings undertaken for G&K's obligation to repurchase the remaining 49%
of the outstanding capital stock of G&K and interest for the period from
January 1, 1996 through September 30, 1996 related to Stanley's initial
acquisition of 51% of G&K:
<TABLE>
<S> <C>
Interest expense on borrowings of $6,324,000 for the 49% minority interest in G&K..... $ (474,000)
Interest expense on borrowings of $3,656,000 relating to Stanley's initial acquisition
of 51% of G&K....................................................................... (206,000)
----------
Adjustment to interest expense........................................................ $ (680,000)
----------
----------
</TABLE>
(6) Tax effect at an assumed statutory rate of 38% on income before taxes.
(7) Represents a reclassification of Stanley and G&K revenues and expenses to
conform with the Company's classifications for financial reporting purposes.
Gross profit in the Stanley Historical and G&K Historical columns would not
be reflective of gross profit determined under US GAAP as neither Stanley
nor G&K classifies cost of revenues separately from operating costs.
Management has used an Australian GAAP to US GAAP reconciliation as provided
in unaudited historical financial statements of Stanley and G&K and other
information to determine reclassifications and assumed selling, general and
administrative expenses for Stanley and G&K to be approximately 10% of
service revenues prior to Australian GAAP to US GAAP adjustments.
(8) Represents cost reductions identified as a result of the Stanley
Acquisition, including the elimination of directors' fees, Australian public
filing fees and expenses and printing costs resulting from Stanley no longer
being publicly traded in Australia.
(9) Represents compensation expense associated with options granted to Mr.
Stanley under his employment agreement. The expense is based upon (i) an
exercise price of $16.50 per share, (ii) the closing price of $21.75 for the
Common Stock on June 25, 1997 (the effective date of the option grant) and
(iii) the issuance of options (with a three year vesting period) to purchase
206,897 shares of Common Stock.
23
<PAGE>
(10) Represents amortization of goodwill based on a period of 25 years. See Note
4 to the Unaudited Pro Forma Consolidated Balance Sheet.
(11) Represents amortization of deferred financing costs related to the New
Credit Agreement based on a period of five years.
(12) Represents interest expense on net borrowings at an assumed interest rate
of 7.5% (which represents an estimate of the variable rate under the New
Credit Agreement) undertaken for the Stanley tender offer and the repayment
of borrowings from the proceeds of the issuance of Common Stock to Mr.
Stanley as follows:
<TABLE>
<S> <C>
Interest expense on borrowings of $52,516,000 for the tender offer................. $ (3,939,000)
Reduction in interest expense attributed to receipt of proceeds from purchase of
Common Stock ($1,500,000) by Mr. Stanley.......................................... 113,000
-------------
Pro forma adjustment to interest expense........................................... $ (3,826,000)
-------------
-------------
</TABLE>
(13) Reflects the number of shares of Common Stock purchased by Mr. Stanley
(68,966) in connection with the Stanley Acquisition as if such shares were
outstanding for the entire year and options to purchase 206,897 shares of
Common Stock granted to Mr. Stanley, as calculated under the treasury stock
method.
(14) Represents the reduction in interest expense attributable to the
application of the estimated net proceeds from the sale of 2,006,565 shares
of Common Stock offered by the Company hereby of $39,331,000 (based on an
assumed offering price of $21 per share and the underwriting discount and
estimated expenses totalling $2,807,000) to repay borrowings under the New
Credit Agreement at an assumed interest rate of 7.5%.
(15) Reflects the number of shares of Common Stock to be issued by the Company
in connection with the offering as if such shares were outstanding for the
entire year.
24
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF APRIL 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA FOR STANLEY
ACQUISITION
---------------------------------------------------------
PRO FORMA FOR G&K
LAYNE ACQUISITION
CHRISTENSEN STANLEY ---------------------------
HISTORICAL (1) HISTORICAL (2) ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
-------------- -------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash
equivalents.... $ 1,218 $ 3,594 $ 3,594 $ 4,812
Customer
receivables,
net............ 50,734 11,167 11,167 61,901
Inventories...... 19,024 6,354 6,354 25,378
Other current
assets......... 7,698 657 657 8,355
-------------- ------- ----------- --------- ----------- ---------
Total current
assets....... 78,674 21,772 21,772 100,446
-------------- ------- ----------- --------- ----------- ---------
Property and
equipment,
net............ 54,398 21,962 21,962 76,360
Intangible
assets......... 553 $ 325(3) 325 24,924(4) 25,802
Investments in
foreign
affiliates..... 17,660 428 428 18,088
Other assets..... 1,556 1,162 1,162 600(5) 3,318
-------------- ------- ----------- --------- ----------- ---------
$152,841 $45,324 $ 325 $ 45,649 $ 25,524 $224,014
-------------- ------- ----------- --------- ----------- ---------
-------------- ------- ----------- --------- ----------- ---------
LIABILITIES AND
STOCKHOLDERS'
EQUITY:
Accounts
payable........ $ 12,614 $ 4,401 $ 4,401 $ 17,015
Accrued
liabilities.... 28,371 1,996 1,996 30,367
Current
maturities of
long-term
debt........... 117 1,273 1,273 1,390
-------------- ------- ----------- --------- ----------- ---------
Total current
liabilities... 41,102 7,670 7,670 48,772
-------------- ------- ----------- --------- ----------- ---------
Long-term debt... 35,783 998 $ 6,324(3) 7,322 $ 52,516(6) 94,121
(1,500)(7)
Other noncurrent
liabilities.... 11,456 3,665 3,665 15,121
Minority
interests...... 5,999 (5,999)(3)
-------------- ------- ----------- --------- ----------- ---------
Total
liabilities... 88,341 18,332 325 18,657 51,016 158,014
-------------- ------- ----------- --------- ----------- ---------
Common stock..... 89 11,039 11,039 (11,039)(4) 90
1(7)
Capital in excess
of par value... 39,407 10,798 10,798 (10,798)(4) 40,906
1,499(7)
Retained
earnings....... 25,870 5,155 5,155 (5,155)(4) 25,870
Other............ (866) (866)
-------------- ------- ----------- --------- ----------- ---------
Total
stockholders'
equity....... 64,500 26,992 26,992 (25,492) 66,000
-------------- ------- ----------- --------- ----------- ---------
$152,841 $45,324 $ 325 $ 45,649 $ 25,524 $224,014
-------------- ------- ----------- --------- ----------- ---------
-------------- ------- ----------- --------- ----------- ---------
<CAPTION>
PRO FORMA FOR STANLEY
ACQUISITION AND THE OFFERING
---------------------------------
ADJUSTMENTS PRO FORMA
--------------- -----------
<S> <C> <C> <C>
ASSETS:
Cash and cash
equivalents.... $ 4,812
Customer
receivables,
net............ 61,901
Inventories...... 25,378
Other current
assets......... 8,355
--------------- -----------
Total current
assets....... 100,446
--------------- -----------
Property and
equipment,
net............ 76,360
Intangible
assets......... 25,802
Investments in
foreign
affiliates..... 18,088
Other assets..... 3,318
--------------- -----------
$224,014
--------------- -----------
--------------- -----------
LIABILITIES AND
STOCKHOLDERS'
EQUITY:
Accounts
payable........ $ 17,015
Accrued
liabilities.... 30,367
Current
maturities of
long-term
debt........... 1,390
--------------- -----------
Total current
liabilities... 48,772
--------------- -----------
Long-term debt... $ (39,331)(8) 54,790
Other noncurrent
liabilities.... 15,121
Minority
interests......
--------------- -----------
Total
liabilities... (39,331) 118,683
--------------- -----------
Common stock..... 20(8) 110
Capital in excess
of par value... 39,311(8) 80,217
Retained
earnings....... 25,870
Other............ (866)
--------------- -----------
Total
stockholders'
equity....... 39,331 105,331
--------------- -----------
$224,014
--------------- -----------
--------------- -----------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(1) The column designated "Layne Christensen Historical" reflects the
consolidated balance sheet of the Company as of April 30, 1997.
(2) The "Stanley Historical" column reflects the consolidated balance sheet of
Stanley as of March 31, 1997. The Unaudited Pro Forma Consolidated Balance
Sheet assumes a conversion rate of $.7860 representing the conversion rate
at March 31, 1997.
(3) Represents the recording of goodwill resulting from G&K's obligation to
repurchase the remaining 49% of the outstanding capital stock of G&K.
Management currently estimates that the excess purchase price over
historical cost of the G&K Acquisition will be allocated to goodwill based
on a preliminary review of the G&K financial statements.
<TABLE>
<S> <C>
Estimated purchase price of remaining 49% minority interest in G&K (borrowings)............... $6,324,000
Minority interest in G&K recorded by Stanley as of March 31, 1997............................. (5,999,000)
---------
Excess purchase price......................................................................... $ 325,000
---------
---------
</TABLE>
(4) Represents the recording of goodwill resulting from the tender offer to
purchase Stanley. Management currently estimates that the excess purchase
price over historical cost of the net assets acquired will be allocated to
goodwill based on a preliminary review of the Stanley financial statements.
<TABLE>
<S> <C>
Estimated purchase price..................................................................... $51,666,000
Acquisition costs............................................................................ 250,000
Historical cost basis of net assets of Stanley as of March 31, 1997.......................... (26,992,000)
----------
Excess purchase price........................................................................ $24,924,000
----------
----------
</TABLE>
(5) Represents estimated deferred financing costs incurred in connection with
the New Credit Agreement.
(6) Represents borrowings of $52,516,000 under the New Credit Agreement to
finance the $51,666,000 Stanley purchase price and $850,000 of estimated
fees and expenses related to the Stanley Acquisition and the New Credit
Agreement. The Company has entered into a foreign currency collar pursuant
to which the Company has fixed the exchange rate for the purchase of
Australian dollars to finance the purchase of Stanley within a range of
$.7515 to $.7615. For purposes of the pro forma purchase price calculation,
the Company has assumed a conversion rate of $.7615.
(7) Represents the purchase of $1,500,000 of Common Stock (68,966 shares) by Mr.
Stanley and the application of the proceeds from such purchase to repay
borrowings under the New Credit Agreement.
(8) Represents the issuance of 2,006,565 shares of Common Stock by the Company
and the application of the estimated net proceeds of $39,331,000 (assuming
an offering price of $21 per share) to repay borrowings under the New Credit
Facility.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Unaudited Pro Forma
Consolidated Financial Statements, the Company's Consolidated Financial
Statements and Notes thereto, Stanley's Consolidated Financial Statements and
Notes thereto and G&K's Financial Statements and Notes thereto, each of which is
included elsewhere in this Prospectus.
OVERVIEW
Through a series of predecessors, the Company has been in business since the
late 1800's when Mahlon Layne introduced a series of important innovations in
the water well drilling industry. The Company was incorporated in 1981 in
connection with the acquisition of substantially all the assets of The Marley
Company ("Marley"), the Company's former parent corporation, by a corporation
formed by KKR and its affiliates. Immediately prior to the Company's initial
public offering of its Common Stock in August 1992, the shares of Common Stock
held by Marley were distributed to Marley Holdings, L.P. and the other
stockholders of Marley in a spin-off.
In fiscal 1994, the Company began a program designed to improve operating
efficiencies and reduce costs through office closures, reduced headcount,
increased investment in productivity-enhancing capital equipment and improved
safety practices. In a December 1995 cash and stock merger transaction (the "CBC
Merger"), the Company acquired CBC, a leading provider of diamond core drilling
services for mineral exploration and manufacturer of diamond core bits, core
barrels, drill rigs and related equipment. The purchase price paid by the
Company in the CBC Merger consisted of approximately 1,506,000 shares of
restricted Common Stock valued at approximately $9,200,000 and approximately
$9,056,000 in cash; in addition, the Company retired approximately $13,971,000
and assumed $1,491,000 of CBC's existing indebtedness. A portion of the cost of
the CBC Merger was financed by a $25,000,000 term loan. The CBC Merger was
treated as a purchase for financial accounting purposes, and accordingly, the
results of operations include CBC from the acquisition date. As a result of the
CBC Merger, the Company acquired equity interests in CBC's foreign affiliates.
The Company's investment in foreign affiliates as of January 31, 1997
represented approximately 12% of its total assets. In fiscal 1997, the equity
earnings of the Company from its foreign affiliates represented in the aggregate
approximately 30% of the Company's earnings before taxes, and no individual
foreign affiliate represented more than 13% of the Company's earnings before
taxes. See Notes 2, 3 and 8 of Notes to the Company's Consolidated Financial
Statements. In connection with the CBC Merger, the Company changed its name from
Layne, Inc. to Layne Christensen Company in March 1996.
The Stanley Acquisition will have a significant effect on Layne
Christensen's future operations and on comparisons of income, expense and
balance sheet items in future periods in comparison to fiscal 1997 and the first
six months of fiscal 1998. Layne Christensen intends to account for the Stanley
Acquisition using the purchase method of accounting. As a result of the Stanley
Acquisition, among other things, the Company will incur a substantial increase
in long-term debt and related interest expense and in goodwill and related
goodwill amortization.
The Company recognizes revenue on large, long-term drilling contracts on a
percentage of completion basis for individual contracts based upon the ratio of
costs incurred to total estimated costs at completion. Contract price and cost
estimates are reviewed periodically as work progresses and adjustments
proportionate to the percentage of completion are reflected in contract revenues
and gross profit in the reporting period when such estimates are revised.
Changes in job performance, job conditions and estimated profitability
(including those arising from contract penalty provisions) and final contract
settlements may result in revisions to costs and income and are recognized in
the period in which the revisions are determined. Revenue is recognized on
smaller, short-term contracts using the completed contract method.
27
<PAGE>
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined.
In April 1997, the Company entered into a contract to install a frozen earth
barrier around an open pit mine in Canada. It is anticipated that the contract
will be completed within one year and will generate geotechnical construction
revenues of approximately $27,000,000 over such period. In light of the size of
this contract, there can be no assurance that this level of revenues will be
sustained in the geotechnical construction product line.
RESULTS OF OPERATIONS
The following table, which is derived from the Company's Consolidated
Financial Statements, presents, for the periods indicated, the percentage
relationship which certain items reflected in the Company's statements of income
bear to revenues.
<TABLE>
<CAPTION>
THREE MONTHS FISCAL YEAR ENDED
ENDED APRIL 30, JANUARY 31,
-------------------- -------------------------------
1997 1996 1997 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Water well drilling............................... 26.6% 28.1% 28.5% 34.3% 33.1%
Well and pump repair and maintenance.............. 19.6 21.3 20.5 25.8 27.6
Mineral exploration drilling...................... 26.7 23.9 22.2 11.2 10.9
Environmental drilling............................ 6.1 10.6 10.4 15.1 18.3
Geotechnical construction and other services...... 6.7 4.0 6.6 5.5 3.7
--------- --------- --------- --------- ---------
Total service revenues........................ 85.7 87.9 88.2 91.9 93.6
Product sales..................................... 14.3 12.1 11.8 8.1 6.4
--------- --------- --------- --------- ---------
Total revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cost of revenues:
Cost of service revenues.......................... 73.2% 74.0% 72.5% 72.2% 73.8%
Cost of product sales............................. 71.8 72.5 72.4 81.5 80.1
Total cost of revenues............................ 73.0 73.8 72.5 73.0 74.2
--------- --------- --------- --------- ---------
Gross profit........................................ 27.0 26.2 27.5 27.0 25.8
Selling, general and administrative expenses........ 17.9 18.1 17.5 16.9 17.3
Depreciation........................................ 4.9 5.3 4.9 4.9 4.7
--------- --------- --------- --------- ---------
Operating income.................................... 4.2 2.8 5.1 5.2 3.8
Other income (expense):
Equity in earnings of foreign affiliates.......... 1.4 2.0 1.7 -- --
Interest.......................................... (1.0) (1.3) (1.1) (.5) (.5)
Other, net........................................ .1 .2 .1 .2 --
--------- --------- --------- --------- ---------
Income before income taxes.......................... 4.7 3.7 5.8 4.9 3.3
Income tax expense.................................. 1.8 1.7 2.2 2.2 1.5
--------- --------- --------- --------- ---------
Net income.......................................... 2.9% 2.0% 3.6% 2.7% 1.8%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
COMPARISON OF THREE MONTHS ENDED APRIL 30, 1997 TO THREE MONTHS ENDED APRIL 30,
1996
REVENUES. Revenues for the three months ended April 30, 1997 increased
$3,977,000 or 7.4% to $57,750,000 compared to $53,773,000 for the three months
ended April 30, 1996. Mineral exploration drilling revenues increased 20.1% to
$15,435,000 for the three months ended April 30, 1997 from $12,847,000 for the
three months ended April 30, 1996. The increase was primarily the result of
strong
28
<PAGE>
mining demand in Mexico and the southwest region of the United States. Water
well drilling revenues increased 1.6% to $15,358,000 for the three months ended
April 30, 1997 compared to revenues of $15,115,000 for the three months ended
April 30, 1996. Well and pump repair and maintenance revenues decreased 1.1% to
$11,320,000 for the three months ended April 30, 1997 from $11,451,000 for the
three months ended April 30, 1996. The water well and pump repair and
maintenance businesses, in total, have remained relatively constant in all
regions served by the Company. Environmental drilling revenues decreased 37.7%
to $3,542,000 for the three months ended April 30, 1997 from $5,688,000 for the
three months ended April 30, 1996. The Company believes the market for
environmental services offered by the Company, primarily in the southwest region
of the United States, continues to be soft due to decreased demand for
underground storage tank projects and environmental cleanup work generally. In
addition, the Company has continued its strategy of not pursuing lower margin,
less technically demanding environmental projects. Product sales increased 27.0%
to $8,279,000 for the three months ended April 30, 1997 from $6,517,000 for the
three months ended April 30, 1996, as a result of strong sales to the mining
services industry.
GROSS PROFIT. Gross profit was 27.0% for the three months ended April 30,
1997 compared to 26.2% for the same period last year. The increase in gross
profit as a percent of revenues was primarily attributable to increased margins
on the Company's mineral exploration operations and manufacturing efficiencies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $10,327,000 for the three months ended
April 30, 1997 compared to $9,737,000 for the three months ended April 30, 1996.
Although down slightly as a percentage of revenue, the dollar increase in
selling, general and administrative expenses was a result of higher salary and
incentive related expenses during the first quarter.
FOREIGN AFFILIATES. Equity in earnings of foreign affiliates was $820,000
for the three months ended April 30, 1997 compared to $1,102,000 for the three
months ended April 30, 1996. The decrease was primarily a result of project
delays in Peru caused by heavy rains and flooding early in fiscal 1998.
INCOME TAXES. Income taxes of $1,031,000 for the three months ended April
30, 1997 increased from $902,000 in the same period last year as a result of
higher income before taxes compared to the prior year. The effective tax rate
for the three months ended April 30, 1997 was 38.0% compared to 45.0% for the
same period last year. This improvement in the Company's effective tax rate was
primarily a result of a higher estimate of tax on earnings from foreign
affiliates for the first quarter of fiscal 1997.
COMPARISON OF FISCAL 1997 TO FISCAL 1996
REVENUES. Revenues for fiscal 1997 increased $55,582,000 or 33.2% to
$222,853,000 from fiscal 1996. Water well drilling revenues increased 10.7% to
$63,529,000 for fiscal 1997 compared to revenues of $57,385,000 for fiscal 1996.
The Company believes the increase in water well drilling revenues for the year
was mainly the result of continued increases in domestic municipal spending in
certain areas of the United States combined with increased sales of water well
equipment. Well and pump repair and maintenance revenues increased 6.0% to
$45,750,000 for fiscal 1997 from $43,166,000 for fiscal 1996. The Company
experienced an increase in activity in several markets for these services.
Mineral exploration drilling revenues increased 162.8% to $49,395,000 for fiscal
1997 from $18,794,000 for fiscal 1996. The increase was the result of the
addition, through the CBC Merger, of CBC's domestic and Canadian drilling
operations and continued strong mining demand in Mexico. Environmental drilling
revenues decreased 8.0% to $23,260,000 for fiscal 1997 from $25,278,000 for
fiscal 1996. The Company believes the decrease for the year was mainly the
result of a continuing soft market for the environmental services offered by the
Company. Product sales increased 94.7% to $26,309,000 for fiscal 1997 from
$13,516,000 for fiscal 1996, as a result of the domestic production facilities
of CBC acquired in the CBC Merger.
29
<PAGE>
GROSS PROFIT. Gross profit margin was 27.5% for fiscal 1997 compared to
27.0% for fiscal 1996. The increase in gross profit margin was primarily
attributable to increased margins on product sales as a result of sales of
drilling equipment and bits from manufacturing facilities acquired in the CBC
Merger which have higher gross profit margins than those associated with the
Company's products distribution business. The increase in gross profit margin on
product sales was partially offset by lower gross profit margin on CBC's service
revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $38,956,000 for fiscal 1997 compared to
$28,260,000 for fiscal 1996. The dollar increase in selling, general and
administrative expenses was a result of the CBC Merger, compensation related
expenses and growth in operations. As a percentage of revenues, selling, general
and administrative expenses were 17.5% in fiscal 1997 and 16.9% in fiscal 1996.
The increase as a percentage of revenue was due to increased requirements for
certain incentive-related expenses and a generally higher percentage of selling
expenses on product sales than contracting revenues.
DEPRECIATION. Depreciation increased to $10,974,000 for fiscal 1997
compared to $8,233,000 for fiscal 1996. The increase in depreciation was
primarily a result of assets acquired in the CBC Merger and the capital
expenditures made by the Company in the last several years.
FOREIGN AFFILIATES. Equity in earnings of foreign affiliates was $3,895,000
for fiscal 1997. These earnings were a result of the investments in foreign
affiliates acquired in connection with the CBC Merger. The affiliates were
reported on a one month lag, and therefore had no impact on the Company's fiscal
1996 operations. See Note 3 of the Notes to the Company's Consolidated Financial
Statements for additional information on the affiliates.
INTEREST EXPENSE. Interest expense increased $1,680,000 for fiscal 1997
compared to fiscal 1996. The increase was a result of the increased borrowings
necessitated by the CBC Merger.
INCOME TAXES. Income taxes of $4,913,000 for fiscal 1997 increased from
$3,753,000 for fiscal 1996 as a result of higher income before taxes compared to
the prior year. The effective tax rate for fiscal 1997 was 38.0% compared to
45.0% for fiscal 1996. This improvement in the Company's effective tax rate was
a result of the increase in and the tax treatment of the Company's earnings from
its foreign affiliates acquired through the CBC Merger. United States federal
income taxes are generally not provided by the Company on the equity earnings of
the affiliates, because foreign tax credits are available under current tax law
to significantly reduce or eliminate the resulting United States income tax
liability.
COMPARISON OF FISCAL 1996 TO FISCAL 1995
REVENUES. Revenues increased to $167,271,000 in fiscal 1996 from
$166,830,000 in fiscal 1995. Revenues from water well drilling increased 3.8% to
$57,385,000 in fiscal 1996 compared to $55,278,000 in fiscal 1995. The Company
believes the increase in water well drilling revenues for the year was mainly
the result of increased domestic municipal spending in certain areas of the
country and the Company's international expansion. This increase was offset in
part by the significant adverse effect of weather and economic conditions on the
Company's southern California operations. Well and pump repair and maintenance
revenues decreased 6.3% to $43,166,000 in fiscal 1996 compared to $46,066,000 in
fiscal 1995. The Company experienced a decrease in activity in certain markets
for these services, particularly in southern California, in addition to
decreases resulting from certain office closures in fiscal 1995. Environmental
revenues decreased 17.1% to $25,278,000 in fiscal 1996 compared to $30,487,000
in fiscal 1995. The Company believes these decreases were a result of closing
certain offices during fiscal 1995 and a continuing decline in the overall
market for the environmental services offered by the Company. The decline in
environmental revenues was partially offset by strong demand in the Arizona
market serviced by the Company which was being influenced by increased
enforcement of state environmental laws. Mineral exploration drilling and other
services revenues increased 18.4% to $41,442,000 in fiscal 1996 compared to
30
<PAGE>
$34,999,000 in fiscal 1995. A portion of the increase, $2,526,000, was the
result of the CBC Merger. The remaining increase reflected increased demand in
the international markets served by the Company, partially offset by decreased
domestic demand.
GROSS PROFIT. Gross profit increased to $45,193,000 or 27.0% of revenues in
fiscal 1996 compared to $43,016,000 or 25.8% of revenues in fiscal 1995. The
increase in gross profit was primarily attributable to higher margins for all
product lines. The increase in margins was a result of an ongoing effort to
improve pricing and efficiencies in the delivery of services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to $28,260,000 or 16.9% of revenues in fiscal
1996 compared to $28,860,000 or 17.3% of revenues in fiscal 1995. The decrease
in selling, general and administrative expenses was primarily attributable to
lower requirements for certain incentive-related expenses.
DEPRECIATION. Depreciation expense increased to $8,233,000 or 4.9% of
revenues in fiscal 1996 compared to $7,811,000 or 4.7% of revenues in fiscal
1995. The increase was the result of increased capital spending during the prior
two fiscal years in an effort to upgrade certain equipment and expand
internationally.
INTEREST EXPENSE. Interest expense remained flat in fiscal 1996 compared to
fiscal 1995. This was the result of a lower level of borrowings during the
majority of fiscal 1996 offset by increased borrowings as a result of the CBC
Merger.
OTHER INCOME. Other income, net increased to $407,000 in fiscal 1996
compared to a loss of $84,000 in fiscal 1995. Fiscal 1995 included a $474,000
exchange loss primarily as a result of the Mexican Peso devaluation.
INCOME TAXES. Income taxes increased to $3,753,000 in fiscal 1996 compared
to $2,522,000 in fiscal 1995 as a result of higher income before income taxes
compared to the prior year. The effective tax rate for fiscal 1996 decreased to
45% compared to 46% in fiscal 1995 as a result of the CBC Merger.
FLUCTUATION IN QUARTERLY RESULTS
The Company historically has experienced fluctuations in its quarterly
results arising from the timing of the award and completion of contracts, the
recording of related revenues and unanticipated additional costs incurred on
projects. The Company's revenues on large drilling contracts are recognized on a
percentage of completion basis for individual contracts based upon the ratio of
costs incurred to total estimated costs at completion. Contract price and cost
estimates are reviewed periodically as work progresses and adjustments
proportionate to the percentage of completion are reflected in contract revenues
and gross profit in the reporting period when such estimates are revised.
Changes in job performance, job conditions and estimated profitability
(including those arising from contract penalty provisions) and final contract
settlements may result in revisions to costs and income and are recognized in
the period in which the revisions are determined. A significant number of the
Company's contracts contain fixed prices and assign responsibility to the
Company for cost overruns for the subject projects; as a result, revenues and
gross margin may vary from those originally estimated and, depending upon the
size of the project, variations from estimated contract performance could affect
the Company's operating results for a particular quarter. Many of the Company's
contracts are also subject to cancellation by the customer upon short notice
with limited damages payable to the Company. In addition, adverse weather
conditions, natural disasters, force majeure and other similar events can
curtail Company operations in various regions of the world throughout the year,
resulting in performance delays and increased costs. Moreover, the Company's
domestic drilling activities and related revenues and earnings tend to decrease
in the winter months when adverse weather conditions interfere with access to
drilling sites and the ability to drill; as a result, the Company's revenues and
earnings in its second and third quarters tend to be higher than
31
<PAGE>
revenues and earnings in its first and fourth quarters. Accordingly, as a result
of the foregoing as well as other factors, quarterly results should not be
considered indicative of results to be expected for any other quarter or for any
full fiscal year. See the Company's Consolidated Financial Statements and Notes
thereto.
INFLATION
Management believes that the Company's operations for the periods discussed
have not been adversely affected by inflation or changing prices.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations was $3,290,000 for the three months ended April 30,
1997 compared to cash used of $2,496,000 for the same period in the prior year.
The change in cash from operations was primarily a result of increased net
customer receivables and inventory compared to the same period in the prior
year. During the quarter ended April 30, 1997, and as a result of a profitable
fiscal 1997, the Company had substantial cash requirements in the form of
incentive related expenses and profit sharing contributions that will not apply
during the remainder of the fiscal year. In the quarter ended April 30, 1997,
the Company's net customer receivables increased to $38,608,000 from $32,031,000
at January 31, 1997, primarily as a result of an increase in revenues. The
primary source of the Company's liquidity in fiscal 1997, 1996 and 1995 was its
cash from operating activities of $17,116,000, $7,268,000 and $23,308,000,
respectively. The change in cash from operating activities from fiscal 1996 to
1997 was primarily the result of improved net income, dividends received from
foreign affiliates and accounts receivable collections. The change in cash from
fiscal 1995 to fiscal 1996 was primarily the result of increased customer
receivables and a decrease in accounts payable and accrued expenses compared to
the prior year.
Cash from operations, along with borrowings under the Company's revolving
credit agreement, was primarily utilized during fiscal 1997 for investing
activities which included additions of $18,544,000 to property and equipment.
Capital expenditures during fiscal 1997 primarily related to upgrading the
Company's equipment and facilities and international expansion. The Company
expects to spend approximately $16,000,000 in fiscal 1998 for capital
expenditures, including approximately $3,500,000 for Stanley. Additions to
property and equipment were $2,873,000 during the three month period ended April
30, 1997. The Company anticipates fiscal 1998 capital expenditures will be used
to add to and upgrade the Company's equipment and expand operations. Stanley
could be subject to capital calls of approximately $1,800,000 through December
31, 1998 on its investment in limited gold mining concessions. Stanley's total
investment at April 30, 1997 was approximately $650,000. Stanley can decline to
make the capital contribution, in which event its investment in the mining
concessions will be reduced accordingly. As of April 30, 1997, the Company had
no material commitments outstanding for capital assets.
During March 1996, the Company completed the private placement of an
unsecured note agreement (subsequently amended) for $25,000,000 to replace a
term loan the Company had previously obtained from one of its lenders. The note
bears a fixed interest rate of 6.75% and will be due March 15, 2006 with annual
installments of $3,571,000 beginning March 15, 2000.
The Company also entered into a credit agreement ("Credit Agreement") in
March 1996 to refinance its then existing credit agreement and provide a
revolving cash borrowing facility of $30,000,000, less any outstanding letter of
credit commitments. The Company's borrowings and outstanding letter of credit
commitments under the Credit Agreement as of April 30, 1997 were $9,500,000 and
$5,000,000, respectively, leaving approximately $15,500,000 of unused
availability. See Note 8 of the Notes to the Company's Consolidated Financial
Statements.
On July 25, 1997, the Company entered into the New Credit Agreement. The New
Credit Agreement is being used to finance the Stanley Acquisition and to
refinance the Company's existing indebtedness under the Credit Agreement, and
the Company intends to borrow funds under the New Credit Agreement
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for working capital and capital expenditures and for other general corporate
purposes. The New Credit Agreement provides a reducing revolving cash borrowing
facility of up to $100,000,000, less any outstanding letter of credit
commitments ($20,000,000 sublimit). The New Credit Agreement will terminate on
July 25, 2002 and any borrowings thereunder will mature at that time. Layne
Australia, the subsidiary of the Company that made the tender offer to purchase
the shares of Stanley, will be eligible to draw down $30,000,000 under the New
Credit Agreement. The New Credit Agreement provides for guarantees by certain of
the Company's domestic subsidiaries and borrowings thereunder will be secured by
the outstanding stock of such subsidiaries as well as 65% of the outstanding
stock of certain foreign subsidiaries if the Company has not received at least
$15,000,000 in net equity proceeds by October 31, 1997. The New Credit Agreement
contains certain covenants including restrictions on the incurrence of
additional indebtedness and liens, mergers and acquisitions, sale of assets or
other dispositions, on annual capital expenditures, transactions with affiliates
and mandatory prepayments based on the proceeds from the sale of assets and debt
and equity securities and certain financial maintenance covenants, including
among others, minimum interest coverage and maximum leverage ratios. The New
Credit Agreement provides for interest at variable rates equal to (i) for loans
in Australian dollars, an Australian Bill rate plus .50% to .875% (depending
upon debt to capitalization ratios) or (ii) for loans in United States dollars,
at the Company's option, a Eurodollar rate plus .50% to .875% (depending upon
debt to capitalization ratios) or an alternate reference rate as defined in the
New Credit Agreement.
The Company's working capital as of April 30, 1997 and as of January 31,
1997, 1996 and 1995 was $37,572,000, $29,643,000, $26,796,000 and $13,578,000,
respectively. The increase in working capital in fiscal 1997 over fiscal 1996
was the result of improved operating cash flow as discussed above. The Company
also recorded $2,800,000 in accrued integration costs in connection with the CBC
Merger. This has been reduced by total cash expenditures of $2,097,000 as of
April 30, 1997, all of which have been funded by operations. The remaining
amount is expected to be incurred during fiscal 1998. The Company believes
borrowings from the New Credit Agreement and cash from operations will be
sufficient to meet the Company's and Stanley's seasonal cash requirements and to
fund their budgeted capital expenditures for at least the balance of the fiscal
1998 year.
Costs estimated to be incurred in the future for employee medical benefits
and casualty insurance programs resulting from claims which have occurred are
accrued currently. Under the terms of the Company's agreement with the various
insurance carriers administering these claims, the Company is not required to
remit the total premium until the claims are actually paid by the insurance
companies. These costs are not expected to significantly impact liquidity in
future periods. See Note 10 of the Notes to the Company's Consolidated Financial
Statements.
33
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BUSINESS
GENERAL
Layne Christensen provides sophisticated drilling services and related
products and services in four principal markets: water supply, mineral
exploration, geotechnical construction and environmental. The Company believes
it is the largest provider in the United States of water well drilling, well
maintenance and environmental drilling services. The Company also believes it is
one of the world's largest providers of mineral exploration drilling services
and a world leader in diamond drill bit technology. Layne Christensen's
customers include municipalities, industrial companies, mining companies and
environmental consulting and engineering firms located principally in the United
States, Canada, Mexico and South America. Following consummation of the Stanley
Acquisition, the Company will gain entry into mineral exploration drilling
markets in Australia and West Africa. See "The Stanley Acquisition."
The Company acquired CBC in December 1995, which expanded the Company's
mineral exploration drilling business domestically and marked the Company's
entry into Chile and Peru and other South American countries through CBC's
affiliated companies. The CBC acquisition also gave the Company substantial
capabilities in designing and manufacturing sophisticated drill rigs, diamond
drill bits and related equipment used by the mineral exploration industry.
The Company maintains its executive offices at 1900 Shawnee Mission Parkway,
Mission Woods, Kansas 66205. The Company's telephone number is (913) 362-0510.
MARKET OVERVIEW
The principal markets in which the Company operates are: water well drilling
and maintenance, mineral exploration drilling, geotechnical construction and
environmental drilling. In addition, following consummation of the Stanley
Acquisition the Company's mineral exploration drilling will include drill and
blast operations used in mine development. For purposes of this Prospectus, the
phrase "mineral exploration drilling" includes drill and blast operations,
unless otherwise noted. The characteristics of each of these markets vary,
particularly with respect to the maturity and cyclicality of the market in
various geographic areas. In each of these markets, however, the purchaser of
drilling services and products generally demands technical expertise, knowledge
of local geological conditions, project management skills, access to significant
amounts of capital equipment and cost effective pricing.
WATER WELL DRILLING AND MAINTENANCE. Demand for water well drilling
services is driven by the need to access groundwater, which is affected by many
factors including population movements and expansions, such as new housing
developments, deteriorating water quality and limited availability of surface
water. Groundwater is a vital natural resource that is pumped from the earth for
drinking water, irrigation and industrial use. In many parts of the United
States and other parts of the world, groundwater is the only reliable source of
water. Groundwater is located in saturated geological zones at varying depths
beneath the surface and accumulates in subsurface strata (aquifers). A
substantial majority of the public water systems in the United States rely on
groundwater (as compared to surface water) as their primary source of water.
Groundwater is the source of potable water for a significant portion of the
United States population. Surface water, the other major source of potable
water, comes principally from large lakes and rivers.
The water well drilling market is highly fragmented, consisting of several
thousand water well drilling contractors in the United States. However, the
Company believes that a substantial majority of these contractors are regionally
and locally based, and are primarily involved in drilling low volume water wells
for agricultural and residential customers, markets in which the Company does
not generally compete. The Company's target groundwater drilling market consists
of high volume water wells drilled principally for municipal and industrial
customers. These wells have more stringent design specifications and are deeper
and larger in diameter than low-volume residential and agricultural wells.
Drillers for high-volume wells
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must have strong technical expertise, expert knowledge of local geology, large
drilling equipment and the ability to procure sizable performance bonds.
The demand for well and pump repair and maintenance depends upon the age and
use of the well and pump, the quality of material and workmanship applied in the
original well installation and changes in the depth and quality of the aquifer.
Repair and rehabilitation work is often required on an emergency basis or within
a relatively short period of time after a performance decline is recognized and
is often awarded to the firm that initially drilled the well. Scheduling
flexibility, together with appropriate expertise and equipment, are critical for
a repair and maintenance service provider. Like the water well drilling market,
the market for repair and maintenance is highly fragmented. It consists of most
well drilling companies as well as firms that provide solely repair and
maintenance services. In both cases, only a small percentage of companies
performing repair and maintenance services are capable of diagnosing complex
problems and selecting and implementing the appropriate rehabilitation
techniques.
MINERAL EXPLORATION DRILLING. Demand for mineral exploration drilling and
products is driven by the demand for identifying, defining and developing
underground mineral deposits. Growth in the economies of developing countries,
including China and India, is currently creating the largest demands for copper,
gold, silver, zinc and other minerals and propelling the need for
mineral-related drilling services. Other factors influencing the demand for
mineral-related drilling services include international political conditions,
inflation and foreign exchange levels, commodity prices, the economic
feasibility of mineral exploration and production, the discovery rate of new
mineral reserves and the ability of mining companies to access capital for their
activities.
In recent years, important changes in the international mining industry have
led to the development and growth of mineral exploration in developing regions
of the world, including West Africa, Asia and South America. Certain countries,
such as Chile and Peru, have liberalized their mining codes to permit foreign
investment, and investment conditions generally have improved in those
countries. At the same time, stricter environmental permitting rules in the
United States and Canada have delayed or blocked the development of certain
projects forcing mining companies to look overseas for growth. In addition,
technological advancements now allow development of mineral resources previously
regarded as uneconomical. The mining exploration industry has also increased its
focus on these areas due to their early stage of mining development, relative to
the more mature mining regions of the world such as the United States and South
Africa. For example, while South Africa remains the top gold producer worldwide,
its output has steadily fallen over the last decade and is projected to continue
falling. In its August 1996 report, the Gold Institute reported that the twelve
largest gold producing countries were as follows in 1995 (data given in million
troy ounces):
<TABLE>
<S> <C>
South Africa.......................................................... 16.8
United States......................................................... 10.6
Australia............................................................. 8.1
Commonwealth of Independent States.................................... 7.3*
Canada................................................................ 4.8
People's Republic of China............................................ 4.4*
Indonesia............................................................. 2.4
Brazil................................................................ 2.2
Papua New Guinea...................................................... 1.8
Ghana................................................................. 1.7
Peru.................................................................. 1.7
Chile................................................................. 1.4
</TABLE>
* Estimated
The Gold Institute also tracks exploration spending and reported that
exploration budgets in the United States dropped from $149 million in 1992 to a
projected $121 million in 1996 while spending in
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Central and South America increased from $28.1 million in 1992 to a projected
$145.7 million in 1996. With respect to copper, the United States Geological
Survey reported in February 1997 that the 12 largest copper producing countries
were as follows in 1995 (data given in thousand metric tons of copper content):
<TABLE>
<S> <C>
Chile................................................................ 2,490
United States........................................................ 1,850
Canada............................................................... 726
Russia............................................................... 591
Indonesia............................................................ 444
Australia............................................................ 437
Poland............................................................... 384
Peru................................................................. 381
People's Republic of China........................................... 370
Mexico............................................................... 332
Zambia............................................................... 329
Kazakstan............................................................ 260
</TABLE>
Mining companies hire exploration drillers to extract samples from sites
that the mining companies analyze for mineral content. Mineral exploration
drilling requires a high level of expertise and technical competence because the
samples extracted must be free of contamination and accurately reflect the
underlying mineral deposit. Familiarity with the local geology is critical to
acquiring this competence. Mineral exploration drilling consists of exploratory
drilling and definitional drilling. Exploratory drilling is conducted to
determine if there is a minable mineral deposit (an orebody) on the site.
Definitional drilling is typically conducted at a site to assess whether it
would be economical to mine. The demand for definitional drilling has increased
in recent years as new and less expensive mining techniques have made it
feasible to mine previously uneconomical orebodies.
In drill and blast operations conducted at open pit mines under production,
the driller drills holes for the placement of explosives; the explosives are
then detonated to loosen and dislodge earth, which is hauled away by the mining
company for processing. Drill and blast contracts typically have lower margins
than traditional mineral exploration drilling projects; however, they provide
more stable revenues because drill and blast contracts typically have a duration
of three to five years whereas traditional mineral exploration projects
typically have substantially shorter terms. To win drill and blast contracts, a
drilling company must be familiar with the mine site and its geology, have
proven drill and blast expertise and personnel and easily transferable rigs and
appropriate drilling equipment that can be dedicated to the site.
GEOTECHNICAL CONSTRUCTION SERVICES. Geotechnical construction services are
used to modify weak and unstable soils, decrease water flow in bedrock and
provide support and groundwater control for excavation. Methods used include
cement and chemical grouting and ground freezing, techniques for stabilizing
soils; jet grouting, a high-pressure method for providing subsurface support;
and dewatering, a method for lowering the water table. Geotechnical construction
services are important during the construction of dams, tunnels, shafts, water
lines, subways and other civil construction projects. Demand for geotechnical
construction services is driven primarily by the demand for these infrastructure
improvements. The customers for these services are primarily heavy civil
construction contractors, governmental agencies, mining companies and the
industrial sector. The geotechnical construction services industry is highly
fragmented.
ENVIRONMENTAL DRILLING. Demand for environmental drilling services is
driven by public concern over groundwater contamination and resulting regulatory
requirements to investigate and remediate contaminated sites and aquifers.
Numerous and complex federal, state and local laws have been enacted for the
purpose of investigating and remediating pollution of underground aquifers as
well as preventing or controlling the potential environmental hazards caused by
groundwater contamination. Environmental
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drilling services are utilized to assess, investigate, monitor and improve water
quality and pumping capacity. Customers are typically national and regional
consulting firms engaged by federal and state agencies as well as industrial
companies that need to assess or clean up groundwater contamination sources.
BUSINESS STRATEGY
Layne Christensen believes it is one of only a few companies worldwide that
has the drilling expertise, financial resources, equipment and project
management skills to conduct large, highly complex drilling projects in the
Company's principal markets. As a result of providing water well and mineral
exploration drilling services for more than 100 years through its predecessor
companies, the Company has developed significant drilling expertise and project
management skills and has compiled a broad database of geological and other
technical information. The Company has substantial resources, including over 500
rigs and associated capital equipment, approximately 60 sales and operations
offices and approximately 1,800 employees (in each case excluding its foreign
affiliates). The Company's growth strategy is to expand its current geographic
markets and enter into new business lines that build on the Company's core
competencies. Key elements of this strategy are as follows:
EXPAND MINERAL EXPLORATION DRILLING INTERNATIONALLY. The Company believes
that its best mineral exploration drilling opportunities exist in Australasia,
Africa and South America. To position itself to take advantage of such
opportunities, the Company intends to expand its international mineral
exploration business through internal expansion and acquisitions. In late 1995,
the Company entered certain South American mineral exploration markets,
including Chile and Peru, and expanded its operations in Mexico, through its
acquisition of CBC and its affiliates. To further implement this international
growth strategy, in July 1997 the Company acquired Stanley, a leading Australian
mineral exploration drilling company with operations currently in West Africa
(principally Ghana) and Australia. The Company believes that these foreign
enterprises and their local affiliates have the opportunity to significantly
expand their businesses by leveraging their local market expertise and the
Company's technical competence, access to transferable drilling equipment and
employee training and safety programs. The Stanley Acquisition also will give
the Company the opportunity to expand its existing South American mineral
exploration drilling activities into drill and blast operations. With the
additional resources and capabilities provided by its acquisitions of CBC and
Stanley, the Company believes it will be better positioned to expand its
operations in countries such as Argentina, Bolivia, Brazil and Zambia, where it
expects the mineral exploration industry to grow.
ACQUIRE WATER WELL DRILLING BUSINESSES IN THE UNITED STATES. Layne
Christensen is currently the largest provider of water well drilling services in
the United States, operating in all of the country's regions except the
northeast. The Company intends to expand its water well drilling business in the
United States by making strategic acquisitions of selected regional
privately-held water well drilling firms. For example, in July 1997 the Company
acquired Stamm-Scheele Inc., a water well drilling company based near Baton
Rouge, Louisiana. The Company believes that by combining the Company's
capabilities with regional firms, the Company will improve such firms'
efficiency, safety record, bonding capacity, profitability and professionalism
and enable these firms to win project bids that they would not otherwise have
won.
EXPAND WATER WELL DRILLING INTERNATIONALLY. The Company intends to build
its groundwater business internationally by leveraging the mineral exploration
services that it currently provides to mining customers. Mining companies
frequently need to implement a dewatering program that requires the installation
of wells to remove groundwater from the mine excavation or to construct a
groundwater well to obtain process water for use in connection with mining
activities. For example, the Company is currently undertaking a project through
one of the Company's Chilean affiliates for the completion of thirteen water
production wells in the Collahuasi mine in Northern Chile, with technical
support provided through Layne Christensen. Many developing countries also have
significant and growing requirements to access groundwater to satisfy their
potable water needs. The Company intends to position itself to be an industry
leader
37
<PAGE>
in water well drilling in certain foreign markets, such as Mexico and Thailand.
In all of its regions, the Company intends to concentrate on large scale
industrial and government water well drilling projects.
EXPAND PRESENCE IN GEOTECHNICAL CONSTRUCTION SERVICES. The Company's
participation in the geotechnical construction services market is still in an
early stage. The Company intends to leverage its drilling capabilities, industry
contacts, reputation, project management skills and growing geographic presence
to expand this business. In particular, the Company's strategy is to focus on
relatively larger, technically demanding projects using its grouting and ground
freezing capabilities. An example of the implementation of this strategy is the
Company's project in Timmons, Ontario, Canada where the Company has been engaged
by Echo Bay Mines Ltd. to construct a subsurface frozen earth barrier around a
3.5 kilometer perimeter open pit gold mine.
While the Company expects to continue conducting environmental drilling
business for the foreseeable future, and continues to consider such market as
one of its principal markets, the Company does not expect such business to
provide growth opportunities in the foreseeable future.
SERVICES AND PRODUCTS
Layne Christensen's current business is divided into four primary areas:
water well drilling and maintenance services; mineral exploration drilling
services and products; geotechnical construction services; and environmental
drilling services. Following consummation of the Stanley Acquisition, the
Company's mineral exploration drilling services will also include drill and
blast services.
OVERVIEW OF THE COMPANY'S DRILLING TECHNIQUES
The types of drilling techniques employed by the Company in its drilling
activities have different applications:
- Conventional and reverse circulation rotary rigs are used in water well
and mineral exploration drilling primarily for drilling large diameter
wells and employ air or drilling fluid circulation for removal of cuttings
and borehole stabilization.
- Dual tube drilling, an innovation advanced by the Company primarily for
mineral exploration and environmental drilling, conveys the drill cuttings
to the surface inside the drill pipe. This drilling method is critical in
mineral exploration drilling and environmental sampling because it
provides immediate representative samples and because the drill cuttings
do not contact the surrounding formation thus avoiding contamination of
the borehole while providing reliable, uncontaminated samples. Because
this method involves circulation of the drilling fluid inside the casing,
it is highly suitable for penetration of underground voids or faults where
traditional drilling methods would result in the loss of circulation of
the drilling fluid, thereby preventing further penetration.
- Diamond core drilling is used in mineral exploration drilling to core
solid rock, thereby providing geologists and engineers with solid rock
samples for evaluation.
- Cable tool drilling, which requires no drilling fluid, is used primarily
in water well drilling for larger diameter wells. While slower than other
drilling methods, it is well suited for penetrating boulders, cobble and
rock.
- Auger drilling is used principally in water well and environmental
drilling for efficient completion of relatively small diameter, shallow
wells. Auger rigs are equipped with a variety of auger sizes and soil
sampling equipment.
WATER WELL DRILLING AND MAINTENANCE
DRILLING SERVICES. The Company provides complete water well systems on a
turnkey basis, offering the comprehensive range of services required to provide
professionally designed, constructed and maintained
38
<PAGE>
municipal, industrial and, to a lesser extent, agricultural water wells.
Although it may not perform each of the services it offers on every project, the
Company has the capability to provide every element of a water well system,
including test hole drilling, well casing and screen selection and installation,
gravel packing, grout sealing, well development and testing and pump selection,
equipment sales and installation. Layne Christensen provides water well drilling
services in most regions of the United States and in certain foreign countries.
Water well drilling requires the integration of hydrogeology and engineering
with the techniques of well drilling because the drilling methods and size and
type of equipment depend upon the depth of the wells and the geological
formations encountered at the project site. The Company has extensive well
archives and equipment in addition to technical personnel to determine
geological conditions and aquifer characteristics in most locations, enabling it
to locate suitable water-bearing formations to meet a wide variety of customer
requirements. The Company provides feasibility studies using complex geophysical
survey methods and has the expertise to analyze the survey results and define
the source, depth and magnitude of an aquifer. It can then estimate recharge
rates, specify required well design features, plan well field design and develop
water management plans. To conduct these services, the Company maintains a staff
of professional employees including civil and geological engineers, geologists,
hydrogeologists, geophysicists, and microbiologists.
The Company believes that it has the technical ability and experience to
specify and install the most efficient pump for a given well design and aquifer
characteristics. As part of its water well drilling and installation business,
the Company sells a wide variety of pumps manufactured by third parties,
including vertical turbine, submersible, shortcoupled and horizontal centrifugal
pumps. The Company also sells and installs certain third party water treatment
equipment, which is typically installed at or near the wellhead, including
chlorinators, aerators, filters and controls. In addition, the Company sells
miscellaneous supplies manufactured by the Company as well as third parties for
use in the water well drilling industry, including well casing, well screens,
drill pipe and bits, drilling fluids and well cleaning supplies.
WELL AND PUMP REPAIR AND MAINTENANCE. Periodic repair and maintenance of
well equipment is required during the life of a well. In locations where the
groundwater contains both bacteria and iron, screen openings may become blocked
with organic growth, reducing the capacity and productivity of the well.
Similarly, groundwater with high mineral content may cause the buildup of scale
on well screens, also reducing the capacity and productivity of the well.
The Company offers complete repair and maintenance services for existing
wells, pumps and related equipment through a network of local offices throughout
its geographic markets. In addition to its well service rigs, the Company has
equipment capable of conducting downhole closed circuit televideo inspections
(one of the most effective methods for investigating water well problems),
enabling the Company to diagnose better and respond more quickly to well and
maintenance problems. The Company believes it benefits from offering both water
well drilling and repair and maintenance services because firms that install
wells are more likely to be called upon to maintain or repair them.
The Company's trained and experienced personnel can perform a variety of
well rehabilitation techniques, including chemical and mechanical methods, and
can perform bacteriological well evaluation and water chemistry analysis. The
Company also has the capability and inventory to repair, in its own machine
shops, most water well pumps, regardless of manufacturer, as well as to repair
well screens, casings and related equipment such as chlorinators, aerators and
filtration systems.
MINERAL EXPLORATION DRILLING AND PRODUCTS
DRILLING SERVICES. The Company provides drilling services for geological
assessment, in situ mining and mineral exploration. These services are used
primarily by major gold and copper producers based in the United States and
Canada, and to a lesser extent, iron ore producers. In response to a shift in
recent years by many of these producers to foreign markets in search of
economically minable orebodies, the
39
<PAGE>
Company commenced mineral exploration drilling operations in Mexico in 1991. In
addition, with its acquisition of CBC in December 1995, the Company now has
foreign affiliates operating in South America with facilities in Chile and Peru.
These affiliates are among the leaders in their respective markets for mineral
exploration drilling services and have projects in Argentina, Bolivia, Brazil,
Chile, Mexico and Peru, among other locations.
The Company, together with its affiliates, offers a complete range of
mineral exploration drilling technologies from the traditional to the most
advanced. The Company's drilling specialists will recommend effective drilling
methods to address the challenges presented by difficult subsurface conditions
at exploration sites. Following consummation of the Stanley Acquisition, the
Company's mineral exploration drilling activities will also include drill and
blast services.
PRODUCTS. With its acquisition of CBC, the Company expanded its operations
to include the manufacture and marketing of a wide range of standard equipment
used by the Company and third party drilling contractors involved in mineral
exploration and mine development in various parts of the world. The Company's
products include drill rigs, coring equipment and drill bits. The Company uses
its experience gained from completing a wide range of drilling projects to
design products, particularly drill bits, that are well suited to current
drilling applications, and from time to time, will design and manufacture
products for custom applications. The Company's products are designed and
manufactured to meet its own rigid standards of quality and utility as well as
the standards of various trade associations.
Layne Christensen manufactures a line of diamond core mineral exploration
drill rigs which are designed to meet the specialized work requirements of
mineral exploration sites and can also be used at environmental sites. The
Company's line of rig accessory equipment and tools includes subs, bushings and
adapters; water swivels; a variety of safety related equipment; and hoisting,
lowering and pulling equipment.
The Company manufactures conventional and wireline coring equipment for
recovery of core samples from the earth. The Company's wireline core barrels are
core recovery tools designed for operation at the bottom of the drill string
where a core bit cuts the core that is collected and retained inside the core
barrel. Retrieving the core requires pulling the inner tube through the inside
of the string of rods, using the Company's proprietary quad latch, and then
removing the core barrel from the inner tube to retrieve the core. The wireline
coring system allows for faster and more efficient core sampling than
conventional coring because the entire drill rod string does not have to be
retrieved from the earth each time a core sample is obtained. The Company
believes its wireline coring systems represent the state-of-the-art in coring
performance. The Company also offers a full line of equipment for conventional
coring. The Company's conventional and wireline coring products include drill
rods manufactured by third parties to which the Company adds industry standard
threading suited to its products. The drill rods purchased by the Company are
composed of the highest grade of carbon alloy steel for durability and
flexibility.
The diamond drill bit products manufactured by the Company include products
incorporating matrix powder technology coupled with both synthetic and natural
diamonds. The principal categories of drilling bits are surface set diamond
bits, impregnated synthetic diamond bits and polycrystalline synthetic diamond
bits. Each category of bit is specifically designed for maximum drilling
efficiency in different geological formations and drilling applications, and the
Company frequently updates and redesigns its bits for various formations and
applications. The Company's bit products also include reamers and stabilizers
for stabilizing and centering the drill bit. The Company distributes its
products to distributors, general contractors, mineral exploration companies and
equipment and parts suppliers.
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In the products market, the Company seeks to be a leader in advanced
manufacturing technology and superior quality drilling products and equipment
that meet the highest standards for precision, consistency and durability. The
Company engages in on-going engineering, research and development activities to
improve its existing products and to design and develop new products for both
existing and new drilling applications. To further promote efficiency, reduce
development costs and enhance customer relationships, the Company's research and
engineering staff works closely with its customers to design and develop
custom-engineered drilling solutions.
GEOTECHNICAL CONSTRUCTION SERVICES
Geotechnical construction services include those services provided by the
Company to the heavy civil construction market to provide ground modification
for construction work in unstable soils during the construction of dams,
tunnels, shafts and other civil construction projects. Services offered include
cement and chemical grouting, jet grouting, drain hole drilling, installation of
ground anchors, tie backs, rock bolts and instrumentation. The Company offers
expertise in selecting the appropriate support techniques to be applied in
various geological conditions. In addition, the Company has extensive experience
in the placement of measuring devices capable of monitoring water levels and
ground movement.
The Company also offers artificial ground freezing capabilities, typically
utilized as an alternative method to dewatering large diameter excavation and
tunneling projects. The Company was recently awarded a significant contract by
Echo Bay Mines Ltd. to construct a subsurface frozen earth barrier around an
open pit gold mine in Timmons, Ontario, Canada. In the Echo Bay project, the
Company will drill and install approximately 2,000 pipes to depths of 45 to 125
meters around the 3.5 kilometer perimeter of the mine, then connect the pipes to
an enclosed manifold system that will deliver a brine solution, refrigerated to
- -20 degrees Centigrade, to each of the individual pipes.
ENVIRONMENTAL DRILLING
The Company offers a wide range of environmental drilling services
including: investigative drilling, installation and testing of wells that
monitor the extent of groundwater contamination, installation of recovery wells
that extract contaminated groundwater for treatment (pump and treat remediation)
and specialized site safety programs associated with drilling at contaminated
sites. Monitoring wells are installed to determine the nature and extent of
known or suspected subsurface contamination as well as to monitor an area for
future contamination. In addition, monitoring wells are often installed
surrounding underground petroleum or chemical storage tanks to monitor for
possible future tank leaks or product spills. After monitoring and testing the
groundwater, recovery wells may be installed to extract contaminated water from
the aquifer for treatment or disposal.
In its environmental health services department, the Company employs a
full-time staff qualified to prepare site specific health and safety plans for
customers who have workers employed on hazardous waste cleanup sites as required
by OSHA and MSHA.
OPERATIONS
The Company operates on a decentralized basis, with approximately 60 sales
and operations offices located in most regions of the United States and Canada,
Mexico and Thailand. In addition, the Company, through its foreign affiliates,
operates out of locations in Mexico, South America and Europe.
The Company is primarily organized domestically in eastern and western
geographic regions, each with a regional vice president in charge of operations
and district managers in charge of individual district office profit centers.
The district managers report to their respective regional vice president on a
regular basis. Each district office employs a field superintendent who is in
charge of projects in the field and sales engineers who are responsible for
marketing the Company's services in their district as well as for monitoring the
progress of projects. The Company does not conduct significant marketing
activities.
41
<PAGE>
Instead, the Company's sales engineers cultivate and maintain contacts with
existing and potential customers. In this way, the Company learns of and is in a
position to compete for proposed drilling projects in the region.
In its foreign affiliates, where the Company does not have majority
ownership or operating control, day-to-day operating decisions are made by local
management. The Company's regional vice presidents oversee the Company's
interests in its foreign affiliates as well as the operations of its foreign
subsidiaries. In addition, the Company manages its interests in its foreign
affiliates through regular management meetings and analysis of comprehensive
operating and financial information. In its significant foreign affiliates, the
Company has entered into shareholder agreements that give it limited board
representation rights and require super-majority votes in certain circumstances.
CUSTOMERS AND CONTRACTS
Each of the Company's service and product lines has major customers;
however, no single customer accounted for 10% or more of the Company's revenues
in any of the past three fiscal years.
Generally, the Company negotiates its service contracts with industrial and
mining companies and other private entities, while its service contracts with
municipalities are generally awarded on a bid basis. The Company's contracts
vary in length depending upon the size and scope of the project. The majority of
such contracts are awarded on a fixed price basis, subject to change of
circumstance and force majeure adjustments, while a smaller portion are awarded
on a cost plus basis. Substantially all of the contracts are cancelable for,
among other reasons, the convenience of the customer.
In the water well drilling service line, the Company's customers are
typically municipalities and local operations of industrial businesses. Of the
Company's water well drilling revenues in fiscal 1997, approximately 59% were
derived from municipalities and approximately 26% were derived from industrial
businesses while the balance was derived from other customer groups. The term
"municipalities" is used to include local water districts, water utilities,
cities, counties and other local governmental entities and agencies that have
the responsibility to provide water supplies to residential and commercial
users. In the drilling of new water wells, the Company targets customers that
require compliance with detailed and demanding specifications and regulations
and that often require bonding and insurance, areas in which the Company
believes it has competitive advantages over its competitors due to its drilling
expertise and financial resources.
In the water well repair and maintenance service line, the Company's
customers also include municipalities and local operations of industrial
businesses. In fiscal 1997, approximately 52% of the Company's repair and
maintenance revenues were derived from municipalities, approximately 27% of such
revenues were derived from industrial businesses and the balance was derived
from other customer groups.
Customers for the Company's mineral exploration drilling services in the
United States, Mexico, Canada and South America are primarily gold and copper
producers. The Company's largest customers in its mineral exploration drilling
business are multi-national corporations headquartered primarily in the United
States and Canada. Customers for mineral exploration products manufactured or
sold by the Company include distributors, general contractors, mineral
exploration companies and equipment and parts suppliers.
In its geotechnical construction services product line, the Company's
customers are primarily heavy civil construction contractors, governmental
agencies, mining companies and industrial companies. The Company often acts as a
specialty subcontractor when it provides geotechnical construction services.
The Company's primary environmental drilling customers are regional or
national consulting firms retained by federal or state agencies or by industrial
companies to assist in the assessment and cleanup of groundwater contamination.
42
<PAGE>
BACKLOG
The Company's backlog consists of executed service and product purchase
contracts, or portions thereof, not yet performed by the Company. The Company
believes that its backlog does not have any significance other than as a
short-term business indicator because substantially all of the contracts
comprising the backlog are cancelable for, among other reasons, the convenience
of the customer. The Company's backlog was approximately $49,197,000 at April
30, 1997, compared to approximately $41,551,000 at April 30, 1996. The Company's
backlog is generally completed within the following fiscal year.
PROPERTIES AND EQUIPMENT
The Company's corporate headquarters are located in Mission Woods, Kansas (a
suburb of Kansas City, Missouri), in approximately 28,000 square feet of office
space leased by the Company pursuant to a written lease agreement which expires
February 28, 2000. The Company's manufacturing operations are primarily
conducted from an approximately 84,000 square foot plant located in Salt Lake
City, Utah and owned by the Company (the "Plant"). The Plant is subject to a
commercial deed of trust which provides security for the Company's note to a
lender in the amount of approximately $1,400,000.
As of April 30, 1997, the Company (excluding foreign affiliates) owned or
leased approximately 525 drill and well service rigs throughout the world,
including approximately 475 in the United States. This includes rigs used
primarily in each of its service lines as well as multi-purpose rigs. In
addition, as of April 30, 1997, the Company's foreign affiliates owned or leased
approximately 90 drill rigs.
COMPETITION
The Company's competition in the water well drilling business consists
primarily of small, local water well drilling operations and some regional
competitors. The largest domestic provider of water well drilling products and
services other than the Company is Hydro Group, Inc., a private company located
and primarily operating in the northeastern United States, while the next
largest competitor, Beylik Drilling, Inc., is located in California. Oil and
natural gas well drillers generally do not compete in the water well drilling
business because the technology, expertise and equipment utilized in these
businesses differ significantly. Only a small percentage of all companies that
perform water well drilling services have the technical competence and drilling
expertise to compete effectively for high volume municipal and industrial
projects, which typically are more demanding than projects in the agricultural
or residential well markets. In addition, smaller companies often do not have
the financial resources or bonding capacity to compete for large projects.
However, there are no proprietary technologies or other significant factors
which prevent other firms from entering these local or regional markets or from
consolidating together into larger companies more comparable in size to the
Company. Water well drilling work is usually obtained on a competitive bid basis
for municipalities, while work for industrial customers is obtained on a
negotiated or informal bid basis.
As is the case in the water well drilling business, the well repair and
maintenance business is characterized by a large number of relatively small
competitors. Only a small percentage of the companies performing these services
have the technical expertise necessary to diagnose complex problems, perform
many of the sophisticated rehabilitation techniques offered by the Company or
repair a wide range of pumps in their own facilities. In addition, many of these
companies have only a small number of pump service rigs. Repair and maintenance
projects are typically negotiated at the time of repair or contracted for in
advance depending upon the lead time available for the repair work. Since pump
repair and rehabilitation work is typically negotiated on an emergency basis or
within a relatively short period of time, those companies with available rigs
and the requisite expertise have a competitive advantage by being able to
respond quickly to repair requests.
In its mineral exploration drilling business, the Company competes with a
number of drilling companies, including Boart Longyear and Ausdrill Limited, as
well as vertically integrated mining
43
<PAGE>
companies that conduct their own exploration drilling or drill and blast
activities; some of these competitors have greater capital and other resources
than the Company. In the mineral exploration drilling market, the Company
competes based on price, expertise and reputation. The Company believes it has a
well-recognized reputation for expertise and performance in this market,
although the Company is not the largest company providing these services on a
national or international basis. The Company believes that this market is
becoming more competitive, particularly in the United States. Mineral
exploration drilling work is typically performed on a negotiated basis. In the
market for the Company's manufactured mineral exploration drilling products, the
Company's competitors consist of Boart Longyear and a small number of other
manufacturers. The Company competes in this market based on price, technical
design and reputation.
The geotechnical construction services market is highly fragmented as a
result of the large area served, the wide range of techniques offered and the
large number and variety of contractors. The Company's two major competitors in
this market are Hayward Baker, Inc. and Nicholson Construction Company. In this
market, the Company competes based upon a combination of reputation, innovation
and price.
In the environmental drilling market, Layne Christensen competes with
different types of drillers depending on the services involved. Small site
assessments and routine underground storage tank assessment and remediation
projects are highly competitive and attract a large number of local drilling
competitors. More sophisticated and demanding projects generally require the
expertise and resources of larger drilling operators with access to multiple
rigs and alternative drilling techniques. The larger drilling companies
generally also have the requisite expertise and safety training to assess the
risks associated with drilling on sites having higher contamination levels and
larger amounts of hazardous wastes. The Company believes its risk assessment
process enables it to select projects prudently and to better manage risks
associated with those projects. The Company focuses on the more technically
demanding projects in this area and avoids the smaller and highly competitive
site assessment and remediation projects. Environmental drilling contracts are
usually bid or negotiated at the initial stage but major contract extensions are
often negotiated.
EMPLOYEES AND TRAINING
At January 31, 1997, the Company had 1,832 employees, 158 of whom were
hourly employees and members of collective bargaining units represented by
locals affiliated with major labor unions. The Company believes that its
relationship with its employees is satisfactory.
In all of the Company's service lines, an important competitive factor is
technical expertise. As a result, the Company emphasizes the training and
development of its personnel. Periodic technical training is provided for senior
field employees covering such areas as pump installation, drilling technology
and electrical troubleshooting. In addition, the Company emphasizes strict
adherence to all health and safety requirements and offers incentive pay based
upon achievement of specified safety goals. This emphasis encompasses developing
site-specific safety plans, ensuring regulatory compliance and training
employees in regulatory compliance and good safety practices. Training includes
an OSHA-mandated 40-hour hazardous waste and emergency response training course
as well as the required annual eight hour updates. The Company has an
environmental health sciences staff which allows it to offer such training in-
house. This staff also prepares health and safety plans for specific sites and
provides input and analysis for the health and safety plans prepared by others.
On average, the Company's field supervisors and drillers have sixteen and
ten years, respectively, of experience with the Company. In addition, many of
the Company's professional employees have advanced academic backgrounds in
agricultural, chemical, civil, industrial and mechanical engineering, geology,
microbiology and metallurgy. The Company believes that its size and reputation
allow it to compete effectively for highly qualified professionals.
44
<PAGE>
REGULATORY AND ENVIRONMENTAL MATTERS
The services provided by the Company are subject to various licensing,
permitting, approval and reporting requirements imposed by federal, state, local
and foreign laws. Its operations are subject to inspection and regulation by
various governmental agencies, including the Department of Transportation, OSHA
and MSHA in the United States as well as their counterparts in foreign
countries. In addition, the Company's activities are subject to regulation under
various environmental laws regarding emissions to air, discharges to water and
management of wastes and hazardous substances. To the extent the Company fails
to comply with these various regulations, it could be subject to monetary fines,
suspension of operations and other penalties. In addition, these and other laws
and regulations affect the Company's mineral drilling services and product
customers and influence their determination whether to conduct mineral
exploration and development.
In April 1997, employees of the Company conducting a ground freeze project
on the site of a steel plant in Northwest Indiana were involved in a spill of
approximately 2,000 gallons of ammonium hydroxide from a storage tank which
resulted in a discharge of the pollutant. Based upon its investigation to date,
the Company believes that there will be no long term environmental harm
resulting from this spill. However, in June 1997, the Company learned that the
EPA, Region V Office of Criminal Investigation, was investigating the matter. To
date the EPA has conducted interviews of a limited number of employees. At this
time, no written claims or charges have been made against the Company or any of
its employees, and the Company is endeavoring to cooperate fully with the EPA.
However, there can be no assurance that civil or criminal charges will not
result from the investigation or that such charges will not have a material
adverse effect on the Company. In particular, criminal liability could impair
the ability of the Company to be awarded municipal and federal government
contracts. If any criminal charges are brought against the Company, Layne
Christensen intends to contest them vigorously.
Many localities require well operating licenses which typically specify that
wells be constructed in accordance with applicable regulations. Various state,
local and foreign laws require that water wells and monitoring wells be
installed by licensed well drillers. The Company maintains well drilling and
contractor's licenses in those jurisdictions in which it operates and in which
such licenses are required. In addition, the Company employs licensed engineers,
geologists and other professionals necessary to the conduct of its business. In
those circumstances in which the Company does not have a required professional
license, it subcontracts that portion of the work to a firm employing the
necessary professionals.
POTENTIAL LIABILITY AND INSURANCE
The Company's drilling activities involve certain operating hazards that can
result in personal injury or loss of life, damage and destruction of property
and equipment, damage to the surrounding areas, release of hazardous substances
or wastes and other damage to the environment, interruption or suspension of
drill site operations and loss of revenues and future business. The magnitude of
these operating risks is amplified when the Company, as is frequently the case,
conducts a project on a fixed-price, "turnkey" basis where the Company delegates
certain functions to subcontractors but remains responsible to the customer for
the subcontracted work. In addition, the Company is exposed to potential
liability under foreign, federal, state and local laws and regulations,
contractual indemnification agreements or otherwise in connection with its
provision of services and products. For example, the Company could be held
responsible for contamination caused by an accident which occurs as a result of
the Company drilling through a contaminated water source and creating a channel
through which the contaminants migrate to an uncontaminated water source.
Litigation arising from any such occurrences may result in the Company's being
named as a defendant in lawsuits asserting large claims. Although the Company
maintains insurance protection that it considers economically prudent, there can
be no assurance that any such insurance will be sufficient or effective under
all circumstances or against all claims or hazards to which the Company may be
subject or that the Company will be able to continue to obtain such insurance
protection. A successful claim or damage resulting from a hazard for which the
Company is not fully insured could
45
<PAGE>
have a material adverse effect on the Company. In addition, the Company does not
maintain political risk insurance or business interruption insurance with
respect to its foreign operations.
LEGAL PROCEEDINGS
The Company is involved in various matters of litigation, claims and
disputes which have arisen in the ordinary course of the Company's business.
While the resolution of any of these matters may have an impact on the financial
results for the period in which the matter is resolved, the Company believes
that the ultimate disposition of these matters will not, in the aggregate, have
a material adverse effect on the Company's business or consolidated financial
position.
46
<PAGE>
MANAGEMENT
The Company's directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Robert J. Dineen 67 Chairman of the Board and Director
Andrew B. Schmitt 48 President, Chief Executive Officer and Director
Edward A. Gilhuly 37 Director
Todd A. Fisher 31 Director
Donald K. Miller 65 Director
H. Edward Coleman 59 Senior Vice President
Norman E. Mehlhorn 56 Senior Vice President
Eric R. Despain 48 Senior Vice President
Kent B. Magill 44 Vice President, General Counsel and Secretary
Jerry W. Fanska 48 Vice President--Finance and Treasurer
</TABLE>
Executive officers are appointed by and serve at the pleasure of the Board
of Directors.
ROBERT J. DINEEN. Mr. Dineen has served as Chairman of the Board of the
Company since August 1992. From May 1986 until his retirement in August 1993,
Mr. Dineen was President and Chief Executive Officer of The Marley Company, a
manufacturer and supplier of engineered equipment and services for heating,
fluid handling, control and treatment and heat exchange. Mr. Dineen is a
director of Kansas City Power & Light Company and Owens-Illinois, Inc.
ANDREW B. SCHMITT. Mr. Schmitt has served as President and Chief Executive
Officer of the Company since October 1993. For approximately two years prior to
joining the Company, Mr. Schmitt managed two privately-owned hydrostatic pump
and motor manufacturing companies and an oil and gas service company. He served
as President of the Tri-State Oil Tools Division of Baker Hughes Incorporated
from February 1988 to October 1991.
EDWARD A. GILHULY. Mr. Gilhuly has been a member of KKR & Co., L.L.C., the
general partner of KKR, since 1996 and a general partner of KKR Associates since
1995. During 1995, Mr. Gulhuly was a general partner of KKR. Prior to 1995, he
was an executive of KKR and a limited partner of KKR Associates for more than
five years. Mr. Gilhuly is a director of Owens-Illinois, Inc., Owens-Illinois
Group, Inc., Doubletree Hotel Corporation, Union Texas Petroleum Holdings, Inc.
and Merit Behavioral Care Corporation.
TODD A. FISHER. Mr. Fisher has been an executive of KKR since June 1993.
From July 1992 to June 1993, Mr. Fisher was an associate at Goldman, Sachs & Co.
Prior to 1992, Mr. Fisher attended the Wharton School of Business at the
University of Pennsylvania. Mr. Fisher has served as a director of Merit
Behavioral Care Corporation since October 1995.
DONALD K. MILLER. Mr. Miller has been Chairman of the Board of Greylock
Financial, Inc., a corporation engaged in merchant banking, since 1987. In
addition, Mr. Miller has been since 1987 a special limited partner of Greylock
Investments Limited Partnership ("Greylock"), a limited partnership engaged in
making investments. From November 1990 to April 1993 Mr. Miller was Chairman and
Chief Executive Officer, and from April 1993 to November 1994 Mr. Miller was
Vice Chairman, of Thomson Advisory Group L.P., an asset management company. Mr.
Miller served as Chairman of the Board of Directors of CBC from 1986 to December
1995. Mr. Miller was involved in the formation of Christensen Boyles and in
47
<PAGE>
the acquisition of Boyles Bros. Drilling Company and Christensen Mining
Products. He currently is on the Board of Directors of Fibreboard Corporation,
Huffy Corporation, PIMCO Advisors L.P. and RPM, Inc. and has spent the majority
of his career in investment banking or as an investor focusing on a variety of
industries.
H. EDWARD COLEMAN. Mr. Coleman has served as an officer of the Company
since 1976 and as its Senior Vice President since 1985 and is responsible for
most of the Company's operations in the eastern half of the country. Mr. Coleman
has over 35 years experience in various areas of the Company's operations.
NORMAN E. MEHLHORN. Mr. Mehlhorn has served as the Company's Senior Vice
President since September 1992 and as Vice President from 1986 to September 1992
and is responsible for most of the Company's operations in the western half of
the country. Mr. Mehlhorn has nearly 40 years experience in the drilling
business, with particular emphasis on dual tube drilling technology.
ERIC R. DESPAIN. Mr. Despain has served as the Company's Senior Vice
President since February 1996. Prior to joining the Company in December 1995,
Mr. Despain was President and a member of the Board of Directors of CBC since
1986.
KENT B. MAGILL. Mr. Magill has served as the Company's Vice President
General Counsel and Secretary since August 1992 and served as Vice President and
Associate General Counsel of Marley since May 1989.
JERRY W. FANSKA. Mr. Fanska has served as the Company's Vice
President--Finance and Treasurer since April 1994 and as Controller since
December 1993. Prior to joining Layne Christensen, Mr. Fanska served as
corporate controller of Marley since October 1992 and as Internal Audit Manager
of Marley since April 1984.
48
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of June 1, 1997,
regarding the beneficial ownership of Layne Christensen Common Stock by (i) each
person known to the Board of Directors to own beneficially 5% or more of the
Company's Common Stock, (ii) each director of the Company, (iii) certain named
executive officers, (iv) all directors and executive officers of the Company as
a group and (v) each stockholder who is selling Common Stock in this offering
(the "Selling Stockholders"). Information with respect to beneficial ownership
has been furnished by each respective director, officer, 5% or more stockholder
or Selling Stockholder, as the case may be.
As of June 1, 1997, Marley Holdings, L.P. owned 4,607,986 shares of Common
Stock. Marley G.P., Inc. is the sole general partner of Marley Holdings, L.P.
KKR Associates is a limited partner of Marley Holdings, L.P. and the general
partner of three limited partners of Marley Holdings, L.P. (Marley Associates,
Marley Partners, L.P. and KKR Partners). In connection with the offering, Marley
Holdings, L.P. will distribute its shares of Common Stock on a pro rata basis to
Marley G.P., Inc. and to KKR Associates, Marley Associates, Marley Partners,
L.P., KKR Partners and the other limited partners of Marley Holdings, L.P.,
including Messrs. Dineen and Coleman (the "Distribution"). The table below sets
forth the share ownership of the Common Stock after giving effect to the
Distribution. Except as set forth in the table, neither Marley G.P., Inc. nor
any of the limited partners of Marley Holdings, L.P. will own more than 5% of
the outstanding Common Stock following the Distribution.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED AFTER BENEFICIALLY OWNED
DISTRIBUTION AND PRIOR AFTER DISTRIBUTION AND
TO OFFERING(1) NUMBER OFFERING(1)(2)
----------------------- OF SHARES -------------------------
NAME NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- ------------------------------------------------- ---------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
KKR Associates(3)................................ 3,930,936 44.3% -- 2,067,000 18.9%
Marley Associates................................ 1,265,596 14.3% 1,265,596 -- --
Marley Partners, L.P............................. 378,989 4.3% 378,989 -- --
KKR Partners..................................... 219,351 2.5% 219,351 -- --
Greylock Investments
Limited Partnership(4)......................... 740,404 8.3% 399,818 340,586 3.1%
Robert P. Henderson(4)........................... 740,404 8.3% -- 340,586 3.1%
Shapiro Capital
Management Co., Inc.(5)........................ 621,600 7.0% -- 621,600 5.7%
Robert J. Dineen(6).............................. 152,683 1.7% -- 152,683 1.4%
Andrew B. Schmitt(6)............................. 280,000 3.1% -- 280,000 2.5%
Donald K. Miller(7).............................. 208,329 2.3% 13,528 95,831 *
PaineWebber Inc., as Trustee
FBO Donald K. Miller........................... 95,888 1.1% 95,888 -- *
Barclay St.J. Miller............................. 2,854 * 1,541 1,313 *
Prescott C. Miller............................... 2,854 * 1,541 1,313 *
Edward A. Gilhuly(3)(8).......................... -- -- -- -- --
Todd A. Fisher(3)(8)............................. -- -- -- -- --
H. Edward Coleman(6)............................. 93,776 1.1% -- 93,776 *
Norman E. Mehlhorn(6)............................ 74,295 * -- 74,295 *
Kent B. Magill(6)................................ 53,255 * -- 53,255 *
Eric R. Despain.................................. 91,324 1.0% -- 91,324 *
All directors and officers as a group (10
persons)(9).................................... 997,262 10.7% -- 884,764 7.8%
Baupost Limited Partnership
1983 A-1....................................... 18,552 * 18,552 -- --
Baupost Limited Partnership
1983 B-1....................................... 9,718 * 9,718 -- --
Baupost Limited Partnership
1983 C-1....................................... 60,074 * 60,074 -- --
Chesterfield Investments......................... 216,412 2.4% 216,412 -- --
Jerrold R. Culp(10).............................. 12,101 * 6,535 5,566 *
Dockash Corporation.............................. 102,738 1.2% 55,479 47,259 *
Scott T. Evans(10)(11)........................... 27,397 * 14,794 12,603 *
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED AFTER BENEFICIALLY OWNED
DISTRIBUTION AND PRIOR AFTER DISTRIBUTION AND
TO OFFERING(1) NUMBER OFFERING(1)(2)
----------------------- OF SHARES -------------------------
NAME NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- ------------------------------------------------- ---------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Freya Fanning & Co.
as Trustee Gregory C. Irrevocable Trust........ 7,580 * 4,093 3,487 *
Freya Fanning & Co.
as Trustee Gregory D. Irrevocable Trust........ 7,580 * 4,093 3,487 *
Freya Fanning & Co.
as Trustee Gregory E. Irrevocable Trust........ 7,580 * 4,093 3,487 *
Catherine M. Gauger
as Trustee of the Irrevocable Trust
Dated 9/24/90 FBO Catherine M. Gauger.......... 9,206 * 4,206 5,000 *
Gerhard M. Gauger(10)
as Trustee of the Irrevocable Trust
Dated 9/24/90 FBO Gerhard M. Gauger............ 9,878 * 4,878 5,000 *
Edwin W. Hansen(11)(12).......................... 13,927 * 7,521 6,406 *
David J. Harris(12)
Irrevocable Charitable Remainder Trust......... 22,000 * 11,000 11,000 *
Clark Hirschi(11)(12)............................ 20,776 * 11,000 9,776 *
Industrial Manufacturers & Systems S.A........... 142,693 1.6% 77,054 65,639 *
Dean N. Jorgensen(10)............................ 13,699 * 7,397 6,302 *
Colin B. Kinley(11)(12).......................... 4,726 * 1,000 3,726 *
John V. Kinley(12)............................... 9,657 * 2,500 7,157 *
Roger Q. Kinley(11)(12).......................... 4,702 * 2,200 2,502 *
Ben A. Radi(10).................................. 34,810 * 34,810 -- --
Robert F. Wrobel(10)............................. 59,774 * 59,774 -- --
-------------
2,993,435
-------------
-------------
</TABLE>
- ------------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those securities and includes shares
of common stock issuable pursuant to the exercise of stock options that are
immediately exercisable or exercisable within 60 days. Unless otherwise
indicated, the persons or entities identified in this table have sole voting
and investment power with respect to all shares shown as beneficially owned
by them. Percentage ownership calculations prior to and after the offering
are based on 8,874,991 shares and 10,950,522 shares, respectively, of Common
Stock outstanding.
(2) Gives effect to the issuance of a total of 2,006,565 shares to be sold in
the offering and 68,966 shares to be issued to Ross Stanley in connection
with the Stanley Acquisition.
(3) The 3,930,936 shares of Common Stock designated as beneficially owned by KKR
Associates prior to the offering and after the Distribution consist of (i)
an aggregate of 1,863,936 shares owned by Marley Associates, Marley
Partners, L.P. and KKR Partners (the "Limited Partnerships"), all of which
are being sold in the offering, and (ii) 2,067,000 shares owned directly by
KKR Associates. KKR Associates is the sole general partner of each Limited
Partnership and in such capacity may be deemed to share beneficial ownership
of the shares beneficially owned by the Limited Partnerships. Mr. Gilhuly,
Henry R. Kravis, George R. Roberts, Paul E. Raether, Robert I. MacDonnell,
Michael W. Michelson, James H. Greene, Jr., Michael T. Tokarz, Perry Golkin,
Clifton S. Robbins and Scott Stuart are the general partners of KKR
Associates, and Messrs. Kravis and Roberts are also the members of the
Executive Committee of KKR Associates, and in such capacity may be deemed to
share beneficial ownership of the shares of Common Stock that KKR Associates
may beneficially own or be deemed to beneficially own. Mr. Gilhuly is a
director of the Company. Mr. Fisher, a director of the Company, is a limited
partner of KKR Associates. The foregoing persons disclaim beneficial
ownership of the shares owned by KKR Associates. The business address of KKR
Associates is 9 West 57th Street, New York, New York 10019.
(4) The 740,404 shares designated as beneficially owned by Greylock Investments
Limited Partnership ("Greylock") prior to the offering may also be deemed to
be beneficially owned by Robert P. Henderson by virtue of his status as the
general partner of Greylock. Of the 740,404 shares, 317,645 shares are
subject to the provisions of an escrow agreement, pursuant to which some or
all of such 317,645 shares are subject to forfeiture. Greylock and Mr.
Henderson each has sole voting power with respect to 740,404 shares and sole
investment power with respect to 422,759 shares. After the offering, each
will have sole voting power
50
<PAGE>
with respect to 340,586 shares and sole investment power with respect to
22,941 shares. Neither Greylock nor Mr. Henderson has shared voting or
investment power with respect to any shares. The address for Greylock and
Mr. Henderson is One Federal Street, Boston, Massachusetts 02110.
(5) According to its Schedule 13G filed with the Securities and Exchange
Commission on February 18, 1997, Shapiro Capital Management Co., Inc.
("Shapiro") is an investment adviser under the Investment Advisers Act of
1940. One or more of Shapiro's advisory clients is the legal owner of the
securities reported herein. Pursuant to the investment advisory agreements
with its clients, Shapiro has the authority to direct the investments of its
advisory clients, and subsequently to authorize the disposition of the
Company's shares. Samuel R. Shapiro is the president, a director and
majority shareholder of Shapiro, in which capacity he exercises dispositive
power over the securities reported herein by Shapiro. Mr. Shapiro,
therefore, may be deemed to have indirect beneficial ownership over such
securities. Unless otherwise indicated herein, Mr. Shapiro has no interest
in dividends or proceeds from the sale of such securities, owns no such
securities for his own account and disclaims beneficial ownership of all the
securities reported herein by Shapiro. As of December 31, 1996, Mr. Shapiro
owned no shares of Common Stock for his own account. He may be deemed to be
the beneficial owner of 2,500 shares owned by his wife and the remaining
619,100 shares of Common Stock reported herein. The business address of
Shapiro is 3060 Peachtree Road, N.W., Atlanta, Georgia 30305.
(6) Includes options for the purchase of 72,164 shares, 210,000 shares, 39,733
shares, 51,254 shares and 35,894 shares of Common Stock exercisable within
60 days granted to Messrs. Dineen, Schmitt, Coleman, Mehlhorn and Magill,
respectively.
(7) Prior to the offering includes 5,708 shares owned by Mr. Miller's two sons,
Barclay St.J. Miller and Prescott C. Miller, of which an aggregate of 3,082
shares will be sold in the offering. Of the 208,329 shares reported before
the offering, 95,888 shares are held by PaineWebber Inc. in trust for Mr.
Miller, all of which will be sold in the offering, and 89,377 shares
(including 2,450 shares owned by Mr. Miller's sons) are subject to the
provisions of an escrow agreement, pursuant to which some or all of such
89,377 shares are subject to forfeiture. Before the offering, Mr. Miller has
sole voting power with respect to 202,621 shares and sole investment power
with respect to 115,694 shares, and has shared voting power with respect to
5,708 shares and shared investment power with respect to 92,635 shares.
After the offering, Mr. Miller will have sole voting power with respect to
93,205 shares and sole investment power with respect to 6,278 shares, and
will have shared voting power with respect to 2,626 shares and shared
investment power with respect to 89,553 shares.
(8) Prior to and after the offering, Marley G.P., Inc., the sole general partner
of Marley Holdings, L.P., will own 53,436 shares of Common Stock which it
will receive as a result of the Distribution. The stockholders of Marley
G.P., Inc. are general and limited partners of KKR Associates. Mr. Gilhuly
is the Treasurer of Marley G.P., Inc. and a general partner of KKR
Associates. Mr. Fisher is a limited partner of KKR Associates. Messrs.
Gilhuly and Fisher disclaim any beneficial ownership of the shares owned by
Marley G.P., Inc.
(9) Includes options for the purchase of 437,045 shares of the Company's Common
Stock exercisable within 60 days granted to all directors and officers of
the Company as a group. In the offering, all directors and officers as a
group will sell an aggregate of 112,498 shares of Common Stock consisting of
the shares being sold by Donald K. Miller, PaineWebber Inc., as Trustee FBO
Donald K. Miller, Barclay St.J. Miller and Prescott C. Miller.
(10) The designated Selling Stockholder is a former employee of the Company.
(11) Such shares are registered in the name of the designated Selling
Stockholder and his wife as joint tenants.
(12) The designated Selling Stockholder is a current employee of the Company.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, $0.01 par value per share, of which 10,950,522 shares (including
68,966 shares to be issued to Mr. Stanley in connection with the Stanley
Acquisition) will be outstanding upon the completion of this offering and
5,000,000 shares of preferred stock, $0.01 par value per share (the "Preferred
Stock"), none of which will be outstanding. As of June 1, 1997, the Company's
Common Stock was held of record by 207 stockholders.
COMMON STOCK
Except as otherwise required by law, holders of Common Stock are entitled to
one vote for each share of Common Stock held on all matters submitted to a vote
of stockholders. There is no cumulative voting for the election of directors,
which means that the holders of a majority of the shares voted in the election
of directors can elect all of the directors they nominate for election. In the
event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock, subject to the rights of holders of any Preferred Stock then
outstanding, are entitled to share ratably in all remaining assets available for
distribution to stockholders.
Holders of Common Stock have no preemptive rights. There are no redemption
or sinking fund provisions applicable to the Common Stock. The Common Stock is
not convertible into any other class of security. All of the outstanding shares
of Common Stock are, and the shares being offered by the Company hereunder will
be, upon issuance and sale, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors of the Company is authorized, without further
stockholder action, to cause the issuance of and to divide any or all shares of
authorized Preferred Stock into series and to fix and determine the
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereon, of any series so
established, including voting powers, dividend rights, liquidation preferences,
redemption rights and conversion principles. As of the date of this Prospectus,
the Board of Directors of the Company has not authorized any series of Preferred
Stock and there are no plans, agreements or understandings for the issuance of
any shares of Preferred Stock.
REGISTRATION AND OTHER RIGHTS
Under the terms of a Registration Rights Agreement by and between the
Company and Marley Holdings, L.P., dated as of November 30, 1995 (the
"Registration Rights Agreement"), and a Stockholders Agreement (the
"Stockholders Agreement") between the Company and certain stockholders of the
Company, dated December 28, 1995 (collectively, the "Agreements"), following the
closing of this offering the holders of approximately 3,100,000 shares of Common
Stock (the "Registrable Securities") will be entitled to certain rights with
respect to the registration of such shares under the Securities Act. Pursuant to
the terms and conditions of the Agreements, holders of Registrable Securities
may require the Company to register their shares at the Company's expense. In
addition, holders of Registrable Securities have the right to have any or all of
their Registrable Securities included, at the Company's expense, in a
registration statement relating to Common Stock filed by the Company, subject to
certain limitations, including the right of the underwriter to limit the number
of shares of Registrable Securities to be included in the registration. In
connection with such registrations, the Company is required to indemnify the
holders participating in an offering of Registrable Securities against certain
liabilities, including civil liabilities under the Securities Act.
Pursuant to the Stockholders Agreement, Marley Holdings, L.P. has and,
subsequent to the offering contemplated hereby, KKR Associates will have certain
rights of first refusal with respect to sales by former CBC stockholders of an
aggregate of approximately 775,000 shares of Common Stock. In addition,
52
<PAGE>
in connection with the CBC Merger, certain former CBC stockholders holding an
aggregate of approximately 1,500,000 shares of Common Stock as of June 1, 1997,
approximately 725,000 of which will be sold in this offering, agreed to vote
their shares of Common Stock through December 2001 for a Board consisting of
five directors and the election as directors of four individuals designated by
KKR.
The Company has entered into agreements with certain present and former
officers and directors of the Company or its affiliates granting piggyback
registration rights and co-sale rights with respect to an aggregate of
approximately 515,000 shares of Common Stock beneficially owned by such officers
and directors after giving effect to the offering (of which approximately
200,000 are also subject to the Registration Rights Agreement), including their
shares subject to stock options.
CERTAIN CERTIFICATE OF INCORPORATION, BYLAW AND STATUTORY PROVISIONS AFFECTING
STOCKHOLDERS
CLASSIFIED BOARD; REMOVAL OF DIRECTORS; BOARD VACANCIES. The Company's
Restated Certificate of Incorporation provides for a classified Board of
Directors consisting of three classes as nearly equal in size as practicable.
Each class holds office until the third annual meeting for election of directors
following the election of such class. A director may be removed without cause
either by (i) a majority vote of the directors then in office (including, for
purposes of calculating the number of directors then in office, the director
subject to such removal vote) or (ii) the vote of 80% of the capital stock
entitled to vote for the election of directors. In addition, the provision
relating to the classified board may be amended only upon the vote of the
holders of at least 80% of the capital stock entitled to vote for the election
of directors. A majority of the remaining directors then in office, even though
less than a quorum, may fill any vacancy in the Board of Directors.
SPECIAL MEETINGS OF STOCKHOLDERS; STOCKHOLDER ACTION BY WRITTEN CONSENT.
The Restated Certificate of Incorporation provides that actions may be taken by
the stockholders of the Company only at annual or special meetings of
stockholders and not by written consent. Special meetings of the stockholders of
the Company may be called only by the Board of Directors, a majority of the
Board of Directors or by a duly designated committee of the Board of Directors
whose powers and authority include the power to call such meetings.
SECTION 203 OF DELAWARE CORPORATION LAW. The Company is subject to Section
203 of the Delaware General Corporation Law, which generally prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the time that
the person became an interested stockholder, unless (i) prior to such time the
Board of Directors of the corporation approved either the business combination
or the transaction in which the person became an interested stockholder, (ii)
upon consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by officers or directors of the corporation
and by certain employee stock plans, or (iii) at or after such time the business
combination is approved by the Board of Directors of the corporation and by the
affirmative vote of at least 66 2/3% of the outstanding voting stock of the
corporation that is not owned by the interested stockholder. A "business
combination" generally includes mergers, asset sales and similar transactions
between the corporation and the interested stockholder, and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns 15% or more of
the corporation's voting stock or who is an affiliate or associate of the
corporation and, together with his or her affiliates and associates, has owned
15% or more of the corporation's voting stock within three years.
TRANSFER AGENT AND REGISTRAR
National City Bank is the transfer agent and registrar for the Common Stock.
53
<PAGE>
UNDERWRITING
Piper Jaffray Inc. and Dillon, Read & Co. Inc. (the "Underwriters") have
severally agreed, subject to the terms of the Purchase Agreement, to purchase
from the Company and the Selling Stockholders the number of shares of Common
Stock set forth opposite their names below. The Underwriters are committed to
purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Piper Jaffray Inc..........................................................
Dillon, Read & Co. Inc.....................................................
Total.................................................................. 5,000,000
-----------------
-----------------
</TABLE>
The Company has been advised that the Underwriters propose to offer the
shares to the public at the Price to Public set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow and such dealers may reallow
a concession not in excess of $ per share on sale to certain other
brokers and dealers. After the offering, the Price to Public, concession and
reallowance may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, under which the
Underwriters may purchase up to an additional 750,000 shares of Common Stock
from the Company at the Price to Public less the Underwriting Discount set forth
on the cover page of the Prospectus. The Underwriters may exercise the option
only to cover over-allotments, if any. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares as it was
obligated to purchase pursuant to the Purchase Agreement.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or to contribute to payments which the Underwriters may be
required to make in respect thereof.
The Company and each of the Company's directors, executive officers and
certain principal stockholders and Selling Stockholders have agreed, for a
period of 90 days after the date of this Prospectus, not to directly or
indirectly offer for sale, sell, contract to sell, grant any option for the sale
of, or otherwise issue or dispose of, any shares of Common Stock, options or
warrants to acquire shares of Common Stock, or any security or instrument
related thereto, without the prior written consent of Piper Jaffray Inc., except
for (i) sales to the Underwriters pursuant to the Purchase Agreement, (ii) in
the case of the Company, sales in connection with the exercise of options
granted and the granting of options to purchase up to an additional 350,000
shares pursuant to the Company's existing stock option plans and (iii) certain
other exceptions.
In order to facilitate the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock during and after the offering. Specifically, the Underwriters may
over-allot or otherwise create a short position in the Common Stock for their
own account by selling more shares of Common Stock than have been sold to them
by the Company and the Selling Stockholders. The Underwriters may elect to cover
any such short position by purchasing shares of Common Stock in the open market
or by exercising the over-allotment option granted to the Underwriters. In
addition, the Underwriters may stabilize or maintain the price of the Common
Stock by bidding for or purchasing shares of Common Stock in the open market and
may impose penalty bids, under which selling concessions allowed to syndicate
members or other broker-dealers participating in the offering are reclaimed if
shares of Common Stock previously distributed in the offering are repurchased in
connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of the Common Stock to
the extent that it
54
<PAGE>
discourages resales thereof. No representation is made as to the magnitude or
effect of any such stabilization or other transactions. Such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
In connection with this offering, certain Underwriters (and selling group
members) may also engage in passive market making transactions in the Common
Stock on the Nasdaq National Market. Passive market making consists of
displaying bids on the Nasdaq National Market limited by the prices of
independent market makers and effecting purchases limited by such prices and in
response to order flow. Rule 103 of Regulation M promulgated by the Securities
and Exchange Commission limits the amount of net purchases that each passive
market maker may make and the displayed size of each bid. Passive market making
may stabilize the market price of the Common Stock at a level above that which
might otherwise prevail in the open market and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Latham & Watkins, Menlo Park, California. Certain legal
matters will be passed upon for the Underwriters by Faegre & Benson LLP,
Minneapolis, Minnesota. Certain partners of Latham & Watkins, members of their
families, related persons and others, have an indirect interest, through limited
partnerships, in less than 1% of the Common Stock of the Company. Such persons
do not have the power to vote or dispose of such shares of Common Stock.
EXPERTS
The Consolidated Financial Statements of Layne Christensen Company as of
January 31, 1997 and 1996 and for each of the three years in the period ended
January 31, 1997 included and incorporated by reference in this Prospectus and
the Registration Statement and the financial statement schedule included
elsewhere in the Registration Statement have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports which are included and
incorporated by reference herein and elsewhere in the Registration Statement,
and are so included and incorporated in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
The Consolidated Financial Statements of Stanley as of June 30, 1996 and
1995 and for each of the years in the two-year period ended June 30, 1996, have
been included herein and in the registration statement in reliance upon the
report of KPMG, chartered accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The Financial Statements of G&K as of and for the year ended June 30, 1996
have been included herein and in the registration statement in reliance upon the
report of KPMG, chartered accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The reports of KPMG covering the financial statements of Stanley and G&K
contain explanatory paragraphs that state that accounting principles generally
accepted in Australia vary in certain significant respects from accounting
principles in the United States. The application of United States generally
accepted accounting principles would have affected results of operations and
shareholders' equity, to the extent summarized in Note 33 to the Consolidated
Financial Statements of Stanley and Note 7 to the Financial Statements of G&K.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C., a Registration Statement on Form S-2 under the Securities Act
with respect to the shares of Common Stock offered by this Prospectus. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain portions of which are omitted as permitted by the rules and
regulations of the
55
<PAGE>
Securities and Exchange Commission. For further information with respect to the
Company and the shares offered by this Prospectus, reference is made to the
Registration Statement, including the exhibits and schedules filed therewith.
Copies of the Registration Statement (of which this Prospectus is a part),
together with such exhibits and schedules, may be obtained upon payment of the
fee prescribed by the Securities and Exchange Commission or may be examined
without charge at the office of the Securities and Exchange Commission.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files annual and quarterly reports, proxy
statements and other information with the Securities and Exchange Commission.
The Registration Statement, including the exhibits thereto, as well as such
reports and other information filed by the Company with the Securities and
Exchange Commission, can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C., 20549; 7 World Trade Center, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Securities and Exchange Commission also maintains a site on the World
Wide Web at http://www.sec.gov that contains reports and other information
regarding registrants that file electronically with the Commission, and certain
of the Company's filings are available at such web site.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated by reference in this Prospectus are (i) Layne Christensen's
Annual Report on Form 10-K for the fiscal year ended January 31, 1997 (including
such information as is incorporated by reference from the Company's Proxy
Statement for the Annual Meeting of Stockholders held on May 22, 1997, filed
with the Securities and Exchange Commission on April 18, 1997), as amended; (ii)
the Company's Quarterly Report on Form 10-Q for the quarter ended April 30,
1997; and (iii) the Company's Current Reports on Form 8-K filed with the
Commission on April 9, 1997 and August 8, 1997 pursuant to Section 13 of the
Securities Exchange Act of 1934. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, including any beneficial owner of Common
Stock, on the written or oral request of such person, a copy of any or all of
the foregoing documents incorporated by reference in this Prospectus, other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates. Written or
oral requests for such copies should be directed to the Secretary, Layne
Christensen Company, 1990 Shawnee Mission Parkway, Mission Woods, Kansas 66205
(telephone: (913) 362-0510).
56
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
Independent Auditors' Report............................................................................... F-2
Financial Statements:
Consolidated Balance Sheets as of January 31, 1997 and 1996 and April 30, 1997 (unaudited)............... F-3
Consolidated Statements of Income for the Years Ended January 31, 1997, 1996 and 1995 and for the Three
Months Ended April 30, 1997 and 1996 (unaudited)....................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended January 31, 1997, 1996 and 1995 and
for the Three Months Ended April 30, 1997 (unaudited).................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended January 31, 1997, 1996 and 1995 and for the
Three Months Ended April 30, 1997 and 1996 (unaudited)................................................. F-6
Notes to Consolidated Financial Statements (schedules have been omitted because they are not applicable
or not required as the information is included in the consolidated financial statements of the Company
or Notes thereto)...................................................................................... F-8
STANLEY MINING SERVICES LIMITED
Report of Independent Auditors............................................................................. F-26
Consolidated Statements of Profit for the Years Ended June 30, 1996 and 1995............................... F-27
Consolidated Balance Sheets as of June 30, 1996 and 1995................................................... F-28
Consolidated Statements of Changes in Shareholders' Equity for Years Ended June 30, 1996 and 1995.......... F-29
Consolidated Statements of Cash Flows for the Years Ended June 30, 1996 and 1995........................... F-30
Notes to Consolidated Financial Statements................................................................. F-31
Unaudited Consolidated Statements of Profit for the Nine Months Ended March 31, 1997 and 1996.............. F-62
Unaudited Consolidated Balance Sheets as of March 31, 1997 and 1996........................................ F-63
Unaudited Consolidated Statements of Changes in Shareholders' Equity for the Nine Months Ended March 31,
1997 and 1996............................................................................................ F-64
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 1997 and 1996.......... F-65
Notes to Unaudited Consolidated Financial Statements....................................................... F-67
GLINDEMANN & KITCHING PTY LTD.
Report of Independent Auditors............................................................................. F-75
Statement of Profit for the Year Ended June 30, 1996....................................................... F-76
Balance Sheet as of June 30, 1996.......................................................................... F-77
Statement of Changes in Shareholders' Equity for the Year Ended June 30, 1996.............................. F-78
Statement of Cash Flows for the Year Ended June 30, 1996................................................... F-79
Notes to Financial Statements.............................................................................. F-80
Unaudited Statements of Profit for the Nine Months Ended March 31, 1997 and 1996........................... F-91
Unaudited Balance Sheets as of March 31, 1997 and 1996..................................................... F-92
Unaudited Statements of Changes in Shareholders' Equity for the Nine Months Ended March 31, 1997 and
1996..................................................................................................... F-93
Unaudited Statements of Cash Flows for the Nine Months Ended 31 March 1997 and 1996........................ F-94
Notes to Unaudited Financial Statements.................................................................... F-95
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Layne Christensen Company:
We have audited the accompanying consolidated balance sheets of Layne
Christensen Company and subsidiaries (together, the "Company") as of January 31,
1997 and 1996, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended January
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of January 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended January 31, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 7, 1997
(July 7, 1997 as to Note 14)
F-2
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31, 1997 AND 1996
AND APRIL 30, 1997 (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
ASSETS 1997 1996
APRIL 30, 1997 --------- ---------
--------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................................................ $ 1,218 $ 1,697 $ 382
Customer receivables, less allowances of $1,349, $1,002 and $887, respectively........... 38,608 32,031 33,572
Costs and estimated earnings in excess of billings on uncompleted contracts.............. 12,126 10,284 9,777
Inventories.............................................................................. 19,024 17,739 15,495
Deferred income taxes.................................................................... 6,275 6,356 7,082
Other.................................................................................... 1,423 1,675 1,305
-------------- --------- ---------
Total current assets................................................................. 78,674 69,782 67,613
-------------- --------- ---------
Property and equipment:
Land..................................................................................... 7,922 7,922 4,469
Buildings................................................................................ 13,793 13,555 12,064
Machinery and equipment.................................................................. 103,959 101,945 93,497
-------------- --------- ---------
125,674 123,422 110,030
Less--Accumulated depreciation........................................................... (71,276) (69,015) (62,141)
-------------- --------- ---------
Net property and equipment........................................................... 54,398 54,407 47,889
-------------- --------- ---------
Other assets:
Investment in foreign affiliates......................................................... 17,660 17,172 14,921
Investment in domestic affiliate......................................................... -- -- 2,203
Intangible assets, at cost less accumulated amortization................................. 553 521 525
Property and equipment held for sale..................................................... 536 713 198
Other.................................................................................... 1,020 1,055 828
-------------- --------- ---------
Total other assets................................................................... 19,769 19,461 18,675
-------------- --------- ---------
$ 152,841 $ 143,650 $ 134,177
-------------- --------- ---------
-------------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Accounts payable......................................................................... $ 12,614 $ 12,550 $ 13,225
Current maturities of long-term debt..................................................... 117 114 105
Accrued compensation..................................................................... 6,513 8,348 8,869
Accrued insurance expense................................................................ 5,060 5,410 4,936
Accrued integration costs................................................................ 702 787 2,703
Other accrued expenses................................................................... 7,884 6,876 7,088
Billings in excess of costs and estimated earnings on uncompleted contracts.............. 8,212 6,054 3,891
-------------- --------- ---------
Total current liabilities............................................................ 41,102 40,139 40,817
-------------- --------- ---------
Non-current and deferred liabilities:
Long-term debt........................................................................... 35,783 30,314 28,428
Deferred income taxes.................................................................... 3,347 3,307 2,323
Accrued insurance expense................................................................ 6,174 5,775 6,198
Other.................................................................................... 1,935 1,451 2,439
-------------- --------- ---------
Total non-current and deferred liabilities........................................... 47,239 40,847 39,388
-------------- --------- ---------
Contingencies(Note 10)
Stockholders' equity:
Preferred stock, par value $.01 per share, 5,000,000 shares authorized, none issued and
outstanding............................................................................ -- -- --
Common stock, par value $.01 per share, 30,000,000 shares authorized, 8,874,991,
8,871,467 and 8,839,845 shares issued and outstanding, respectively.................... 89 89 88
Capital in excess of par value........................................................... 39,407 39,293 38,954
Retained earnings........................................................................ 25,870 24,187 16,170
Notes receivable from management stockholders............................................ (175) (199) (313)
Unrecognized pension cost................................................................ (604) (624) (777)
Cumulative translation adjustment........................................................ (87) (82) (150)
-------------- --------- ---------
Total stockholders' equity....................................................... 64,500 62,664 53,972
-------------- --------- ---------
$ 152,841 $ 143,650 $ 134,177
-------------- --------- ---------
-------------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
AND THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL
30, FISCAL YEAR ENDED JANUARY 31,
------------------------ -------------------------------
1997 1996 1997 1996 1995
----------- ----------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Service revenues................ $ 49,471 $ 47,256 $ 196,544 $ 153,755 $ 156,121
Product sales................... 8,279 6,517 26,309 13,516 10,709
----------- ----------- --------- --------- ---------
Total revenues.............. 57,750 53,773 222,853 167,271 166,830
----------- ----------- --------- --------- ---------
Cost of revenues (exclusive of
depreciation shown below):
Cost of service revenues........ 36,202 34,976 142,562 111,061 115,231
Cost of product sales........... 5,943 4,727 19,040 11,017 8,583
----------- ----------- --------- --------- ---------
Total cost of revenues...... 42,145 39,703 161,602 122,078 123,814
----------- ----------- --------- --------- ---------
Gross profit...................... 15,605 14,070 61,251 45,193 43,016
Selling, general and
administrative expenses......... 10,327 9,737 38,956 28,260 28,860
Depreciation...................... 2,832 2,841 10,974 8,233 7,811
----------- ----------- --------- --------- ---------
Operating income.................. 2,446 1,492 11,321 8,700 6,345
Other income (expense):
Equity earnings of foreign
affiliates...................... 820 1,102 3,895 -- --
Interest........................ (614) (679) (2,447) (767) (779)
Other, net...................... 62 90 161 407 (84)
----------- ----------- --------- --------- ---------
Income before income taxes........ 2,714 2,005 12,930 8,340 5,482
Income tax expense................ 1,031 902 4,913 3,753 2,522
----------- ----------- --------- --------- ---------
Net income........................ $ 1,683 $ 1,103 $ 8,017 $ 4,587 $ 2,960
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
Net income per common and dilutive
equivalent share................ $ 0.18 $ 0.12 $ 0.88 $ 0.61 $ 0.40
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
Weighted average number of common
and dilutive equivalent shares
outstanding:
Weighted average shares
outstanding................. 8,872,000 8,845,000 8,865,000 7,451,000 7,301,000
Dilutive stock options........ 362,000 67,000 281,000 66,000 47,000
----------- ----------- --------- --------- ---------
9,234,000 8,912,000 9,146,000 7,517,000 7,348,000
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
AND THE THREE MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
COMMON STOCK CAPITAL IN FROM UNRECOGNIZED
---------------------- EXCESS OF RETAINED MANAGEMENT PENSION
SHARES AMOUNT PAR VALUE EARNINGS STOCKHOLDERS COST
--------- ----------- ----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 1, 1994.............. 7,301,002 $ 73 $ 29,580 $ 8,623 $ (391) $ (516)
Issuance of notes receivable from
management......................... -- -- -- -- (50) --
Payments on notes receivables........ -- -- -- -- 106 --
Unrecognized pension liability....... -- -- -- -- -- 28
Net income........................... -- -- -- 2,960 -- --
Cumulative translation adjustment.... -- -- -- -- -- --
--------- --- ----------- ----------- ----- -----
Balance, January 31, 1995.............. 7,301,002 73 29,580 11,583 (335) (488)
Issuance of stock for acquisition.... 1,506,194 15 9,158 -- -- --
Issuance of stock for incentive
compensation program............... 32,649 -- 216 -- -- --
Payments on notes receivable......... -- -- -- -- 22 --
Unrecognized pension liability....... -- -- -- -- -- (289)
Net income........................... -- -- -- 4,587 -- --
Cumulative translation adjustment.... -- -- -- -- -- --
--------- --- ----------- ----------- ----- -----
Balance, January 31, 1996.............. 8,839,845 88 38,954 16,170 (313) (777)
Issuance of stock for incentive
compensation program............... 31,622 1 339 -- -- --
Payments on notes receivable......... -- -- -- -- 114 --
Unrecognized pension liability....... -- -- -- -- -- 153
Net income........................... -- -- -- 8,017 -- --
Cumulative translation adjustment.... -- -- -- -- -- --
--------- --- ----------- ----------- ----- -----
Balance, January 31, 1997.............. 8,871,467 89 39,293 24,187 (199) (624)
Unaudited:
Issuance of stock for incentive
compensation program............... 3,524 -- 114 -- -- --
Payments on notes receivable......... -- -- -- -- 24 --
Unrecognized pension liability....... -- -- -- -- -- 20
Net income........................... -- -- -- 1,683 -- --
Cumulative translation adjustment.... -- -- -- -- -- --
--------- --- ----------- ----------- ----- -----
Balance, April 30, 1997 (unaudited).... 8,874,991 $ 89 $ 39,407 $ 25,870 $ (175) $ (604)
--------- --- ----------- ----------- ----- -----
--------- --- ----------- ----------- ----- -----
<CAPTION>
CUMULATIVE
TRANSLATION
ADJUSTMENT
---------------
<S> <C>
Balance, February 1, 1994.............. $ (21)
Issuance of notes receivable from
management......................... --
Payments on notes receivables........ --
Unrecognized pension liability....... --
Net income........................... --
Cumulative translation adjustment.... (119)
---
Balance, January 31, 1995.............. (140)
Issuance of stock for acquisition.... --
Issuance of stock for incentive
compensation program............... --
Payments on notes receivable......... --
Unrecognized pension liability....... --
Net income........................... --
Cumulative translation adjustment.... (10)
---
Balance, January 31, 1996.............. (150)
Issuance of stock for incentive
compensation program............... --
Payments on notes receivable......... --
Unrecognized pension liability....... --
Net income........................... --
Cumulative translation adjustment.... 68
---
Balance, January 31, 1997.............. (82)
Unaudited:
Issuance of stock for incentive
compensation program............... --
Payments on notes receivable......... --
Unrecognized pension liability....... --
Net income........................... --
Cumulative translation adjustment.... (5)
---
Balance, April 30, 1997 (unaudited).... $ (87)
---
---
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
AND THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30, FISCAL YEAR ENDED JANUARY 31,
-------------------- -------------------------------
1997 1996 1997 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net income....................................... $ 1,683 $ 1,103 $ 8,017 $ 4,587 $ 2,960
Adjustments to reconcile net income to cash from
operations:
Depreciation and amortization.................... 2,877 2,872 11,261 8,392 7,978
Deferred income taxes............................ 511 313 1,710 (48) 677
Equity earnings of foreign affiliates............ (820) (1,102) (3,895) -- --
Dividends received from foreign affiliates....... 351 482 1,990 279 --
(Gain) loss from disposal of property and
equipment...................................... (22) (19) 110 (330) (164)
Changes in current assets and liabilities, net of
effects from acquisitions:
(Increase) decrease in customer receivables.... (6,577) (1,120) 2,275 (1,490) 1,884
Increase in costs and estimated earnings in
excess of billings on uncompleted
contracts.................................... (1,842) (2,491) (507) (402) (1,059)
(Increase) decrease in inventories............. (1,285) (533) (1,623) (345) 996
(Increase) decrease in other current assets.... 252 (656) (370) (185) 1,202
Increase (decrease) in accounts payable and
accrued expenses............................. (1,588) (2,050) (2,987) (5,374) 8,478
Increase in billings in excess of costs and
estimated earnings on uncompleted
contracts.................................... 2,158 409 2,163 1,304 786
Other, net..................................... 1,012 296 (1,028) 880 (430)
--------- --------- --------- --------- ---------
Cash from operating activities................. (3,290) (2,496) 17,116 7,268 23,308
--------- --------- --------- --------- ---------
Cash flow from investing activities:
Additions to property and equipment.............. (2,873) (3,168) (18,544) (12,454) (8,732)
Proceeds from disposal of property and
equipment...................................... 25 -- 1,070 798 348
Proceeds from disposal of property held for
disposal....................................... 182 179 -- 486 1,386
Acquisition, net of cash acquired................ -- -- -- (22,801) --
Investment in foreign affiliate.................. (19) -- (346) (200) --
Investment in domestic affiliate................. -- 180 282 (118) --
--------- --------- --------- --------- ---------
Cash from investing activities................... (2,685) (2,809) (17,538) (34,289) (6,998)
--------- --------- --------- --------- ---------
</TABLE>
(CONTINUED)
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
AND THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30, FISCAL YEAR ENDED JANUARY 31,
-------------------- -------------------------------
1997 1996 1997 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from financing activities:
Proceeds from long-term debt..................... -- 25,000 25,000 25,000 --
Net borrowings under revolving credit facility... 5,500 4,000 500 3,500 --
Repayments of long-term debt..................... (28) (23,526) (23,605) (1,508) (21,900)
Issuance of notes receivable from management
stockholders................................... -- -- -- -- (50)
Payments on notes receivable from management
stockholders................................... 24 21 114 22 106
Debt issuance costs.............................. -- (191) (272) (190) (92)
--------- --------- --------- --------- ---------
Cash from financing activities................... 5,496 5,304 1,737 26,824 (21,936)
--------- --------- --------- --------- ---------
Effects of exchange rate changes on cash........... -- -- -- -- (401)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents...................................... (479) (1) 1,315 (197) (6,027)
Cash and cash equivalents at beginning of period... 1,697 382 382 579 6,606
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period......... $ 1,218 $ 381 $ 1,697 $ 382 $ 579
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business--Layne Christensen Company and subsidiaries
(together, the "Company") provides comprehensive services for water well
drilling (including related equipment sales), well repair and maintenance and
environmental drilling in most regions in the United States, and provides
mineral exploration drilling services primarily in the United States, Mexico,
Canada and South America. Its customers include municipalities, industrial
companies, mining companies and environmental consulting and engineering firms.
In addition, the Company manufactures diamond core bits, drilling rigs and other
equipment utilized in the mineral exploration and mine development markets
throughout the United States and internationally.
Fiscal Year--References to years are to the fiscal years then ended.
Investment in Affiliated Companies--Investments in affiliates (33% to 50%
owned) in which the Company exercises significant influence over operating and
financial policies are accounted for on the equity method.
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions have been eliminated. Financial information for the
Company's foreign subsidiaries and affiliates is generally reported in the
Company's consolidated financial statements on a one month lag.
Use of Estimates in Preparing Financial Statements--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.
Foreign Currency Transactions and Translation--The cash flows and financing
activities of the Company's Mexican subsidiary are primarily denominated in the
U.S. dollar. Accordingly, this subsidiary uses the U.S. dollar as its functional
currency and translates monetary assets and liabilities at year-end exchange
rates while nonmonetary items are translated at historical rates. Income and
expense accounts are translated at the average rates in effect during the year,
except for depreciation, certain cost of revenues and selling expenses. Gains or
losses from changes in exchange rates are recognized in consolidated income in
the year of occurrence.
Other foreign subsidiaries and affiliates use local currencies as their
functional currency. Assets and liabilities have been translated to U.S. dollars
at year-end exchange rates. Income and expense items have been translated at
exchange rates which approximate the average of the rates prevailing during each
year. Translation adjustments are reported as a separate component of
stockholders' equity.
Net foreign currency transaction gains and losses for the three months ended
April 30, 1997 and 1996, and 1997 and 1996 are not significant. Included in the
consolidated statement of income for 1995 are net losses of $474,000.
Revenue Recognition--Revenue is recognized on large, long-term contracts
using the percentage of completion method based upon materials installed and
labor costs incurred. Changes in job performance, job conditions, and estimated
profitability, including those arising from contract penalty provisions, and
final contract settlements may result in revisions to costs and income and are
recognized in the period in
F-8
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
which the revisions are determined. Revenue is recognized on smaller, short-term
contracts using the completed contract method. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are
determined.
Inventories--The Company values inventories at the lower of cost (first-in,
first-out, including material, labor, and manufacturing overhead costs) or
market (in thousands of dollars):
<TABLE>
<CAPTION>
JANUARY 31,
APRIL 30, --------------------
1997 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Raw materials................................................ $ 1,879 $ 1,790 $ 2,070
Work in process.............................................. 1,755 1,568 846
Finished products, parts and supplies........................ 15,390 14,381 12,579
--------- --------- ---------
Total.................................................... $ 19,024 $ 17,739 $ 15,495
--------- --------- ---------
--------- --------- ---------
</TABLE>
Property and Equipment and Related Depreciation--Property and equipment
(including major renewals and improvements) are recorded at cost. Property and
equipment held for sale is carried at the lower of depreciated cost or estimated
net realizable value. Depreciation is provided using the straight-line method.
The lives used for the more significant items within each property
classification are as follows:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Buildings............................................................................ 15-35
Machinery and equipment.............................................................. 3-10
</TABLE>
Intangible Assets--Intangible assets consist of purchased technical manuals,
well records and other assets which are being amortized over their estimated
economic lives which, for the more significant items, range from three to
thirty-five years. Amortization expense for intangible assets, excluding
amortization related to foreign affiliates, was $116,000, $125,000 and $144,000
for 1997, 1996 and 1995, respectively and $45,000 and $31,000 for the three
months ended April 30, 1997 and 1996, respectively. Accumulated amortization of
intangible assets at April 30, 1997, January 31, 1997 and 1996 was $754,000,
$709,000 and $593,000, respectively.
Impairment of Long-Lived Assets--At each balance sheet date, a determination
is made by management as to whether the value of long-lived assets, including
intangible assets and assets to be disposed of, has been impaired. The
determination is based on several criteria, including, but not limited to,
revenue trends, undiscounted operating cash flows and other operating factors.
Effective February 1, 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The adoption did not have a material effect on the consolidated financial
statements.
Accrued Insurance Expense--Costs estimated to be incurred in the future for
employee medical benefits and casualty insurance programs resulting from claims
which have occurred are accrued currently. Under the terms of the Company's
agreement with the various insurance carriers administering these
F-9
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
claims, the Company is not required to remit the total premium until the claims
are actually paid by the insurance companies (see Note 10).
Fair Value of Financial Instruments--SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments", requires disclosure of the fair value of
certain financial instruments for which it is practicable to estimate that
value. The carrying amounts of financial instruments including cash and cash
equivalents, customer receivables, accounts payable and debt approximate fair
value at January 31, 1997 and 1996 because of the relatively short maturity of
those instruments.
Consolidated Statements of Cash Flows--Highly liquid investments with a
remaining maturity of three months or less at the time of purchase are
considered cash equivalents. The Company's cash equivalents consist principally
of funds deposited in a short-term asset management account and are carried at
cost which approximates market. The amounts paid for income taxes and interest
are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
-------------------- -------------------------------
1997 1996 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income taxes........................................... $ 386 $ 171 $ 2,855 $ 3,743 $ 1,625
Interest............................................... 1,012 464 1,750 631 785
</TABLE>
Supplemental Noncash Transactions--In 1996, the Company issued 1,506,194
shares of Common Stock in connection with an acquisition of a business (see Note
2). The following table summarizes the Company's acquisition in 1996 (in
thousands of dollars):
<TABLE>
<S> <C>
Fair value of assets acquired...................................... $ 49,674
Less: liabilities incurred or assumed.............................. 26,873
---------
Cash paid, net of cash acquired.................................... $ 22,801
---------
---------
</TABLE>
During the three months ended April 30, 1997 and in 1997 and 1996, the
Company issued 3,524, 31,622 and 32,649 shares, respectively, of Common Stock to
employees related to 1997, 1996 and 1995 compensation awards. The 1997
compensation awards also included 15,727 stock options issued to employees
during the three months ended April 30, 1997. The total value of these awards
was approximately $114,000, $340,000 and $216,000, respectively, which was
accrued at January 31, 1997, 1996 and 1995, respectively.
Income Taxes--Income taxes are provided using the asset/liability method, in
which deferred taxes are recognized for the tax consequences of temporary
differences between the financial statement carrying amounts and tax bases of
existing assets and liabilities. See Note 5.
Earnings Per Share--Earnings per common share are based upon the weighted
average number of common and dilutive equivalent shares outstanding. Options to
purchase Common Stock are included based on the treasury stock method except
when their effect is antidilutive.
Effective for the Company's financial statements as of January 31, 1998,
SFAS No. 128, "Earnings Per Share," specified the computation, presentation and
disclosure requirements for earnings per share. At the
F-10
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
effective date, all prior period earnings per share data presented will be
restated to conform with the provisions of the Statement. Management believes
there will be no significant impact on earnings per share as a result of the
adoption of this statement.
Stock-Based Compensation--Effective February 1, 1996, the Company adopted
the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under SFAS 123, stock-compensation would be accounted for based
on the estimated fair value of the awards at the date they are granted. As
permitted by the Statement, the Company will continue to account for its
stock-based compensation programs (see Note 9) under APB Opinion No. 25 which
requires compensation cost to be recognized based on the difference, if any,
between the market price of the stock at the date of grant and the amount the
employee must pay to acquire the stock. Pro forma net income and earnings per
share for 1997, determined as if the new method had been applied, would have
been $7,842,000 and $0.86, respectively. As there were no options granted during
1996, there is no pro forma effect on 1996 results. Because the SFAS 123 method
of accounting has not been applied to options granted prior to 1996, the pro
forma compensation cost may not be representative of that to be expected on a
pro forma basis in future years.
Interim Financial Statements--The accompanying unaudited consolidated
financial statements, as of April 30, 1997 and for the three months ended April
30, 1997 and 1996 include all adjustments (consisting only of normal recurring
accruals) which, in the opinion of management, are necessary for a fair
presentation of financial position, results of operations and cash flows.
Results of operations for interim periods are not necessarily indicative of
results to be expected for a full year.
Reclassifications--Certain 1996 and 1995 amounts have been reclassified to
conform with the 1997 presentation.
(2) ACQUISITIONS
Pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), on
December 28, 1995, the Company purchased all of the outstanding shares and
options for Common Stock of Christensen Boyles Corporation ("CBC") for
approximately 1,506,000 shares of restricted Common Stock of the Company and
approximately $9,056,000 in cash and accrued $2,800,000 (and related tax
benefits of $1,081,000) for integration costs and $460,000 for transaction
costs. The restricted Common Stock of the Company issued in connection with the
Merger was valued at $6.09 per share, as determined by a fair market-value
analysis conducted by an independent investment banking firm. The acquisition is
referred to as the "CBC Merger". The Company also paid-off approximately
$13,971,000 and assumed $1,491,000 of CBC's existing indebtedness. A portion of
the cost of the CBC Merger was financed by a $25,000,000 term loan (see Note 8).
The Company's consolidated results include the operations of CBC from the date
of acquisition. The CBC Merger was accounted for using the purchase method of
accounting. The purchase price of $20,408,000 was allocated based on estimated
fair values at the date of the CBC Merger.
Pursuant to the Merger Agreement, as of January 31, 1997, a total of 646,187
shares of the Company's Common Stock remain deposited in escrow with an
independent escrow agent to provide security to the Company for the accuracy and
performance of the covenants and warranties made by the parties to the Merger
Agreement (other than the Company). All such shares are shown as outstanding and
issued as of
F-11
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(2) ACQUISITIONS (CONTINUED)
the date of the CBC Merger. The shares are to be released from escrow on the
second and third anniversary of the CBC Merger, pending any claims filed.
The integration costs accrued in connection with the acquisition included
costs for consolidating certain CBC facilities into Company facilities and
closing one CBC manufacturing facility. The remaining balance of $702,000 and
$787,000 at April 30, 1997 and January 31, 1997, respectively, consists
primarily of lease termination costs, employee termination benefits, and asset
relocation costs. These actions are expected to be substantially completed
during 1998.
(3) INVESTMENTS IN FOREIGN AFFILIATES
Primarily as a result of the CBC Merger (see Note 2), the Company has
investments in foreign affiliates. The Company's investments in foreign
affiliates are carried at the Company's equity in the underlying net assets plus
an additional $4,753,000 as a result of purchase accounting. This additional
amount is being amortized over the remaining useful lives of the applicable
underlying assets ranging from 20-35 years. Accumulated amortization at April 30
and January 31, 1997 was $163,000 and $130,000, respectively. Amortization
expense amounted to $33,000 for the three months ended April 30, 1997 and 1996
and $131,000 for the fiscal year ended January 31, 1997. These affiliates, which
generally are engaged in mineral exploration drilling and the manufacture and
supply of drilling equipment, parts and supplies, are as follows:
<TABLE>
<CAPTION>
PERCENTAGE OWNED
-----------------
<S> <C>
Christensen Chile, S.A. (Chile)............................................ 49.99%
Christensen Commercial, S.A. (Chile)....................................... 50.00%
Geotec Boyles Bros., S.A. (Chile).......................................... 49.75%
Boyles Bros. Diamantina, S.A. (Peru)....................................... 35.375%
Christensen Commercial, S.A. (Peru)........................................ 50.00%
Geotec, S.A. (Peru)........................................................ 35.375%
Boytec, S.A. (Panama)...................................................... 49.99%
Technidrill, Ltd. (France)................................................. 49.00%
Christensen Boyles GmbH (Germany).......................................... 33.35%
Plantation International(Chile)............................................ 50.00%
</TABLE>
Financial information from foreign affiliates is reported on a one month
lag. As the Company had no investments in foreign affiliates prior to December
28, 1995, no equity in earnings was recorded for the period December 28, 1995
(the CBC acquisition date) to January 31, 1996. Such amount is not considered
F-12
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(3) INVESTMENTS IN FOREIGN AFFILIATES (CONTINUED)
significant. Summarized financial information of the Company's foreign
affiliates, as of January 31, 1997 and 1996 and for the year ended January 31,
1997 were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Total assets............................................................ $ 68,576 $ 52,237
Total liabilities....................................................... 35,993 30,157
Revenues................................................................ 94,182 --
Gross profit............................................................ 69,577 --
Operating income........................................................ 14,651 --
Net income.............................................................. 10,043 --
</TABLE>
The Company has transactions and balances with foreign affiliates which
resulted in the following amounts being included in the consolidated financial
statements as of January 31, 1997 and 1996 and for the years then ended (in
thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accounts receivable........................................................ $ 1,480 $ 1,116
Revenues................................................................... 5,924 --
</TABLE>
Undistributed equity earnings of foreign affiliates totaled $1,905,000 as of
January 31, 1997. No individual affiliate represents more than 13% of earnings
before taxes or total assets of the Company as of January 31, 1997.
(4) COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
JANUARY 31,
APRIL 30, --------------------
1997 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Costs incurred on uncompleted contracts.......................................... $ 51,490 $ 44,165 $ 30,672
Estimated earnings............................................................... 20,522 19,453 14,764
--------- --------- ---------
72,012 63,618 45,436
Less: Billings to date........................................................... 68,098 59,388 39,550
--------- --------- ---------
$ 3,914 $ 4,230 $ 5,886
--------- --------- ---------
--------- --------- ---------
Included in accompanying balance sheets under the following captions:
Costs and estimated earnings in excess of billings on uncompleted contracts.... $ 12,126 $ 10,284 $ 9,777
Billings in excess of costs and estimated earnings on uncompleted contracts.... (8,212) (6,054) (3,891)
--------- --------- ---------
$ 3,914 $ 4,230 $ 5,886
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-13
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(4) COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS (CONTINUED)
The Company generally does not bill contract retainage amounts until the
contract is completed. The Company bills its customers based on specific
contract terms. Substantially all billed amounts are collectible within one
year.
(5) INCOME TAXES
Income before income taxes is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Domestic........................................................ $ 8,206 $ 8,551 $ 5,121
Foreign......................................................... 4,724 (211) 361
--------- --------- ---------
$ 12,930 $ 8,340 $ 5,482
--------- --------- ---------
--------- --------- ---------
</TABLE>
Components of the income tax expense are (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Currently due:
U.S. Federal and state......................................... $ 2,406 $ 3,851 $ 1,679
Foreign........................................................ 893 (230) 183
--------- --------- ---------
3,299 3,621 1,862
--------- --------- ---------
Deferred:
U.S. Federal and state......................................... 1,157 (189) 660
Foreign........................................................ 457 321 --
--------- --------- ---------
1,614 132 660
--------- --------- ---------
$ 4,913 $ 3,753 $ 2,522
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(5) INCOME TAXES (CONTINUED)
Deferred income taxes result from temporary differences between the
financial statement and tax basis of the Company's assets and liabilities. The
sources of these differences and their cumulative tax effects are (in thousands
of dollars):
<TABLE>
<CAPTION>
JANUARY 31, 1997 JANUARY 31, 1996
--------------------------------- ---------------------------------
ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
--------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Contract income................................ $ 2,642 $ -- $ 2,642 $ 1,271 $ -- $ 1,271
Accrued insurance expense...................... 1,521 -- 1,521 1,447 -- 1,447
Employee compensation.......................... 801 -- 801 688 -- 688
Bad debts...................................... 338 -- 338 370 -- 370
Inventory reserves............................. 607 -- 607 1,229 -- 1,229
Product guaranty............................... 186 -- 186 282 -- 282
Accrued acquisition integration costs.......... 294 -- 294 1,044 -- 1,044
Other.......................................... 531 (564) (33) 998 (247) 751
--------- ----------- --------- --------- ----------- ---------
Current...................................... 6,920 (564) 6,356 7,329 (247) 7,082
--------- ----------- --------- --------- ----------- ---------
Accelerated depreciation....................... -- (6,562) (6,562) -- (6,225) (6,225)
Accrued insurance expense...................... 2,154 -- 2,154 2,394 -- 2,394
Net operating loss carryforward................ 694 -- 694 1,178 -- 1,178
Employee compensation.......................... -- (205) (205) -- (219) (219)
Other.......................................... 626 (14) 612 613 (64) 549
--------- ----------- --------- --------- ----------- ---------
Noncurrent................................... 3,474 (6,781) (3,307) 4,185 (6,508) (2,323)
--------- ----------- --------- --------- ----------- ---------
$ 10,394 $ (7,345) $ 3,049 $ 11,514 $ (6,755) $ 4,759
--------- ----------- --------- --------- ----------- ---------
--------- ----------- --------- --------- ----------- ---------
</TABLE>
For the year ended January 31, 1997, deferred income tax assets, net of
deferred income tax liabilities, decreased by $1,710,000. Of this decrease,
$1,614,000 was recorded as deferred income tax expense in the income tax
provision and $96,000 was recorded in Stockholder's Equity pursuant to the
application of SFAS No. 87, "Employers Accounting for Pensions" (see Note 7).
Management has determined that no valuation allowance for the deferred tax
assets is necessary based on all available evidence.
For federal income tax purposes, the Company has a tax net operating loss
carryforward of $1,862,000 relating to the company acquired in the CBC Merger
(see Note 2) and therefore subject to certain restrictions, which expires during
the years ending 2008, 2009 and 2010.
At January 31, 1997, undistributed earnings of foreign subsidiaries and
foreign affiliates include $11,375,000 for which no federal income and foreign
withholding taxes have been provided as foreign tax credits should become
available under current tax law to significantly reduce or eliminate the
resulting U.S. income tax liability.
F-15
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(5) INCOME TAXES (CONTINUED)
A reconciliation of the total income tax expense to the statutory federal
rate is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
EFFECTIVE EFFECTIVE EFFECTIVE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income tax at statutory rate......... $ 4,397 34.0% $ 2,836 34.0% $ 1,864 34.0%
State income tax, net of federal
income tax benefit................. 570 4.4 355 4.3 290 5.3
Difference in tax expense resulting
from:
Non-deductible expenses............ 692 5.4 618 7.4 322 5.9
Income of foreign affiliates....... (774) (6.0) -- -- -- --
Other, net......................... 28 .2 (56) (.7) 46 .8
--------- --- --------- --- --------- ---
$ 4,913 38.0% $ 3,753 45.0% $ 2,522 46.0%
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
</TABLE>
(6) LEASES
Future minimum rental payments required under operating leases that have
initial or remaining noncancellable lease terms in excess of one year from
January 31, 1997 are as follows (in thousands of dollars):
<TABLE>
<S> <C>
1998............................................................. $ 4,178
1999............................................................. 2,648
2000............................................................. 1,645
2001............................................................. 403
2002............................................................. 16
</TABLE>
Principal operating leases are for equipment, office and shop facilities.
Equipment leases are primarily for automobiles and small trucks, which are
leased from independent leasing companies under master lease arrangements. Rent
expense under operating leases (including minor amounts of contingent rental
payments) was $5,010,000, $3,298,000 and $2,749,000, in 1997, 1996 and 1995,
respectively.
F-16
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(7) EMPLOYEE BENEFITS PLANS
The Company sponsors pension plans covering certain hourly employees not
covered by union-sponsored, multi-employer plans. Benefits are computed based
mainly on years of service. The Company makes annual contributions to the plans
substantially equal to the amounts required to maintain the qualified status of
the plans. Contributions are intended to provide for benefits related to past
and current service with the Company. Assets of the plans consist primarily of
stocks, bonds and government securities.
The following table sets forth the plans' funded status as of December 31,
1996 and 1995 (the measurement dates) and the amounts recognized in the
Company's balance sheets at January 31, 1997 and 1996 (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accumulated vested benefit obligations......................................................... $ 4,832 $ 4,794
Accumulated non-vested benefit obligation...................................................... 117 107
--------- ---------
Accumulated benefit obligations............................................................ $ 4,949 $ 4,901
--------- ---------
--------- ---------
Projected benefit obligations for service rendered to date..................................... (4,949) (4,901)
Plan assets at fair value...................................................................... 4,398 4,049
--------- ---------
Projected benefit obligation in excess of plan assets.......................................... (551) (852)
Unrecognized net loss.......................................................................... 1,365 1,672
Prior service cost not yet recognized in net periodic pension cost............................. 92 128
Unrecognized net obligation being recognized over the average expected remaining life of the
participants................................................................................. (345) (407)
Adjustment required to recognize minimum liability............................................. (1,109) (1,393)
--------- ---------
Pension liability recognized in the balance sheets......................................... $ (548) $ (852)
--------- ---------
--------- ---------
</TABLE>
Net periodic pension cost for 1997, 1996 and 1995 includes the following
components (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost........................................................ $ 171 $ 140 $ 173
Interest cost....................................................... 357 336 317
Actual return on assets............................................. (343) (602) 74
Net amortization.................................................... 88 42 81
Deferred asset gain (loss).......................................... (29) 307 (345)
--------- --------- ---------
$ 244 $ 223 $ 300
--------- --------- ---------
--------- --------- ---------
</TABLE>
In accordance with SFAS No. 87, at January 31, 1997 and 1996 the Company has
recognized the full amount of its actuarially determined pension liability and
the related intangible asset of $92,000 and $128,000, respectively. The
unrecognized pension cost has been recorded as a charge to stockholders' equity
after giving effect to the related future tax benefit.
F-17
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(7) EMPLOYEE BENEFITS PLANS (CONTINUED)
The projected benefit obligation for 1997, 1996 and 1995 was computed using
a discount rate of 7.50%, 7.25% and 8.25%, respectively, and an estimated
long-term rate of return on assets of 8.75%. Benefit level assumptions for 1997,
1996 and 1995 are based on fixed amounts per year of credited service.
The Company also participates in a number of defined benefit, multi-employer
plans. These plans are union-sponsored, and the Company makes contributions
equal to the amounts accrued for pension expense. Total union pension expense
for these plans was $638,000, $517,000 and $474,000 in 1997, 1996 and 1995,
respectively, and $149,000 and $148,000 for the three months ended April 30,
1997 and 1996, respectively. Information regarding assets and accumulated
benefits of these plans has not been made available to the Company.
The Company's salaried and certain hourly employees participate in
Company-sponsored, defined contribution plans. Company contributions are
determined annually at the discretion of the Board of Directors of the Company.
Total expense for the Company's portion of these plans was $1,264,000, $802,000
and $862,000 in 1997, 1996 and 1995, respectively, and $361,000 and $269,000 for
the three months ended April 30, 1997 and 1996, respectively. The Company
reserves the right to amend or terminate the plans, but the Company cannot
recover contributions already paid.
(8) INDEBTEDNESS
On March 15, 1996, the Company executed a credit agreement ("Credit
Agreement") with a bank group which replaced a previous credit agreement
("Previous Credit Agreement"). The Credit Agreement provides a revolving cash
borrowing facility of up to $30,000,000, less any outstanding letter of credit
commitments by the bank group. As of April 30, 1997 and January 31, 1997,
letters of credit in an aggregate amount of $4,548,000 and $4,904,000,
respectively, had been issued on behalf of the Company.
The Credit Agreement is unsecured, but is guaranteed by certain of the
Company's domestic subsidiaries. The Credit Agreement limits the amount
available for the payment of cash dividends to $1,000,000 plus 25% of cumulative
net income after January 31, 1995. At April 30, 1997 and January 31, 1997, the
Company's retained earnings available for cash dividends was $4,572,000 and
$4,151,000, respectively, based on this limitation. The Credit Agreement also
contains significant covenants including restrictions on incurrence of
additional indebtedness and liens, sale of assets of other dispositions,
transactions with affiliates and certain financial maintenance covenants,
including among others, minimum interest coverage, minimum net worth, and
maximum leverage ratios. In addition, the Credit Agreement contains a provision
providing for the accelerated maturities of all outstanding balances if there is
an unapproved change of control in the Company. The Credit Agreement expires on
March 15, 1999.
The Credit Agreement provides for interest at variable rates equal to, at
the Company's options, the Bank of America Illinois ("BAI") interbank eurodollar
rate (which generally is approximately equal to LIBOR; 5.6563% and 5.4375% at
April 30, 1997 and January 31, 1997, respectively) plus .75% to 1.25% (depending
on interest coverage and debt ratios) or the BAI Alternative Reference Rate (as
defined in the loan agreement; 8.50% and 8.25% at April 30, 1997 and January 31,
1997, respectively). The variable interest rates on the outstanding balances
approximate the current market rates.
Maximum borrowings outstanding under the Company's then existing credit
agreements during 1997, 1996 and 1995 were $7,500,000, $18,000,000 and
$2,500,000, respectively, and the average outstanding
F-18
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(8) INDEBTEDNESS (CONTINUED)
borrowings were $4,875,000, $6,042,000 and $675,000, respectively. The weighted
average interest rate was 7.5%, 7.9% and 8.5%, respectively.
On December 28, 1995, the Company executed an amendment to the Previous
Credit Agreement to provide a $25,000,000 term loan facility ("Term Loan") to
the Company to finance the CBC Merger (see Note 2). The Term Loan provided for
interest at rates equal to the Credit Agreement except that the margin on
interbank eurodollar loans was 1.25%.
The Term Loan was replaced on March 15, 1996 with the private placement of
an unsecured note agreement for the issuance and sale of $25,000,000 aggregate
principal amount of senior notes ("Senior Notes"). The Senior Notes bear a fixed
interest rate of 6.75% and will be due March 15, 2006 with annual installments
of $3,571,000 beginning March 15, 2000. As of April 30, 1997, January 31, 1997
and 1996, such interest rate approximates market for similar securities.
Financial guarantees and covenants are similar to those in the Credit Agreement.
In connection with the CBC Merger (see Note 2), the Company assumed a
mortgage loan with an insurance company which is secured by the Company's
manufacturing facility in Salt Lake City, Utah. The mortgage loan provides for
monthly installments of $19,000 through September 2000 with a final payment in
October, 2000 of $963,000. The interest rate is fixed during the term of the
Mortgage Loan at 8.64%. As of April 30, 1997, January 31, 1997 and 1996, such
interest rate approximate market for similar securities.
Loan costs incurred in securing long-term financing are amortized over the
term of the respective loan agreement. Amortization of these costs for 1997,
1996 and 1995 and the three months ended April 30, 1997 and 1996 was $171,000,
$34,000, $92,000, $25,000 and $87,000, respectively. Amortization of loan costs
is included in interest expense in statements of income.
Long-term debt is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
JANUARY 31,
APRIL 30, --------------------
1997 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Senior Notes................................................. $ 25,000 $ 25,000 --
Term loan.................................................... -- -- $ 23,500
Revolving debt............................................... 9,500 4,000 3,500
Mortgage loan................................................ 1,400 1,428 1,533
--------- --------- ---------
35,900 30,428 28,533
Less current maturities...................................... 117 114 105
--------- --------- ---------
Total long-term debt--net.................................. $ 35,783 $ 30,314 $ 28,428
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-19
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(8) INDEBTEDNESS (CONTINUED)
As of January 31, 1997, long-term debt matures as follows (in thousands of
dollars):
<TABLE>
<S> <C>
1998............................................................... $ 114
1999............................................................... 124
2000............................................................... 4,136
2001............................................................... 4,624
2002............................................................... 3,571
Thereafter......................................................... 17,859
</TABLE>
(9) STOCK AND STOCK OPTION PLANS
The Company has reserved 500,000 shares of Common Stock for issuance under
Employee Incentive Compensation Plans. Issuance of shares under the Plans is
based on performance as determined annually by a committee appointed by the
Company's Board of Directors. During the three months ended April 30, 1997 and
in 1997 and 1996, 3,524, 31,622 and 32,649 shares, respectively, were issued at
$15.20, $10.75 and $6.63 per share, respectively.
The Company also has two stock option plans which provide for the granting
of options to purchase up to an aggregate of 1,000,000 shares of Common Stock at
a price fixed by the Board of Directors or a committee.
<TABLE>
<CAPTION>
SHARES UNDER OPTION SHARES EXERCISABLE
------------------------ ------------------------
<S> <C> <C> <C> <C>
WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE
OF SHARES PRICE OF SHARES PRICE
----------- ----------- ----------- -----------
Stock Option Activity Summary:
Outstanding, January 31, 1994....................................... 486,232 $ 5.784 103,456 $ 2.733
Granted............................................................. 39,000 6.375 --
Canceled............................................................ (58,317) 7.000 (11,663)
Vested.............................................................. -- -- 71,152
----------- -----------
Outstanding, January 31, 1995....................................... 466,915 5.681 162,945 4.106
Granted............................................................. -- -- --
Canceled............................................................ -- -- --
Vested.............................................................. -- -- 78,948
----------- -----------
Outstanding, January 31, 1996....................................... 466,915 5.681 241,893 4.907
Granted............................................................. 191,500 10.748 --
Canceled............................................................ (16,500) 10.500 --
Vested.............................................................. -- -- 110,651
----------- -----------
Outstanding, January 31, 1997....................................... 641,915 7.069 352,544 5.779
Unaudited:
Granted............................................................. 15,727 11.400 --
Canceled............................................................ -- -- --
Vested.............................................................. -- -- --
----------- -----------
Outstanding, April 30, 1997......................................... 657,642 7.172 352,544 5.779
----------- -----------
----------- -----------
</TABLE>
F-20
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(9) STOCK AND STOCK OPTION PLANS (CONTINUED)
Significant option groups outstanding at January 31, 1997 and related
weighted average price and life information follows:
<TABLE>
<CAPTION>
OPTIONS OPTIONS EXCERSISE REMAINING LIFE
GRANT DATE OUTSTANDING EXERCISABLE PRICE (YEARS)
- -------------------------------------------- ----------- ----------- --------- -----------------
<S> <C> <C> <C> <C>
8/92....................................... 72,164 72,164 $ .882 5
8/92....................................... 97,434 78,518 $ 7.000 5
12/93....................................... 258,317 154,562 $ 6.420 6
5/94....................................... 39,000 15,600 $ 6.375 7
2/96....................................... 158,500 31,700 $ 10.500 9
11/96....................................... 16,500 -- $ 13.375 9
</TABLE>
All options were granted at an exercise price equal to the fair market value
of the Company's common stock at the date of grant. The weighted average fair
value at the date of grant for options granted during fiscal year 1997 were
$6.98 per option, respectively. As there were no options granted during 1996, no
weighted average fair value of options is presented. The options generally have
a ten year term from the date of grant and vest ratably over five years. The
fair value of options at date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:
<TABLE>
<S> <C>
Expected life (years).................................................. 10
Interest rate.......................................................... 6.5%
Volatility............................................................. 20%
Dividend yield......................................................... 0%
</TABLE>
(10) CONTINGENCIES
The Company provides environmental drilling and consulting services that are
related to the cleanup of hazardous substances, toxic wastes and other
pollutants. Rendering these services exposes the Company to potential
significant liability for claims related to the costs of environmental
remediation and other damages. The Company has obtained a "claims made"
pollution liability policy limited to $20,000,000 for any individual claim and
$20,000,000 for all claims in the aggregate made under such policy during the
policy's three year term. While the Company believes this is a cost effective
level of environmental insurance coverage in light of the risks associated with
its business, no assurance can be given that the amount and scope of coverage
will be adequate.
The Company's former parent corporation, The Marley Company ("Marley"),
maintains insurance reserves for the Company on its financial statements to
cover expected losses under various casualty insurance policies for occurrences
prior to April 30, 1992. Those reserves were funded through intercompany charges
to the Company, which were calculated on the basis of the estimated insured
losses incurred by the Company. The Company has indemnified Marley for claims or
retroactive insurance premiums on those policies that exceed the amount of
reserves attributable to the Company's estimated losses through April 30, 1992.
The Company believes that the amount of such reserves will be sufficient to
cover its reasonably anticipated insured losses under past insurance policies.
Pursuant to an agreement with Marley,
F-21
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(10) CONTINGENCIES (CONTINUED)
in July 1997, Marley will make payment to the Company in the amount of the
remaining reserves at that date, and the Company will be responsible for any
remaining incurred but unpaid claims or losses.
The Company is involved in various matters of litigation, claims and
disputes which have arisen in the ordinary course of the Company's business.
While the resolution of any of these matters may have an impact on the financial
results for the period in which the matter is resolved, the Company believes
that the ultimate disposition of these matters will not, in the aggregate, have
a material adverse effect upon its consolidated financial position, results of
operation or liquidity.
(11) SEGMENT INFORMATION AND FOREIGN OPERATIONS
The Company is a multi-national company operating predominantly in two
industry segments: as a drilling company with wholly-owned operations in the
United States, Mexico, Canada and Thailand, and as a manufacturer and supplier
of drilling equipment, parts and supplies. The manufacturing and supply
operations are primarily in the United States. Refer to Note 3 for information
on other foreign investments.
Revenues, operating income, identifiable assets, capital expenditures and
depreciation and amortization pertaining to the segments in which the Company
operates are presented below (in thousands of dollars). Intersegment sales are
accounted for based on the estimated fair market value of the products sold. In
computing operating income for foreign subsidiaries, no allocations of general
corporate expenses have been made. Identifiable assets of foreign subsidiaries
are those assets related to the operations of those subsidiaries. Corporate
assets are all other assets of the Company not directly associated with an
operating segment, and consist primarily of cash, deferred income taxes and
investments in foreign affiliates (see Note 3).
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues
Drilling
United States............................................................ $ 171,704 $ 143,162 $ 150,036
Foreign.................................................................. 24,840 10,593 6,085
---------- ---------- ----------
Total Drilling......................................................... 196,544 153,755 156,121
Manufacturing and Supply................................................. 41,572 23,232 17,935
Intersegment revenues.................................................... (15,263) (9,716) (7,226)
---------- ---------- ----------
Total Manufacturing and Supply......................................... 26,309 13,516 10,709
---------- ---------- ----------
$ 222,853 $ 167,271 $ 166,830
---------- ---------- ----------
---------- ---------- ----------
Operating Income
Drilling
United States............................................................ $ 13,844 $ 14, 107 $ 15,073
Foreign.................................................................. 2,159 409 1,037
---------- ---------- ----------
Total Drilling......................................................... 16,003 14,516 16,110
Manufacturing and Supply................................................. 1,390 1,625 536
Corporate................................................................ (6,072) (7,441) (10,301)
---------- ---------- ----------
$ 11,321 $ 8,700 $ 6,345
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-22
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(11) SEGMENT INFORMATION AND FOREIGN OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Identifiable Assets
Drilling
United States............................................................ $ 74,113 $ 70,866 $ 60,678
Foreign.................................................................. 16,484 15,616 6,206
---------- ---------- ----------
Total Drilling......................................................... 90,597 86,482 66,884
Manufacturing and Supply................................................. 24,917 20,622 5,008
Corporate................................................................ 28,136 27,073 9,165
---------- ---------- ----------
$ 143,650 $ 134,177 $ 81,057
---------- ---------- ----------
---------- ---------- ----------
Capital Expenditures
Drilling................................................................... $ 18,071 $ 12,383 $ 8,723
Manufacturing and Supply................................................... 473 71 9
---------- ---------- ----------
$ 18,544 $ 12,454 $ 8,732
---------- ---------- ----------
---------- ---------- ----------
Depreciation and Amortization
Drilling................................................................... $ 10,776 $ 8,375 $ 7,960
Manufacturing and Supply................................................... 485 17 18
---------- ---------- ----------
$ 11,261 $ 8,392 $ 7,978
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Of the $26,309,000 Manufacturing and Supply sales to unaffiliated customers
in 1997, $10,023,000 were export sales, principally to Latin and South America.
(12) INVESTMENT IN DOMESTIC AFFILIATE
As a result of the CBC Merger (see Note 2), the Company owned 50% of a
limited liability company, CBC Welnav L.C. ("Welnav"). Welnav engaged primarily
in surveying and directional drilling services, and the manufacturing and
selling of survey tools and hydraulic down hole motors for mineral and energy
exploration, mine development, and pre-construction testing. Welnav was
dissolved and terminated as of November 30, 1996. No loss was incurred by the
Company in connection with the dissolution.
The Company's investment in Welnav was carried at the Company's equity in
the underlying net assets plus advances to Welnav. Summarized financial
information as of January 31, 1996 and for the period then ended was
approximately (in thousands of dollars):
<TABLE>
<S> <C>
Total assets........................................................ $ 3,443
Total liabilities................................................... 1,346
Net sales........................................................... 305
Net income.......................................................... 39
</TABLE>
The Company had $1,155,000 in advances to Welnav as of January 31, 1996. The
Company had transactions with Welnav for the years ended January 31, 1997 and
1996, but such amounts were not significant.
F-23
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(13) QUARTERLY RESULTS (UNAUDITED)
Unaudited quarterly financial data is as follows (see Note 2 regarding the
CBC Merger) (in thousands of dollars, except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1997:
Revenues........................................ $ 53,773 $ 56,312 $ 60,212 $ 52,556
Gross profit.................................... 14,070 15,975 17,172 14,034
Net income...................................... 1,103 2,552 3,200 1,162
Per share earnings.............................. 0.12 0.28 0.35 0.13
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1996:
Revenues........................................ $ 37,559 $ 42,560 $ 44,368 $ 42,784
Gross profit.................................... 10,203 11,521 12,695 10,774
Net income...................................... 646 1,555 1,841 545
Per share earnings.............................. 0.09 0.21 0.25 0.07
</TABLE>
(14) SUBSEQUENT EVENTS
On May 20, 1997, the Company, through its wholly-owned subsidiary Layne
Christensen Australia Pty Limited ("Layne Australia"), made a tender offer to
the holders of all the outstanding shares of capital stock of Stanley Mining
Services, Limited ("Stanley"), a company listed on the Australian Stock Exchange
(the "Tender Offer").
On July 7, 1997, the close of the tender offer period, 98% of the Stanley
shares then outstanding had been tendered. Consummation of the Tender Offer is
expected in late July 1997. Following such consummation, Layne Australia will
purchase the shares of Stanley that were not tendered, at the tender offer share
price, pursuant to legal procedures available to corporations owning at least
90% of the shares of a target corporation.
In December 1996, Stanley acquired 51% of Glindemann & Kitching Pty Ltd.
("G&K"), a leading diamond core exploration drilling company in Western
Australia, from its two stockholders and their affiliates at a price of
$5,245,000, under terms of an acquisition agreement which also provides for G&K
to repurchase the remaining 49% of the outstanding shares of G&K from its
stockholders other than Stanley on or before September 30, 1997, at a price
based upon five times the adjusted average annual after tax profits of G&K for
the two fiscal years ending June 30, 1996 and June 30, 1997, thereby making G&K
a wholly owned subsidiary of Stanley. The repurchase by G&K of the remaining 49%
interest is referred to herein as the "G&K Acquisition."
The Company will finance the Tender Offer and the G&K Acquisition through a
$100,000,000 reducing revolving credit facility to be provided by Bank of
America National Trust and Savings Association ("Bank of America") and a
syndicate arranged by BancAmerica Securities, Inc. (the "New Credit Agreement").
The New Credit Agreement will also be used to refinance the Company's existing
$30,000,000 credit facility. The Company expects to borrow approximately
$58,840,000 under the New Credit Agreement for the Tender Offer and G&K
Acquisition and for certain related costs and expenses.
F-24
<PAGE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
(14) SUBSEQUENT EVENTS (CONTINUED)
The purchase price of Stanley is estimated to be $51,666,000 based on the number
of outstanding shares of Stanley stock and the agreed upon share price of A$.95.
The purchase price of the G&K Acquisition is estimated to be $6,324,000.
F-25
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Members of Stanley Mining Services Limited:
We have audited the accompanying consolidated balance sheets of Stanley
Mining Services Limited and its controlled entities (Economic Entity) as of June
30, 1996 and 1995 and the related consolidated statements of profit, statements
of changes in shareholders' equity and statements of cash flows for each of the
years in the two year period ended June 30, 1996, all expressed in Australian
dollars. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally
accepted in Australia which do not differ in any significant respect from
auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the economic
entity of June 30, 1996 and June 30, 1995 and the results of their operations
and their cash flows for the years in the two year period ended June 30, 1996,
in conformity with accounting principles generally accepted in Australia.
Accounting principles generally accepted in Australia vary in certain
significant respects from accounting principles in the United States. The
application of United States generally accepted accounting principles would have
affected the results of operations for each of the years in the two year period
ended June 30, 1996 and shareholders' equity as of June 30, 1996 and June 30,
1995, to the extent summarised in Note 33 to the consolidated financial
statements.
KPMG
CHARTERED ACCOUNTANTS
PERTH, WESTERN AUSTRALIA
Dated: 12 September 1996,
except as to Notes 32 and 33,
are as of 17 June 1997.
F-26
<PAGE>
STANLEY MINING SERVICES LIMITED
CONSOLIDATED STATEMENTS OF PROFIT
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
NOTE A $'000 A $'000
----- ---------- ----------
<S> <C> <C> <C>
Operating profit before abnormal items
and income tax........................ 2,3 5,622 4,363
Abnormal items.......................... 5 -- (494)
---------- ----------
Operating profit before income tax...... 5,622 3,869
Income tax expense attributable to
operating profit...................... 6 (2,049) (1,508)
---------- ----------
Operating profit after income tax....... 3,573 2,361
---------- ----------
Basic earnings per share--cents......... 8 10.1 9.3
</TABLE>
See the accompanying notes to and
forming part of the consolidated financial statements.
F-27
<PAGE>
STANLEY MINING SERVICES LIMITED
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
NOTE 1996 1995
----- --------- ---------
<S> <C> <C> <C>
A $'000 A $'000
CURRENT ASSETS
Cash.................................................................................... 1,384 2,407
Receivables............................................................................. 10 9,974 6,019
Inventories............................................................................. 12 4,875 2,790
Other................................................................................... 13 695 667
--------- ---------
TOTAL CURRENT ASSETS.................................................................... 16,928 11,883
--------- ---------
NON-CURRENT ASSETS
Investments............................................................................. 11 503 237
Property, plant and equipment........................................................... 14 17,099 12,109
Other................................................................................... 13 866 169
--------- ---------
TOTAL NON-CURRENT ASSETS................................................................ 18,468 12,515
--------- ---------
TOTAL ASSETS............................................................................ 35,396 24,398
--------- ---------
--------- ---------
CURRENT LIABILITIES
Creditors and borrowings................................................................ 15 6,325 5,627
Provisions.............................................................................. 18 3,290 1,434
--------- ---------
TOTAL CURRENT LIABILITIES............................................................... 9,615 7,061
--------- ---------
NON-CURRENT LIABILITIES
Creditors and borrowings................................................................ 15 8,010 2,784
Provisions.............................................................................. 18 2,886 2,015
--------- ---------
TOTAL NON-CURRENT LIABILITIES........................................................... 10,896 4,799
--------- ---------
TOTAL LIABILITIES....................................................................... 20,511 11,860
--------- ---------
SHAREHOLDERS' EQUITY
Share capital........................................................................... 19 7,218 7,016
Reserves................................................................................ 20 2,422 1,940
Retained profits........................................................................ 5,245 3,582
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.............................................................. 14,885 12,538
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................................. 35,396 24,398
--------- ---------
--------- ---------
</TABLE>
See the accompanying notes to and
forming part of the consolidated financial statements.
F-28
<PAGE>
STANLEY MINING SERVICES LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
NOTE A $'000 A $'000
----- --------- ---------
<S> <C> <C> <C>
AUTHORISED CAPITAL
Ordinary shares of 20 cents each........................................................ 19 50,000 50,000
--------- ---------
Opening balance......................................................................... 7,016 3,626
Additional shares issued................................................................ 202 3,390
--------- ---------
Total share capital..................................................................... 19 7,218 7,016
--------- ---------
RETAINED PROFITS
Retained profits at the beginning of the year as stated................................. 3,582 22
Dividend rescinded...................................................................... -- 1,900
Dividend provided for or paid........................................................... (1,910) (701)
Operating profit after income tax....................................................... 3,573 2,361
--------- ---------
Retained profits at the end of the year as stated....................................... 5,245 3,582
--------- ---------
RESERVES
SHARE PREMIUM RESERVE
Opening balance......................................................................... 1,937 --
Premium on additional shares issued..................................................... 343 2,700
Share placement costs................................................................... -- (763)
--------- ---------
Closing balance......................................................................... 20 2,280 1,937
--------- ---------
ASSET REVALUATION RESERVE
Opening balance......................................................................... 3 3
Revaluation increment on freehold land and buildings.................................... 139 --
--------- ---------
Closing balance......................................................................... 20 142 3
--------- ---------
Reserves closing balance................................................................ 2,422 1,940
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.............................................................. 14,885 12,538
--------- ---------
</TABLE>
See the accompanying notes to and
forming part of the consolidated financial statements.
F-29
<PAGE>
STANLEY MINING SERVICES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
NOTE A $'000 A $'000
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts in the course of operations........................................... 43,026 25,236
Cash payments in the course of operations........................................... (39,614) (22,513)
Income taxes paid................................................................... (900) (712)
Withholding taxes paid.............................................................. (513) (310)
Interest received................................................................... 83 90
Interest paid....................................................................... (457) (325)
--------- ---------
Net cash provided by operating activities........................................... 30 (ii) 1,625 1,466
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale of investments..................................................... 76 37
Proceeds on sale of plant and equipment............................................. 109 403
Payments for property, plant and equipment.......................................... (7,733) (7,539)
Payment for exploration............................................................. -- (534)
Payments for investments............................................................ (362) (96)
--------- ---------
Net cash used in investing activities............................................... (7,910) (7,729)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank loan........................................................................... 8,542 648
Proceeds from share issue........................................................... 545 5,327
Lease payments...................................................................... -- (27)
Hire purchase finance............................................................... -- 3,894
Hire purchase payments.............................................................. (4,402) (1,358)
Dividends paid...................................................................... (701) --
--------- ---------
Net cash provided by financing activities........................................... 3,984 8,484
--------- ---------
NET INCREASE/DECREASE IN CASH HELD.................................................. (2,301) 2,221
CASH AT THE BEGINNING OF THE FINANCIAL YEAR......................................... 2,364 143
--------- ---------
CASH AT THE END OF THE FINANCIAL YEAR............................................... 30 (i) 63 2,364
--------- ---------
</TABLE>
See the accompanying notes to and
forming part of the consolidated financial statements.
F-30
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
The significant policies which have been adopted by the economic entity in
the preparation of these financial statements are:
(A) BASIS OF PREPARATION
The financial statements are a financial report which has been drawn up in
accordance with Accounting Standards, Urgent Issues Group Consensus Views, the
provisions of Schedule 5 to the Corporations Regulations and the requirements of
the Corporations Law. They have been prepared on the basis of historical costs
and except where stated do not take into account changing money values or
current valuations of non-current assets. The accounting policies have been
consistently applied by each entity in the economic entity and except where
there is a change in accounting policy, are consistent with those of the
previous year.
A reconciliation of the major differences between these accounts and those
applicable under General Accepted Accounting Principles in the United States
("US GAAP") is included in note 33.
(B) PRINCIPLES OF CONSOLIDATION
The Consolidated Accounts of the economic entity include the financial
statements of the Company, being the chief entity, and its controlled entities.
Where an entity either began or ceased to be controlled during the year, the
results are included only from the date control commenced or up to the date
control ceased.
All inter-entity balances, transactions and unrealised profits resulting
from transactions within the economic entity have been eliminated.
(C) REVENUE RECOGNITION
SALES REVENUE
Sales revenue comprises revenue earned (net of returns, discounts and
allowances) from the provision of products or services to entities outside the
economic entity. Sales revenue is recognised when earned and the fee in respect
of services provided is receivable.
INTEREST INCOME
Interest income is recognised as it accrues.
ASSET SALES
The gross proceeds of asset sales are included as revenue of the entity. The
profit or loss on disposal of assets is brought to account at the date an
unconditional contract of sale is signed.
OTHER REVENUE
Revenue recognition policies for investments are described in Note (g).
F-31
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) FOREIGN CURRENCY TRANSACTIONS
TRANSACTIONS
Foreign currency transactions are translated to Australian currency at the
rates of exchange ruling at the dates of the transactions. Amounts receivable
and payable in foreign currencies at balance date are translated at the rates of
exchange ruling on that date.
Exchange differences relating to amounts payable and receivable in foreign
currencies are brought to account as exchange gains or losses in the profit and
loss account in the financial year in which the exchange rates change.
HEDGES
All non-specific hedge transactions are initially recorded at the spot rate
at the date of the transaction. Hedges outstanding at balance date are
translated at the rates of exchange ruling on that date and any exchange
differences are brought to account in the profit and loss account. Costs or
gains arising at the time of entering into the hedge are deferred and amortised
over the life of the hedge.
Where hedge transactions are designed to hedge the purchase or sale of goods
or services, exchange differences arising up to the date of purchase or sale,
together with any costs or gains arising at the time of entering into the hedge,
are deferred and included in the measurement of the purchase or sale. Any
exchange differences on the hedge transaction after that date are included in
the consolidated statements of profit.
TRANSLATION OF FOREIGN OPERATIONS
The operating results of overseas operations that are integrated foreign
operations are translated using the temporal method. Monetary assets and
liabilities are translated into Australian currency at rates of exchange current
at balance date, while non-monetary items and revenue and expense items are
translated at exchange rates current when the transactions occurred. Exchange
differences arising on translation are brought to account in the consolidated
statements of profit.
(E) INCOME TAX
The economic entity adopts the liability method of tax effect accounting.
Income tax expense is calculated on operating profit adjusted for permanent
differences between taxable and accounting income. The tax effect of timing
differences which arise from items being brought to account in different periods
for income tax and accounting purposes, is carried forward in the balance sheet
as a future income tax benefit or a provision for deferred income tax.
Future income tax benefits are brought to account as realisation of the
asset is assured beyond reasonable doubt. Future income tax benefits relating to
tax losses have been brought to account when their realisation is virtually
certain.
The Company is not taxed as a private company.
F-32
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) NON-CURRENT ASSETS
The carrying amounts of all non-current assets, other than exploration
expenditure, are reviewed at least annually to determine whether they are in
excess of their recoverable amount. If the carrying amount of a non-current
assets exceeds the recoverable amount, the asset is written down to the lower
value.
In assessing recoverable amounts the relevant cash flows have not been
discounted to their present value, except where specifically stated.
(G) INVESTMENTS
ASSOCIATED COMPANIES
An associated company is one in which: the economic entity exercises
significant influence; and the investment is long-term.
Investments in associated companies are carried at the lower of cost and
recoverable amount. In the case of interim dividends, dividends are brought to
account in the consolidated statements of profit as they are received, and in
the case of final dividends after they have been declared by the associated
company in a general meeting.
OTHER COMPANIES
Investments in other companies are carried at the lower of cost, or
recoverable amount, being a directors valuation based on market values at the
time of the valuation. Dividends are brought to account as they are received.
(H) INVENTORIES
Drilling supplies and consumables are valued at the lower of cost
(calculated on the first-in first-out basis) and net realisable amount.
(I) PROPERTY, PLANT AND EQUIPMENT
ACQUISITION
Items of property, plant and equipment are initially recorded at cost and
depreciated as outlined below.
CAPITAL WORKS IN PROGRESS
The cost of property, plant and equipment constructed by the Company
includes the cost of materials and direct labour and an appropriate proportion
of fixed and variable overheads.
REVALUATIONS
Land and buildings are independently valued every three years on an existing
use basis of valuation and included in the financial statements at the revalued
amounts.
F-33
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The potential capital gains tax liability is assessed each time an asset
acquired after 19 September, 1985 is revalued. A provision for capital gains tax
is only provided when it is known that the asset will eventually be sold. This
provision, when required, is made against the asset revaluation reserve.
The tax effect on capital losses is not recorded unless realisation is
virtually certain.
DISPOSAL OF REVALUED ASSETS
The gain or loss on disposal of revalued assets is calculated as the
difference between the carrying amount of the asset at the time of disposal and
the proceeds on disposal and is included in the results in the year of disposal.
Any related revaluation increment standing in the asset revaluation reserve
at the time of disposal is transferred to the capital profits reserve.
DEPRECIATION AND AMORTISATION
Items of property, plant and equipment, including buildings and leasehold
property but excluding freehold land, are depreciated/amortised over their
estimated useful lives ranging from 3 to 20 years.
Assets are depreciated or amortised from the date of first use.
LEASED PLANT AND EQUIPMENT
Leases of plant and equipment under which the Company or its controlled
entities assume substantially all the risks and benefits of ownership are
classified as finance leases. Other leases are classified as operating leases.
Finance leases are capitalised. A lease asset and a lease liability equal to
the present value of the minimum lease payments are recorded at the inception of
the lease. Contingent rentals are written off as an expense of the accounting
period in which they are incurred. Capitalised lease assets are amortised on a
straight line basis over the term of the relevant lease, or where it is likely
the economic entity will obtain ownership of the asset, the life of the asset.
Lease liabilities are reduced by repayments of principal. The interest
components of the lease payments are charged to consolidated statement of
profit.
(J) EXPLORATION EXPENDITURE
Exploration, evaluation and development costs are accumulated in respect of
each separate area of interest. These costs are carried forward where the right
of tenure of the area of interest is current and they are expected to be
recouped through sale or successful development and exploitation of the area of
interest, or where activities in the area of interest have not yet reached a
stage that permits reasonable assessment of the existence of economically
recoverable reserves.
When an area of interest is abandoned or the directors decide that it is not
commercial, any accumulated costs in respect of that area are written-off in the
financial period the decision is made. Each area of interest is also reviewed at
the end of each accounting period and accumulated costs written-off to the
extent that they will not be recoverable in the future.
F-34
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Amortisation is not charged on costs carried forward in respect of areas of
interest in the development phase until production commences.
(K) DEFERRED EXPENDITURE
Material items of expenditure are deferred to the extent that the benefits:
are recoverable out of future revenue: do not relate solely to revenue which has
already been brought to account and will contribute to the future earning
capacity of the economic entity.
Deferred expenditure is amortised over the shorter of the period in which
the related benefits are expected to be realised or three years. Deferred
expenditure is reviewed in accordance with the policy set out in Note (f).
(L) EMPLOYEE ENTITLEMENTS
WAGES, SALARIES, ANNUAL LEAVE AND SICK LEAVE
The provisions for employee entitlements to wages, salaries, annual leave
and sick leave represents the amount which the economic entity has a present
obligation to pay resulting from employees' services provided up to the balance
date. The provisions have been calculated at nominal amounts based on current
wage and salary rates and includes related on-costs.
LONG SERVICE LEAVE
The liability for employee's entitlement to long service leave represents
the present value of the estimated future cash outflows to be made by the
employer resulting from employees' services provided up to the balance date.
Liabilities for employee entitlements which are not expected to be settled
within twelve months are discounted using the rates attaching to national
government securities at balance date, which most closely match the terms of
maturity of the related liabilities.
In determining the liability for employee entitlements, consideration has
been given to future increases in wage and salary rates, and the economic
entity's experience with staff departures. Related on-costs have also been
included in the liability.
EMPLOYEE SHARE OPTION PLAN
The Company intends to grant options to certain employees under an employee
share plan. Further information is set out in Note 19 of the financial
statements. Other than the costs incurred in administering the schemes which are
expended as incurred, the scheme does not result in any expense to the economic
entity. No options have been granted at 30 June 1996.
F-35
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SUPERANNUATION
The Company contributes to a defined contribution superannuation fund on
behalf of employees in accordance with the requirements of the Superannuation
Guarantee Administration Act 1992. The contributions are charged against income
as they are made.
(M) PROVISION FOR DOUBTFUL DEBTS
The collectability of debts is assessed at year end and specific provision
is made for any doubtful accounts.
(N) DERIVATIVES
The economic entity is exposed to changes in interest rates and foreign
exchange rates. It is the economic entity's policy to use derivative financial
instruments to hedge a portion of these risks. Economic entity policy is not to
enter, hold or issue derivative financial instruments for trading purposes.
Derivative financial instruments that are designated as hedges of firm
commitments and are effective as hedges of underlying exposures are accounted
for on the same basis as the underlying exposure. Gains/ losses relating to
hedges of specific purchase/sale commitments are deferred and recognised as
adjustments to the carrying amount of the hedged transactions
2. OPERATING REVENUE
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
--------- ---------
<S> <C> <C>
Operating profit is determined after crediting the following items:
Sales revenue................................................................................ 43,026 27,334
Other revenue
Insurance recovery........................................................................... -- 29
Interest received from other persons......................................................... 83 90
Foreign currency gains....................................................................... 502 70
Sundry....................................................................................... 780 244
Gross proceeds from sale of non-current assets............................................... 185 440
Write back provision for doubtful debts...................................................... -- 194
--------- ---------
44,576 28,401
--------- ---------
</TABLE>
F-36
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
3. OPERATING PROFIT
Operating profit is determined after charging the following items:
A) OPERATING EXPENSES
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
----------- -----------
<S> <C> <C>
Contributions to superannuation................................................................ 497 271
Interest paid or due and payable to other persons.............................................. 457 325
Finance charges on capitalised leases.......................................................... -- 3
Lease rental expenses, operating leases........................................................ 33 14
Depreciation of property, plant and equipment.................................................. 2,842 1,734
Foreign currency losses........................................................................ 480 --
Write down in value of inventories............................................................. 899 1,212
Amounts set aside to provision for:
Employee entitlements.......................................................................... 29 136
</TABLE>
B) SALE OF NON-CURRENT ASSETS
<TABLE>
<S> <C> <C>
Profit on sales of property, plant and equipment.............................................. 69 252
Profit/(loss) on sale of investments.......................................................... (20) 27
</TABLE>
4. AUDITORS' REMUNERATION
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
----------- -----------
<S> <C> <C>
Amounts received or due and receivable for audit and other services provided by KPMG
--audit services............................................................................. 79 65
--other services............................................................................. 59 154
--- ---
138 219
--- ---
</TABLE>
5. ABNORMAL ITEM
<TABLE>
<S> <C> <C>
Exploration expenditure written off............................................................ -- 494
----- -----
Aggregate abnormal items before income tax..................................................... -- 494
----- -----
</TABLE>
F-37
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
6. INCOME TAX EXPENSE
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
----------- -----------
<S> <C> <C>
A) The prima facie income tax expense at 36% (1995: 33%) on operating profit................... 2,024 1,276
Increase in income tax expense due to non-tax deductible items:
Depreciation of revaluation increment on property, plant and equipment....................... -- 22
Write-off of exploration expenditure......................................................... -- 163
Write down in Ghana withholding tax.......................................................... 36 --
Sundry items (including entertainment)....................................................... (3) 1
Capital losses on disposal of investments.................................................... 7 --
Decrease in income tax expense due to:
Allowable preliminary expenses............................................................... -- (80)
----------- -----
Income tax expense on operating profit....................................................... 2,064 1,382
Add: Income tax expense under (over) provided from prior period.............................. 142 (30)
Add: Income tax expense arising from tax rate adjustment..................................... -- 156
Less: Foreign tax credit..................................................................... (157) --
----------- -----
Total income tax expense attributable to operating profit.................................... 2,049 1,508
----------- -----
Total income tax expense is made up of:
Current income tax provision............................................................... 1,734 788
Deferred income tax provision.............................................................. 870 798
Future income tax benefit.................................................................. (697) (48)
Under (over) provision in prior year....................................................... 142 (30)
----------- -----
2,049 1,508
----------- -----
</TABLE>
B) PROVISION FOR CURRENT INCOME TAX
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
----------- -----------
<S> <C> <C>
Movements during the year were as follows:
Balance at beginning of year................................................................... 466 612
Current year's income tax expense on operating profit.......................................... 1,734 788
Paid in year................................................................................... (1,413) (712)
Foreign tax credit............................................................................. 178 (187)
Under (over) provision prior year.............................................................. 77 (35)
----------- -----
Balance at the end of year..................................................................... 1,042 466
----------- -----
</TABLE>
F-38
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
6. INCOME TAX EXPENSE (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
----------- -----------
<S> <C> <C>
</TABLE>
C) PROVISION FOR DEFERRED INCOME TAX
Provision for deferred income tax comprises the estimated expense at current
income tax rates on the following items:
<TABLE>
<S> <C> <C>
Difference in depreciation and amortisation of property, plant and equipment for accounting and
income tax purposes.......................................................................... 1,140 814
Expenditure currently deductible but deferred and amortised for accounting
purposes..................................................................................... 1,739 1,195
----------- -----
2,879 2,009
----------- -----
</TABLE>
D) FUTURE INCOME TAX BENEFIT
Future income tax benefit comprises the estimated future benefit at current
income tax rates of the following items:
<TABLE>
<S> <C> <C>
Provisions and accrued employee entitlements not currently deductible......................... 126 169
Unrealised currency differences............................................................... 74 --
Excess foreign tax credit carried forward..................................................... 666 --
----------- -----
866 169
----------- -----
E) Future Income Tax Benefit not brought to account........................................... 228 228
</TABLE>
The potential future income tax benefit in a controlled entity, which is a
company, arising from exploration expenditure has not been recognised as an
asset because recovery is not virtually certain.
The potential future income tax benefit will only be obtained if:
(i) the relevant company derives future assessable income of a nature and an
amount sufficient to enable the benefit to be realised, or the benefit can
be utilised by another company in the economic entity in accordance with
Section 80G of the Income Tax Assessment Act 1936;
(ii) the relevant Company and/or the economic entity continues to comply with
the conditions for deductibility imposed by the law; and
(iii) no changes in tax legislation adversely affect the relevant company and/or
the economic entity in realising the benefit.
F-39
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
7. DIVIDENDS
A) DIVIDENDS RESCINDED
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
------------ ------------
<S> <C> <C>
A partially franked ordinary dividend of 10.5 cents per share which had been
provided for at 30 June, 1994 was subsequently rescinded by a resolution of
shareholders on 1 November, 1994. .................................................. -- 1,900
</TABLE>
B) DIVIDENDS PROVIDED FOR
<TABLE>
<S> <C> <C>
Dividends provided for by the Company are a final ordinary dividend
of 4 cents per share (1995: 2 cents) fully franked to 100% from
profits taxed at 36% (1995:fully franked to 72% from profits taxed
at 39% and to 28% from profits taxed at 33%) is recommended by the
Directors......................................................................... 1,910 701
</TABLE>
C) DIVIDEND FRANKING ACCOUNT
<TABLE>
<S> <C> <C>
Estimated amounts of retained profits and reserves that could be
distributed as franked dividends using franking credits already in
existence or which will arise from income tax payments in the
following period, and after deducting franking credits to be used
in payment of the above dividends:
--franked at 36%.................................................................. 2,391 1,922
</TABLE>
8. BASIC EARNINGS PER SHARE
<TABLE>
<S> <C> <C>
Basic Earnings per Share.......................................................... 10.1c 9.3c
Weighted average number of ordinary shares used in calculation of
basic earnings per share.......................................................... 35,416,388 25,375,624
</TABLE>
9. STATEMENT OF OPERATIONS OF SEGMENTS CONSOLIDATED
INDUSTRY SEGMENTS
The economy entity operates predominantly in the mining industry.
F-40
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
9. STATEMENT OF OPERATIONS OF SEGMENTS CONSOLIDATED (CONTINUED)
GEOGRAPHICAL SEGMENTS
The economic entity has operations and assets in Australia and Africa. Segmental
revenue and assets are as follows.
<TABLE>
<CAPTION>
AUSTRALIA AFRICA EUROPE ELIMINATIONS CONSOLIDATIONS
1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---------- ---------- ---------- ---------- ----- ---------- ---------- ---------- ---------- ----------
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
---------- ---------- ---------- ---------- ----- ---------- ---------- ---------- ---------- ----------
Revenue.... 28,585 14,156 25,608 18,713 -- 182 (9,617) (4,650) 44,576 28,401
Segment
operating
profit
before
tax...... 4,415 2,937 2,162 1,169 -- 5 (955) (242) 5,622 3,869
Income tax
attributable
to the
operating
profit... (2,049) (1,508)
Operating
profit
after
income
tax...... 3,573 2,361
Segment
Assets... 17,659 10,533 18,692 14,107 (955) (242) 35,396 24,398
</TABLE>
10. RECEIVABLES
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
--------- ---------
<S> <C> <C> <C>
CURRENT
Trade debtors............................................................................. 9,586 5,781
Other debtors............................................................................. 388 238
--------- ---------
9,974 6,019
--------- ---------
</TABLE>
F-41
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
11. INVESTMENTS
<TABLE>
<S> <C> <C> <C>
Investment in other corporations Shares in listed companies--at
cost.............................................................. 8 97
Investments in associated entities.................................. 495 140
----- -----
503 237
----- -----
Shares in listed companies--at market value......................... 17 123
----- -----
The amount of capital gains tax that would be payable if the quoted
shares in other corporations were sold at balance date at the
disclosed market values should not exceed:........................ 3 8
Associated Companies
The Company holds a 50% interest in Equigold (Ghana) Limited.
</TABLE>
12. INVENTORIES
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
----------- -----------
<S> <C> <C> <C>
Drilling supplies, stores and spare parts for drilling rigs
- -- unused items at cost................................................................. 3,711 1,530
- -- used items at impaired value......................................................... 1,164 1,260
----- -----
4,875 2,790
----- -----
</TABLE>
13. OTHER
<TABLE>
<CAPTION>
1996 1995
NOTE A $'000 A $'000
--------- ----------- -----------
<S> <C> <C> <C>
CURRENT
Prepayments............................................................................. 513 436
Withholding tax......................................................................... -- 231
Deferred expenditure.................................................................... 182 --
----- -----
695 667
----- -----
NON-CURRENT
Future income tax benefit............................................................... 6 866 169
----- -----
</TABLE>
F-42
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
14. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1995
A $'000 A $'000
--------- ---------
<S> <C> <C> <C>
Freehold land
--at independent valuation 1996 (1995:1992)........................................... 156 30
Freehold buildings
--at independent valuation 1996 (1995:1992)........................................... 92 123
--accumulated depreciation............................................................ (1) (33)
--------- ---------
91 90
--------- ---------
Buildings on concessional land
--at cost............................................................................. 323 277
--accumulated depreciation............................................................ (55) (24)
--------- ---------
268 253
--------- ---------
359 343
--------- ---------
Plant and equipment
--at cost............................................................................. 2,432 1,632
--accumulated depreciation............................................................ (868) (510)
--------- ---------
1,564 1,122
--------- ---------
--at independent valuation 1987....................................................... 75 75
--accumulated depreciation............................................................ (75) (75)
--------- ---------
-- --
--------- ---------
1,564 1,122
--------- ---------
Motor vehicles and drilling rigs
-at cost.............................................................................. 20,148 13,812
-accumulated depreciation............................................................. (6,230) (4,225)
--------- ---------
13,918 9,587
--------- ---------
--at independent valuation 1987....................................................... 1,250 1,300
--accumulated depreciation............................................................ (1,136) (1,062)
--------- ---------
114 238
--------- ---------
14,032 9,825
Capital works in progress--at cost...................................................... 988 789
--------- ---------
Total property, plant & equipment
--net book value...................................................................... 17,099 12,109
--------- ---------
</TABLE>
a) Freehold land and buildings were revalued in May 1996, by an independent
valuer, Brad Reed, AVLE (Val & Econ), on the basis of the open market value
of the properties concerned in their existing use. The directors are of the
opinion that this basis provides a reasonable estimate of recoverable
amount.
F-43
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
14. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
The net surplus on revaluation of the land and buildings during 1996 of
$139,000 was transferred to the asset revaluation reserve (note 20).
This valuation is in accordance with the Company's policy of obtaining an
independent valuation of land and buildings every three years.
In revaluing freehold land and buildings the Directors have not taken into
account the potential impact of capital gains tax on the grounds that the
assets are an integral part of the Company's operations and there is no
intention to sell the assets.
15. CREDITORS AND BORROWINGS
<TABLE>
<CAPTION>
1996 1995
NOTE A $'000 A $'000
--------- ----------- -----------
<S> <C> <C> <C>
CURRENT
Trade creditors....................................................................... 3,824 3,318
Bank overdraft
--secured........................................................................... 16 1,321 --
--unsecured......................................................................... -- 43
Hire purchase liabilities
--secured........................................................................... 16, 22 -- 2,266
Bank loan
--unsecured......................................................................... 16 1,180 --
----- -----
6,325 5,627
----- -----
NON-CURRENT
Hire purchase liabilities
--secured........................................................................... 16, 22 -- 2,136
Bank bill facility
--secured........................................................................... 16 7,767 --
Bank loan
--unsecured......................................................................... 16 243 648
----- -----
8,010 2,784
----- -----
----- -----
</TABLE>
F-44
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
16. FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
1996 1995
A S`000 A $`000
--------- ---------
<S> <C> <C>
The economic entity has access to the following lines of credit:
Total facilities available:
Bank overdraft/bill facility................................................................... 9,300 300
Bank credit facility........................................................................... 50 30
Bank loan...................................................................................... 1,423 648
Floating debenture............................................................................. -- 1,078
Hire purchase facilities....................................................................... -- 3,324
--------- ---------
10,773 5,380
--------- ---------
Facilities utilised at balance date:
Bank overdraft................................................................................. 1,321 --
Bank bill facility............................................................................. 7,767 --
Bank credit facility........................................................................... -- --
Bank loan...................................................................................... 1,423 648
Floating debenture............................................................................. -- 1,078
Hire purchase facilities....................................................................... -- 3,324
--------- ---------
10,511 5,050
--------- ---------
Facilities not utilised at balance date:
Bank overdraft/bill facility................................................................... 212 300
Bank credit facility........................................................................... 50 30
--------- ---------
262 330
--------- ---------
</TABLE>
BANK OVERDRAFT/CREDIT FACILITY
The bank overdraft/credit facilities are secured by a registered first
mortgage debenture over the economic entity's assets and undertakings.
The bank overdraft/credit facility is of a continuous nature, subject to
satisfactory annual review.
BANK LOAN
The bank loan is unsecured and was established to finance the purchase of 3
drilling rigs for the Company's Ghana operations.
The loan is payable according to a schedule of payment due for completion in
May 1998.
F-45
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
17. AMOUNTS PAYABLE/RECEIVABLE IN FOREIGN CURRENCIES
The Australian dollar equivalents to unhedged amounts payable or receivable
in foreign currencies calculated at year end exchange rates are as follows:
<TABLE>
<CAPTION>
1996 1995
A S`000 A $`000
--------- ---------
<S> <C> <C>
United States Dollars
Amounts payable--current....................................................................... 188 57
Amounts receivable--current.................................................................... 5,851 4,460
Ghanaian Cedis
Amounts payable--current....................................................................... 189 250
Amounts receivable--current.................................................................... 116 36
Swedish Kroner
Amounts payable--current....................................................................... 275 297
</TABLE>
18. PROVISIONS
<TABLE>
<CAPTION>
1996 1995
NOTE A $'000 A $'000
--------- ----------- -----------
<S> <C> <C> <C>
CURRENT
Dividends............................................................................... 7 1,910 701
Employee entitlements................................................................... 21 338 267
Income tax.............................................................................. 6 1,042 466
----- -----
3,290 1,434
----- -----
NON-CURRENT
Employee entitlements................................................................... 21 7 6
Deferred income tax..................................................................... 6 2,879 2,009
----- -----
2,886 2,015
----- -----
</TABLE>
19. SHARE CAPITAL
<TABLE>
<CAPTION>
1996 1995
A S`000 A $`000
--------- ---------
<S> <C> <C>
(A) AUTHORISED CAPITAL
250,000,000 ordinary shares of $0.20 each................................................... 50,000 50,000
--------- ---------
(B) ISSUED CAPITAL
36,089,420 ordinary shares of $0.20 each (1995: 35,079,870)................................. 7,218 7,016
--------- ---------
7,218 7,016
--------- ---------
</TABLE>
F-46
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
19. SHARE CAPITAL (CONTINUED)
ORDINARY SHARES
On 1 March, 1996, the Company made an issue of 1,009,550 ordinary shares of
20 cents each at 54 cents per share in accordance with the Dividend Reinvestment
Plan.
EMPLOYEE SHARE OPTION PLAN
On 30 May, 1996, the Directors resolved to issue 1,000,000 options to the
employees of the Company at an exercise price of 67 cents each under the terms
of the Stanley Mining Services Limited Employee Share Option Plan. On 28 June,
1996, the Shareholders approved the issue of up to 200,000 of these options to
Mr. L. D. Humfrey, a director of the Company.
At 30 June 1996 no options have been allocated.
20. RESERVES
<TABLE>
<CAPTION>
1996 1995
NOTE A$'000 A$'000
----- ----------- -----------
<S> <C> <C> <C>
Asset revaluation reserve................................................................. 142 3
Share premium............................................................................. 2,280 1,937
----- -----
2,422 1,940
----- -----
Movements during the year
Share premium
Balance at beginning of year.............................................................. 1,937 --
Add: Premium on ordinary shares issued during the year.................................... 19 343 2,700
Less: Share issue expenses applied........................................................ -- 763
----- -----
Balance at end of year.................................................................... 2,280 1,937
----- -----
Asset revaluation
Balance at beginning of year.............................................................. 3 3
Add: Revaluation increment on freehold land and buildings................................. 14 139 --
----- -----
Balance at end of year.................................................................... 142 3
----- -----
</TABLE>
21. EMPLOYEE ENTITLEMENTS
<TABLE>
<CAPTION>
1996 1995
NOTE A$'000 A$'000
----- ----------- -----------
<S> <C> <C> <C>
Aggregate employee entitlements, including on-costs
- --Current................................................................................. 18 338 267
- --Non-Current............................................................................. 18 7 6
----- -----
345 273
----- -----
</TABLE>
F-47
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
21. EMPLOYEE ENTITLEMENTS (CONTINUED)
The present value of employee entitlements not expected to be settled within
twelve months of balance date have not been calculated as the amounts are
considered to be immaterial.
22. COMMITMENTS
<TABLE>
<CAPTION>
1996 1995
NOTE A$'000 A$'000
----- ----------- -----------
<S> <C> <C> <C>
NON CANCELLABLE OPERATING LEASE COMMITMENTS
Future operating leases not provided for in the financial statements & payable:
Not later than one year................................................................. 138 17
Later than one year but not later than two years........................................ 138 --
Later than two years but not later than five years...................................... 414 --
----- -----
690 17
----- -----
HIRE PURCHASE COMMITMENTS
Future hire purchase commitments are payable as follows:
Not later than one year................................................................. -- 2,628
Later than one year but not later, than two years....................................... -- 1,592
Later than two years but not later that five years...................................... -- 721
----- -----
-- 4,941
Less: Future term charges................................................................. -- (539)
----- -----
-- 4,402
----- -----
Disclosed as:
Current................................................................................. 15 -- 2,266
Non-current............................................................................. 15 -- 2,136
----- -----
-- 4,402
----- -----
CAPITAL EXPENDITURE COMMITMENTS
Contracted but not provided for and payable as follows:
Not later than one year................................................................. 732 --
Later than one year but not later than two years........................................ 284 --
----- -----
1,016 --
----- -----
</TABLE>
SUPERANNUATION COMMITMENTS
The Company and its controlled entities contribute to various employee
defined contribution superannuation funds in accordance with the requirements of
the Superannuation Guarantee Administration Act 1992. The contributions are
based on a percentage of employee gross salaries. All employees are entitled to
benefits on retirement, disability or death.
The Company and other controlled entities are under no legal obligation to
make up any shortfall in the fund's assets to meet payments due to employees.
F-48
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
23. DEED OF CROSS GUARANTEE
Pursuant to an ASC Class Order 95/1530 dated 31 October, 1995, relief was
granted to the wholly-owned subsidiaries listed below from the Corporations Law
requirements for preparation, audit, and publication of accounts.
It is a condition of the Class Order that the Company and each of the
subsidiaries enter into a Deed of Cross Guarantee. The effect of the Deed is
that the Company guarantees to each creditor payment in full of any debt in the
event of winding up of any of the subsidiaries under certain provisions of the
Corporations Law. If a winding up occurs under other provisions of the Law, the
Company will only be liable in the event that after six months any creditor has
not been paid in full. The subsidiaries have also given similar guarantees in
the event that the Company is wound up.
The Subsidiaries subject to the Deed are:
Stanmines NL (ACN 009 248 122)
International Mining Services Pty Ltd (ACN 008 945 471)
At balance date, the Company and subsidiaries which are a party to the Deed
have aggregate assets of $35,606,308 (1995: $25,042,078); aggregate liabilities
of $19,673,046 (1995: $10,600,721); and their contribution to the consolidated
operating profit after income tax for the year was $3,573,251 (1995:
$2,754,587).
24. PARTICULARS IN RELATION TO CONTROLLED ENTITIES
<TABLE>
<CAPTION>
CONTRIBUTION
BOOK VALUE OF TO
EACH PARENT CONSOLIDATED
INTEREST HELD ENTITY'S INVESTMENT PROFIT
AFTER TAX
CLASS OF ------------- ---------------------- ---------
NOTE SHARES 1996 1995 1996 1995 1996
----- ----------- ----- ----- --------- ----- ---------
% % $ $ $'000
----- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Stanley Mining Services Limited.......... 1,766
CONTROLLED ENTITIES
International Mining Services Pty Ltd.... (i) Ord....... 100 100 100 100 1,807
Stanmines NL............................. (i) Ord 100 100 5 5 --
Stanley Exploration & Mining Company
Ltd.................................... (ii) Ord 100 100 50 50 --
Stanmines Ghana Ltd...................... (ii) Ord 100 100 50 50 --
Stanley Mining Services (Tanzania) Ltd... (iii) Ord 100 100 4 -- --
---------
3,573
---------
<CAPTION>
1995
---------
$'000
---------
<S> <C>
Stanley Mining Services Limited.......... 2,381
CONTROLLED ENTITIES
International Mining Services Pty Ltd.... 475
Stanmines NL............................. (1)
Stanley Exploration & Mining Company
Ltd.................................... (494)
Stanmines Ghana Ltd...................... --
Stanley Mining Services (Tanzania) Ltd... --
---------
2,361
---------
</TABLE>
NOTES
(i) International Mining Services Pty Ltd and Stanmines NL have each entered
into a Deed of Cross Guarantee with Stanley Mining Services in respect of
relief granted from specified accounting and financial reporting
requirements in accordance with a class order. Refer Note 23.
(ii) Stanley Exploration & Mining Company Ltd and Stanmines Ghana NL were
incorporated in and carry on business in Ghana.
F-49
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
24. PARTICULARS IN RELATION TO CONTROLLED ENTITIES (CONTINUED)
(iii) Stanley Mining Services(Tanzania) Ltd was incorporated in and carries on
business in Tanzania.
25. ACQUISITION/DISPOSAL OF CONTROLLED ENTITIES
During the year the economic entity ceased to have management control in
Equigold (Ghana) Ltd. The economic entity retains its 50% interest in the
entity.
26. INVESTMENTS IN ASSOCIATED COMPANIES
EQUITY INFORMATION
Investments in associated companies are accounted for on a cost basis in the
Company Financial Statements and the Consolidated Accounts.
Information about the investments under the equity accounting method is set
out below:
<TABLE>
<CAPTION>
1996 1995
A$'000 A$'000
----------- -----------
<S> <C> <C>
Share of associated companies' operating profit/(loss) and extraordinary items after income
tax............................................................................................ (5) --
--- ---
Share of associated companies' profits/(losses) not brought to account in the consolidated
accounts....................................................................................... (5) --
--- ---
Share of associated companies' accumulated losses................................................ (5) --
Cost of Investment............................................................................... 495 140
--- ---
Equity Accounted Amount of Investment............................................................ 490 140
--- ---
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT
CARRYING VALUE
INTEREST
---------------------- ------------------------
PRINCIPLES PLACE OF CLASS OF 1996 1995 1996 1995
NAME ACTIVITIES INCORP. SHARE % % $'000 $'000
- --------------------------------- ----------- ------------- ----------- --------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Equigold (Ghana) Ltd............. Exploration Ghana Ord. 50 50 339 140
Equigold (Cote D'Ivoire) SA...... Exploration Cote D'Ivoire Ord 42.5 -- 156 --
--- ---
495 140
--- ---
</TABLE>
The balance date of Associated Companies is June 30 1996.
F-50
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
27. DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C> <C>
REMUNERATION OF DIRECTORS
The number of Directors of the Company, including Executive Directors, whose income from
the Company or related bodies corporate, falls within the following bands:
$ 10,000-$19,999........................................................................ -- 2
$ 20,000-$29,999........................................................................ 2 --
$ 30,000-$39,999........................................................................ -- 1
$160,000-$169,999....................................................................... -- 1
$200,000-$209,999....................................................................... 1 --
$210,000-$219,999....................................................................... 1 1
<CAPTION>
A$'000 A$'000
----------- -----------
<S> <C> <C> <C>
Total income received or due and receivable by all Directors of each entity in the
economic entity from the Company, related bodies corporate, or controlled entities. .... 467 444
</TABLE>
The above amounts (including the comparatives) are disclosed in accordance
with ASC Class Order 95/741 dated 27 June, 1995. These amounts are disclosed in
aggregate as the Directors believe that provision of full particulars would be
unreasonable.
Directors' income includes amounts paid by the Company during the year to
indemnify executives, but does not include insurance premiums paid by the
Company or related bodies corporate in respect of Directors' and Officers'
liabilities insurance contracts as the insurance policies do not specify
premiums paid in respect of individual Directors. Details of insurance premiums
paid are set out in the Directors Report.
F-51
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
28. EXECUTIVES REMUNERATION
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C> <C>
EXECUTIVES INCOME
The income of executives who work wholly or mainly outside Australia is not included in
this disclosure.
The number of executive officers of the economic entity whose income from the Company,
entities in the economic entity, or related entities falls within the following bands:
$100,000--$109,999...................................................................... 1 --
$110,000--$119,999...................................................................... 1 1
$160,000--$169,999...................................................................... -- 1
$200,000--$209,999...................................................................... 1 --
$210,000--$219,999...................................................................... 1 1
<CAPTION>
A$'000 A$'000
----------- -----------
<S> <C> <C> <C>
Total income received, or due and receivable, from the Company, entities in the economic
entity, or related entities by executive officers of the economic entity whose income
exceeds $100,000........................................................................ 641 492
</TABLE>
29. RELATED PARTIES
DIRECTORS
The names of each person holding the position of Director of Stanley Mining
Services Limited during the financial year are Messrs M. D. Perrott, R. F.
Stanley, L. D. Humfrey, N. Giorgetta, P. E. Huston and T. R. Kestel. Details of
Directors' remuneration are set out in Note 27.
Apart from the details disclosed in this note, no Director has entered into
a material contract with the Company or the economic entity since the end of the
previous financial year, and there were no material contracts involving
Directors' interests subsisting at year end.
The following transactions with Directors and their Director related
entities were conducted on normal commercial terms and conditions no more
favourable than those available, or which might reasonably be expected to be
available, on similar transactions to non-director related entities on an arm's
length basis.
1. Mr. Stanley and Mr. Kestel are directors of Sierra Bay Pty Ltd which
has entered into a contract with the Company. The contract is an agreement
to enter into an operating lease with the Company at the completion of
construction of an office and workshop complex. Mr. Kestel has no beneficial
interest in Sierra Bay Pty Ltd.
2. Mr. Huston is the Principal in the law firm Huston Partners being
the law firm which provided services to the Company.
3. Mr. Kestel is a director in the accounting firm Nissen Kestel and
Harford which supplied accounting and taxation advice to the Company.
F-52
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
29. RELATED PARTIES (CONTINUED)
4. Mr. Perrott is a director in Perrott Management Pty Ltd which has
provided management consultancy services to the Company during the year.
The value of transactions during the year with Directors and their Director
related entities were as follows:
<TABLE>
<CAPTION>
CONSOLIDATED
--------------------
DIRECTOR RELATED 1996 1995
DIRECTOR ENTITY $ $
- ---------- ---------------------- --------- ---------
<S> <C> <C> <C>
P. Huston Huston Partners 83,256 162,620
R. Kestel Nissen Kestel &
Harford 55,590 154,352
M. Perrott Perrott Management 84,500 49,000
</TABLE>
Amounts payable to Directors and their Director related entities are as follows:
<TABLE>
<CAPTION>
CONSOLIDATED
--------------------
1996 1995
ENTITY $ $
- ---------- --------- ---------
<S> <C> <C> <C>
Huston Partners................... -- 7,868
Nissen Kestel and Harford......... -- 7,262
Perrott Management................ 7,000 7,000
</TABLE>
DIRECTORS HOLDINGS OF SHARES
The relevant interest of Directors of the reporting entity and their
Director related entities in shares of entities within the economic entity at
year end are set out below:
<TABLE>
<CAPTION>
CONSOLIDATED
NUMBER HELD
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Stanley Mining Services Limited
$0.20 Ordinary Shares.............................. 22,820,388 21,330,703
--------- ---------
</TABLE>
WHOLLY OWNED GROUP
Details of interests in wholly owned controlled entities are set out in Note
24. Details of dealings with these entities are set out below.
TRANSACTIONS WITHIN THE WHOLLY-OWNED GROUP
Transactions between the Company and related parties in the wholly owned
group consisted of:
i) Sales and purchases of consumables and spares
ii) Administrative and management services
iii) Loans to entities in the wholly owned group
F-53
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
29. RELATED PARTIES (CONTINUED)
iv) Loans repaid by entities in the wholly owned group
Loans between entities within the wholly owned group have no fixed term or
repayment schedule. There is no interest charged or receivable.
ASSOCIATED COMPANIES
Refer to Note 26
30. NOTES TO THE STATEMENTS OF CASH FLOWS
(I) RECONCILIATION OF CASH
For the purposes of the Statements of Cash Flows, cash includes cash on hand
and at bank, net of outstanding bank overdrafts. Cash as at the end of the
financial year as shown in the Statements of Cash Flows is reconciled to the
related items in the Balance Sheet as follows:
<TABLE>
<CAPTION>
1996 1995
NOTE A$'000 A$'000
----------- --------- -----------
<S> <C> <C> <C>
Cash..................................................................................... 1,384 2,407
Bank overdraft........................................................................... 15 (1,321) (43)
--------- -----
63 2,364
--------- -----
</TABLE>
(II) RECONCILIATION OF OPERATING PROFIT/(LOSS) AFTER INCOME TAX TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<S> <C> <C> <C>
Operating profit after income tax................................... 3,573 2,361
Add: Items classified as financing/investing:
Finance charges..................................................... -- 3
Add (less) non-cash items:
(Profit) loss on sale of investments.............................. 20 (27)
(Profit) loss on sale of property, plant and equipment............ (69) (252)
Depreciation and amortisation....................................... 2,842 1,734
Foreign exchange losses on withholding tax.......................... 243 --
Exploration expenditure written off................................. -- 494
Withholding tax written off......................................... 100 --
----------- -----
Net cash provided by operating activities before change in assets
and liabilities................................................... 6,709 4,313
----------- -----
</TABLE>
F-54
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
30. NOTES TO THE STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
A$'000 A$'000
--------- ---------
<S> <C> <C> <C>
Change in assets and liabilities during the financial year
Increase in inventories............................................................... (2,085) (812)
Increase in other assets.............................................................. (371) (406)
Increase in trade and other debtors................................................... (3,955) (3,102)
Increase in creditors and accruals.................................................... 506 851
Increase in income taxes payable...................................................... 749 487
Amounts set aside to provisions....................................................... 72 135
--------- ---------
Net cash provided by operating activities............................................. 1,625 1,466
--------- ---------
</TABLE>
FINANCING ARRANGEMENTS
Refer Note 16
31. EVENTS SUBSEQUENT TO BALANCE DATE
During July, 1996 the Company allotted 11,666,667 ordinary shares of 20
cents each at an issue price of 60 cents per share for cash.
32. EVENTS SUBSEQUENT TO 12 SEPTEMBER 1996
On 31 October 1996, the Company issued 2,050,799 fully paid ordinary shares
of 20 cents each at 65 cents per share in accordance with the Dividend
Reinvestment Plan.
On 25 November 1996, the Company announced a 1:3 Rights Issue of 17,554,439
shares of 20 cents each to fund the purchase of Glindemann & Kitching Pty Ltd.
This issue was completed on 21 February 1997.
On 17 December 1996 the Company acquired 51% of Glindemann & Kitching Pty
Ltd effective from 1 October 1996. The remaining 49% will be completed in July
1997.
On 17 December 1996 the Company made a cash issue of 2,858,000 ordinary
shares of 20 cents each at 70 cents per share as part consideration of the
acquisition of 51% of Glindemann & Kitching Pty Ltd.
On 27 February 1997 the Directors resolved to allot 2,000,000 options to
employees of the Company at an exercise price of 63 cents each under the terms
of the Stanley Mining Services Limited Employee Share Option Plan.
On 27 February 1997 the 1,000,000 options to employees of the Company at an
exercise price of 67 cents, as previously disclosed, lapsed.
On 27 March 1997, the Company approved the issue of 2,000,000 options to
Michael Perrott, the Chairman and Managing Director, at an exercise price of 70
cents each.
F-55
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
32. EVENTS SUBSEQUENT TO 12 SEPTEMBER 1996 (CONTINUED)
On 8 April 1997, the Company announced it had received a notice of a
proposed takeover from Layne Christensen Australia Pty Ltd which is a fully
owned subsidiary of Layne Christensen Company of Mission Woods, Kansas, USA. The
takeover documents were posted to shareholders during May 1997.
33. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
PRINCIPAL DIFFERENCES BETWEEN AUSTRALIAN GAAP AND US GAAP
Financial statements in the United States are prepared in accordance with
accounting principles generally accepted in the United States ("US GAAP"). In
Australia financial statements are prepared in accordance with applicable
accounting standards issued by the Australian Accounting Standards Board, the
Australian Corporations Law, Schedule 5 to the Corporations Regulations and
other mandatory professional reporting requirements (Urgent Issues Consensus
Views) collectively referred to as "Australian GAAP." The principle differences
between Australian GAAP and US GAAP which are material to the preparation of the
consolidated financial statements of the Company are set out below in this note.
(A) MARKETABLE INVESTMENTS SECURITIES
Under Australian GAAP marketable equity securities held for trading purposes
are stated at the lower of aggregate cost or net realisable value. Marketable
equity securities held for investment are stated at cost or directors'
valuation.
Under US GAAP Statement of Financial Accounting Standard No. 115 "Accounting
for Certain Investments in Debt and Equity Securities ("SFAS 115"), requires
investments to be classified into three categories and accounted for as follows:
debt securities that the Company has the positive intent and ability to hold to
maturity are classified as "held-to-maturity securities" and reported at
amortised costs; debt and marketable equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as
"trading securities" and reported at fair value, with unrealised gains and
losses included in earnings; and debt and marketable equity securities not
classified as either held-to-maturity securities or trading securities are
classified as "available-for-sale securities" and reported at fair value, with
unrealised gains and losses excluded from earnings and reported as a separate
component of shareholders' equity net of tax effect.
(B) INVESTMENTS IN ASSOCIATES
Under Australian GAAP investments in associates are initially recorded at
cost. Investments in associates may be revalued. Income from investments in
associates is recognised only to the extent of dividends received or receivable
from post-acquisition profits of the investee.
Under US GAAP investments in associates are accounted for under the equity
method of accounting. The equity method of accounting requires the investor to
recognise its proportionate share of the associates' net profit or loss for the
period. Dividends received or receivable are accounted for as reductions in the
carrying value of the investor's investment.
F-56
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
33. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(C) DEFERRED EXPENDITURE
SHARE ISSUE EXPENSES
Under Australian GAAP, costs of raising additional share capital are
capitalised and offset against the share premium reserve when the share issue is
finalised.
Under US GAAP a similar treatment is allowed.
INTERNAL COSTS OF ACQUISITIONS AND BUSINESS COMMENCEMENTS
Under Australian GAAP the Company capitalises certain internal costs
incurred in connection with certain business acquisitions and start up of
businesses.
Under US GAAP the internal costs incurred in connection with certain
business acquisitions and business start up are expensed as incurred.
EXPLORATION EXPENDITURE
Under Australian GAAP, all exploration expenditure is capitalised to the
extent that it is expected to be recouped through successful exploitation of the
area or where exploration and evaluation activities have not yet reached a stage
which permits a reasonable assessment of the existence or otherwise of
economically recoverable reserves and significant activities are continuing.
Under US GAAP, exploration expenditure in the search for mineralisation
deposits is expensed as incurred. Once it is determined that mineral reserves
exist and are commercially recoverable future expenditure is capitalised as
development expenditure.
(D) ASSET REVALUATIONS
Under Australian GAAP non-current assets may be revalued both upwards and
downwards based on directors' valuations. An upwards revaluation is recorded by
a credit to the asset revaluation reserve as a component of shareholders' equity
and is not taken through the profit and loss account except where a previous
revaluation decrement has been recorded for that class of assets through the
profit and loss account. An impairment or downwards revaluation is taken through
the profit and loss account except where there is a revaluation reserve for that
particular class of assets, in which case the decrement may be debited to that
asset revaluation reserve, to the extent a credit exists, rather than the profit
and loss account.
The Company assesses the recoverability of non-current assets by comparing
the carrying value to the asset's undiscounted cash flow. To the extent that the
asset's carrying value exceeds its undiscounted cash flow, the asset is written
down to that amount.
US GAAP does not permit the upward revaluation of such assets. US GAAP
requires that an impairment of long-lived assets be recognised through the
profit and loss account. Under US GAAP SFAS 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
F-57
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
33. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
entities, when assessing an asset for impairment, compare the carrying value of
the asset or group of assets to the relevant expected cash flow, undiscounted
and without interest. If the sum of the undiscounted cash flow is less than the
asset carrying value the asset must be written down to "fair value". One method
of determining an asset's fair value, in the absence of an active market, is its
discounted cash flow. Once impairment is recorded, subsequent recoveries through
the profit and loss account are not allowed until the asset is sold.
Under Australian GAAP, the Company may pay dividends out of its asset
revaluation reserve to the extent that a credit balance exists. Under US GAAP
since no asset revaluation reserve exists, all dividends are paid out of
retained earnings.
(E) INCOME TAXES
Under Australian GAAP, income taxes are accounted for in accordance with the
liability method which is equivalent in many respects to United States Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires deferred tax assets and liabilities to be recognised for
the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled. A valuation allowance is provided on deferred tax assets
to the extent it is not "more likely than not" that such deferred tax assets
will be realised. Under SFAS 109, "more likely than not" is defined as a
likelihood of more than 50 percent.
Under Australian GAAP, deferred tax assets related to temporary differences
are brought to account when they are "assured beyond a reasonable doubt" and net
operating losses pass a "virtually certain" threshold. The effect of a change in
tax rate is recorded in the period the government approves the budget which in
financial year 1995 preceded the enactment date under US GAAP. Accordingly, the
effect of the increase in the Australian tax rate from 33% to 36% is recognised
for US GAAP purposes in fiscal 1996.
With respect to business combinations accounted for as purchases, under
Australian GAAP, differences in the bases of assets and liabilities as a result
of purchase price adjustments do not result in the creation of a deferred tax
asset or liability at the acquisition date. Under US GAAP, the differences
between the assigned values and tax bases of assets and liabilities acquired in
such business combinations require the recognition of deferred tax assets and
liabilities at the acquisition date.
(F) DIVIDENDS
Under Australian GAAP, dividends declared subsequent to year end are
provided (accrued) for in the financial statements at year end if the
declaration date is prior to the date the financial statements are signed. Under
US GAAP dividends are recorded in the period declared.
F-58
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
33. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(G) STOCK BASED COMPENSATION
EMPLOYEE COMPENSATION
Under Australian GAAP, the issuance of employee stock options does not
result in compensation expense. Under US GAAP, entities may account for employee
stock compensation either in accordance with APB Opinion 25 "Accounting for
Stock Issued to Employees" or Statement of Financial Accounting Standard 123
"Accounting for Stock Based Compensation." APB 25 requires that entities record
compensation expense to the extent that the quoted market price of the
underlying shares at the defined measurement date is greater than the exercise
price to be paid by the employee.
Alternatively, FAS 123 specifics that compensation costs related to stock
based compensation plans shall be based on the estimated fair value of the stock
option as at the grant date, with the resulting compensation being recognised
over the employee vesting period. The fair value of employee stock options is
determined using option pricing models such as the binomial or Black Scholes
models. Presently the Company will be following APB 25 for US GAAP purposes.
Given stock options granted to date have had an exercise price equal to or
greater than the share trading price at date of grant. There is no impact on net
income or shareholders' equity.
NON-EMPLOYEES STOCK OPTIONS
Under Australian GAAP, the issuance of stock options to non-employees with
an exercise price equal to the current market price at date of grant results in
no compensation.
Under US GAAP, the issuance of stock options to non-employees must be
accounted for under the fair value method prescribed in SFAS 123 "Accounting for
Stock-Based Compensation." The fair value of the options granted will be
recorded as expense over their service or vesting period.
F-59
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
33. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(H) PROFIT AND LOSS ACCOUNT
Under Australian GAAP, the Company has disclosed certain items as "abnormal"
in the profit and loss statement in the June 1996 accounts. There is no
"abnormal items" category in a US GAAP statement of profit such that these items
would be included as operating income.
<TABLE>
<CAPTION>
FOR YEAR ENDED FOR YEAR ENDED
1996 1995
A$'000 A$'000
--------------- ---------------
<S> <C> <C>
Operating profit after income tax in accordance with Australian GAAP.............. 3,573 2,361
Adjustments:
(Realised) Unrealised gains on trading securities............................... (26) 26
Share of associates' net loss consisting of deferred exploration expenditure.... (199) --
Deferred exploration expenditure................................................ -- (41)
Deferred internal costs of acquisition & business commencements................. (149) --
Depreciation relating to revalued assets........................................ 33 34
Gain on sale of revalued asset.................................................. 7 --
Change in tax rates............................................................. (156) 156
Tax effect of US GAAP adjustments............................................... 72 14
----- -----
Net profit--US GAAP............................................................. 3,155 2,550
----- -----
</TABLE>
F-60
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
33. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
<TABLE>
<CAPTION>
AS AT JUNE 30, 1996 AS AT JUNE 30, 1995
A$'000 A$'000
------------------- -------------------
<S> <C> <C>
Shareholders equity attributable to members of the parent entity--
Australian GAAP......................................................... 14,885 12,538
Adjustments:
Unrealised gains on trading securities.................................. -- 26
Unrealised gains on available-for-sale securities....................... 9 --
Share of associates' net loss consisting of deferred exploration
expenditure........................................................... (199) --
Deferred exploration expenditure........................................ (140) (140)
Deferred internal costs of acquisitions & business commencements........ (149) --
Asset revaluation reserve............................................... (142) (3)
Dividend paid from asset revaluation reserve............................ (188) (188)
Accumulated depreciation of revalued assets............................. 102 69
Gain on sale of revalued asset.......................................... 7 --
Dividend proposed....................................................... 1,910 701
Change in tax rates..................................................... -- 156
Cumulative tax effect of US GAAP adjustments............................ 122 46
------ ------
Shareholders' equity--US GAAP........................................... 16,217 13,205
------ ------
</TABLE>
F-61
<PAGE>
STANLEY MINING SERVICES LIMITED
UNAUDITED CONSOLIDATED STATEMENTS OF PROFIT
FOR THE NINE MONTHS ENDED
MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
NOTE A$'000 A$'000
------ --------- ---------
<S> <C> <C> <C>
Sales revenue......................................................................... 47,237 30,521
Other revenue......................................................................... 3,416 660
--------- ---------
TOTAL OPERATING REVENUE............................................................... 50,653 31,181
--------- ---------
Operating profit before income tax.................................................... 2 5,278 3,875
Income tax attributable to operating profit........................................... 2,061 1,386
--------- ---------
OPERATING PROFIT AFTER INCOME TAX..................................................... 3,217 2,489
Outside equity interests in operating profit.......................................... 1,219 --
--------- ---------
OPERATING PROFIT AFTER INCOME TAX ATTRIBUTABLE TO MEMBERS OF THE COMPANY.............. 1,998 2,489
Retained profits at the beginning of the financial period............................. 5,245 3,582
--------- ---------
Retained profits at the end of the financial period................................... 7,243 6,071
--------- ---------
--------- ---------
</TABLE>
See the accompanying notes to and forming part
of the unaudited consolidated financial statements
F-62
<PAGE>
STANLEY MINING SERVICES LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
NOTE 1997 1996
A$'000 A$'000
--------- ---------
<S> <C> <C> <C>
CURRENT ASSETS
Cash................................................................. 7 4,573 389
Receivables.......................................................... 14,207 9,405
Inventories.......................................................... 8,084 4,542
Other................................................................ 966 432
--------- ---------
TOTAL CURRENT ASSETS................................................. 27,830 14,768
--------- ---------
NON-CURRENT ASSETS
Investments.......................................................... 1,324 104
Property, plant & equipment.......................................... 28,139 14,236
Other................................................................ 1,479 508
--------- ---------
TOTAL NON-CURRENT ASSETS............................................. 30,942 14,848
--------- ---------
TOTAL ASSETS......................................................... 58,772 29,616
--------- ---------
--------- ---------
CURRENT LIABILITIES
Accounts payable..................................................... 5,599 4,373
Borrowings........................................................... 1,620 1,348
Provisions........................................................... 2,821 1,055
--------- ---------
TOTAL CURRENT LIABILITIES............................................ 10,040 6,776
--------- ---------
NON-CURRENT LIABILITIES
Borrowings........................................................... 1,270 4,664
Provisions........................................................... 4,663 2,604
--------- ---------
TOTAL NON-CURRENT LIABILITIES........................................ 5,933 7,268
--------- ---------
TOTAL LIABILITIES.................................................... 15,973 14,044
--------- ---------
SHAREHOLDERS' EQUITY
Share capital........................................................ 5 14,044 7,218
Reserves............................................................. 13,880 2,283
Retained profits..................................................... 7,243 6,071
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO MEMBERS OF THE COMPANY.... 35,167 15,572
Outside equity interests in controlled entities...................... 7,632 --
--------- ---------
TOTAL SHAREHOLDERS' EQUITY........................................... 42,799 15,572
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................... 58,772 29,616
--------- ---------
--------- ---------
</TABLE>
See the accompanying notes to and forming part
of the unaudited consolidated financial statements
F-63
<PAGE>
STANLEY MINING SERVICES LIMITED
UNAUDITED CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED
MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
A$'000 A$'000
--------- ---------
<S> <C> <C>
AUTHORISED CAPITAL
Ordinary shares of 20 cents each............................................................... 50,000 50,000
--------- ---------
Opening balance................................................................................ 7,218 7,016
Additional shares issued....................................................................... 6,826 202
--------- ---------
Total share capital............................................................................ 14,044 7,218
--------- ---------
RETAINED PROFITS
Retained profits at the beginning of the financial period as stated............................ 5,245 3,582
Operating profit after income tax attributable to members of the Company....................... 1,998 2,489
--------- ---------
Retained profits at the end of the financial period as stated.................................. 7,243 6,071
--------- ---------
RESERVES
SHARE PREMIUM RESERVE
Opening balance................................................................................ 2,280 1,937
Premium on additional shares issued............................................................ 12,285 343
Share placement costs.......................................................................... (827) --
--------- ---------
Closing balance................................................................................ 13,738 2,280
--------- ---------
ASSET REVALUATION RESERVE
Opening balance................................................................................ 142 3
--------- ---------
Closing balance................................................................................ 142 3
--------- ---------
Total reserves................................................................................. 13,880 2,283
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO THE MEMBERS OF THE COMPANY.......................... 35,167 15,572
--------- ---------
OUTSIDE EQUITY INTERESTS IN CONTROLLED ENTITIES................................................ 7,632 --
--------- ---------
TOTAL SHAREHOLDERS' EQUITY..................................................................... 42,799 15,572
--------- ---------
</TABLE>
See the accompanying notes to and forming part
of the unaudited consolidated financial statements
F-64
<PAGE>
STANLEY MINING SERVICES LIMITED
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
A $'000 A $'000
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts in the course of operations.................................................... 45,489 27,196
Cash payments in the course of operations.................................................... (40,741) (24,284)
Income taxes paid............................................................................ (929) (627)
Withholding taxes paid....................................................................... (322) (471)
Interest and other items of a similar nature received........................................ 277 71
Interest and other finance costs paid........................................................ (282) (308)
Dividends received........................................................................... 9 --
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................................................... 3,501 1,577
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for controlled entity................................................................ (6,057) --
Cost of acquisition.......................................................................... (361) --
Proceeds on sale of investments attributable to minority interests........................... 1,372 --
Proceeds on sale of investments.............................................................. -- 1
Proceeds on sale of plant and equipment...................................................... 182 47
Payments for property, plant and equipment................................................... (5,257) (4,398)
Payment for investments...................................................................... (821) (7)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES........................................................ (10,942) (4,357)
--------- ---------
</TABLE>
See the accompanying notes to and forming part
of the unaudited consolidated financial statements
F-65
<PAGE>
STANLEY MINING SERVICES LIMITED
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
NOTE A $'000 A $'000
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid....................................................................... (577) (702)
Proceeds from share issue............................................................ 17,777 545
Repayment of borrowings.............................................................. (16,426) (38)
Proceeds from borrowings............................................................. 8,506 4,664
Hire purchase payments............................................................... -- (4,402)
Cost of capital raising.............................................................. (827) --
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.................................. 8,453 67
--------- ---------
NET INCREASE (DECREASE) IN CASH HELD................................................. 1,012 (2,713)
CASH AT THE BEGINNING OF THE FINANCIAL PERIOD........................................ 63 2,364
CASH BALANCES IN CONTROLLED ENTITIES ACQUIRED........................................ 1,878 --
--------- ---------
CASH AT THE END OF THE FINANCIAL PERIOD.............................................. 7 2,953 (349)
--------- ---------
</TABLE>
See the accompanying notes to and forming part
of the unaudited consolidated financial statements
F-66
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
1. BASIS OF PREPARATION OF NINE MONTHS FINANCIAL STATEMENTS
The general purpose nine months consolidated financial statements have been
prepared in accordance with the requirements of the Corporations Law on the
basis of Accounting Standard AASB 1029 and other mandatory professional
reporting requirements (Urgent Issues Group Consensus Views) with the exception
of disclosures of the dividend franking account and earnings per share. It is
recommended that the nine months financial statements and report be read in
conjunction with the 30 June 1996 Annual Financial Statements and Reports and
any public announcements by Stanley Mining Services Limited and its controlled
entities during the nine months in accordance with continuous disclosure
obligations arising under the Corporations Law.
The accounting policies have been consistently applied by the entities in
the economic entity and are consistent with those of the previous financial
year.
The carrying amount of non-current assets are reviewed to determine whether
they are in excess of their recoverable amount at the end of the nine months. If
the carrying amount of a non-current asset exceeds the recoverable amount, the
asset is written down to the lower amount. In assessing recoverable amounts the
relevant cash flows have not been discounted to their present value.
For the purposes of preparing the nine months financial statements, the nine
months has been treated as a discrete reporting period.
A reconciliation of the major differences between these accounts and those
applicable under generally accepted accounting principles in the United States
("US GAAP") is included in note 9.
2. OPERATING PROFIT BEFORE INCOME TAX
<TABLE>
<CAPTION>
1997 1996
A$'000 A$'000
----------- -----------
<S> <C> <C>
Operating profit before income tax has been arrived at after including:
Interest received or due and receivable.......................................................... 277 71
Interest paid or due and payable (including lease finance charges)............................... 282 308
Depreciation including all forms of amortisation................................................. 3,823 2,000
</TABLE>
3. DIVIDENDS
Stanley Mining Services Limited paid the following dividends in respect of
the nine months ended 31 March 1997 and 1996:
4 cents per share franked to 100% with class "C" (36%) franking credits paid
on 31 October 1996. The dividend was provided for at 30 June 1996.
2 cents per share franked to 72% from profits taxed at 39% being $505,204
and franked to 28% from profit taxed at 39% being $196,393 giving a total
dividend of $701,597. The dividend was paid on 1 March, 1996.
F-67
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
4. CONTROL GAINED OVER ENTITY
The economic entity gained control over the following entity during the
period:
<TABLE>
<CAPTION>
CONTRIBUTION
------------------------
(2)
1997 1996
NAME DATE (1) A$'000 A$'000
- ---------------------------------------------------------------------------- ----------------- ----------- -----------
<S> <C> <C> <C>
Glindemann & Kitching Pty Ltd............................................... 1 October 1996 733 --
</TABLE>
- ------------------------
(1) Date is date control was gained.
(2) Contribution to consolidated profit after tax.
5. SHARE CAPITAL
<TABLE>
<CAPTION>
1997 1996
A$'000 A$'000
--------- ---------
<S> <C> <C>
(a) Authorised capital 250,000,000 shares of $0.20 each........................................ 50,000 50,000
--------- ---------
(b) Issued capital 70,219,325 ordinary shares of $0.20 each [1996: 36,089,420]................. 14,044 7,218
--------- ---------
Total.......................................................................................... 14,044 7,218
--------- ---------
</TABLE>
ORDINARY SHARES
Between 3 July and 16 July 1996 the Company made a cash issue of 11,666,667
ordinary shares of 20 cents each at an issue price of 60 cents to fund expansion
of the drilling operations of the Company in Australia and Ghana, and to provide
$1.5 million to fund the Company's portion of exploration expenditure on its
mining interests in Ghana.
On 31 October 1996, the Company issued 2,050,799 fully paid ordinary shares
of 20 cents each at 65 cents per share in accordance with the Dividend
Reinvestment Plan.
On 17 December 1996 the Company made a cash issue of 2,858,000 ordinary
shares of 20 cents each at 70 cents per share as part consideration of the
acquisition of 51% of Glindemann & Kitching Pty Ltd.
EMPLOYEE SHARE OPTION PLAN
On 27 February 1997, the Company issued 2,000,000 options to employees of
the Company at an exercise price of 63 cents each under the terms of the Stanley
Mining Services Limited Employee Share Option Plan. At 31 March 1997 no options
had been exercised.
OPTIONS
On 27 March 1997, the Company issued 2,000,000 options to Michael Perrott,
the Managing Director and Chairman, at an exercise price of 70 cents each in
consideration of him entering into a 2 year service agreement as follows:
1,000,000 options exercisable on after 1 February 1998 and prior to 31
January 2003.
F-68
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
5. SHARE CAPITAL (CONTINUED)
1,000,000 options exercisable on or after 1 February 1999 and prior to 31
January 2003.
RIGHTS ISSUE
On 21 February 1997, the Company issued 17,554,439 shares at an issue price
of 50 cents pursuant to a prospectus dated 20 December 1996. The purpose of the
issue was to repay the short term debt facility taken out by the Company to
partially fund the Glindemann & Kitching Pty Ltd acquisition and to provide
further working capital to the Company.
6. INVESTMENTS IN ASSOCIATED COMPANIES EQUITY INFORMATION
Investments in associated companies are accounted for on a cost basis in the
nine months consolidated financial statements.
Information about the investments under the equity accounting method is set
out below:
<TABLE>
<CAPTION>
1997 1996
A$'000 A$'000
----------- -----------
<S> <C> <C>
Share of associated companies' operating profit (loss) and extra ordinary items after income
tax............................................................................................ -- --
----- ---
Share of associated companies' profits (losses) not brought to account in the consolidated
accounts....................................................................................... -- --
----- ---
Share of associated companies' accumulated losses................................................ (5) --
Cost of investment............................................................................... 1,092 208
----- ---
Equity accounted amount of investment............................................................ 1,087 208
----- ---
----- ---
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED
INTEREST
----------------------------
CLASS OF 1997 1996
NAME PRINCIPAL ACTIVITIES SHARE % %
- ------------------------------------------------------ ----------------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Equigold (Ghana) Ltd.................................. Exploration Ord 50 50
Equigold (Cote D'Ivoire) SA........................... Exploration Ord 42.5 --
</TABLE>
F-69
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
7. NOTES TO THE STATEMENTS OF CASH FLOWS
RECONCILIATION OF CASH
For the purpose of the Statements of Cash Flows, cash includes cash on hand
and at bank, net of outstanding bank overdrafts. Cash as at the end of the
financial period as shown in the Statements of Cash Flows are reconciled to the
related items in the balance sheets as follows:
<TABLE>
<CAPTION>
1997 1996
A$'000 A$'000
--------- -----------
<S> <C> <C>
Cash........................................................................ 4,573 389
Bank overdraft.............................................................. (1,620) (738)
--------- -----
Totals...................................................................... 2,953 (349)
--------- -----
</TABLE>
8. EVENTS SUBSEQUENT TO 31 MARCH 1997
TAKEOVER
On 8 April 1997 the Company announced it had received a notice of a proposed
takeover from Layne Christensen Australia Pty Ltd, which is a fully owned
subsidiary of Layne Christensen Company of Mission Woods, Kansas, USA. The
takeover documents were posted to shareholders during May 1997. On 26 June 1997
the Company announced that the offer had gone unconditional with acceptances at
the date of these financial statements of 97% of the issued capital.
9. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
PRINCIPAL DIFFERENCES BETWEEN AUSTRALIAN GAAP AND US GAAP
Financial statements in the United States are prepared in accordance with
accounting principles generally accepted in the United States ("US GAAP"). In
Australia financial statements are prepared in accordance with applicable
accounting standards issued by the Australian Accounting Standards Board, the
Australian Corporations Law, Schedule 5 to the Corporations Regulations and
other mandatory professional reporting requirements (Urgent Issues Consensus
Views) collectively referred to as "Australian GAAP." The principal differences
between Australian GAAP and US GAAP which are material to the preparation of the
consolidated financial statements of the Company are set out below in this note.
(A) MARKETABLE INVESTMENTS SECURITIES
Under Australian GAAP marketable equity securities held for trading purposes
are stated at the lower of aggregate cost or net realisable value. Marketable
equity securities held for investment are stated at cost or directors'
valuation.
Under US GAAP Statement of Financial Accounting Standard No. 115 "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS 115"), requires
investments to be classified into three
F-70
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
9. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
categories and accounted for as follows: debt securities that the Company has
the positive intent and ability to hold to maturity are classified as
"held-to-maturity securities" and reported at amortised cost; debt and
marketable equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as "trading securities"
and reported at fair value, with unrealised gains and losses included in
earnings; and debt and marketable equity securities not classified as either
held-to-maturity securities or trading securities are classified as
"available-for-sale securities" and reported at fair value, with unrealised
gains and losses excluded from earnings and reported as a separate component of
shareholders' equity net of tax effect.
(B) INVESTMENTS IN ASSOCIATES
Under Australian GAAP investments in associates are initially recorded at
cost. Investments in associates may be revalued. Income from investments in
associates is recognised only to the extent of dividends received or receivable
from post-acquisition profits of the investee. The Company expensed a portion of
these costs in the period ending 31 March 1997.
Under US GAAP investments in associates are accounted for under the equity
method of accounting. The equity method of accounting requires the investor to
recognise its proportionate share of the associates' net profit or loss for the
period. Dividends received or receivable are accounted for as reductions in the
carrying value of the investor's investment.
(C) DEFERRED EXPENDITURE
SHARE ISSUE EXPENSES
Under Australian GAAP, costs of raising additional share capital are
capitalised and offset against the share premium reserve when the share issue is
finalised.
Under US GAAP a similar treatment is allowed.
INTERNAL COSTS OF ACQUISITIONS AND BUSINESS COMMENCEMENTS
Under Australian GAAP the Company capitalises certain internal costs
incurred in connection with certain business acquisitions and start up of
businesses. In the nine months ended 31 March 1997, the Company expensed a
portion of previously deferred start-up and business acquisition costs.
Under US GAAP the internal costs incurred in connection with certain
business acquisitions and business start up are expensed as incurred.
EXPLORATION EXPENDITURE
Under Australian GAAP, all exploration expenditure is capitalised to the
extent that it is expected to be recouped through successful exploitation of the
area or where exploration and evaluation activities have
F-71
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
9. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
not yet reached a stage which permits a reasonable assessment of the existence
or otherwise of economically recoverable reserves and significant activities are
continuing.
Under US GAAP, exploration expenditure in the search for mineralisation
deposits is expensed as incurred. Once it is determined that mineral reserves
exist and are commercially recoverable future expenditure is capitalised as
development expenditure.
(D) ASSET REVALUATIONS
Under Australian GAAP non-current assets may be revalued both upwards and
downwards based on directors' valuations. An upwards revaluation is recorded by
a credit to the asset revaluation reserve as a component of shareholders' equity
and is not taken through the profit and loss account except where a previous
revaluation decrement has been recorded for that class of assets through the
profit and loss account. An impairment or downwards revaluation is taken through
the profit and loss account except where there is a revaluation reserve for that
particular class of assets, in which case the decrement may be debited to that
asset revaluation reserve, to the extent a credit exists, rather than the profit
and loss account.
The Company assesses the recoverability of non-current assets by comparing
the carrying value to the asset's undiscounted cash flow. To the extent that the
asset's carrying value exceeds its undiscounted cash flow, the asset is written
down to that amount.
US GAAP does not permit the upward revaluation of such assets. US GAAP
requires that an impairment of long-lived assets be recognised through the
profit and loss account. Under US GAAP SFAS 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," entities,
when assessing an asset for impairment, compare the carrying value of the asset
or group of assets to the relevant expected cash flow, undiscounted and without
interest. If the sum of the undiscounted cash flow is less than the asset
carrying value the asset must be written down to "fair value." One method of
determining an asset's fair value, in the absence of an active market, is its
discounted cash flow. Once impairment is recorded, subsequent recoveries through
the profit and loss account are not allowed until the asset is sold.
(E) INCOME TAXES
Under Australian GAAP, income taxes are accounted for in accordance with the
liability method which is equivalent in many respects to United States Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires deferred tax assets and liabilities to be recognised
for the estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled. A valuation allowance is provided on deferred tax assets
to the extent it is not "more likely than not" that
F-72
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
9. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
such deferred tax assets will be realised. Under SFAS 109, "more likely than
not" is defined as a likelihood of more than 50 percent.
Under Australian GAAP, deferred tax assets related to temporary differences
are brought to account when they are "assured beyond a reasonable doubt" and net
operating losses pass a "virtually certain" threshold. The effect of a change in
tax rate is recorded in the period the government approves the budget which in
financial year 1995 proceeded the enactment date under US GAAP. Accordingly, the
effect of the increase in the Australian tax rate from 33% to 36% is recognised
for US GAAP purposes in fiscal 1996.
With respect to business combinations accounted for as purchases, under
Australian GAAP, differences in the bases of assets and liabilities as a result
of purchase price adjustments do not result in the creation of a deferred tax
asset or liability at the acquisition date. Under US GAAP, the differences
between the assigned values and tax bases of assets and liabilities acquired in
such business combinations require the recognition of deferred tax assets and
liabilities at the acquisition date.
(F) DIVIDENDS
Under Australian GAAP, dividends declared subsequent to year end are
provided (accrued) for in the financial statements at year end if the
declaration date is prior to the date the financial statements are signed. Under
US GAAP dividends are recorded in the period declared.
(G) STOCK BASED COMPENSATION
EMPLOYEE COMPENSATION
Under Australian GAAP, the issuance of employee stock options does not
result in compensation expense. Under US GAAP, entities may account for employee
stock compensation either in accordance with APB Opinion 25 "Accounting for
Stock Issued to Employees" or Statement of Financial Accounting Standard 123
"Accounting for Stock Based Compensation." APB 25 requires that entities record
compensation expense to the extent that the quoted market price of the
underlying shares at the defined measurement date is greater than the exercise
price to be paid by the employee.
Alternatively, FAS 123 specifics that compensation costs related to stock
based compensation plans shall be based on the estimated fair value of the stock
option as at the grant date, with the resulting compensation being recognised
over the employee vesting period. The fair value of employee stock options is
determined using option pricing models such as the binomial or Black Scholes
models. Presently the Company will be following APB 25 for US GAAP purposes.
Given stock options granted to date have had an exercise price equal to or
greater than the share trading price at date of grant. There is no impact on net
income or shareholders' equity.
F-73
<PAGE>
STANLEY MINING SERVICES LIMITED
NOTES TO AND FORMING PART OF THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
9. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
NON-EMPLOYEES STOCK OPTIONS
Under Australian GAAP, the issuance of stock options to non-employees with
an exercise price equal to the current market price at date of grant results in
no compensation.
Under US GAAP, the issuance of stock options to non-employees must be
accounted for under the fair value method prescribed in SFAS 123 "Accounting for
Stock-Based Compensation." The fair value of the options granted will be
recorded as expense over their service or vesting period. There have been no
non-employee stock options issued.
<TABLE>
<CAPTION>
1997 1996
A$'000 A$'000
--------- ---------
<S> <C> <C>
Operating profit after income tax in accordance with Australian GAAP........................... 3,217 2,489
Adjustments:
Unrealised gains on trading securities..................................................... -- 45
Share of associates' net loss consisting of deferred exploration expenditure............... (442) (68)
Deferred internal costs of acquisition and business commencements.......................... 19 --
Depreciation relating to revalued assets................................................... 24 26
Gain on sale of revalued assets............................................................ -- 7
Change in tax rates........................................................................ -- (156)
Tax effect of US GAAP adjustments.......................................................... 159 16
--------- ---------
Operating profit after income tax--US GAAP..................................................... 2,977 2,359
--------- ---------
Shareholders' equity attributable to members of the parent entity:
Australian GAAP................................................................................ 35,167 15,572
Adjustments:
Unrealised gains on trading securities..................................................... -- 70
Unrealised gains on available-for-sales securities......................................... 1 5
Share of associates' net loss consisting of deferred exploration expenditure............... (641) (68)
Deferred exploration expenditure........................................................... (140) (140)
Deferred internal costs of acquisition and business commencements.......................... (130) --
Asset revaluation reserve.................................................................. (142) (3)
Dividend paid from asset revaluation reserve............................................... (188) (188)
Accumulated depreciation of revalued assets................................................ 126 95
Gain on sale of revalued asset............................................................. 7 7
Cumulative tax effect of US GAAP adjustments............................................... 281 75
--------- ---------
Shareholders' equity attributable to members of the parent entity--US GAAP..................... 34,341 15,425
--------- ---------
</TABLE>
F-74
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the members of Glindemann & Kitching Pty Ltd:
We have audited the accompanying balance sheet of Glindemann & Kitching Pty
Ltd as of June 30, 1996, and the related statement of profit, statement of
changes in shareholders' equity and statement of cash flows for the year ended
June 30, 1996, all expressed in Australian dollars. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in Australia which do not differ in any significant respect from
auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of June 30,
1996 and the results of its operations and its cash flows for the year ended
June 30, 1996, in conformity with accounting principles generally accepted in
Australia.
Generally accepted accounting principles in Australia vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of United States generally accepted accounting
principles would have affected the results of operations for the year ended June
30, 1996 and shareholders' equity as of June 30, 1996, to the extent summarised
in Note 19 to the financial statements.
KPMG
CHARTERED ACCOUNTANTS
PERTH, WESTERN AUSTRALIA
Dated: June 17, 1997
F-75
<PAGE>
GLINDEMANN & KITCHING PTY LTD
STATEMENT OF PROFIT
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
NOTE A$'000
------ ---------
<S> <C> <C>
Sales revenue................................................................................... 22,755
Other revenue................................................................................... 294
---------
TOTAL OPERATING REVENUE......................................................................... 2 23,049
---------
Operating profit before abnormal item & income tax.............................................. 2(a) 3,612
Abnormal item................................................................................... 2(b) (982)
Operating profit before income tax.............................................................. 2,630
Income tax attributable to operating profit..................................................... 4 (964)
---------
OPERATING PROFIT AFTER TAX...................................................................... 1,666
---------
---------
</TABLE>
See the accompanying notes to and forming part of the financial statements.
F-76
<PAGE>
GLINDEMANN & KITCHING PTY LTD
BALANCE SHEET
AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
NOTE A$'000
----------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash.......................................................................................... 1,963
Receivables................................................................................... 5 4,077
Inventories................................................................................... 6 420
Investments................................................................................... 7 932
Other......................................................................................... 8 118
---------
TOTAL CURRENT ASSETS............................................................................ 7,510
---------
NON-CURRENT ASSETS
Property, plant and equipment................................................................. 9 3,113
Other......................................................................................... 10 182
---------
TOTAL NON-CURRENT ASSETS........................................................................ 3,295
TOTAL ASSETS.................................................................................... 10,805
---------
---------
CURRENT LIABILITIES
Creditors and borrowings...................................................................... 11 4,244
Provisions.................................................................................... 12 1,263
---------
TOTAL CURRENT LIABILITIES....................................................................... 5,507
---------
TOTAL LIABILITIES............................................................................... 5,507
---------
---------
SHAREHOLDERS' EQUITY
Share capital................................................................................. 13 2
Reserves...................................................................................... 14 382
Retained profits.............................................................................. 4,914
---------
TOTAL SHAREHOLDERS' EQUITY...................................................................... 5,298
---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...................................................... 10,805
---------
---------
</TABLE>
See the accompanying notes to and forming part of the financial statements.
F-77
<PAGE>
GLINDEMANN & KITCHING PTY LTD
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
ASSET CAPITAL
SHARE REVALUATION PROFITS RETAINED
CAPITAL RESERVE RESERVE PROFITS
----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at June 30, 1995.............................................. A$ 2 A$ 337 A$ 45 A$ 3,568
Dividend.............................................................. -- -- -- (320)
Net earnings.......................................................... -- -- -- 1,666
----- ----------- ----------- ----------
Balance at June 30, 1996.............................................. A$ 2 A$ 337 A$ 45 A$ 4,914
----- ----------- ----------- ----------
----- ----------- ----------- ----------
</TABLE>
See the accompanying notes to and forming part of the financial statements.
F-78
<PAGE>
GLINDEMANN & KITCHING PTY LTD
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
NOTE A$'000
------ ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts in the course of operations...................................................... 22,008
Cash payments in the course of operations...................................................... (19,551)
Dividends received............................................................................. 28
Interest and other items of a similar nature received.......................................... 167
Interest and other finance costs paid.......................................................... (158)
Income taxes paid.............................................................................. (1,908)
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................................................... 18(ii) 586
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for purchases of property, plant and equipment......................................... (826)
Payments for investments....................................................................... (309)
Proceeds from sale of investments.............................................................. 70
Proceeds from the sale of fixed assets......................................................... 29
---------
NET CASH USED IN INVESTING ACTIVITIES.......................................................... (1,036)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of borrowings........................................................................ (393)
Dividends paid................................................................................. (320)
---------
NET CASH USED IN FINANCING ACTIVITIES.......................................................... (713)
---------
NET DECREASE IN CASH HELD...................................................................... (1,163)
CASH AT THE BEGINNING OF THE FINANCIAL PERIOD.................................................. 1,863
---------
CASH AT THE END OF THE FINANCIAL PERIOD........................................................ 18(i) 700
---------
</TABLE>
See the accompanying notes to and forming part of the financial statements.
F-79
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
The significant policies which have been adopted by the Company in the
preparation of these financial statements are:
(A) BASIS OF PREPARATION
The financial statements are a general purpose financial report which have
been drawn up in accordance with Accounting Standards, Urgent Issues Group
Consensus Views, the provisions of Schedule 5 to the Corporations Regulations
and the requirements the Corporations Law. They have been prepared on the basis
of historical costs and except where stated do not take into account changing
money values or current valuations of non-current assets. The accounting
policies have been consistently applied by the Company and except where there is
a change in accounting policy, are consistent with those of the previous year.
A reconciliation of the major differences between these accounts and those
applicable under generally accepted accounting principles in the United States
("US GAAP") is included in note 19.
(B) REVENUE RECOGNITION
SALES REVENUE
Sales revenue comprises revenue earned (net of returns, discounts and
allowances) from the provision of products or services to entities outside the
Company. Sales revenue is recognised when earned and the fee in respect of
services provided is receivable.
INTEREST INCOME
Interest income is recognised as it accrues.
ASSET SALES
The gross proceeds of asset sales are included as other revenue of the
Company. The profit or loss on disposal of assets is brought to account at the
date an unconditional contract of sale is signed.
OTHER REVENUE
Revenue recognition policies for investments are described in Note 1(e).
(C) INCOME TAX
The company adopts the liability method of tax effect accounting.
Income tax expense is calculated on operating profit adjusted for permanent
differences between taxable and accounting income. The tax effect of timing
differences which arise from items being brought to account in different periods
for income tax and accounting purposes, is carried forward in the balance sheet
as a future income tax benefit or a provision for deferred income tax.
Future income tax benefits are brought to account as realisation of the
asset is assured beyond reasonable doubt. Future income tax benefits relating to
tax losses are brought to account when their realisation is virtually certain.
F-80
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) NON-CURRENT ASSETS
The carrying amounts of all non-current assets are reviewed at least
annually to determine whether they are in excess of their recoverable amount. If
the carrying amount of a non-current asset exceeds the recoverable amount, the
asset is written down to the lower value.
In assessing recoverable amounts the relevant cash flows have not been
discounted to their present value, except where specifically stated.
(E) INVESTMENTS
OTHER COMPANIES
Investments in other companies are carried at cost. No recognition for
fluctuations in the market value of these investments is brought to account.
Dividends are brought to account as they are received.
(F) INVENTORIES
Drilling supplies and consumables held at the Company's store and workshop
at year end are valued at cost (calculated on the first-in first-out basis).
Once these drilling supplies and consumables are issued to the Company's drill
rigs, they are expensed to the profit and loss account.
(G) PROPERTY, PLANT AND EQUIPMENT
ACQUISITION
Items of property, plant and equipment are initially recorded at cost and
depreciated as outlined below.
The cost of property, plant and equipment constructed by the Company
includes the cost of materials and direct labour and an appropriate proportion
of fixed and variable overheads.
DEPRECIATION AND AMORTISATION
Property, plant and equipment, including buildings and leasehold property
but excluding freehold land, are depreciated/amortised over their estimated
useful lives.
Assets are depreciated or amortised from the date of first use.
(H) EMPLOYEE ENTITLEMENTS
WAGES, SALARIES, ANNUAL LEAVE AND SICK LEAVE
The provisions for employee entitlements to wages, salaries, annual leave
and sick leave represents the amount which the Company has a present obligation
to pay resulting from employees' services provided up to the balance date. The
provisions have been calculated at nominal amounts based on current wage and
salary rates and includes related on-costs.
F-81
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG SERVICE LEAVE
The liability for employee's entitlement to long service leave represents
the present value of the estimated future cash outflows to be made by the
employer resulting from employees' services provided up to the balance date.
Liabilities for employee entitlements which are not expected to be settled
within twelve months are discounted using the rates attaching to national
government securities at balance date, which most closely match the terms of
maturity of the related liabilities.
In determining the liability for employee entitlements, consideration has
been given to future increases in wage and salary rates, and the company's
experience with staff departures. Related on-costs have also been included in
the liability.
SUPERANNUATION
The Company contributes to a superannuation fund on behalf of employees in
accordance with the requirements of the Superannuation Guarantee Administration
Act 1992. The contributions are charged against income as they are made.
(I) EXPLORATION EXPENDITURE
The company expenses all exploration expenditure when incurred.
F-82
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
2. OPERATING PROFIT BEFORE INCOME TAX
(a) Operating profit has been arrived at after including:
<TABLE>
<CAPTION>
A$'000
-------
<S> <C>
Sales revenue............................................... 22,755
Interest received or due and receivable..................... 167
Dividends received.......................................... 28
Gross proceeds from the sale of non-current assets.......... 29
Gross proceeds from the sale of investments................. 70
-------
Total operating revenue..................................... 23,049
-------
-------
OPERATING EXPENSES
Interest paid or due and payable to:
Related party........................................... 158
Depreciation................................................ 713
Amounts set aside to provision for:
Employee entitlements................................. 28
SALES OF NON-CURRENT ASSETS
Profit on sales of property, plant and equipment............ 25
Loss on sales of investments................................ (1)
(b) Abnormal Item
Oil exploration expenditure............................... (982)
Income tax effect......................................... 354
-------
(628)
-------
-------
</TABLE>
3. DIVIDENDS
Dividends provided for or paid by the Company are:
<TABLE>
<CAPTION>
A$'000
-------
<S> <C>
A final class 'A' dividend of $320,000 franked to 100% was
declared on 21 February 1996................................ 320
-------
-------
</TABLE>
F-83
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
<TABLE>
<CAPTION>
A$'000
-------
<S> <C>
</TABLE>
4. TAXATION
<TABLE>
<S> <C>
INCOME TAX EXPENSE
Prima facie income tax expense calculated at 36% on the
operating profit............................................ 947
Increase in income tax expense due to non tax deductible
items:
Depreciation of buildings................................. 4
Entertainment expenses.................................... 22
Decrease in income tax expense due to non tax assessable
items:
Dividends................................................. 9
-------
Income tax expense on operating profit...................... 964
-------
-------
Total income tax expense is made up of:
Current income tax provision.............................. 972
Future income tax benefit................................. (8)
-------
964
-------
-------
</TABLE>
5. RECEIVABLES
<TABLE>
<S> <C>
Trade debtors............................................... 3,946
Other debtors............................................... 131
-------
4,077
-------
-------
</TABLE>
6. INVENTORIES
<TABLE>
<S> <C>
Raw materials and stores--at cost........................... 172
Finished goods--at cost..................................... 248
-------
420
-------
-------
</TABLE>
7. INVESTMENTS
<TABLE>
<S> <C>
Shares in other corporations--at cost....................... 932
-------
-------
</TABLE>
Quoted market value of shares in other corporations $1,325,450.
The amount of capital gains tax that would be payable if the quoted shares
in other corporations were sold at balance date at the disclosed market value
should not exceed $141,750.
8. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
A$'000
-------
<S> <C>
Prepayments................................................. 118
-------
-------
</TABLE>
F-84
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
<TABLE>
<CAPTION>
A$'000
-------
<S> <C>
</TABLE>
9. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<S> <C>
Freehold land--at directors' valuation 1988................. 207
Buildings
--at cost................................................. 84
--Accumulated depreciation................................ (5)
-------
79
--at directors' valuation 1988............................ 300
--Accumulated depreciation................................ (63)
-------
237
Total Land and Buildings.................................... 523
-------
-------
Plant and equipment
--at cost................................................. 5,189
--Accumulated depreciation................................ (2,669)
-------
2,520
-------
-------
Construction in progress.................................... 70
-------
-------
Total property, plant and equipment......................... 3,113
-------
-------
</TABLE>
The directors' valuation of freehold land and buildings were based on the
assessment of the current market value of freehold land and buildings and was
carried out at 30 June 1988.
10. OTHER NON-CURRENT ASSETS
<TABLE>
<S> <C>
Future income tax benefit................................... 182
-------
-------
</TABLE>
11. CREDITORS AND BORROWINGS
<TABLE>
<CAPTION>
A$'000
-------
<S> <C>
Bank overdraft.............................................. 1,263
Trade creditors and accruals................................ 872
Loan from shareholders...................................... 2,109
-------
4,244
-------
-------
</TABLE>
12. PROVISIONS
<TABLE>
<S> <C>
Employee entitlements....................................... 505
Income tax.................................................. 758
-------
1,263
-------
-------
</TABLE>
F-85
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
13. SHARE CAPITAL
<TABLE>
<S> <C>
AUTHORISED CAPITAL
1,000,000 shares of $1 each................................................. 1,000
---------
---------
ISSUED CAPITAL
1,500 Ordinary shares of $1 each............................................ 2
1 'A' Class share of $1..................................................... --
1 'B' Class share of $1..................................................... --
---------
2
---------
---------
</TABLE>
14. RESERVES
<TABLE>
<S> <C>
Fixed asset revaluation..................................................... 337
Capital profits............................................................. 45
---------
382
---------
---------
</TABLE>
15. SEGMENT INFORMATION
Glindemann & Kitching Pty Ltd operates in the drilling industry in Western
Australia.
16. RELATED PARTIES
DIRECTORS
The names of each person holding the position of director of Glindemann &
Kitching Pty Ltd during the financial year are R. W. Aird and W. Unger.
Details of directors' remuneration, superannuation and retirement payments
are set out in Note 16.
DIRECTORS' INCOME
The number of directors of the Company whose income, from the Company or
related bodies Corporate falls within the following bands.
<TABLE>
<CAPTION>
1996
---------
<S> <C>
$130,000-$139,999 2
A $ '000
Total income received, or due and receivable by all directors of the Company from
the Company or related bodies corporate.......................................... 278
</TABLE>
DIRECTORS' HOLDINGS OF SHARES
The directors hold 100% of the issued capital of the Company as follows:
F-86
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
16. RELATED PARTIES (CONTINUED)
ZELMAN PTY LTD (a company associated with Mr. Unger)
750 Ordinary shares
1 'B' Class share
R.W. AIRD (AS TRUSTEE FOR THE AIRD TRUST)
750 Ordinary shares
1 'A' Class share
<TABLE>
<CAPTION>
A $'000
---------
<S> <C>
LOANS FROM DIRECTORS
Zelman Pty Ltd................................................................................. 1,054
(a company associated with Mr. Unger)
R. W. Aird..................................................................................... 1,055
(as trustee for the Aird Trust)
---------
2,109
---------
---------
</TABLE>
The Company recognised $157,748 of interest expense in the year ended 30
June 1996 on the above loans.
17. EVENTS SUBSEQUENT TO BALANCE DATE
On 17 December 1996, Stanley Mining Services Limited acquired 51% of the
Company with effect from 1 October 1996. The remaining 49% will be acquired on 1
July 1997. As a result of the acquisition, Stanley Mining Services Limited
appointed three directors to the Company.
18. NOTES TO THE STATEMENT OF CASH FLOWS
(i) RECONCILIATION OF CASH
For the purpose of the Statement of Cash Flows, cash includes cash on hand
and at bank net of all outstanding bank overdrafts. Cash as at the end of the
financial period as shown in the Statement of Cash Flows is reconciled to the
related items in the balance sheet as follows:
<TABLE>
<S> <C>
Cash........................................................................ 1,963
Bank overdraft.............................................................. (1,263)
---------
700
---------
---------
</TABLE>
F-87
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
18. NOTES TO THE STATEMENT OF CASH FLOWS (CONTINUED)
(ii) RECONCILIATION OF OPERATING PROFIT AFTER INCOME TAX TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
A $'000
---------
<S> <C>
Operating profit after income tax.................................................... 1,666
LESS ITEM CLASSIFIED AS INVESTING ACTIVITY:
Profit on sale of non-current assets................................................. (24)
ADD NON-CASH ITEMS
Depreciation......................................................................... 713
---------
Net cash provided by operating activities before changes in assets and liabilities... 2,355
Changes in assets and liabilities:
Increase in prepayments.............................................................. (118)
Increase in receivables.............................................................. (747)
Decrease in inventories.............................................................. 98
Increase in deferred tax benefit..................................................... (8)
Decrease in trade creditors and accruals............................................. (83)
Decrease in income tax payable....................................................... (936)
Increase in provisions for employee entitlements..................................... 25
---------
Net cash provided by operating activities............................................ 586
---------
---------
</TABLE>
19. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
PRINCIPAL DIFFERENCES BETWEEN AUSTRALIAN GAAP AND US GAAP
Financial statements in the United States are prepared in accordance with
accounting principles generally accepted in the United States ("US GAAP"). In
Australia statutory financial statements are prepared in accordance with
applicable accounting standards issued by the Australian Accounting Standards
Board, the Australian Corporations Law, Schedule 5 to the Corporations
Regulations and other mandatory professional reporting requirements (Urgent
Issues Consensus Views) collectively referred to as "Australian GAAP". The
principle differences between Australian GAAP and US GAAP which are material to
the preparation of the financial statements of the Company are set out below in
this note.
(A) MARKETABLE INVESTMENT SECURITIES
Under Australian GAAP marketable equity securities available for sale are
stated at cost.
Under US GAAP Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"),
requires investments to be classified into three categories and accounted for as
follows: debt securities that the Company has the positive intent and ability to
hold to maturity are classified as "held-to-maturity securities" and reported at
amortised costs: debt and marketable equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as
"trading securities" and reported at fair value, with unrealised gains and
losses included in earnings: and debt and marketable equity securities not
classified as either held-to-maturity securities or trading securities are
classified as "available-for-sale securities" and reported at fair value,
F-88
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
19. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
with unrealised gains and losses excluded from earnings and reported as a
separate component of shareholders' equity, net of tax.
(B) ASSET REVALUATIONS
Under Australian GAAP non-current assets may be revalued both upwards and
downwards based on directors' valuations. An upwards revaluation is recorded by
a credit to the asset revaluation reserve as a component of shareholders' equity
and is not taken through the profit and loss account except where a previous
revaluation decrement has been recorded for that class of assets through the
profit and loss account. An impairment or downwards revaluation is taken through
the profit and loss account except where there is a revaluation reserve for that
particular class of assets, in which case the decrement may be debited to that
asset revaluation reserve, to the extent a credit exists, rather than the profit
and loss account.
The Company assesses the recoverability of non-current assets by comparing
the carrying value to the asset's undiscounted cash flow. To the extent that the
asset carrying value exceeds its undiscounted cash flow the asset is written
down to that amount.
US GAAP does not permit the upward revaluation of such assets. US GAAP
requires that an impairment of long-lived assets be recognised through the
profit and loss account. Under US GAAP SFAS 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," entities,
when assessing an asset for impairment, compare the carrying value of the asset
or group of assets to the relevant expected cash flow, undiscounted and without
interest. If the sum of the undiscounted cash flow is less than the asset
carrying value the asset must be written down to "fair value." One method of
determining an asset's fair value, in the absence of an active market, is its
discounted cash flow. Once impairment is recorded, subsequent recoveries through
the profit and loss account are not allowed until the asset is sold.
(C) INCOME TAXES
Under Australian GAAP, income taxes are accounted for in accordance with the
liability method which is equivalent in many aspects to United States Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires deferred tax assets and liabilities to be recognised for
the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled. A valuation allowance is provided on deferred tax assets
to the extent it is not "more likely than not" that such deferred tax assets
will be realised. Under SFAS 109, "more likely than not" is defined as a
likelihood of more than 50 percent.
Under Australian GAAP, deferred tax assets related to temporary differences
are brought to account when they are "assured beyond a reasonable doubt" and net
operating losses pass a "virtually certain" threshold. The effect of a change in
the tax rate is recorded in the period the government approves the budget which
in fiscal year 1995 preceded the enactment date under US GAAP. Accordingly, the
effect of
F-89
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996 (CONTINUED)
19. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
the increase in the Australian tax rate from 33 percent to 36 percent is
recognised for US GAAP in the current year.
With respect to business combinations accounted for as purchases, under
Australian GAAP, differences in the bases of assets and liabilities as a result
of purchase price adjustments do not result in the creation of a deferred tax
asset or liability at the acquisition date. Under US GAAP, the differences
between the assigned values and tax bases of assets and liabilities acquired in
such business combinations require the recognition of deferred tax assets and
liabilities at the acquisition date.
(D) CAPITAL PROFITS RESERVE
Under Australian GAAP, the company transfers profits on sale of revalued
assets out of the asset revaluation reserve to the capital profits reserve.
Under US GAAP the amount shown in capital profits reserve would have been
reflected in the Statement of Profit in the year the fixed asset was sold and be
included in Retained Earnings. This adjustment has no net impact on
shareholders' equity.
(E) PROFIT AND LOSS ACCOUNT
Under Australian GAAP, the Company has disclosed certain items as "abnormal"
in the statement of profit in the June 1996 accounts, There is no "abnormal
item" category in a US GAAP statement of profit such that these items would be
included in operating income.
<TABLE>
<CAPTION>
A $'000
---------
<S> <C>
Operating profit after income tax in accordance with Australian GAAP.......................... 1,666
Adjustments:
Depreciation relating to revalued assets.................................................... 6
Change in tax rates......................................................................... (14)
---------
Net profit--US GAAP........................................................................... 1,658
---------
<CAPTION>
A $'000
---------
<S> <C>
Shareholders' equity in accordance with Australian GAAP....................................... 5,298
Adjustments:
Unrealised gains on available-for-sale securities........................................... 393
Accumulated depreciation of revalued assets................................................. 48
Asset revaluation reserve................................................................... (337)
---------
Shareholders' equity--US GAAP................................................................. 5,402
---------
</TABLE>
F-90
<PAGE>
GLINDEMANN & KITCHING PTY LTD
UNAUDITED STATEMENTS OF PROFIT
FOR THE NINE MONTHS ENDED
MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
NOTE A$'000 A$'000
------ --------- ---------
<S> <C> <C> <C>
Sales revenue......................................................................... 19,555 16,436
Other revenue......................................................................... 1,531 262
--------- ---------
TOTAL OPERATING REVENUE............................................................... 21,086 16,698
--------- ---------
OPERATING PROFIT BEFORE INCOME TAX.................................................... 3 3,671 2,371
Income tax attributable to operating profit........................................... 1,459 873
--------- ---------
OPERATING PROFIT AFTER INCOME TAX..................................................... 2,212 1,498
Profit on abnormal items.............................................................. 4 943 --
Income tax attributable to profit on abnormal items................................... 337 --
--------- ---------
606 --
OPERATING PROFIT AND ABNORMAL ITEMS AFTER INCOME TAX.................................. 2,818 1,498
--------- ---------
--------- ---------
</TABLE>
See the accompanying notes to and forming part
of the unaudited financial statements.
F-91
<PAGE>
GLINDEMANN & KITCHING PTY LTD
UNAUDITED BALANCE SHEETS
AS OF MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
NOTE A$'000 A$'000
------ --------- ---------
<S> <C> <C> <C>
CURRENT ASSETS
Cash.................................................................................. 1,957 2,764
Receivables........................................................................... 6,761 3,048
Inventories........................................................................... 1,605 732
--------- ---------
TOTAL CURRENT ASSETS.................................................................. 10,323 6,544
--------- ---------
NON-CURRENT ASSETS
Investments........................................................................... 224 917
Property, plant and equipment......................................................... 9,176 3,204
Other................................................................................. 287 165
--------- ---------
TOTAL NON-CURRENT ASSETS.............................................................. 9,687 4,286
--------- ---------
TOTAL ASSETS.......................................................................... 20,010 10,830
--------- ---------
CURRENT LIABILITIES
Accounts payable...................................................................... 2,310 4,341
Provisions............................................................................ 2,199 1,359
--------- ---------
TOTAL CURRENT LIABILITIES............................................................. 4,509 5,700
--------- ---------
NON-CURRENT LIABILITIES
Provisons............................................................................. 181 --
--------- ---------
TOTAL NON-CURRENT LIABILITIES......................................................... 181 --
--------- ---------
TOTAL LIABILITIES..................................................................... 4,690 5,700
--------- ---------
SHAREHOLDERS' EQUITY
Share capital......................................................................... 5 3 2
Reserves.............................................................................. 13,642 382
Retained profits...................................................................... 1,675 4,746
--------- ---------
TOTAL SHAREHOLDERS' EQUITY............................................................ 15,320 5,130
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................................ 20,010 10,830
--------- ---------
--------- ---------
</TABLE>
See the accompanying notes to and forming part
of the unaudited financial statements.
F-92
<PAGE>
GLINDEMANN & KITCHING PTY LTD
UNAUDITED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED
MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
NOTE A$'000 A$'000
------ --------- -----------
<S> <C> <C> <C>
AUTHORISED CAPITAL
Ordinary shares of $1 each............................................................. 1,000 1,000
--------- -----
Opening balance........................................................................ 2 2
Additional shares issued............................................................... 1 --
--------- -----
Total share capital.................................................................... 3 2
--------- -----
RETAINED PROFITS
Retained profits at the beginning of the period as stated.............................. 4,914 3,568
Dividend provided for or paid.......................................................... 6 (6,057) (320)
Operating profit and abnormal items after income tax................................... 2,818 1,498
--------- -----
Retained profits at the end of the period as stated.................................... 1,675 4,746
--------- -----
RESERVES
SHARE PREMIUM RESERVE
Opening balance........................................................................ -- --
Premium on additional shares issued.................................................... 6,600 --
--------- -----
Closing balance........................................................................ 6,600 --
--------- -----
ASSET REVALUATION RESERVE
Opening balance........................................................................ 337 337
Revaluation of property, plant and equipment........................................... 6,660 --
--------- -----
Closing balance........................................................................ 6,997 337
--------- -----
CAPITAL PROFITS RESERVE
Opening balance........................................................................ 45 45
--------- -----
Closing balance........................................................................ 45 45
--------- -----
TOTAL SHAREHOLDERS' EQUITY............................................................. 15,320 5,130
--------- -----
</TABLE>
See the accompanying notes to and forming part
of the unaudited financial statements.
F-93
<PAGE>
GLINDEMANN & KITCHING PTY LTD
UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
NOTE A$'000 A$'000
----------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts in the course of operations........................................... 19,434 16,720
Cash payments in the course of operations........................................... (14,350) (13,738)
Income taxes paid................................................................... (1,001) (1,694)
Interest and other items of a similar nature received............................... 145 141
Interest and other finance costs paid............................................... (67) (122)
Dividends received.................................................................. 14 26
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................................... 7(b) 4,175 1,333
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale of plant and equipment............................................. -- 26
Payments for property, plant and equipment.......................................... (796) (730)
Payment for investments............................................................. (224) (280)
Proceeds from sale of investments................................................... 1,372 69
Loans to shareholders............................................................... (2,563) --
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES................................. (2,211) (915)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares....................................................... 6,601 --
Repayment of borrowing.............................................................. (2,109) --
Dividends paid...................................................................... (6,057) (320)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES............................................... (1,565) (320)
--------- ---------
NET INCREASE IN CASH HELD........................................................... 399 98
CASH AT THE BEGINNING OF THE FINANCIAL PERIOD....................................... 700 1,864
--------- ---------
CASH AT THE END OF THE FINANCIAL PERIOD............................................. 7(a) 1,099 1,962
--------- ---------
</TABLE>
See the accompanying notes to and forming part
of the unaudited financial statements.
F-94
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE
UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
MARCH 31, 1997 AND 1996
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
The general purpose nine months financial statements have been prepared in
accordance with the requirements of the Corporations Law on the basis of
Accounting Standard 1029 and other mandatory professional reporting requirements
(Urgent Issues Group Consensus Views) with the exception of disclosures of the
dividend franking account and earnings per share. It is recommended that the
nine months financial statements and report be read in conjunction with the 30
June 1996 Annual Financial Statements and Reports and any public announcements
by Glindemann & Kitching Pty Ltd during the nine months in accordance with
continuous disclosure obligations arising under the Corporations Law.
The accounting policies have been consistently applied by the Company and
are consistent with those of the previous financial statements except as
detailed in note 2.
The carrying amount of non-current assets are reviewed to determine whether
they are in excess of their recoverable amount at the end of the nine months. If
the carrying amount of a non-current asset exceeds the recoverable amount, the
asset is written down to the lower amount. In assessing recoverable amounts the
relevant cash flows have not been discounted to their present value.
For purpose of preparing the nine months financial statements, the nine
months has been treated as a discrete reporting period.
A reconciliation of the major differences between these accounts and those
applicable under generally accepted accounting principles in the United States
("US GAAP") is included in note 8.
2. CHANGE IN ACCOUNTING POLICY
(A) INVENTORIES
The Company adopted a policy from 1 January 1997, of valuing drilling
consumables at the lower of cost and net realisable value.
Previously the Company expensed consumables as incurred.
The Directors adopted the policy to ensure consumables were treated
consistently throughout the Stanley Mining Services Limited Economic Entity.
The financial effect of the change in policy is an increase in inventories
of $501,714 and an increase in profit after taxation of $322,097.
3. OPERATING PROFIT BEFORE INCOME TAX
<TABLE>
<CAPTION>
1997 1996
A$'000 A$'000
----------- -----------
<S> <C> <C>
Operating profit before income tax has been arrived at after including:
Interest received or due and receivable...................................................... 145 141
Interest paid or due and payable (including lease finance charges)........................... 67 122
Depreciation including all forms of amortisation............................................. 1,001 521
Profit/Loss on sale of non-current assets.................................................... 13 (10)
</TABLE>
F-95
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE
UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
MARCH 31, 1997 AND 1996 (CONTINUED)
<TABLE>
<CAPTION>
4. ABNORMAL ITEMS
Profit on sale of securities................................................................. 441 --
<S> <C> <C>
Applicable tax effect........................................................................ (156) --
Inventory brought to account................................................................. 502 --
Applicable tax effect........................................................................ (181) --
----- -----
606 --
----- -----
<CAPTION>
5. SHARE CAPITAL
<S> <C> <C>
Authorised capital 1,000,000 shares of $1 each............................................... 1,000 1,000
----- -----
Issued capital 3,065 (1996: 1,502) ordinary shares of $1 each................................ 3 2
----- -----
Total........................................................................................ 3 2
----- -----
<CAPTION>
6. DIVIDENDS
<S> <C> <C>
Glindemann & Kitching Pty Ltd paid a final ordinary
dividend of $4,032 per share, franked to 100%, with
Class C (36%) franking credits on 30 September
1996....................................................................................... 6,057 --
----- -----
----- -----
A final Class "A" dividend of $320,000 franked to 100% was declared on 21 February 1996...... -- 320
----- -----
----- -----
</TABLE>
7. NOTES TO THE STATEMENT OF CASH FLOWS
(A) RECONCILIATION OF CASH
For the purpose of the Statements of Cash Flows, cash includes cash on hand
and at bank, net of outstanding bank overdrafts. Cash as at the end of the
period as shown in the Statements of Cash Flows is reconciled to the related
items in the balance sheet as follows:
<TABLE>
<CAPTION>
1997 1996
A$'000 A$'000
----------- -----------
<S> <C> <C>
Cash......................................................................... 1,957 2,764
Bank overdraft............................................................... (858) (802)
----- -----
Total........................................................................ 1,099 1,962
----- -----
</TABLE>
F-96
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE
UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
MARCH 31, 1997 AND 1996 (CONTINUED)
7. NOTES TO THE STATEMENT OF CASH FLOWS (CONTINUED)
(B) RECONCILIATION OF OPERATING PROFIT AFTER INCOME TAX TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1997 1996
A$'000 A$'000
----------- -----------
<S> <C> <C>
Operating profit after income tax............................................ 2,818 1,498
Less item classified as investing activity:
Profit on sale of non-current assets......................................... (428) (23)
Add non-cash items:
Depreciation................................................................. 1,001 521
----- -----
Net cash provided by operating activities before changes in assets and
liabilities................................................................ 3,391 1,996
Changes in assets and liabilities
Decrease in prepayments...................................................... 118 --
Increase (decrease) in receivables........................................... (121) 284
Increase in inventories...................................................... (782) (214)
Decrease in deferred tax benefit............................................. 76 9
Increase in trade creditors and accruals..................................... 580 80
Increase (decrease) in income tax payable.................................... 539 (831)
Increase in provisions....................................................... 374 9
----- -----
Net cash provided by operating activities.................................... 4,175 1,333
----- -----
----- -----
</TABLE>
8. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
PRINCIPAL DIFFERENCES BETWEEN AUSTRALIAN GAAP AND US GAAP
Financial statements in the United States are prepared in accordance with US
GAAP. In Australia statutory financial statements are prepared in accordance
with applicable accounting standards issued by the Australian Accounting
Standards Board, the Australian Corporations Law, Schedule 5 to the Corporations
Regulations and other mandatory professional reporting requirements (Urgent
Issues Consensus Views) collectively referred to as "Australian GAAP." The
principal differences between Australian GAAP and US GAAP which are material to
the preparation of the financial statements of the Company are set out below in
this note.
(A) MARKETABLE INVESTMENT SECURITIES
Under Australian GAAP, marketable equity securities available for sale are
stated at cost.
Under US GAAP, Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115")
requires investments to be classified into three categories and accounted for as
follows: debt securities that the Company has the positive intent and ability to
hold to maturity are classified as "held-to-maturity securities" and reported at
amortized cost; debt and
F-97
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE
UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
MARCH 31, 1997 AND 1996 (CONTINUED)
8. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
marketable equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as "trading securities"
and reported at fair value, with unrealised gains and losses included in
earnings; and debt and marketable equity securities not classified as either
held-to-maturity securities or trading securities are classified as
"available-for-sale securities" and reported at fair value, with unrealised
gains and losses excluded from earnings and reported as a separate component of
shareholders' equity, net of tax.
(B) ASSET REVALUATIONS
Under Australian GAAP non-current assets may be revalued both upwards and
downwards based on directors' valuations. An upwards revaluation is recorded by
a credit to the asset revaluation reserve as a component of shareholders' equity
and is not taken through the profit and loss account except where a previous
revaluation decrement has been recorded for that class of assets through the
profit and loss account. An impairment or downwards revaluation is taken through
the profit and loss account except where there is a revaluation reserve for that
particular class of assets, in which case the decrement may be debited to that
asset revaluation reserve, to the extent a credit exists, rather than the profit
and loss account.
The Company assesses the recoverability of non-current assets by comparing
the carrying value to the asset's undiscounted cash flow. To the extent that the
asset carrying value exceeds its undiscounted cash flow the asset is written
down to that amount.
US GAAP does not permit the upward revaluation of such assets. US GAAP
requires that an impairment of long-lived assets be recognised through the
profit and loss account. Under US GAAP SFAS 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," entities,
when assessing an asset for impairment, compare the carrying value of the asset
or group of assets to the relevant expected cash flow, undiscounted and without
interest. If the sum of the undiscounted cash flow is less than the asset
carrying value the asset must be written down to "fair value." One method of
determining an asset's fair value, in the absence of an active market, is its
discounted cash flow. Once impairment is recorded, subsequent recoveries through
the profit and loss account are not allowed until the asset is sold.
(C) INCOME TAXES
Under Australian GAAP, income taxes are accounted for in accordance with the
liability method which is equivalent in many aspects to United States Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires deferred tax assets and liabilities to be recognised for
the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled. A valuation allowance is provided on deferred tax assets
to the extent it is not "more likely than not" that such deferred tax assets
will be realised. Under SFAS 109, "more likely than not" is defined as a
likelihood of more than 50 percent.
F-98
<PAGE>
GLINDEMANN & KITCHING PTY LTD
NOTES TO AND FORMING PART OF THE
UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
MARCH 31, 1997 AND 1996 (CONTINUED)
8. RECONCILIATION FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
Under Australian GAAP, deferred tax assets related to temporary differences
are brought to account when they are "assured beyond a reasonable doubt" and net
operating losses pass a "virtually certain" threshold.
With respect to business combinations accounted for as purchases, under
Australian GAAP, differences in the bases of assets and liabilities as a result
of purchase price adjustments do not result in the creation of a deferred tax
asset or liability at the acquisition date. Under US GAAP, the differences
between the assigned values and tax bases of assets and liabilities acquired in
such business combinations require the recognition of deferred tax assets and
liabilities at the acquisition date.
(D) CAPITAL PROFITS RESERVE
Under Australian GAAP, the Company transfers profits on sale of revalued
assets out of the asset revaluation reserve to the capital profits reserve.
Under US GAAP the amount shown in capital profits reserve would have been
reflected in the Statement of Profit in the half-year the fixed asset was sold
and be included in Retained Earnings. This adjustment has no net impact on
shareholders' equity.
(E) PROFIT AND LOSS ACCOUNT
Under Australian GAAP the Company has disclosed certain items as "abnormal"
in the Statement of Profit in the March 1997 Accounts. There is no "abnormal
item" category in a US GAAP Statement of Profit such that these items would be
included in operating income.
<TABLE>
<CAPTION>
1997 1996
A $'000 A $'000
--------- ---------
<S> <C> <C>
Operating profit after income tax in accordance with Australian GAAP....... 2,818 1,498
Adjustments:
Depreciation relating to revalued assets................................... 340 4
Change in tax rates........................................................ -- (14)
--------- ---------
Net profit--US GAAP........................................................ 3,158 1,488
--------- ---------
Shareholders' equity in accordance with Australian GAAP.................... 15,320 5,130
Adjustments:
Unrealised profit on available-for-sale securities......................... 1 157
Accumulated depreciation of revalued assets................................ 403 47
Asset revaluation reserve.................................................. (6,997) (337)
--------- ---------
Shareholders' equity--US GAAP.............................................. 8,727 4,997
--------- ---------
</TABLE>
F-99
<PAGE>
No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus, and, if given or made, such information or representation must
not be relied upon as having been authorized by Layne Christensen, any Selling
Stockholder or any Underwriter. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy by anyone in any jurisdiction in which
such offer to sell or solicitation is not authorized, or in which the person
making such offer or solicitation is not qualified to do so or to any person to
whom it is unlawful to make such offer or solicitation. Neither the delivery of
this Prospectus nor any sale hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as of
any time subsequent to its date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
The Stanley Acquisition................................................... 11
Use of Proceeds........................................................... 16
Price Range of Common Stock............................................... 16
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Selected Consolidated Financial Data...................................... 18
Unaudited Pro Forma Consolidated Financial Statements..................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 27
Business.................................................................. 34
Management................................................................ 47
Principal and Selling Stockholders........................................ 49
Description of Capital Stock.............................................. 52
Underwriting.............................................................. 54
Legal Matters............................................................. 55
Experts................................................................... 55
Available Information..................................................... 55
Incorporation of Certain Documents by Reference........................... 56
Index to Consolidated Financial Statements................................ F-1
</TABLE>
5,000,000 SHARES
[LOGO]
LAYNE CHRISTENSEN
COMPANY
COMMON STOCK
-----------------
P R O S P E C T U S
-----------------
PIPER JAFFRAY INC.
DILLON, READ & CO. INC.
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Company in connection with the distribution
of the securities being registered are as set forth in the following table:
<TABLE>
<S> <C>
Securities and Exchange Commission Fee............................ $ 37,463
NASD Filing Fee................................................... 12,863
Nasdaq National Market Listing Fee................................ 17,500
*Legal Fees and Expenses.......................................... 250,000
*Accounting Fees and Expenses..................................... 100,000
*Printing Expenses................................................ 200,000
*Blue Sky Fees and Expenses....................................... 5,000
*Registrar and Transfer Agent Fees and
Expenses........................................................ 10,000
*Miscellaneous.................................................... 67,174
*Total............................................................ $ 700,000
</TABLE>
- ------------------------
*Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) Section 145 of the General Corporation Law of Delaware (the "DGCL") (i)
gives Delaware corporations broad powers to indemnify their present and former
directors and officers and those of affiliated corporations against expenses
incurred in the defense of any lawsuit to which they are made parties by reason
of being or having been such directors or officers, including expenses relating
to liabilities under the Securities Act, subject to specified conditions and
exclusions, (ii) gives a director or officer who successfully defends an action
the right to be so indemnified, and (iii) authorizes the Company to buy
directors' and officers' liability insurance. Such indemnification is not
exclusive of any other rights to which those indemnified may be entitled under
any by-laws, agreement, vote of the stockholders or otherwise.
(b) The Company's Bylaws provide that the Company shall indemnify officers
and directors of the Company to the fullest extent permitted by and in the
manner permissible under the DGCL.
(c) In accordance with Section 102(b)(7) of the DGCL, the Company's Restated
Certificate of Incorporation provides that directors shall not be personally
liable for monetary damages for breaches of their fiduciary duty as directors
except for (i) breaches of their duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, (iii) under Section 174 of
the DGCL (unlawful payment of dividends) or (iv) transactions from which a
director derives an improper personal benefit.
(d) The Company has obtained directors and officers liability insurance for
each of its directors and executive officers which (subject to certain limits
and deductibles) (i) insures such persons against loss arising from certain
claims made against them by reason of such persons being a director or officer,
and (ii) insures the Company against loss which it may be required or permitted
to pay as indemnification due such persons for certain claims. Such insurance
may provide coverage for certain matters as to which the Company may not be
permitted by law to provide indemnification.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
A. EXHIBITS
1.1 Form of Purchase Agreement.+
2.1 Offer by Layne Christensen Australia Pty Limited to Acquire All of Your Fully Paid
Ordinary Shares in Stanley Mining Services Limited.+
2.2 Part A Statement Relating to Proposed Offers by Layne Christensen Australia Pty
Limited for All Fully Paid Shares in Stanley Mining Services Limited.**+
2.3 Stanley Mining Services Limited Part B Statement in Relation to the Takeover Offers
by Layne Christensen Australia Pty Ltd.**+
4.1 Restated Certificate of Incorporation of the Company (filed with the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1996 (File No.
0-20578) as Exhibit 3(1) and incorporated herein by reference).
4.2 Bylaws of the Company (filed with Amendment No. 2 to the Company's Registration
Statement (File No. 33-48432) as Exhibit 3(2) and incorporated herein by reference).
4.3 Specimen Common Stock Certificate (filed with Amendment No. 3 to the Company's
Registration Statement (File No. 33-42432) as Exhibit 4(1) and incorporated herein
by reference).
5.1 Opinion of Latham & Watkins.+
10.1 Tax Liability Indemnification Agreement between the Company and The Marley Company
(filed with Amendment No. 3 to the Company's Registration Statement (File No.
33-48432) as Exhibit 10(2) and incorporated herein by reference).
10.2 Lease Agreement between the Company and Parkway Partners, L.L.C. dated December 21,
1994 (filed with the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1995 (File No. 0-20578) as Exhibit 10(2) and incorporated herein by
reference).
10.2.1 First Modification & Ratification of Lease, dated as of February 26, 1996, between
Parkway Partners, L.L.C. and the Company (filed with the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1996 (File No. 0-20578) as Exhibit
10(2.1) and incorporated herein by reference).
10.3 Form of The Layne Capital Accumulation Plan and Trust Agreement (filed with the
Company's Registration Statement (File No. 33-48432) as Exhibit 10(5) and
incorporated herein by reference).
10.4 Layne, Inc. 1992 Stock Option Plan (filed with Amendment No. 3 to the Company's
Registration Statement (File No. 33-48432) as Exhibit 10(6) and incorporated herein
by reference).
10.5 Form of Stock Option Agreement between the Company and management of the Company
(filed with Amendment No. 3 to the Company's Registration Statement (File No.
33-48432) as Exhibit 10(7) and incorporated herein by reference).
10.6 Form of Non Qualified Stock Option Agreement (Spin-Off Options) between the Company
and Robert J. Dineen (filed with Amendment No. 3 to the Company's Registration
Statement (File No. 33-48432) as Exhibit 10(9) and incorporated herein by
reference).
10.7 Insurance Liability Indemnity Agreement between the Company and The Marley Company
(filed with Amendment No. 3 to the Company's Registration Statement (File No.
33-48432) as Exhibit 10(10) and incorporated herein by reference).
10.8 Form of the Layne, Inc. Executive Incentive Compensation Plan (filed with the
Company's Form 10-Q for the quarterly period ended July 31, 1994 (File No. 0-20578)
as Exhibit 10(2) and incorporated herein by reference).
10.9 Agreement between The Marley Company and the Company relating to tradename (filed
with Amendment No. 2 to the Company's Registration Statement (File No. 33-48432) as
Exhibit 10(12) and incorporated herein by reference).
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.10 Form of Subscription Agreement for management of the Company (filed with Amendment
No. 3 to the Company's Registration Statement (File No. 33-48432) as Exhibit 10(16)
and incorporated herein by reference).
10.11 Form of Subscription Agreement between the Company and Robert J. Dineen (filed with
Amendment No. 3 to the Company's Registration Statement (File No. 33-48432) as
Exhibit 10(17) and incorporated herein by reference).
10.12 Amended and Restated Credit Agreement, dated as July 25, 1997, among the Company,
Layne Australia, various financial institutions, Bank of America National Trust and
Savings Association as Letter of Credit Issuer, and Bank of America National Trust
and Savings Association as Agent.**
10.13 Letter Agreement between Andrew B. Schmitt and the Company dated October 12, 1993
(filed with the Company's Annual Report on Form 10-K for the transition period from
May 1, 1993 to January 31, 1994 (File No. 0-20578) as Exhibit 10(17) and
incorporated herein by reference).
10.14 Note Agreement, dated as of March 15, 1996, between the Company and Massachusetts
Mutual Life Insurance Company ("Purchaser") for the issuance and sale to Purchaser
of $25,000,000 aggregate principal amount of 6.75% Senior Notes due March 15, 2006
(filed with the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1996 (File No. 0-20578), as Exhibit 10(14) and incorporated herein by
reference).
10.15 Amendment to Note Agreement, dated as of July 25, 1997, between the Company and
Massachusetts Mutual Life Insurance Company.
10.16 Form of Incentive Stock Option Agreement between the Company and management of the
Company (filed with the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1996 (File No. 0-20578), as Exhibit 10(15) and incorporated herein
by reference).
10.17 Severance Agreement, dated July 3, 1995, between Christensen Boyles Corporation, a
wholly owned subsidiary of the Company, and Eric R. Despain (filed with the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996
(File No. 0-20578), as Exhibit 10(16) and incorporated herein by reference).
10.18 Registration Rights Agreement, dated as of November 30, 1995, between the Company
and Marley Holdings, L.P. (filed with the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1996 (File No. 0-20578), as Exhibit 10(17) and
incorporated herein by reference).
10.19 Stockholders Agreement, dated as of December 28, 1995, among the Company, Marley
Holdings, L.P., Greylock Investments Limited Partnership and certain other
stockholders of the Company identified therein (filed with the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1996 (File No. 0-20578),
as Exhibit 10(18) and incorporated herein by reference).
11.1 Statement regarding Computation of Per Share Earnings.+
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG.
23.3 Consent of Latham & Watkins (included in Exhibit 5.1).
24 Powers of Attorney.+
27 Financial Data Schedules (filed with the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1997 (File No. 0-20578) and the Company's
Quarterly Report on Form 10-Q for the quarter ended April 30, 1997 (File No.
0-20578) and incorporated herein by reference).
B. FINANCIAL STATEMENT SCHEDULES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS.+
</TABLE>
- ------------------------
** Omits certain attachments. The Company will furnish supplementally a copy of
any omitted attachment to the Commission upon request.
+ Previously filed.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective. (2) For the purpose of
determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement on Form S-2 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Mission Woods, State of Kansas, on August 8, 1997.
LAYNE CHRISTENSEN COMPANY
BY /S/ KENT B. MAGILL
-----------------------------------------
Kent B. Magill
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by each of the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------------------------- ------------------
<C> <S> <C>
*
------------------------------------ President, Chief Executive Officer and August 8, 1997
Andrew B. Schmitt Director (Principal Executive Officer)
* Vice President--Finance and Treasurer
------------------------------------ (Principal Financial Officer and Principal August 8, 1997
Jerry W. Fanska Accounting Officer)
*
------------------------------------ Director August 8, 1997
Robert J. Dineen
*
------------------------------------ Director August 8, 1997
Edward A. Gilhuly
*
------------------------------------ Director August 8, 1997
Todd A. Fisher
*
------------------------------------ Director August 8, 1997
Donald K. Miller
</TABLE>
*By: /s/ KENT B. MAGILL
-------------------------
Kent B. Magill
ATTORNEY-IN-FACT
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
1.1 Form of Purchase Agreement.+
2.1 Offer by Layne Christensen Australia Pty Limited to Acquire All of Your Fully Paid
Ordinary Shares in Stanley Mining Services Limited.+
2.2 Part A Statement Relating to Proposed Offers by Layne Christensen Australia Pty
Limited for All Fully Paid Shares in Stanley Mining Services Limited.**+
2.3 Stanley Mining Services Limited Part B Statement in Relation to the Takeover Offers
by Layne Christensen Australia Pty Ltd.**+
4.1 Restated Certificate of Incorporation of the Company (filed with the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1996 (File No.
0-20578) as Exhibit 3(1) and incorporated herein by reference).
4.2 Bylaws of the Company (filed with Amendment No. 2 to the Company's Registration
Statement (File No. 33-48432) as Exhibit 3(2) and incorporated herein by reference).
4.3 Specimen Common Stock Certificate (filed with Amendment No. 3 to the Company's
Registration Statement (File No. 33-42432) as Exhibit 4(1) and incorporated herein
by reference).
5.1 Opinion of Latham & Watkins.+
10.1 Tax Liability Indemnification Agreement between the Company and The Marley Company
(filed with Amendment No. 3 to the Company's Registration Statement (File No.
33-48432) as Exhibit 10(2) and incorporated herein by reference).
10.2 Lease Agreement between the Company and Parkway Partners, L.L.C. dated December 21,
1994 (filed with the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1995 (File No. 0-20578) as Exhibit 10(2) and incorporated herein by
reference).
10.2.1 First Modification & Ratification of Lease, dated as of February 26, 1996, between
Parkway Partners, L.L.C. and the Company (filed with the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1996 (File No. 0-20578) as Exhibit
10(2.1) and incorporated herein by reference).
10.3 Form of The Layne Capital Accumulation Plan and Trust Agreement (filed with the
Company's Registration Statement (File No. 33-48432) as Exhibit 10(5) and
incorporated herein by reference).
10.4 Layne, Inc. 1992 Stock Option Plan (filed with Amendment No. 3 to the Company's
Registration Statement (File No. 33-48432) as Exhibit 10(6) and incorporated herein
by reference).
10.5 Form of Stock Option Agreement between the Company and management of the Company
(filed with Amendment No. 3 to the Company's Registration Statement (File No.
33-48432) as Exhibit 10(7) and incorporated herein by reference).
10.6 Form of Non Qualified Stock Option Agreement (Spin-Off Options) between the Company
and Robert J. Dineen (filed with Amendment No. 3 to the Company's Registration
Statement (File No. 33-48432) as Exhibit 10(9) and incorporated herein by
reference).
10.7 Insurance Liability Indemnity Agreement between the Company and The Marley Company
(filed with Amendment No. 3 to the Company's Registration Statement (File No.
33-48432) as Exhibit 10(10) and incorporated herein by reference).
10.8 Form of the Layne, Inc. Executive Incentive Compensation Plan (filed with the
Company's Form 10-Q for the quarterly period ended July 31, 1994 (File No. 0-20578)
as Exhibit 10(2) and incorporated herein by reference).
10.9 Agreement between The Marley Company and the Company relating to tradename (filed
with Amendment No. 2 to the Company's Registration Statement (File No. 33-48432) as
Exhibit 10(12) and incorporated herein by reference).
</TABLE>
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<TABLE>
<S> <C>
10.10 Form of Subscription Agreement for management of the Company (filed with Amendment
No. 3 to the Company's Registration Statement (File No. 33-48432) as Exhibit 10(16)
and incorporated herein by reference).
10.11 Form of Subscription Agreement between the Company and Robert J. Dineen (filed with
Amendment No. 3 to the Company's Registration Statement (File No. 33-48432) as
Exhibit 10(17) and incorporated herein by reference).
10.12 Amended and Restated Credit Agreement, dated as of July 25, 1997, among the Company,
Layne Australia, various financial institutions, Bank of America National Trust and
Savings Association as Letter of Credit Issuer, and Bank of America National Trust
and Savings Association as Agent.**
10.13 Letter Agreement between Andrew B. Schmitt and the Company dated October 12, 1993
(filed with the Company's Annual Report on Form 10-K for the transition period from
May 1, 1993 to January 31, 1994 (File No. 0-20578) as Exhibit 10(17) and
incorporated herein by reference).
10.14 Note Agreement, dated as of March 15, 1996, between the Company and Massachusetts
Mutual Life Insurance Company ("Purchaser") for the issuance and sale to Purchaser
of $25,000,000 aggregate principal amount of 6.75% Senior Notes due March 15, 2006
(filed with the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1996 (File No. 0-20578), as Exhibit 10(14) and incorporated herein by
reference).
10.15 Amendment to Note Agreement, dated as of July 25, 1997, between the Company and
Massachusetts Mutual Life Insurance Company.
10.16 Form of Incentive Stock Option Agreement between the Company and management of the
Company (filed with the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1996 (File No. 0-20578), as Exhibit 10(15) and incorporated herein
by reference).
10.17 Severance Agreement, dated July 3, 1995, between Christensen Boyles Corporation, a
wholly owned subsidiary of the Company, and Eric R. Despain (filed with the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996
(File No. 0-20578), as Exhibit 10(16) and incorporated herein by reference).
10.18 Registration Rights Agreement, dated as of November 30, 1995, between the Company
and Marley Holdings, L.P. (filed with the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1996 (File No. 0-20578), as Exhibit 10(17) and
incorporated herein by reference).
10.19 Stockholders Agreement, dated as of December 28, 1995, among the Company, Marley
Holdings, L.P., Greylock Investments Limited Partnership and certain other
stockholders of the Company identified therein (filed with the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1996 (File No. 0-20578),
as Exhibit 10(18) and incorporated herein by reference).
11.1 Statement regarding Computation of Per Share Earnings.+
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG.
23.3 Consent of Latham & Watkins (included in Exhibit 5.1).
24 Powers of Attorney.+
27 Financial Data Schedules (filed with the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1997 (File No. 0-20578) and the Company's
Quarterly Report on Form 10-Q for the quarter ended April 30, 1997 (File No.
0-20578) and incorporated herein by reference).
</TABLE>
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** Omits certain attachments. The Company will furnish supplementally a copy of
any omitted attachment to the Commission upon request.
+ Previously filed.
<PAGE>
EXHIBIT 10.12
==============================================================================
AMENDED AND RESTATED
CREDIT AGREEMENT
dated as of July 25, 1997
among
LAYNE CHRISTENSEN COMPANY,
LAYNE CHRISTENSEN AUSTRALIA PTY LIMITED,
VARIOUS FINANCIAL INSTITUTIONS,
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Letter of Credit Issuer,
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
Arranged by BA SECURITIES, INC.
==============================================================================
<PAGE>
TABLE OF CONTENTS
Page
PREAMBLE ...............................1
SECTION 1 DEFINITIONS........................................................1
1.1 Definitions..........................................................1
1.2 Other Interpretive Provisions.......................................23
SECTION 2 COMMITMENTS OF THE BANKS; U.S. AND AUSTRALIAN
BORROWING PROCEDURES; LETTER OF CREDIT
PROCEDURES..........................................................24
2.1 Commitments.........................................................24
2.1.1 U.S. Loan Commitment.........................................24
2.1.2 Australian Loan Commitment...................................24
2.1.3 Letter of Credit Commitment..................................24
2.1.4 Commitment Limits............................................24
2.1.5 Valuation of Australian Loans and Certain
Letters of Credit..........................................25
2.2 U.S. Loan Procedures................................................25
2.2.1 Various Types of U.S. Loans..................................25
2.2.2 Borrowing Procedures for U.S. Loans..........................25
2.2.3 Conversion and Continuation Procedures for
U.S. Loans................................................26
2.3 Australian Loan Procedures..........................................27
2.3.1 Various Types of Australian Loans.............................27
2.3.2 Borrowing Procedures for Australian
Loans.....................................................27
2.3.3 Continuation Procedures for Australian
Loans.....................................................28
2.3.4 Participations in Australian Loans...........................28
2.3.5 Australian Participation Obligations Unconditional...........30
2.4 Letter of Credit Procedures.........................................30
2.4.1 Issuance of Letters of Credit................................30
2.4.2 Participations in Letters of Credit..........................31
2.4.3 Reimbursement Obligations....................................31
2.4.4 Limitation on the Issuer's Obligations.......................32
2.4.5 Funding by Banks to the Issuer...............................32
2.5 Pro Rata Treatment..................................................33
2.6 Warranty............................................................33
2.7 Conditions..........................................................33
2.8 Commitments Several.................................................34
2.9 Payments by the Banks to the Agent..................................34
SECTION 3 NOTES EVIDENCING LOANS.............................................35
3.1 Notes...............................................................35
3.2 Recordkeeping.......................................................35
SECTION 4 INTEREST...........................................................35
4.1 Interest Rates......................................................35
4.2 Interest Payment Dates..............................................36
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4.3 Setting and Notice of Certain Rates.................................36
4.4 Computation of Interest.............................................36
SECTION 5 FEES...............................................................37
5.1 Facility Fee........................................................37
5.2 Letter of Credit Fees...............................................37
5.3 Agent's and Arranger's Fees.........................................38
SECTION 6 REDUCTION OR TERMINATION OF THE COMMITMENTS;
PREPAYMENTS........................................................38
6.1 Reduction or Termination of the Commitments.........................38
6.1.1 Scheduled Mandatory Reductions of the
Aggregate Commitment.......................................38
6.1.2 Additional Mandatory Reductions of the Aggregate
Commitment...................................................38
6.1.3 Voluntary Reduction or Termination of Commitments............39
6.1.4 All Reductions Pro Rata......................................39
6.2 Prepayments.........................................................39
6.2.1 Mandatory Prepayments Resulting from
Commitment Reductions.....................................39
6.2.2 Mandatory Prepayments Resulting from
Currency Fluctuations..........................................40
6.2.3 Voluntary Prepayments........................................40
6.2.4 All Prepayments..............................................40
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES....................41
7.1 Making of Payments..................................................41
7.2 Application of Certain Payments.....................................41
7.3 Due Date Extension..................................................41
7.4 Setoff..............................................................42
7.5 Proration of Payments...............................................42
7.6 Taxes with respect to Payments by the Company.......................42
7.7 Taxes with respect to Payments by Layne
Australia.........................................................44
SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR
FIXED RATE LOANS...................................................46
8.1 Increased Costs.....................................................46
8.2 Basis for Determining Interest Rate Inadequate
or Unfair...........................................................48
8.3 Changes in Law Rendering Fixed Rate Loans
Unlawful............................................................48
8.4 Funding Losses......................................................49
8.5 Right of Banks to Fund through Other Offices........................50
8.6 Discretion of Banks as to Manner of Funding.........................50
8.7 Mitigation of Circumstances; Replacement of
Affected Bank.......................................................50
8.8 Conclusiveness of Statements; Survival of
Provisions..........................................................51
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SECTION 9 WARRANTIES........................................................51
9.1 Organization, etc...................................................51
9.2 Authorization; No Conflict..........................................52
9.3 Validity and Binding Nature.........................................52
9.4 Financial Information...............................................53
9.5 No Material Adverse Change..........................................53
9.6 Litigation and Contingent Liabilities...............................53
9.7 Ownership of Properties; Liens......................................54
9.8 Subsidiaries........................................................54
9.9 Pension and Welfare Plans...........................................54
9.10 Investment Company Act.............................................54
9.11 Public Utility Holding Company Act.................................54
9.12 Regulation U.......................................................55
9.13 Taxes..............................................................55
9.14 Solvency, etc......................................................55
9.15 Hazardous Materials................................................55
9.15.1 Release and Disposal.......................................55
9.15.2 Treatment and Storage......................................56
9.16 Information........................................................56
9.17 Stanley Acquisition.................................................56
9.18 No Trusteeships.....................................................56
SECTION 10 COVENANTS........................................................57
10.1 Reports, Certificates and Other Information........................57
10.1.1 Audit Report...............................................57
10.1.2 Quarterly Reports..........................................57
10.1.3 Monthly Reports............................................58
10.1.4 Compliance Certificates....................................58
10.1.5 Reports to SEC and to Shareholders.........................58
10.1.6 Notice of Default, Litigation and ERISA
Matters..................................................58
10.1.7 Subsidiaries...............................................59
10.1.8 Management Reports.........................................59
10.1.9 Projections................................................59
10.1.10 Other Information..........................................59
10.2 Books, Records and Inspections.....................................59
10.3 Insurance..........................................................60
10.4 Compliance with Laws; Payment of Taxes and
Liabilities......................................................60
10.5 Maintenance of Existence, etc......................................61
10.6 Financial Covenants................................................61
10.6.1 Minimum Interest Coverage..................................61
10.6.2 Maximum Leverage...........................................61
10.6.3 Debt to Capitalization Ratio...............................61
10.6.4 Minimum Net Worth..........................................62
10.6.5 Capital Expenditures.......................................62
10.7 Limitations on Debt................................................62
10.8 Liens..............................................................63
10.9 Business...........................................................64
10.10 Restricted Payments...............................................64
10.11 Investments.......................................................65
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10.12 Mergers, Consolidations, Sales....................................66
10.13 Modification of Organizational Documents..........................67
10.14 Use of Proceeds...................................................67
10.15 Further Assurances................................................67
10.16 Transactions with Affiliates......................................68
10.17 Employee Benefit Plans............................................68
10.18 Environmental Covenants...........................................68
10.18.1 Environmental Response Obligation.......................68
10.18.2 Environmental Liabilities...............................69
10.19 Unconditional Purchase Obligations................................69
10.20 Inconsistent Agreements...........................................69
10.21 Subsidiaries......................................................69
10.22 Other Financial Covenants.........................................69
SECTION 11 CONDITIONS PRECEDENT.............................................70
11.1 Conditions to Effectiveness.........................................70
11.1.1 Agreement and Notes..........................................70
11.1.2 Resolutions.................................................70
11.1.3 Incumbency and Signature Certificates.......................70
11.1.4 Guaranty....................................................71
11.1.5 Opinions of Counsel for the Company and
the Guarantors............................................71
11.1.6 Insurance Certificate.......................................71
11.1.7 Other.......................................................71
11.2 All Loans and Letters of Credit.....................................71
11.2.1 No Default..................................................71
11.2.2 Confirmatory Certificate....................................71
SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT...............................72
12.1 Events of Default..................................................72
12.1.1 Non-Payment of the Loans, etc..............................72
12.1.2 Non-Payment of Other Debt..................................72
12.1.3 Other Material Obligations.................................72
12.1.4 Bankruptcy, Insolvency, etc................................72
12.1.5 Non-Compliance with Provisions of This Agreement...........73
12.1.6 Warranties.................................................73
12.1.7 Pension Plans..............................................73
12.1.8 Judgments..................................................73
12.1.9 Invalidity of Guaranty, etc................................74
12.1.10 Change in Control.........................................74
12.1.11 Bonding Agreements........................................74
12.2 Effect of Event of Default.........................................74
SECTION 13 THE AGENT........................................................75
13.1 Appointment and Authorization......................................75
13.2 Delegation of Duties...............................................76
13.3 Liability of Agent.................................................76
13.4 Reliance by Agent..................................................77
13.5 Notice of Default..................................................77
13.6 Credit Decision....................................................78
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13.7 Indemnification....................................................78
13.8 Agent in Individual Capacity.......................................79
13.9 Successor Agent....................................................79
13.10 Other Agents......................................................80
SECTION 14 GUARANTY BY THE COMPANY..........................................80
14.1 Guaranty...........................................................80
14.2 Guaranty Unconditional.............................................80
14.3 Discharge only upon Payment in Full; Reinstatement
in Certain Circumstances..........................................81
14.4 Waiver by the Company..............................................82
14.5 Subrogation........................................................82
14.6 Stay of Acceleration...............................................82
SECTION 15 GENERAL..........................................................82
15.1 Waiver; Amendments.................................................82
15.2 Confirmations......................................................83
15.3 Notices............................................................83
15.4 Computations.......................................................84
15.5 Regulation U.......................................................84
15.6 Costs, Expenses and Taxes..........................................84
15.7 Subsidiary References..............................................84
15.8 Captions...........................................................85
15.9 Assignments; Participations........................................85
15.9.1 Assignments................................................85
15.9.2 Participations.............................................86
15.10 Governing Law.....................................................87
15.11 Counterparts......................................................87
15.12 Successors and Assigns............................................88
15.13 Indemnification by the Borrowers..................................88
15.14 Confidentiality...................................................89
15.15 Payments Set Aside................................................89
15.16 No Third Parties Benefited........................................89
15.17 Forum Selection and Consent to Jurisdiction.......................90
15.18 Waiver of Jury Trial..............................................90
15.19 Judgment..........................................................90
15.20 Amendment and Restatement; Return of Notes........................91
15.21 Entire Agreement..................................................91
15.22 Intercreditor Agreement...........................................91
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SCHEDULES
SCHEDULE 1.1(a) Commitments, Percentages and Australian
Percentages
SCHEDULE 1.1(b) Pricing Schedule
SCHEDULE 1.1(c) Existing Letters of Credit
SCHEDULE 1.1(d) Investments as of February 29, 1996
SCHEDULE 6.1.1 Scheduled Commitment Reductions
SCHEDULE 9.6 Litigation and Contingent Liabilities
SCHEDULE 9.8 Subsidiaries
SCHEDULE 9.9 Welfare Plans
SCHEDULE 10.7(1) Permitted Debt
SCHEDULE 10.7(o) Stanley Debt to be Repaid
SCHEDULE 10.8 Liens
SCHEDULE 10.11 Investments
EXHIBITS
EXHIBIT A Form of Note (Section 3.1)
EXHIBIT B Form of Notice of Borrowing (U.S. Loans)
(Section 2.2.2)
EXHIBIT C Form of Notice of Conversion/Continuation
(U.S. Loans) (Section 2.2.3)
EXHIBIT D Form of Notice of Borrowing (Australian
Loans) (Section 2.3.2)
EXHIBIT E Form of Notice of Continuation (Australian
Loans)(Section 2.3.3)
EXHIBIT F Form of Compliance Certificate
(Section 9.1.4)
EXHIBIT G Form of Guaranty (Section 11.1.4)
EXHIBIT H Form of Opinion of Latham and Watkins
(Section 11.1.5)
EXHIBIT I Form of Opinion of Kent B. Magill
(Section 11.1.5)
EXHIBIT J Form of Opinion of Baker & McKenzie
(Section 11.1.5)
EXHIBIT K Form of Opinion of Prince, Yeates &
Geldzahler (Section 11.1.5)
EXHIBIT L Form of Assignment Agreement
(Section 15.9)
EXHIBIT M Form of Intercreditor Agreement
(Section 15.22)
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AMENDED AND RESTATED
CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT dated as of July 25, 1997 (this
"Agreement") is entered into among LAYNE CHRISTENSEN COMPANY, a Delaware
corporation (the "Company"), LAYNE CHRISTENSEN AUSTRALIA PTY LIMITED ACN 078 167
610, a company incorporated in New South Wales ("Layne Australia"), the
undersigned financial institutions (together with their respective successors
and assigns, collectively the "Banks" and individually each a "Bank"), and BANK
OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (in its individual capacity,
"BofA"), as letter of credit issuer and as agent for the Banks.
WHEREAS, the Company, various financial institutions and BofA, as agent,
have entered into a Credit Agreement dated as of March 15, 1996 (the "EXISTING
AGREEMENT"); and
WHEREAS, the parties hereto desire to amend and restate the Existing
Agreement in its entirety pursuant hereto;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1 DEFINITIONS.
1.1 DEFINITIONS. When used herein the following terms shall have the
following meaning (such definitions to be applicable to both the singular and
plural forms of such terms):
ACQUISITION means any transaction or series of related transactions for the
purpose of or resulting, directly or indirectly, in (a) the acquisition of all
or substantially all of the assets of a Person, or of any business or division
of a Person, (b) the acquisition of in excess of 50% of the capital stock,
partnership interests, membership interests or equity of any Person, or
otherwise causing any Person to become a Subsidiary, or (c) a merger or
consolidation or any other combination with another Person (other than a Person
that is a Subsidiary) provided that the Company or the Subsidiary is the
surviving entity.
ADJUSTED EBITA means, for any Computation Period, EBITA for such
Computation Period less affiliate equity earnings, plus affiliate dividends
(limited to amount of affiliate equity earnings). To the extent not included
above, Adjusted EBITA will
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be calculated as if Stanley had been a Subsidiary of the Company throughout such
Computation Period.
ADJUSTED EBITDA means, for any Computation Period, Adjusted EBITA for such
Computation Period PLUS, to the extent deducted in determining Consolidated Net
Income for such Computation Period, depreciation for such Computation Period.
To the extent not included above, Adjusted EBITDA will be calculated as if
Stanley had been a Subsidiary of the Company throughout such Computation Period.
AFFECTED BANK means any Bank that has given notice to either Borrower
(which has not been rescinded) of (i) any obligation by such Borrower to pay any
amount pursuant to SECTION 7.6 or 8.1 or (ii) the occurrence of any
circumstances of the nature described in SECTION 8.2 or 8.3.
AFFECTED LOAN - see SECTION 8.3.
AFFILIATE of any Person means any other Person which, directly or
indirectly, controls or is controlled by or is under common control with such
Person.
AGENT means BofA in its capacity as agent for the Banks hereunder and any
successor thereto in such capacity.
AGENT-RELATED PERSONS means BofA and any successor agent arising under
SECTION 13.9, together with their respective Affiliates, and the officers,
directors, employees, agents and attorneys-in-fact of such Persons and
Affiliates.
AGENT'S PAYMENT OFFICE means the applicable address for payments (in
respect of U.S. Dollars or Australian Dollars) set forth on the signature page
hereof with respect to the Agent, or such other address as the Agent may from
time to time specify in accordance with SECTION 14.3.
AGGREGATE AUSTRALIAN COMMITMENT means at any time an amount equal to the
lesser of (a) the Aggregate Commitment and (b) a Dollar Equivalent amount of
U.S.$30,000,000.
AGGREGATE COMMITMENT means at any time an amount equal to the aggregate
amount of the Commitments of all Banks.
AGGREGATE OUTSTANDINGS means at any time the sum of (a) the aggregate
Dollar Equivalent principal amount of all outstanding Loans and (b) the Stated
Amount of all Letters of Credit.
AGREEMENT - see the PREAMBLE.
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ALTERNATE REFERENCE RATE means at any time the greater of (a) the Federal
Funds Rate plus 1/2 of 1% per annum and (b) the rate per annum then most
recently publicly announced by BofA as its reference rate at San Francisco,
California. (The "reference rate" is a rate set by BofA based upon various
factors, including BofA's costs and desired return, general economic conditions
and other factors, and is used as a reference point for pricing some loans,
which may be priced at, above, or below such announced rate.)
ARRANGER means BA Securities, Inc., a Delaware corporation.
ASSIGNEE - see SECTION 15.9
ASSIGNMENT AGREEMENT - see SECTION 15.9.1.
ATTORNEY COSTS means and includes all reasonable fees and disbursements of
any law firm or other external counsel, the allocated cost of internal legal
services and all disbursements of internal counsel.
AUSTRALIAN BANK means each Bank designated as an "Australian Bank" on
SCHEDULE 1.1(A) and each other Bank which becomes an Australian Bank hereunder
pursuant to SECTION 15.9.1. Any Bank may designate an Australian affiliate of
such Bank to perform all obligations, and have all rights, of such Bank
hereunder in respect of Australian Loans, in which case references herein to an
"Australian Bank" shall, where appropriate, mean such designated affiliate. Any
such designation shall be made either (i) by causing such affiliate to execute a
signature page hereof or (ii) by written notice to the Borrowers and the Agent
(including any notice changing the designation of such Bank's affiliate which
will act as an Australian Bank); PROVIDED that any affiliate designated pursuant
to CLAUSE (II) shall execute an agreement satisfactory to the Borrowers and the
Agent agreeing to become a party hereto as an Australian Bank. No affiliate of
a Bank which has been designated to act as an Australian Bank hereunder shall
have any obligation hereunder in respect to U.S. Loans or Letters of Credit.
AUSTRALIAN COMPUTATION DATE means the last Business Day of each calendar
month, each date on which Layne Australia borrows or continues any Australian
Loan hereunder and each date on which the Dollar Equivalent amount of an
Australian Loan of an Affected Bank is required to be determined under SECTION
8.3.
AUSTRALIAN DOLLARS and A$ mean lawful money of Australia.
AUSTRALIAN LOAN - see SECTION 2.1.2.
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AUSTRALIAN PARTICIPATION FUNDING NOTICE means a written notice from any
Bank (including any Australian Bank) advising the Agent that an Event of Default
exists and directing the Agent to notify all Non-Australian Banks to fund their
participations in Australian Loans as provided in SECTION 2.3.4.
AUSTRALIAN PERCENTAGE means, as to any Australian Bank, the percentage
equivalent at such time of such Australian Bank's portion of the Aggregate
Australian Commitment DIVIDED BY the Aggregate Australian Commitment. The
initial Australian Percentage of each Australian Bank is set forth opposite such
Bank's name on SCHEDULE 1.1(A).
AVAILABLE CURRENCY means U.S. Dollars, Australian Dollars and any other
currency that in the opinion of the Agent is freely transferable and freely
convertible into U.S. Dollars.
BANK - see the PREAMBLE. The term "Bank" shall include, where appropriate
(but subject to the last sentence of the definition of Australian Bank), any
affiliate of a Bank which is designated to act as an Australian Bank hereunder.
BANK BILL RATE means, with respect to any Interest Period for a Bill Rate
Loan:
(a) the rate determined by the Agent to be the average buying rate
(rounded up, if necessary, to the nearest four decimal places) displayed at
or about 10:10 a.m. (Sydney time) on the first day of such Interest Period
on the Reuters screen BBSY page for a term equivalent to such Interest
Period; or
(b) if (i) for any reason there is no rate displayed for a period
equivalent to such Interest Period; or (ii) the basis of calculation of
such rate is changed after the date hereof and in the reasonable opinion of
the Agent it ceases to reflect the Australian Banks' cost of funding to the
same extent as of the date of this Agreement, then the Bank Bill Rate will
be the rate determined by the Agent to be the average of the buying rates
quoted to BofA by each of three Australian banks selected by BofA at or
about that time on that date. The buying rates must be for bills of
exchange which are accepted by an Australian bank selected by BofA and
which have a term equivalent to such Interest Period.
The Bank Bill Rate will be expressed as a yield per cent per annum to
maturity.
BILL RATE LOAN means any Australian Loan which bears interest at a rate
determined by reference to the Bank Bill Rate.
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<PAGE>
BILL RATE OFFICE means, with respect to the Agent or any Bank, the office
or offices of such Person which shall be making or maintaining the Bill Rate
Loans of such Person hereunder or such other office or offices through which
such Person determines the Bank Bill Rate.
BOFA - see the PREAMBLE.
BORROWER means each of the Company and Layne Australia.
BUSINESS DAY means any day on which commercial banks are open for
commercial banking business in Chicago, Illinois and San Francisco, California,
and (i) in the case of a Business Day which relates to any Eurodollar Loan, on
which dealings are carried on in the relevant interbank eurodollar market (which
shall be New York in the case of Eurodollar Loans to the Company and London in
the case of Eurodollar Loans to Layne Australia), and (ii) in the case of a
Business Day which relates to an Australian Loan, on which banks are open for
business in Sydney and Melbourne.
CAPITAL LEASE means, with respect to any Person, any lease of (or other
agreement conveying the right to use) any real or personal property by such
Person which, in conformity with GAAP, is accounted for as a capital lease on
the balance sheet of such Person.
CASH EQUIVALENT INVESTMENT means, at any time:
(a) any evidence of Debt, maturing not more than one year after such
time, issued or guaranteed by the United States Government;
(b) commercial paper, maturing not more than one year from the date
of issue, which is issued by
(i) a corporation (except the Company or an Affiliate of the
Company) organized under the laws of any State of the United States of
America or of the District of Columbia and rated at least A-1 by
Standard & Poor's Corporation or P-1 by Moody's Investors Service,
Inc., at the time of investment, or
(ii) any Bank (or its holding company);
(c) any certificate of deposit or bankers' acceptance or eurodollar
time deposit, maturing not more than one year after the date of issue,
which is issued by either
(i) a financial institution that is a member of the Federal
Reserve System and has a combined capital
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and surplus and undivided profits of not less than U.S.$100,000,000,
or
(ii) any Bank; or
(d) any repurchase agreement with a term of one year or less which
(i) is entered into with
(A) any Bank, or
(B) any other commercial banking institution of the stature
referred to in CLAUSE (C)(I),
(ii) is secured by a fully perfected Lien in any obligation of
the type described in any of CLAUSES (A) through (C), and
(iii) has a market value at the time such repurchase agreement
is entered into of not less than 100% of the repurchase obligation of
such Bank (or other commercial banking institution) thereunder; or
(e) investments in money market funds that invest solely in Cash
Equivalent Investments described in CLAUSES (A) through (D).
CODE means the Internal Revenue Code of 1986, as amended, and regulations
promulgated thereunder.
COMMITMENT means, as to any Bank as the context may require, (i) the
obligation of such Bank to make U.S. Loans, to make or participate in Australian
Loans and to issue or participate in Letters of Credit pursuant hereto in a
Dollar Equivalent amount not to exceed the amount set forth for such Bank on
SCHEDULE 1.1(A) hereto, as adjusted from time to time in accordance with the
terms hereof, and (ii) such amount as so adjusted.
COMMITMENT REDUCTION DATE - see SECTION 6.1.1.
COMPANY - see the PREAMBLE.
COMPUTATION DATE means the last Business Day of each calendar month, each
date on which a Borrower borrows, converts or continues any Loan hereunder or on
which any Letter of Credit is issued hereunder, each date on which the Aggregate
Commitment is reduced pursuant to SECTION 6.1, and each date on which the Dollar
Equivalent amount of the Loan of an Affected Bank is required to be determined
under SECTION 8.3.
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COMPUTATION PERIOD means any period of four consecutive Fiscal Quarters
ending on the last day of a Fiscal Quarter.
CONSOLIDATED ADJUSTED NET INCOME for any period means net income or net
loss of the Company and its Restricted Subsidiaries for such period, determined
in accordance with GAAP on a consolidated basis after eliminating earnings or
losses attributable to outstanding Minority Interests, but excluding in any
event:
(a) any gains or losses on the sale or other disposition of fixed or
capital assets other than in the ordinary course of business, and any taxes
on such excluded gains and any tax deductions or credits on account of any
such excluded losses;
(b) to the extent not included in the preceding CLAUSE (A), any gains
or losses arising in connection with any extraordinary or nonrecurring
event, and any taxes on such excluded gains and any tax deductions or
credits on account of any excluded losses;
(c) the proceeds of any life insurance policy;
(d) net earnings and losses of any Restricted Subsidiary accrued
prior to the Fiscal Quarter in which it became a Restricted Subsidiary
(other than a Restricted Subsidiary designated as such on the date of this
Agreement);
(e) net earnings and losses of any corporation (other than a
Restricted Subsidiary), substantially all the assets of which have been
acquired in any manner by the Company or any Restricted Subsidiary,
realized by such corporation prior to the date of such acquisition;
(f) net earnings and losses of any corporation (other than a
Restricted Subsidiary) with which the Company or a Restricted Subsidiary
shall have consolidated or which shall have merged into or with the Company
or a Restricted Subsidiary prior to the date of such consolidation or
merger;
(g) net earnings of any business entity (other than a Restricted
Subsidiary) in which the Company or any Restricted Subsidiary has an
ownership interest unless such net earnings shall have actually been
received by the Company or such Restricted Subsidiary in the form of cash
distributions;
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(h) any portion of the earnings of any Restricted Subsidiary which
for any reason is unavailable for payment of dividends to the Company or
any other Restricted Subsidiary;
(i) earnings resulting from any reappraisal, revaluation or write-up
of assets;
(j) any deferred or other credit representing any excess of the
equity in any Subsidiary at the date of acquisition thereof over the amount
invested in such Subsidiary;
(k) any gain arising from the acquisition of any securities of the
Company or any Restricted Subsidiary; and
(l) any reversal of any contingency reserve, excluding reserves in
respect of self-insurance by the Company of workmen's compensation
obligations and other reserves arising in the ordinary course of business
in an aggregate amount not in excess of a Dollar Equivalent amount of U.S.
$500,000, and except to the extent that provision for such contingency
reserve shall have been made from income arising during such period.
CONSOLIDATED ADJUSTED NET WORTH means, as of the date of any determination
thereof, Stockholder's Equity as of such date of determination less the total
amount of all Restricted Investments in excess of 10% of Stockholders' Equity as
of such date of determination.
CONSOLIDATED NET INCOME means, with respect to the Company and its
Subsidiaries for any period, the net income (or loss) of the Company and its
Subsidiaries for such period; PROVIDED that there shall be excluded therefrom
the income of all Subsidiaries to the extent that (a) the declaration or payment
of dividends or similar distributions by any Subsidiary of such income is not at
the time permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Subsidiary and (b) the aggregate amount of such net income of
all Subsidiaries which is not permitted to be so distributed exceeds 12% of the
consolidated income of the Company before interest and income taxes for such
period (and before giving effect to this proviso).
DEBT of any Person means, without duplication, (a) all indebtedness of such
Person for borrowed money, whether or not evidenced by bonds, debentures, notes
or similar instruments, (b) all obligations of such Person as lessee under
Capital Leases which have been recorded as liabilities on a balance sheet of
such Person, (c) all obligations of such Person to pay the
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deferred purchase price of property or services (other than prepaid interest and
trade accounts payable in the ordinary course of business), (d) all indebtedness
secured by a Lien on the property of such Person, whether or not such
indebtedness shall have been assumed by such Person (it being understood that if
such Person has not assumed or otherwise become personally liable for any such
indebtedness, the amount of the Debt of such Person in connection therewith
shall be limited to the lesser of the face amount of such indebtedness or the
fair market value of all property of such Person securing such indebtedness),
(e) all obligations, contingent or otherwise, with respect to the face amount of
all letters of credit (whether or not drawn) and banker's acceptances issued for
the account of such Person (including, without limitation, the Letters of
Credit), (f) net liabilities of such Person under all Hedging Obligations, and
(g) all Suretyship Liabilities of such Person.
DEBT TO CAPITALIZATION RATIO means at any time the ratio of (a) Total Debt
to (b) the sum of (i) Total Debt plus (ii) Stockholders' Equity.
DOLLAR EQUIVALENT means, at any time, (a) as to any amount denominated in
U.S. Dollars, the amount thereof at such time, and (b) as to any amount
denominated in any Available Currency, the equivalent amount in U.S. Dollars as
determined by the Agent at such time on the basis of the Spot Rate for the
purchase of U.S. Dollars with such Available Currency on the most recent
Computation Date or such other date as is specified herein.
EBITA means, for any Computation Period, Consolidated Net Income for such
Computation Period before deducting Interest Expense, income taxes and
amortization.
EFFECTIVE DATE - see SECTION 11.1.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections.
EUROCURRENCY RESERVE PERCENTAGE means, with respect to any Eurodollar Loan
for any Interest Period, a percentage (expressed as a decimal) equal to the
daily average during such Interest Period of the percentage in effect on each
day of such Interest Period, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor), for determining the aggregate maximum
reserve requirements applicable to "Eurocurrency Liabilities" pursuant to
Regulation D or any other then applicable regulation of such Board of Governors
which prescribes
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reserve requirements applicable to "Eurocurrency Liabilities" as presently
defined in Regulation D.
EURODOLLAR LOAN means any Loan which bears interest at a rate determined by
reference to the Eurodollar Rate (Reserve Adjusted).
EURODOLLAR OFFICE means, with respect to the Agent or any Bank, the office
or offices of such Person which shall be making or maintaining the Eurodollar
Loans of such Person hereunder or such other office or offices through which
such Person determines its Eurodollar Rate. A Eurodollar Office of any Person
may be, at the option of such Person, either a domestic or foreign office. A
Bank may have different Eurodollar Offices for Eurodollar Loans to the Company
and Eurodollar Loans to Layne Australia.
EURODOLLAR RATE means, with respect to any Eurodollar Loan for any Interest
Period:
(a) in the case of a Eurodollar Loan to the Company, the rate per
annum at which U.S. Dollar deposits in immediately available funds are
offered by the Eurodollar Office of BofA two Business Days prior to the
beginning of such Interest Period to prime banks in the interbank
eurodollar market as at or about 10:00 a.m., Chicago time, for delivery on
the first day of such Interest Period, for the number of days comprised
therein and in an amount equal or comparable to the amount of the
Eurodollar Loan of BofA for such Interest Period; and
(b) in the case of a Eurodollar Loan to Layne Australia, the rate
determined by the Agent to be the arithmetic mean (rounded up, if
necessary, to an integral multiple of 1/16th of 1%) of the rates displayed
on the Reuter's Screen LIBOR page at or about 11:00 a.m., London time, on
the date which is two Business Days prior to the beginning of such Interest
Period for a term equivalent to such Interest Period for the value date
which is the first day of such Interest Period; PROVIDED that if (i) for
any reason there is no rate so displayed for a term equivalent to such
Interest Period or (ii) the basis on which such rate is displayed is
changed after the date of this Agreement so that in the opinion of the
Agent it ceases to reflect the cost to the Australian Banks of funding
Eurodollar Loans to Layne Australia in the same manner and to the same
extent as of the date of this Agreement, THEN such Eurodollar Rate shall be
the rate determined by the Agent to be the rate quoted by BofA to prime
banks in the London interbank market at or about 11:00 a.m., London time,
two Business Days prior to the beginning of such Interest Period for the
making of
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deposits in U.S. Dollars with BofA on the first day of such Interest Period in
the amount of the relevant Eurodollar Loan of BofA (or the Affiliate of BofA
designated by BofA as an Australian Bank hereunder) for a term equivalent to
such Interest Period.
EURODOLLAR RATE (RESERVE ADJUSTED) means, with respect to any Eurodollar
Loan for any Interest Period, a rate per annum (rounded upwards, if necessary,
to the nearest 1/16 of 1%) determined pursuant to the following formula:
Eurodollar Rate = EURODOLLAR RATE
(Reserve Adjusted) 1-Eurocurrency
Reserve Percentage
EVENT OF DEFAULT means any of the events described in SECTION 12.1.
EXISTING AGREEMENT - see the RECITALS.
EXISTING LETTERS OF CREDIT means the letters of credit listed on SCHEDULE
1.1(C).
FACILITY FEE RATE means the applicable rate set forth under the heading
"Facility Fee Rate" in SCHEDULE 1.1(B).
FEDERAL FUNDS RATE means, for any day, the rate set forth in the weekly
statistical release designated as H.15(519), or any successor publication,
published by the Federal Reserve Bank of New York (including any such successor,
"H.15(519)") on the preceding Business Day opposite the caption "Federal Funds
(Effective)"; or, if for any relevant day such rate is not so published on any
such preceding Business Day, the rate for such day will be the arithmetic mean
as determined by the Agent of the rates for the last transaction in overnight
Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by
each of three leading brokers of Federal funds transactions in New York City
selected by the Agent.
FINANCIAL LETTER OF CREDIT means any Letter of Credit which any Bank is
required under any applicable law, rule or regulation (including under 12 CFR
Part 3, Appendix A, SECTION 3, clause (b)) to classify as a financial letter of
credit with respect to its issuance thereof or participation therein pursuant to
this Agreement.
FISCAL QUARTER means a fiscal quarter of a Fiscal Year.
FISCAL YEAR means the fiscal year of the Company and its Subsidiaries,
which shall be a 12-month period ending on January 31 of each year. References
to a Fiscal Year with a number
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corresponding to any calendar year (e.g., "Fiscal Year 1997") refer to the
Fiscal Year ending on January 31 of such calendar year.
FIXED RATE LOAN means a Eurodollar Loan or a Bill Rate Loan.
FLOATING RATE LOAN means any U.S. Loan which bears interest at or by
reference to the Alternate Reference Rate.
FOREIGN SUBSIDIARY means any Subsidiary (i) organized under the laws of a
jurisdiction other than the United States or a state thereof or Australia or a
state or territory thereof and (ii) which conducts substantially all of its
business and operations in a jurisdiction other than the United States and
Australia; PROVIDED that G&K shall be deemed to be a Foreign Subsidiary prior to
the completion of the G&K Stock Repurchase.
FUNDING OFFICE means a Eurodollar Office or a Bill Rate Office.
G&K means Glindemann & Kitching Pty Limited ACN 003 204 448, a company
organized under the laws of New South Wales.
G&K STOCK REPURCHASE means the repurchase by G&K of all of its issued and
outstanding capital stock (other than such capital stock owned by Stanley)
pursuant to the Share Buy-Back Agreement dated December 12, 1996 among G&K and
the other Persons party thereto.
GAAP means generally accepted accounting principles set forth from time to
time in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination.
GOVERNMENTAL AUTHORITY means any nation or government, any state or other
political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
GROUP of Loans means Loans of the same type made by the Banks or the
Australian Banks, as the case may be, to the same Borrower which have the same
Interest Period.
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GUARANTOR means (a) as of the Effective Date, Layne GeoSciences, Inc.,
Christensen Boyles Corporation and Boyles Bros. Drilling Company and (b)
thereafter, the entities referred to in CLAUSE (A) which have not been released
from the Guaranty in accordance with the terms thereof and each other Person
which from time to time executes and delivers a counterpart of the Guaranty.
GUARANTY - see SECTION 11.1.4.
HAZARDOUS MATERIAL means any hazardous, toxic or dangerous substance or
material defined as such in (or for purposes of) the Comprehensive Environmental
Response, Compensation and Liability Act, any so-called "Superfund" or
"Superlien" law or any other Federal, state or local statute, law, ordinance,
code, regulation or order, or any other requirement of any Governmental
Authority regulating, relating to, or imposing liability for, or standards of
conduct concerning, any hazardous, toxic or dangerous waste, substance or
material as now or any time hereafter in effect and applicable to any real
property owned by or leased to the Company or any Subsidiary or on which the
Company or any Subsidiary carries on any of its operations (provided that no
such state or local statute, law, ordinance, code, regulation, order or other
requirement shall be deemed to have extraterritorial application).
HEDGING OBLIGATIONS means, with respect to any Person, all liabilities of
such Person under interest rate, currency and commodity swap agreements,
interest rate cap agreements, interest rate collar agreements, foreign exchange
agreements, forward rate agreements and all other agreements or arrangements
designed to protect such Person against fluctuations in interest rates, currency
exchange rates or commodity prices.
INDEMNIFIED LIABILITIES - see SECTION 15.13.
INDEMNIFIED PERSON - see SECTION 15.13.
INTEREST COVERAGE RATIO means the ratio of (a) Adjusted EBITA for any
Computation Period to (b) Interest Expense for such Computation Period.
INTEREST EXPENSE means for any period the consolidated interest expense
(net of interest income) (including, without limitation, all imputed interest on
Capital Leases) of the Company and its Subsidiaries for such period; IT BEING
UNDERSTOOD that (x) with respect to the Computation Period ending October 31,
1997, Interest Expense shall be deemed to be an amount equal to (i) Interest
Expense for the Fiscal Quarter ended October 31, 1997 multiplied by (ii) 4, (y)
with respect to the Computation Period ending January 31, 1998, Interest Expense
shall be deemed
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to be an amount equal to (i) Interest Expense for the period of the two Fiscal
Quarters ended January 31, 1998 multiplied by (ii) 2 and (z) with respect to the
Computation Period ending April 30, 1998, Interest Expense shall be deemed to be
an amount equal to (i) Interest Expense for the period of the three Fiscal
Quarters ended April 30, 1998 multiplied by (ii) 4/3.
INTEREST PERIOD means, as to any Fixed Rate Loan, the period commencing on
the date such Loan is borrowed or (in the case of a Eurodollar Loan to the
Company) converted from a Floating Rate Loan, or on the expiration of the
immediately preceding Interest for such Loan, as applicable, and ending on the
date one, two, three or six months thereafter (or, in the case of Eurodollar
Loans to the Company, 14 days thereafter) as selected by the applicable Borrower
in its related notice of borrowing, conversion or continuation, as the case may
be; PROVIDED that:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, such Interest Period shall be extended to the
following Business Day, unless the result of such extension would be
to carry such Interest Period into another calendar month, in which
event such Interest Period shall end on the preceding Business Day;
(ii) any Interest Period, other than a 14-day Interest Period,
that begins on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest Period;
(iii) no Interest Period for any Loan shall extend beyond the
scheduled Termination Date; and
(iv) neither Borrower may select any Interest Period which would
extend beyond any Commitment Reduction Date if, after giving effect to
such selection, the aggregate Dollar Equivalent principal amount of
all Fixed Rate Loans having Interest Periods ending after such date
plus the aggregate Stated Amount of all Letters of Credit scheduled to
remain outstanding after such date (assuming no drawings are made
thereunder) would exceed the Aggregate Commitment Amount scheduled to
be in effect after giving effect to the reduction on such date.
INVESTMENT means, with respect to any Person:
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(a) any loan or advance made by such Person to any other Person
(excluding (i) commission, travel and similar advances to officers and
employees made in the ordinary course of business and (ii) advances to, and
deposits with, contractors and suppliers in the ordinary course of
business, but solely to the extent consistent with the past practice of the
Company and its Subsidiaries); and
(b) any ownership or similar interest held by such Person in any
other Person.
The amount of any Investment shall be the original principal or capital
amount thereof less all returns of principal or equity thereon (and without
adjustment by reason of the financial condition of such other Person) and shall,
if made by the transfer or exchange of property other than cash, be deemed to
have been made in an original principal or capital amount equal to the fair
market value of such property.
ISSUER means BofA in its capacity as issuer of one or more Letters of
Credit hereunder, together with any replacement letter of credit issuer under
SECTION 13.9.
KKR means Kohlberg Kravis Roberts & Co. L.P., a Delaware limited
partnership.
LAYNE AUSTRALIA - see the PREAMBLE.
LC FEE RATE means the applicable rate set forth under the heading "LC Fee
Rate" in SCHEDULE 1.1(B).
LETTER OF CREDIT - see SECTION 2.1.3. References to Letters of Credit
include the Existing Letter of Credit.
LETTER OF CREDIT APPLICATION means a letter of credit application in the
form then used by the Issuer for the type of letter of credit requested (with
appropriate adjustments to indicate that any letter of credit issued thereunder
is to be issued pursuant to, and subject to the terms and conditions of, this
Agreement).
LEVERAGE RATIO means the ratio of Total Debt as of the last day of any
Fiscal Quarter to Adjusted EBITDA for the Computation Period ending on such day.
LIEN means, when used with respect to any Person, any interest granted by
such Person in any real or personal property, asset or other right owned or
being purchased or acquired by such Person which secures payment or performance
of any obligation and shall include any mortgage, lien, encumbrance, charge,
assignment by way of security or other security interest of any kind,
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whether arising by contract, as a matter of law, by judicial process or
otherwise.
LOAN DOCUMENTS means this Agreement, the Notes, the Letter of Credit
Applications, the Guaranty and any Pledge Agreement executed pursuant to SECTION
10.15.
LOANS means U.S. Loans and Australian Loans.
MARGIN means, at any time, the applicable rate per annum set forth under
the heading "Margin" in SCHEDULE 1.1(B).
MARGIN STOCK means any "margin stock" as defined in Regulation U of the
Board of Governors of the Federal Reserve System.
MATERIAL ADVERSE EFFECT means, relative to any event or occurrence of
whatever nature (including, without limitation, any adverse determination in any
litigation, arbitration or governmental proceeding), a material adverse effect
on (a) the financial condition, operations, business, revenues, assets or
properties of the Company and its Subsidiaries taken as a whole or (b) the
ability of either Borrower to timely and fully perform any of its payment or
other material obligations under this Agreement or any other Loan Document to
which it is a party.
MATERIAL SUBSIDIARY means any Subsidiary other than (a) a Foreign
Subsidiary and (b) a Subsidiary which (i) owns less than 2% of the consolidated
assets of the Company and its Subsidiaries and (ii) had less than 2% of the
consolidated revenues of the Company and its Subsidiaries during the most
recently ended Fiscal Quarter.
MINIMUM EQUITY AMOUNT means an amount equal to the greater of (i)
U.S.$15,000,000 or (ii) the minimum amount of Net Cash Proceeds received by the
Company from the issue or sale of its capital stock which is required to make
the Debt to Capitalization Ratio, immediately after such issue or sale of
capital stock and the application of the proceeds thereof, less than or equal to
the Original Leverage Ratio.
MINORITY INTERESTS means any shares of stock of any class of a Restricted
Subsidiary (other than directors' qualifying shares as required by law) that are
not owned by the Company and/or one or more of its Restricted Subsidiaries.
Minority Interests shall be valued by valuing Minority Interests constituting
preferred stock at the voluntary or involuntary liquidating value of such
preferred stock, whichever is greater, and by valuing Minority Interests
constituting common stock at the book value of capital and surplus applicable
thereto adjusted, if necessary, to reflect any changes from the book value of
such common stock required by
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the foregoing method of valuing Minority Interests in preferred stock.
NET CASH PROCEEDS means:
(a) with respect to the sale, transfer, or other disposition by the
Company or any Subsidiary of any asset (including any stock of any
Subsidiary), the aggregate cash proceeds (including cash proceeds received
by way of deferred payment of principal pursuant to a note, installment
receivable or otherwise, but only as and when received) received by the
Company or any Subsidiary pursuant to such sale, transfer or other
disposition, net of (i) the direct costs relating to such sale, transfer or
other disposition (including sales commissions and legal, accounting and
investment banking fees), (ii) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any
tax sharing arrangements), (iii) amounts required to be applied to the
repayment of any Debt secured by a Lien on the asset subject to such sale,
transfer or other disposition (other than the Loans), (iv) in the case of
the sale of the stock of any Subsidiary, any Debt of such Subsidiary which
is required to be repaid as a result of or in connection with such sale
(other than the Loans) and (v) any reserve for adjustment in respect of the
sale price of such asset (until such amount is available to the Company or
the applicable Subsidiary); and
(b) with respect to any issuance of equity securities (including
stock, warrants, options or any other equity security) or Other Debt, the
aggregate cash proceeds received by the Company or any Subsidiary pursuant
to such issuance, net of the direct costs relating to such issuance
(including sales and underwriter's commissions and legal, accounting and
investment banking fees).
NON-AUSTRALIAN BANK means any Bank which is not (and has not designated an
affiliate as) an Australian Bank.
NON-FINANCIAL LETTER OF CREDIT means any Letter of Credit other than a
Financial Letter of Credit.
NON-REPORTABLE ENVIRONMENTAL EVENT means any event described in SECTION
10.18.1(B) with respect to which the amount for which the Company or any
Material Subsidiary may reasonably be expected to be obligated is less than a
Dollar Equivalent amount of U.S.$250,000 (excluding any amount which is covered
by insurance and with respect to which the insurer has accepted a tender of
defense and indemnification without reservation of rights).
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NON-U.S. PERSON means a Person that is not (a) a citizen or resident of the
United States, (b) a corporation or partnership created or organized under the
laws of the United States or any state thereof or (c) an estate or trust the
income of which is subject to United States federal income taxation regardless
of its source.
NOTE - see SECTION 3.1.
ORIGINAL LEVERAGE RATIO means 55% for any date of determination on or
before January 31, 1998 and 50% for any date of determination thereafter.
OTHER DEBT means any Debt not permitted under SECTION 10.7 without a waiver
thereof.
OVERNIGHT RATE means, for any day, the rate of interest per annum at which
overnight deposits in the applicable currency, in an amount approximately equal
to the amount with respect to which such rate is being determined, would be
offered for such day by the relevant branch of BofA to major banks in the
applicable offshore interbank market. The Overnight Rate for any day which is
not a Business Day shall be the Overnight Rate for the preceding Business Day.
PARTICIPANT - see SECTION 15.9.2.
PBGC means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
PENSION PLAN means a "pension plan", as such term is defined in section
3(2) of ERISA, which is subject to title IV of ERISA (other than a multiemployer
plan as defined in section 4001(a)(3) of ERISA), and to which the Company or any
corporation, trade or business that is, along with the Company, a member of a
controlled group of corporations or a controlled group of trades or businesses,
as described in sections 414(b) and 414(c), respectively, of the Code or section
4001 of ERISA, may have any liability, including any liability by reason of
having been a substantial employer within the meaning of section 4063 of ERISA
at any time during the preceding five years, or by reason of being deemed to be
a contributing sponsor under section 4069 of ERISA.
PERCENTAGE means, for any Bank, the percentage equivalent at such time of:
(a) prior to the termination of the Commitments, (i) such Bank's
Commitment DIVIDED BY (ii) the Aggregate Commitment Amount; and
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(b) after the termination of the Commitments, (i) the aggregate
principal amount of such Bank's U.S. Loans PLUS the direct (after
subtracting all amounts which have been, or upon receipt by the Agent of an
Australian Participation Funding Notice would be, participated) or
participation interest of such Bank in the aggregate Dollar Equivalent
principal amount of Australian Loans PLUS such Bank's participation
interest in the Stated Amount of all Letters of Credit DIVIDED BY (ii) the
aggregate Dollar Equivalent principal amount of all Loans PLUS the Stated
Amount of all Letters of Credit.
The initial Percentage for each Bank is set forth opposite such Bank's name
on SCHEDULE 1.1(A).
PERSON means any natural person, corporation, company, partnership, trust,
association, governmental authority or unit, or any other entity, whether acting
in an individual, fiduciary or other capacity.
PROHIBITED ENVIRONMENTAL EVENT means any event described in SECTION 9.15 or
SECTION 10.18.2 with respect to which the amount for which the Company or any
Material Subsidiary may reasonably be expected to be obligated, when aggregated
with all unpaid amounts for which the Company and its Material Subsidiaries may
reasonably be expected to be obligated with respect to other existing events
described in SECTION 9.15 or SECTION 10.18.2, is equal to or greater than a
Dollar Equivalent amount of U.S.$1,000,000 (excluding any amount which is
covered by insurance and with respect to which the insurer has accepted a tender
of defense and indemnification without reservation of rights).
QUALIFIED PUBLIC OFFERING means a public offering of the capital stock of
the Company in which the Company receives Net Cash Proceeds of not less than
U.S.$15,000,000.
REQUIRED BANKS means Banks having an aggregate Percentage of 66-2/3% or
more.
RESTRICTED EQUITY AMOUNT means an amount equal to the lesser of (i) the Net
Cash Proceeds received by the Company from the issue or sale of its capital
stock from and after January 31, 1996 or (ii) the Minimum Equity Amount.
RESTRICTED INVESTMENTS means all Investments, other than the following:
(a) Investments by the Company and its Restricted Subsidiaries in and
to Restricted Subsidiaries, including
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any Investment in a corporation which, after giving effect to such
Investment, will become a Restricted Subsidiary;
(b) Investments in commercial paper maturing in 270 days or less from
the date of acquisition which, at the time of acquisition by the Company or
any Restricted Subsidiary, is accorded a rating no lower than one of the
top two rating classifications by any nationally recognized rating agency;
(c) Investments in obligations of or guaranteed by the United States
of America or any agency or instrumentality of the United States of
America, the payment or guarantee of which constitutes a full faith and
credit obligation of the United States of America, in either case, maturing
within three years from the date of acquisition thereof;
(d) Investments in certificates of deposit or bankers acceptances
maturing within one year from the date of acquisition thereof, issued by a
bank or trust company organized under the laws of the United States or any
state thereof, whose long-term certificates of deposit are, at the time of
acquisition thereof by the Company or a Subsidiary, rated one of the top
two rating classifications by any nationally recognized rating agency;
(e) Investments in obligations of municipalities maturing within
three years from the date of acquisition which, at the time of acquisition
by the Company or any Subsidiary, are accorded a rating of no lower than
one of the top two rating classifications by any nationally recognized
rating agency;
(f) receivables arising from the sale of goods and services in the
ordinary course of business of the Company and its Restricted Subsidiaries;
(g) Investments in money market investment programs which are
classified as current assets of the Company or any Restricted Subsidiary in
accordance with generally accepted accounting principles; and
(h) Investments of the Company and its Subsidiaries existing as of
February 29, 1996 and described on SCHEDULE 1.1(D) hereto.
In valuing any Restricted Investment for the purpose of applying the
limitations set forth in this Agreement, such Investments shall be valued at
book value determined in accordance with GAAP.
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RESTRICTED SUBSIDIARY means CBC and any other Subsidiary (i) of which at
least a majority (by number of votes) of the voting stock is beneficially owned,
directly or indirectly, by the Company and (ii) which the Company has designated
as a Restricted Subsidiary on SCHEDULE 9.8 hereto or by notice in writing given
to the Agent and the Banks.
SEC means the Securities and Exchange Commission.
SENIOR NOTES means the U.S.$25,000,000 6.75% Senior Notes issued pursuant
to the Note Agreement dated March 15, 1996 between the Company and Massachusetts
Mutual Life Insurance Company.
SPOT RATE for a currency means the rate quoted by BofA as the spot rate for
the purchase by BofA of such currency with another currency in accordance with
its customary procedures at approximately 10:00 a.m. (Chicago time) on the date
two Business Days prior to the date as of which the foreign exchange computation
is made.
STAMM SCHEELE ACQUISITION means the acquisition by the Company of Stamm
Scheele, Inc. pursuant to the Agreement of Sale dated July 3, 1997 among the
Company and the shareholders of Stamm Scheele, Inc.
STANLEY means Stanley Mining Services Limited ACN 009 117 533, a company
incorporated in Western Australia.
STANLEY ACQUISITION means the Acquisition of not less than 90% of the
shares of Stanley pursuant to the Part A Statement of Layne Australia registered
May 2, 1997 and the Offer Document of Layne Australia dated May 20, 1997.
STATED AMOUNT means, with respect to any Letter of Credit at any date of
determination, the sum of the maximum Dollar Equivalent amount available
thereunder at any time during the then ensuing term of such Letter of Credit
under any and all circumstances plus the aggregate Dollar Equivalent amount of
all unreimbursed payments and disbursements under such Letter of Credit.
STOCKHOLDERS' EQUITY means, as of the date of any determination thereof,
stockholders' equity of the Company and its Restricted Subsidiaries as shown on
the consolidated balance sheet of the Company as of such date of determination,
determined in accordance with GAAP.
SUBSIDIARY means, with respect to any Person, a corporation (a) of which
such Person and/or its other Subsidiaries own, directly or indirectly, such
number of outstanding shares as have
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more than 50% of the ordinary voting power for the election of directors or (b)
organized under the laws of Australia or a state or territory thereof and which
is otherwise a subsidiary of such Person within the meaning of Section 9 of the
Corporations Law of Australia. Unless the context otherwise requires, each
reference to Subsidiaries herein shall be a reference to Subsidiaries of the
Company. For purposes of the representations and warranties set forth in
SECTIONS 9.6 through 9.11, 9.13, 9.15 and 9.16, Stanley and its Subsidiaries
shall be deemed to be Subsidiaries of the Company immediately prior to the
Effective Date (notwithstanding the fact that they will not become Subsidiaries
of the Company until the occurrence of the Effective Date).
SURETYSHIP LIABILITY means any agreement, undertaking or arrangement by
which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to or otherwise to invest in a
debtor, or otherwise to assure a creditor against loss) any indebtedness,
obligation or other liability of any other Person (other than by endorsements of
instruments in the course of collection), or guarantees the payment of dividends
or other distributions upon the shares of any other Person. The amount of any
Person's obligation under any Suretyship Liability shall (subject to any
limitation set forth therein) be deemed to be the principal amount of the debt,
obligation or other liability guaranteed thereby.
TAXES means any present or future income, excise or stamp taxes and any
other taxes, fees, duties, withholdings or other charges of any nature
whatsoever imposed by any taxing authority, excluding franchise taxes and taxes
imposed on or measured by the gross or net income or receipts of the Agent or
any Bank.
TERMINATION DATE means July 31, 2002 or such other date on which the
Commitments shall terminate pursuant to SECTION 6 or 12.
TOTAL DEBT means all Debt of the Company and its Subsidiaries determined on
a consolidated basis, excluding (i) Debt in respect of undrawn standby letters
of credit, (ii) Debt in respect of Hedging Obligations and (iii) Debt arising
out of Suretyship Liabilities in respect of (x) Debt of others described in
CLAUSES (I) and (II) above and (y) indemnification obligations to the extent not
included in the consolidated balance sheet of the Company.
TYPE OF LOAN OR BORROWING refers to the interest rate basis for a loan or
borrowing. The "types" of U.S. Loans or borrowings are Floating Rate Loans or
borrowings and Eurodollar Loans or
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borrowings. The "types" of Australian Loans or borrowings are Bill Rate Loans
or borrowings and Eurodollar Loans or borrowings.
UNMATURED EVENT OF DEFAULT means any event which if it continues uncured
will, with lapse of time or notice or lapse of time and notice, constitute an
Event of Default.
U.S. DOLLARS and U.S.$ mean lawful money of the United States of America.
U.S. LOAN - see SECTION 2.1.1.
WELFARE PLAN means a "welfare plan", as such term is defined in section
3(1) of ERISA.
WHOLLY-OWNED SUBSIDIARY means a Subsidiary of which the Company and/or its
Subsidiaries own, directly or indirectly, all of the outstanding shares of
capital stock (other than directors' qualifying shares).
1.2 OTHER INTERPRETIVE PROVISIONS. (a) The meanings of defined terms are
equally applicable to the singular and plural forms of the defined terms.
(b) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means "including
without limitation."
(iii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and
including"; the words "to" and "until" each mean "to but excluding",
and the word "through" means "to and including."
(c) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments
shall be deemed to include all subsequent amendments and other
modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of any Loan Document, and
(ii) references to any statute or regulations are to be construed as
including all statutory and regulatory provisions consolidating, amending,
replacing, supplementing or interpreting the statute or regulation.
(d) The captions and headings of this Agreement are for convenience
of reference only and shall not affect the interpretation of this
Agreement.
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(e) This Agreement and other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters.
All such limitations, tests and measurements are cumulative and shall each
be performed in accordance with their terms.
(f) A reference to capital stock also includes a reference to issued
share capital.
SECTION 2 COMMITMENTS OF THE BANKS; U.S. AND AUSTRALIAN
BORROWING PROCEDURES; LETTER OF CREDIT PROCEDURES.
2.1 COMMITMENTS. On and subject to the terms and conditions of this
Agreement, each of the Banks, severally and for itself alone, agrees to make
loans to, and to issue or participate in letters of credit for the account of,
the Borrowers as follows:
2.1.1 U.S. LOAN COMMITMENT. Each Bank agrees to make loans to the Company
on a revolving basis (collectively "U.S. Loans" and individually each a "U.S.
Loan") from time to time before the Termination Date in such Bank's Percentage
of such aggregate amounts as the Company may from time to time request from all
Banks.
2.1.2 AUSTRALIAN LOAN COMMITMENT. (a) Each Australian Bank agrees to make
loans to Layne Australia on a revolving basis (collectively "Australian Loans"
and individually each an "Australian Loan") from time to time before the
Termination Date in such Australian Bank's Australian Percentage of such
aggregate amounts as Layne Australia may from time to time request from all
Australian Banks and (b) each Non-Australian Bank agrees that it will purchase a
participation in each such Loan if required pursuant to SECTION 2.3.4.
2.1.3 LETTER OF CREDIT COMMITMENT. (a) The Issuer will issue standby
letters of credit, in each case containing such terms and conditions as are
permitted by this Agreement and are reasonably satisfactory to the Issuer
(collectively the "Letters of Credit" and individually each a "Letter of
Credit"), at the request of and for the account of the Company (or jointly for
the account of the Company and any Subsidiary) from time to time before the
Termination Date and (b) as more fully set forth in SECTION 2.4, each Bank
agrees to purchase a participation in each such Letter of Credit.
2.1.4 COMMITMENT LIMITS. Notwithstanding any other provision of this
Agreement (a) the Aggregate Outstandings shall not at any time exceed the
Aggregate Commitment; (b) the aggregate Dollar Equivalent principal amount of
all Australian Loans shall not at any time exceed the Aggregate Australian
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Commitment; and (c) the Stated Amount of all Letters of Credit shall not at any
time exceed the lesser of the Aggregate Commitment and a Dollar Equivalent
amount of U.S.$20,000,000.
2.1.5 VALUATION OF AUSTRALIAN LOANS AND CERTAIN LETTERS OF CREDIT. The
Agent will determine the Dollar Equivalent amount of each Australian Loan and
each Letter of Credit denominated in a currency other than U.S. Dollars on each
Computation Date, and such determination shall be conclusive absent demonstrable
error.
2.2 U.S. LOAN PROCEDURES.
2.2.1 VARIOUS TYPES OF U.S. LOANS. Each U.S. Loan shall be in U.S.
Dollars and shall be either a Floating Rate Loan or a Eurodollar Loan, as the
Company shall specify in the related notice of borrowing, conversion or
continuation pursuant to SECTION 2.2.2 or 2.2.3. Floating Rate Loans and
Eurodollar Loans may be outstanding at the same time, PROVIDED that (i) not more
than five different Groups of Eurodollar Loans to the Company shall be
outstanding at any one time and (ii) the aggregate principal amount of each
Group of Eurodollar Loans to the Company shall at all times (including after
giving effect to any conversion or continuation) be at least U.S.$500,000 and an
integral multiple of U.S.$100,000.
2.2.2 BORROWING PROCEDURES FOR U.S. LOANS. The Company shall give written
notice to the Agent of each proposed borrowing of U.S. Loans not later than (a)
in the case of a Floating Rate borrowing, 11:00 a.m., Chicago time, on the
proposed date of such borrowing, and (b) in the case of a Eurodollar borrowing,
11:00 a.m., Chicago time, at least three Business Days prior to the proposed
date of such borrowing. Each such notice shall be in the form of EXHIBIT B,
shall be effective upon receipt by the Agent and shall specify the date, amount
and type of borrowing and, in the case of a Eurodollar borrowing, the initial
Interest Period therefor. Promptly upon receipt of such notice, the Agent shall
advise each Bank thereof. Not later than 1:00 p.m., Chicago time, on the date
of a proposed borrowing of U.S. Loans, each Bank shall provide the Agent at the
Agent's Payment Office with immediately available funds covering such Bank's
Percentage of such borrowing and, subject to the satisfaction of the conditions
precedent set forth in SECTION 11 with respect to such borrowing, the Agent
shall pay over the requested amount to the Company on the requested borrowing
date and (unless the Company shall otherwise notify the Agent and BofA in
writing) deposit such amount in the Company's demand deposit account no.
49-13582 maintained with BofA (or such other account maintained with BofA as the
Company shall designate in writing to BofA and the Agent). Each borrowing of
U.S. Loans shall be on a Business Day and shall be in an aggregate amount of at
least U.S.$500,000 and an integral multiple of U.S.$100,000.
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2.2.3 CONVERSION AND CONTINUATION PROCEDURES FOR U.S. LOANS. (a) Subject
to SECTION 2.2.1 the Company may, upon irrevocable written notice to the Agent
in accordance with CLAUSE (B) below:
(i) elect, as of any Business Day, to convert any U.S. Loans (or
any part thereof in an aggregate amount not less than U.S.$500,000 or
a higher integral multiple of U.S.$100,000) into U.S. Loans of the
other type; or
(ii) elect, as of the last day of the applicable Interest
Period, to continue any Eurodollar Loans to the Company having
Interest Periods expiring on such day (or any part thereof in an
amount not less than U.S.$500,000 or a higher integral multiple of
U.S.$100,000) for a new Interest Period.
(b) The Company shall deliver a notice of conversion or continuation
in the form of EXHIBIT C to be received by the Agent not later than 11:00
a.m., Chicago time, at least (i) three Business Days in advance of the date
of conversion or continuation, if U.S. Loans are to be converted into or
continued as Eurodollar Loans; and (ii) on the Business Day of such
conversion, if U.S. Loans are to be converted into Floating Rate Loans,
specifying in each case:
(1) the proposed date of conversion or continuation;
(2) the aggregate amount of U.S. Loans to be converted or
continued;
(3) the type of Loans resulting from the proposed conversion or
continuation; and
(4) in the case of a continuation of, or conversion into,
Eurodollar Loans to the Company, the duration of the requested
Interest Period therefor.
(c) If upon the expiration of any Interest Period applicable to
Eurodollar Loans to the Company, the Company has failed to select timely a
new Interest Period to be applicable to such Eurodollar Loans, the Company
shall be deemed to have elected to convert such Eurodollar Loans into
Floating Rate Loans effective on the last day of such Interest Period.
(d) The Agent will promptly notify each Bank of its receipt of a
notice of conversion or continuation pursuant
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to this SECTION 2.2.3 or, if no timely notice is provided by the Company,
of the details of any automatic conversion.
(e) Unless the Required Banks otherwise consent, during the existence
of an Event of Default or Unmatured Event of Default, the Company may not
elect to have a U.S. Loan converted into or continued as a Eurodollar Loan.
2.3 AUSTRALIAN LOAN PROCEDURES
2.3.1 VARIOUS TYPES OF AUSTRALIAN LOANS. Each Australian Loan shall be
either a Bill Rate Loan in Australian Dollars or a Eurodollar Loan in U.S.
Dollars, as Layne Australia shall specify in the related notice of borrowing
pursuant to SECTION 2.3.2. Bill Rate Loan and Eurodollar Loans may be
outstanding at the same time, PROVIDED that (i) not more than two different
Groups of Eurodollar Loans to Layne Australia shall be outstanding at any one
time, (ii) not more than two different Groups of Bill Rate Loans shall be
outstanding at any one time, (iii) the aggregate principal amount of each Group
of Eurodollar Loans to Layne Australia shall at all times (including after
giving effect to any partial continuation) be at least U.S.$500,000 and an
integral multiple of U.S.$100,000 and (iv) the aggregate principal amount of
each Group of Bill Rate Loans shall at all times (including after giving effect
to any partial continuation) be at least a Dollar Equivalent amount of
U.S.$500,000 and an integral multiple of A$500,000.
2.3.2 BORROWING PROCEDURES FOR AUSTRALIAN LOANS. Layne Australia shall
give written notice to the Agent of each proposed borrowing of Australian Loans
not later than noon, Chicago time, at least four Business Days prior to the
proposed date of such borrowing. Each such notice shall be in the form of
EXHIBIT D, shall be effective upon receipt by the Agent, and shall specify the
date, amount and type of borrowing and the initial Interest Period therefor.
Promptly upon receipt of such notice the Agent shall advise each Australian Bank
thereof. Not later than 11:00 a.m., Sydney, Australia time, on the date of a
proposed borrowing of Australian Loans, each Australian Bank shall provide the
Agent at the Agent's Payment Office with immediately available funds covering
such Australian Bank's Australian Percentage of such borrowing and, subject to
the satisfaction of the conditions precedent set forth in SECTION 11 with
respect to such borrowing, the Agent shall pay over the requested amount to
Layne Australia on the requested borrowing date. Each borrowing of Australian
Loans shall be on a Business Day and shall be in an aggregate Dollar Equivalent
amount of at least U.S.$500,000 and an integral multiple of (x) in the case of
Eurodollar Loans, U.S.$100,000 and (y) in the case of Bill Rate Loans,
A$500,000.
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2.3.3 CONTINUATION PROCEDURES FOR AUSTRALIAN LOANS. (a) Subject to
SECTION 2.3.1, Layne Australia may, upon irrevocable written notice to the Agent
in accordance with CLAUSE (B) below, elect, as of the last day of the applicable
Interest Period, to continue any Australian Loans having Interest Periods
expiring on such day (or any part thereof in a Dollar Equivalent amount not less
than U.S.$500,000 or a higher integral multiple of (x) in the case of Eurodollar
Loans, U.S.$100,000 or (y) in the case of Bill Rate Loans, A$100,000) for a new
Interest Period; PROVIDED that any Loans so continued shall remain the same type
of Australian Loans.
(b) Layne Australia shall deliver a notice of continuation in the
form of EXHIBIT E to be received by the Agent not later than noon, Chicago
time, at least four Business Days in advance of the date of continuation,
specifying:
(A) the proposed date of continuation;
(B) the aggregate amount of Australian Loans to be
continued; and
(C) the duration of the requested Interest Period
therefor.
(c) If Layne Australia fails to give timely notice of continuation of
any Australian Loans pursuant to CLAUSE (B) above and has not given a
notice of prepayment of such Loans pursuant to SECTION 6.2.4, then Layne
Australia shall be deemed to have elected to continue such Australian Loans
as Loans of the same type for a new Interest Period of one month beginning
on the last day of the expiring Interest Period.
(d) The Agent will promptly notify each Australian Bank of its
receipt of a notice of continuation pursuant to this SECTION 2.3.3 or, if
no timely notice of continuation is provided by Layne Australia, of the
details of any automatic continuation.
2.3.4 PARTICIPATIONS IN AUSTRALIAN LOANS. (a) Each Non-Australian Bank
agrees that it shall at all times have a participation in, and acknowledges that
it is irrevocably and unconditionally obligated, upon receipt of notice that the
Agent has received an Australian Participation Funding Notice, to fund (or to
cause an Affiliate to fund) its participation in, each outstanding Australian
Loan in an amount equal to its Percentage of the amount of such Australian Loan.
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(b) The Agent shall promptly notify each Non-Australian Bank of its
receipt of an Australian Participation Funding Notice. Promptly upon
receipt of such Notice, each Non-Australian Bank shall (or shall cause an
Affiliate to) make available to the Agent for the account of the Australian
Banks an amount in Australian Dollars and in immediately available funds
equal to its Percentage of all outstanding Australian Loans. If any
Non-Australian Bank so notified fails to make available to the Agent for
the account of the Australian Banks the full amount of such Non-Australian
Bank's participations in all Australian Loans by 12:00 noon (Chicago time)
on the Business Day following its receipt of such notice from the Agent (or
two Business Days following receipt of such notice if such notice is
received after 12:00 noon (Chicago time) on any Business Day), then
interest shall accrue on such Non-Australian Bank's obligation to fund such
participations, from the date such obligation became due to the date such
Non-Australian Bank pays such obligations in full, at a rate per annum
equal to the Overnight Rate in effect from time to time during such period.
The Agent shall promptly distribute to each Australian Bank an amount equal
to its applicable share of the amount received from any Non-Australian Bank
to fund its participation in the Australian Loans of such Australian Bank
together with its applicable share of any interest received from any
Non-Australian Bank pursuant to the previous sentence, in the same funds as
those received by the Agent.
(c) From and after the date on which the Agent has received an
Australian Participation Funding Notice, all funds received by the Agent in
payment of the Australian Loans and interest thereon shall be distributed
by the Agent, in the same funds as those received by the Agent, to all
Banks in accordance with their respective Percentages (i.e., giving effect
to the funding of participations pursuant to this SECTION 2.3.4), except
that the Percentage of such funds of any Non-Australian Bank that has not
funded its participations as provided herein shall be distributed ratably
to the Australian Banks.
(d) If the Agent or any Australian Bank is required at any time to
return to either Borrower, or to a trustee, receiver, liquidator or
custodian, or any official in any bankruptcy, insolvency or similar
proceeding, any portion of any payment made by such Borrower to the Agent
or such Australian Bank in respect of any Australian Loan or interest
thereon, each Non-Australian Bank shall, on demand of the Agent, forthwith
return to the Agent for the account of the applicable Australian Bank its
Percentage of the amount so returned by the Agent or such Australian Bank
plus
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interest thereon from the date such demand is made to the date such amount
is returned by such Non-Australian Bank to the Agent, at a rate per annum
equal to the Overnight Rate from time to time in effect.
(e) The Required Banks, the Australian Banks and the Agent may agree
on any other reasonable method (such as making assignments of Australian
Loans) for sharing the risks of Australian Loans ratably among all Banks
according to their Percentages so long as such method does not materially
disadvantage the Borrowers or any Bank.
2.3.5 AUSTRALIAN PARTICIPATION OBLIGATIONS UNCONDITIONAL.
(a) Each Non-Australian Bank's obligations to purchase participation
interests in Australian Loans pursuant to SECTION 2.3.4 shall be absolute
and unconditional and shall not be affected by any circumstance whatsoever,
including (a) any set-off, counterclaim, recoupment, defense or other right
which such Non-Australian Bank may have against the Agent, any Australian
Bank, either Borrower or any other Person for any reason whatsoever; (b)
the occurrence or continuance of an Event of Default or an Unmatured Event
of Default; (c) any adverse change in the condition (financial or
otherwise) of either Borrower or any other Person; (d) any breach of this
Agreement by either Borrower or any other Bank; (e) any inability of Layne
Australia to satisfy the conditions precedent to borrowing set forth in
this Agreement on the date upon which any participation interest in any
Australian Loan is to be purchased; or (f) any other circumstance,
happening or event whatsoever, whether or not similar to any of the
foregoing.
(b) Notwithstanding the provisions of CLAUSE (A) above, no
Non-Australian Bank shall be required to purchase a participation interest
in an Australian Loan pursuant to SECTION 2.3.4 if, prior to the making by
the Australian Banks of such Australian Loan, the Australian Banks received
written notice from the Agent or any Bank specifying that such Agent or
such Bank believed in good faith that one or more of the conditions
precedent to the making of such Australian Loan were not satisfied and, in
fact, such conditions precedent were not satisfied at the time of the
making of such Australian Loan.
2.4 LETTER OF CREDIT PROCEDURES
2.4.1 ISSUANCE OF LETTERS OF CREDIT. The Company shall give written
notice to the Agent of the proposed issuance of each Letter of Credit on a
Business Day which is at least one Business Day (or such lesser period as the
Issuer may agree) prior to the
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proposed date of issuance of such Letter of Credit. Each such notice shall be
accompanied by a Letter of Credit Application, duly executed by the Company (or
jointly by the Company and a Subsidiary) and in all respects reasonably
satisfactory to the Issuer, together with such other documentation as the Issuer
may reasonably request in support thereof, it being understood that each Letter
of Credit Application shall specify, among other things, the date on which the
proposed Letter of Credit is to be issued, the expiration date of such Letter of
Credit (which shall not be later than 22 days prior to the Termination Date),
the face amount of such Letter of Credit, the currency in which such Letter of
Credit is to be denominated (which shall be an Available Currency) the name and
address of the beneficiary of such Letter of Credit and whether such Letter of
Credit is to be transferable in whole or in part. Subject to the satisfaction
of the conditions precedent set forth in SECTION 11 with respect to the issuance
of such Letter of Credit, the Issuer shall issue such Letter of Credit on the
requested issuance date. With respect to any Letter of Credit which contains
any "evergreen" or automatic renewal provision, each Bank shall be deemed to
have consented to any such extension or renewal unless any such Bank shall have
provided to the Agent, not less than 30 days prior to the last date on which the
Issuer can in accordance with the terms of the applicable Letter of Credit
decline to extend or renew such Letter of Credit, written notice that it
declines to consent to any such extension or renewal.
2.4.2 PARTICIPATIONS IN LETTERS OF CREDIT. Concurrently with the issuance
of each Letter of Credit (or, in the case of an Existing Letter of Credit,
concurrently with the effectiveness of this Agreement pursuant to SECTION 11.1),
the Issuer shall be deemed to have sold and transferred to each other Bank, and
each other Bank shall be deemed irrevocably and unconditionally to have
purchased and received from the Issuer without recourse or warranty, an
undivided interest and participation, to the extent of such other Bank's
Percentage, in such Letter of Credit and the Company's reimbursement obligations
with respect thereto. For the purposes of this Agreement, the unparticipated
portion of each Letter of Credit shall be deemed to be the Issuer's
"participation" therein. The Agent hereby agrees, upon request of any Bank, to
deliver to such Bank a list of all outstanding Letters of Credit, together with
such information related thereto as such Bank may reasonably request.
2.4.3 REIMBURSEMENT OBLIGATIONS. The Company hereby unconditionally and
irrevocably agrees to reimburse the Issuer for each payment or disbursement made
by the Issuer under any Letter of Credit honoring any demand for payment made by
the beneficiary thereunder, in each case on the date that such payment or
disbursement is made and in the currency of such payment or disbursement. Any
amount not reimbursed on the date
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of such payment or distribution shall bear interest from and including the date
of such payment or disbursement to but not including the date that the Issuer is
reimbursed by the Company therefor, payable on demand, at a rate per annum equal
to (x) in the case of any amount denominated in U.S. Dollars, the Alternate
Reference Rate from time to time in effect PLUS 2% and (y) in the case of any
amount denominated in any other currency, at the Overnight Rate from time to
time in effect plus the Margin plus 2%. The Issuer shall notify the Company
whenever any demand for payment is made under any Letter of Credit by the
beneficiary thereunder; PROVIDED, HOWEVER, that the failure of the Issuer to so
notify the Company shall not affect the rights of the Issuer or the Banks in any
manner whatsoever.
2.4.4 LIMITATION ON THE ISSUER'S OBLIGATIONS. In determining whether to
pay under any Letter of Credit, neither the Issuer nor the Agent shall have any
obligation to the Company or any Bank other than to confirm that any documents
required to be delivered under such Letter of Credit appear to have been
delivered and appear to comply on their face with the requirements of such
Letter of Credit. Any action taken or omitted to be taken by the Issuer under
or in connection with any Letter of Credit, if taken or omitted in the absence
of gross negligence and willful misconduct, shall not impose upon the Issuer any
liability to the Company or any Bank and shall not reduce or impair the
Company's reimbursement obligations set forth in SECTION 2.4.3 or the
obligations of the Banks pursuant to SECTION 2.4.5.
2.4.5 FUNDING BY BANKS TO THE ISSUER. If the Issuer makes any payment or
disbursement under any Letter of Credit and the Company has not reimbursed the
Issuer in full for such payment or disbursement by 11:00 a.m., Chicago time, on
the date of such payment or disbursement, or if any reimbursement received by
the Issuer from the Company is or must be returned or rescinded upon or during
any bankruptcy or reorganization of the Company or otherwise, each other Bank
shall be obligated to pay to the Issuer, in full or partial payment of the
purchase price of its participation in such Letter of Credit, its pro rata share
(according to its Percentage) of such payment or disbursement (but no such
payment shall diminish the obligations of the Company under SECTION 2.4.3), and
the Agent shall promptly notify each other Bank thereof. Each other Bank
irrevocably and unconditionally agrees, severally and for itself alone, to so
pay to the Agent in immediately available funds for the Issuer's account the
amount of such other Bank's Percentage of such payment or disbursement. If and
to the extent any Bank shall not have made such amount available to the Agent by
2:00 p.m., Chicago time, on the Business Day on which such Bank receives notice
from the Agent of such payment or disbursement (it being understood that any
such notice received after noon, Chicago
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time, on any Business Day shall be deemed to have been received on the next
following Business Day), such Bank agrees to pay interest on such amount to the
Agent for the Issuer's account forthwith on demand for each day from and
including the date such amount was to have been delivered to the Agent to but
excluding the date such amount is paid, at a rate per annum equal to (a) in the
case of any amount denominated in U.S. Dollars, (i) for the first three days
after demand, the Federal Funds Rate from time to time in effect and (ii)
thereafter, the Alternate Reference Rate from time to time in effect and (b) in
the case of any amount denominated in any other currency, the Overnight Rate
from time to time in effect plus, beginning on the fourth day after demand, 2%.
Any Bank's failure to make available to the Agent its Percentage of any such
payment or disbursement shall not relieve any other Bank of its obligation
hereunder to make available to the Agent such other Bank's Percentage of such
payment, but no Bank shall be responsible for the failure of any other Bank to
make available to the Agent such other Bank's Percentage of any such payment or
disbursement.
2.5 PRO RATA TREATMENT. Except as otherwise expressly provided herein,
all borrowings, conversions, continuations and repayments shall be effected so
that after giving effect thereto (a) each Bank will have a pro rata share
(according to the Percentage) of all types and Groups of U.S. Loans and (b) each
Australian Bank will have a pro rata share (according to its Australian
Percentage) of all types and Groups of Australian Loans.
2.6 WARRANTY. Each notice of borrowing and/or of conversion pursuant to
SECTION 2.2, each notice of borrowing pursuant to SECTION 2.3 and the delivery
of each Letter of Credit Application pursuant to SECTION 2.4 shall automatically
constitute a warranty by the Company or Layne Australia, as the case may be, to
the Agent and each Bank to the effect that on the date of such requested
borrowing or conversion or the issuance of the requested Letter of Credit, as
the case may be, (a) the warranties of the Company contained in SECTION 9
(excluding SECTIONS 9.6 and 9.8 and except to the extent changes in facts or
conditions are expressly permitted or required hereunder) of this Agreement
shall be true and correct as of such requested date as though made on the date
thereof and (b) no Event of Default or Unmatured Event of Default shall have
then occurred and be continuing or will result therefrom.
2.7 CONDITIONS. Notwithstanding any other provision of this Agreement,
(a) no Bank shall be obligated to make any Loan, (b) no Bank shall be obligated
to convert into or permit the continuation at the end of the applicable Interest
Period of any Eurodollar Loan to the Company and (c) the Issuer shall not be
obligated to issue any Letter of Credit if, in any such case, an
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Event of Default or Unmatured Event of Default exists or would result therefrom.
2.8 COMMITMENTS SEVERAL. The failure of any Bank to make a requested Loan
on any date shall not relieve any other Bank of its obligation to make a Loan on
such date, but no Bank shall be responsible for the failure of any other Bank to
make any Loan to be made by such other Bank.
2.9 PAYMENTS BY THE BANKS TO THE AGENT. (a) Unless the Agent receives
notice from a Bank on or prior to the Effective Date or, with respect to any
Loan after the Effective Date, by 12:00 noon, Chicago time, on the date of such
Loan in the case of a Floating Rate Loan, at least one Business Day prior to the
date of such Loan in the case of a Eurodollar Loan to the Company or at least
two Business Days prior to the date of such Loan in the case of an Australian
Loan, that such Bank will not make available as and when required hereunder to
the Agent for the account of the applicable Borrower the amount of that Bank's
pro rata share (according to its Percentage or Australian Percentage) of any
borrowing, the Agent may assume that each applicable Bank has made such amount
available to the Agent in immediately available funds on the date of such
borrowing and the Agent may (but shall not be so required), in reliance upon
such assumption, make available to the applicable Borrower on such date a
corresponding amount. If and to the extent any Bank shall not have made its
full amount available to the Agent in immediately available funds and the Agent
in such circumstances has made available to the applicable Borrower such amount,
such Bank shall on the Business Day following such date make such amount
available to the Agent, together with interest at the Federal Funds Rate (in the
case of Floating Rate Loans and Eurodollar Loans) or the Overnight Rate (in the
case of Bill Rate Loans) for each day during such period. A notice of the Agent
submitted to any Bank with respect to amounts owing under this SECTION 2.9 shall
be conclusive, absent manifest error. If such amount is so made available, such
payment to the Agent shall constitute such Bank's Loan on the date of borrowing
for all purposes of this Agreement. If such amount is not made available to the
Agent on the Business Day following such date, the Agent will notify the
applicable Borrower of such failure to fund and, upon demand by the Agent, such
Borrower shall pay such amount to the Agent for the Agent's account, together
with interest thereon for each day elapsed since the date of such borrowing, at
a rate per annum equal to the interest rate applicable at the time to the Loans
comprising such borrowing.
(b) Any Non-Australian Bank may fund its purchase of participations
(under SECTION 2.3.4) in Australian Loans, and any Bank may fund its
participation (under SECTION 2.4.5) in any Letter of Credit denominated in
any currency
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other than U.S. Dollars, by delivering to the Agent on the date such
participation is to be funded an amount in U.S. Dollars equal to the sum of
(i) the amount necessary for the Agent to purchase on such date in
accordance with its customary procedures Australian Dollars or the
applicable currency of such Letter of Credit, as the case may be, in an
amount sufficient to fund such Bank's required participation payment plus
(ii) the reasonable and customary costs, fees and expenses of the Agent in
making such purchase.
SECTION 3 NOTES EVIDENCING LOANS.
3.1 NOTES. The Loans of each Bank to each Borrower shall be evidenced by
a promissory note (as amended, supplemented, replaced or otherwise modified from
time to time, individually each a "Note" and collectively for all Banks the
"Notes") substantially in the form of EXHIBIT A, with appropriate insertions,
dated the Effective Date (or such earlier date as shall be satisfactory to the
Agent), payable to the order of such Bank in an amount equal to such Bank's
Commitment or portion of the Aggregate Australian Commitment, as the case may be
(or, if less, in the aggregate unpaid principal amount of such Bank's Loans to
the applicable Borrower).
3.2 RECORDKEEPING. Each Bank shall record in its records, or at its
option on the schedule attached to the applicable Note, the date and amount of
each Loan made by such Bank to the applicable Borrower, each repayment,
conversion or continuation thereof and, in the case of each Eurodollar Loan and
Bill Rate Loan, the dates on which each Interest Period for such Loan shall
begin and end. The aggregate unpaid principal amount so recorded shall be
rebuttable presumptive evidence of the principal amount owing and unpaid on such
Note. The failure to so record any such amount or any error in so recording any
such amount shall not, however, limit or otherwise affect the obligations of the
applicable Borrower hereunder or under any Note to repay the principal amount of
the Loans evidenced by such Note together with all interest accruing thereon.
SECTION 4 INTEREST.
4.1 INTEREST RATES. The Borrowers promise to pay interest on the unpaid
principal amount of each Loan for the period commencing on the date of such Loan
until such Loan is paid in full, as follows:
(a) at all times while such Loan is a Floating Rate Loan, at a rate
per annum equal to the Alternate Reference Rate from time to time in
effect; and
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(b) at all times while such Loan is a Eurodollar Loan, at a rate per
annum equal to the sum of the Eurodollar Rate (Reserve Adjusted) applicable
to each Interest Period for such Loan plus the Margin; and
(c) at all times while such Loan is a Bill Rate Loan, at a rate per
annum equal to the sum of the Bank Bill Rate applicable to each Interest
Period for such Loan plus the Margin;
PROVIDED, HOWEVER, that at any time an Event of Default exists, at the request
of the Required Banks the interest rate applicable to each Loan to the Company
shall be increased by 2%; and PROVIDED, FURTHER, that if any Loan to Layne
Australia is not paid when due (by acceleration or otherwise), the principal of
such Loan shall bear interest from such due date until paid at a rate per annum
equal to the Eurodollar Rate or the Bank Bill Rate, as the case may be, in
effect from time to time plus the Margin plus 2%.
4.2 INTEREST PAYMENT DATES. Accrued interest on each Floating Rate Loan
shall be payable on the last day of each calendar quarter and at maturity,
commencing with the first of such dates to occur after the date of such Loan.
Accrued interest on each Eurodollar Loan and Bill Rate Loan shall be payable on
the last day of each Interest Period relating to such Loan (and, in the case of
each Eurodollar Loan and Bill Rate Loan with an Interest Period in excess of
three months, on each three-month anniversary of the first day of such Interest
Period) and at maturity. After maturity, accrued interest on all Loans shall be
payable on demand.
4.3 SETTING AND NOTICE OF CERTAIN RATES. The applicable Eurodollar Rate
or Bank Bill Rate for each Interest Period shall be determined by the Agent, and
notice thereof shall be given by the Agent promptly to the Company or Layne
Australia, as applicable, and each Bank or each Australian Bank, as applicable.
Each determination of the applicable Eurodollar Rate and Bank Bill Rate by the
Agent shall be conclusive and binding upon the parties hereto, in the absence of
demonstrable error. The Agent shall, upon written request of the Company, Layne
Australia or any Bank, deliver to such Person a statement showing the
computations used by the Agent in determining any applicable Eurodollar Rate or
Bank Bill Rate hereunder.
4.4 COMPUTATION OF INTEREST. Interest shall be computed for the actual
number of days elapsed on the basis of a year of 360 days. The applicable
interest rate for each Floating Rate Loan shall change simultaneously with each
change in the Alternate Reference Rate.
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SECTION 5 FEES.
5.1 FACILITY FEE. The Company agrees to pay to each Bank a facility fee
for the period from and including the Effective Date to but excluding the
Termination Date (and thereafter until all Loans and reimbursement obligations
have been paid in full and all Letters of Credit have expired or terminated) at
a rate per annum equal to the Facility Fee Rate on the daily average of the
amount of such Bank's Commitment (or, after termination of the Commitments, of
the aggregate Dollar Equivalent principal amount of such Bank's Loans plus such
Bank's Percentage of the Stated Amount of all Letters of Credit). The facility
fee shall be payable in arrears on the last day of each calendar quarter and on
the Termination Date for any period then ending for which such facility fee
shall not have been theretofore paid (provided that after the Termination Date
the facility fee shall be payable on demand). The facility fee shall be
computed for the actual number of days elapsed on the basis of a year of 360
days.
5.2 LETTER OF CREDIT FEES.
(a) The Company agrees to pay to the Agent for the account of the
Banks pro rata according to their respective Percentages a letter of credit
fee for each Letter of Credit at a rate per annum equal to the LC Fee Rate
for the applicable type of Letter of Credit (computed for the actual number
of days elapsed on the basis of a year of 360 days) multiplied by the
Dollar Equivalent amount available to be drawn under such Letter of Credit,
payable in arrears on the last day of each calendar quarter and on the
Termination Date for the period from and including the date of the issuance
of such Letter of Credit to but excluding the date such payment is due or,
if earlier, the date on which such Letter of Credit expired or was
terminated.
(b) In addition, with respect to each Letter of Credit, the Company
agrees to pay to the Agent for the sole account of the Issuer (i) such fees
and expenses as the Issuer customarily requires in connection with the
issuance, negotiation, processing and/or administration of letters of
credit in similar situations and (ii) a letter of credit fee for each
Letter of Credit in an Dollar Equivalent amount equal to 0.25% per annum
(computed for the actual number of days elapsed on the basis of a year of
360 days) of the Dollar Equivalent amount available to be drawn under such
Letter of Credit, payable in arrears on the last day of each calendar
quarter and on the Termination Date for the period from and including the
date of the issuance of such Letter of Credit to but excluding the date
such payment is due or, if earlier, the date on which such Letter of Credit
expired or was terminated.
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(c) For purposes of calculating letter of credit fees pursuant to
CLAUSE (A) and CLAUSE (B)(II) above, the Agent will determine the Dollar
Equivalent amount of each Letter of Credit (i) on the date of issuance
thereof, (ii) on each date on which the amount available to be drawn
thereunder changes and (iii) on the last Business Day of each month.
5.3 AGENT'S AND ARRANGER'S FEES. The Company agrees to pay to the Agent
and the Arranger such fees at such times and in such amounts as are mutually
agreed upon by the Company and the Agent and the Arranger, respectively.
SECTION 6 REDUCTION OR TERMINATION OF THE COMMITMENTS;
PREPAYMENTS.
6.1 REDUCTION OR TERMINATION OF THE COMMITMENTS.
6.1.1 SCHEDULED MANDATORY REDUCTIONS OF THE AGGREGATE COMMITMENT. The
Aggregate Commitment shall be reduced on each of the following dates (each a
"Commitment Reduction Date") to the amount set forth in SCHEDULE 6.1.1 opposite
such date (it being understood that no reduction shall be required on such date
if the Aggregate Commitment has already been reduced to an amount which is equal
to or less than the applicable amount set forth in SCHEDULE 6.1.1).
6.1.2 ADDITIONAL MANDATORY REDUCTIONS OF THE AGGREGATE COMMITMENT.
(a) Within 30 days after any sale, transfer or other disposition
(including the disposition of the stock of any Subsidiary, whether by sale,
merger or otherwise) by the Company or any Subsidiary of any asset outside
the ordinary course of its business to a Person other than the Company or a
Subsidiary, the Aggregate Commitment shall be reduced by an amount equal to
100% of the Net Cash Proceeds of such sale, transfer or other disposition;
PROVIDED that (i) the foregoing shall not apply to the extent that (x) the
Net Cash Proceeds of all such sales, transfers and other dispositions since
the Effective Date does not exceed a Dollar Equivalent amount of U.S.
$5,000,000 and (y) the excess of the Net Cash Proceeds of all such sales,
transfers or other dispositions since the Effective Date over the amount of
Net Cash Proceeds previously applied to reduce the Aggregate Commitment
pursuant to this CLAUSE (A) does not exceed a Dollar Equivalent amount of
U.S.$500,000; and (ii) any reduction of the Aggregate Commitment pursuant
to this CLAUSE (A) shall (if necessary) be rounded down to an integral
multiple of U.S.$500,000.
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(b) Concurrently with the receipt of any Net Cash Proceeds from any
issuance of equity securities of the Company (including any Qualified
Public Offering, but excluding the issuance of shares of common stock of
the Company pursuant to any employee or director stock option program,
benefit plan or compensation program), the Aggregate Commitment shall be
reduced by an amount (rounded to the nearest integral multiple of
U.S.$500,000) equal to the lesser of (i) 75% of such Net Cash Proceeds and
(ii) the amount of Debt which would need to be repaid by the Company and
its Subsidiaries (after giving effect to the issuance of such equity
securities) to cause the Debt to Capitalization Ratio to be equal to or
less than 0.5 to 1: PROVIDED that no reduction of the Aggregate Commitment
shall be required under this CLAUSE (B) at any time after the first date
occurring after October 31, 1997 on which, as of the last day of a Fiscal
Quarter, the Debt to Capitalization Ratio is equal to or less than 0.5 to
1.
(c) Concurrently with the receipt of any Net Cash Proceeds from the
issuance of any Other Debt of the Company or any Subsidiary, the Aggregate
Commitment shall be reduced by an amount (rounded to the nearest integral
multiple of U.S.$500,000) equal to 100% of such Net Cash Proceeds.
6.1.3 VOLUNTARY REDUCTION OR TERMINATION OF COMMITMENTS. The Company may
from time to time on at least five Business Days' prior written notice received
by the Agent (which shall promptly advise each Bank thereof) permanently reduce
the Aggregate Commitment to an amount not less than the Aggregate Outstandings.
Any such reduction shall be in an amount not less than U.S.$2,000,000 and an
integral multiple of U.S.$500,000. The Company may at any time on like notice
terminate the Commitments upon payment in full of all Loans and all other
obligations of the Borrowers hereunder and upon the cash collateralization in
full, pursuant to documentation in form and substance reasonably satisfactory to
the Agent and the Banks, of all obligations arising with respect to the Letters
of Credit.
6.1.4 ALL REDUCTIONS PRO RATA. All reductions of the Commitments shall be
pro rata among the Banks according to their respective Percentages.
6.2 PREPAYMENTS.
6.2.1 MANDATORY PREPAYMENTS RESULTING FROM COMMITMENT REDUCTIONS. On each
date on which the Commitments are reduced pursuant to SECTION 6.1.1 or 6.1.2,
the Company shall, or shall cause Layne Australia to, prepay Loans in the amount
necessary (if any) so that the Aggregate Outstandings will not exceed the
Aggregate Commitment as reduced on such date.
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6.2.2 MANDATORY PREPAYMENTS RESULTING FROM CURRENCY FLUCTUATIONS.
(a) If on any Computation Date the Agent shall have determined that
the Aggregate Outstandings exceed the Aggregate Commitment due to a change
in applicable rates of exchange between U.S. Dollars and any applicable
currency, THEN (i) the Agent shall promptly notify the Company and (ii) the
Company shall, or shall cause Layne Australia to, promptly (subject to the
notice requirements of SECTION 6.2.4) prepay Loans in an amount so that the
Aggregate Outstandings are equal to or less than the Aggregate Commitment;
PROVIDED that no prepayment shall be requested under this CLAUSE (A) on any
day which is a Computation Date solely because it is the last Business Day
of a month unless the Aggregate Outstandings exceed the Aggregate
Commitment by a Dollar Equivalent amount of U.S.$100,000 or more.
(b) If on any Australian Computation Date the Agent shall have
determined that the aggregate Dollar Equivalent principal amount of all
outstanding Australian Loans exceeds the Aggregate Australian Commitment
due to a change in applicable rates of exchange between U.S. Dollars and
Australian Dollars, THEN (i) the Agent shall promptly notify the Company
and (ii) the Company shall promptly (subject to the notice requirements of
SECTION 6.2.4) prepay Australian Loans in an amount so that the aggregate
Dollar Equivalent amount of all outstanding Australian Loans is equal to or
less than the Aggregate Australian Commitment; PROVIDED that no prepayment
shall be required under this CLAUSE (B) on any day which is an Australian
Computation Date solely because it is the last Business Day of a month
unless the aggregate Dollar Equivalent principal amount of all outstanding
Australian Loans exceeds the Aggregate Australian Commitment by a Dollar
Equivalent amount of U.S.$100,000 or more.
6.2.3 VOLUNTARY PREPAYMENTS. Subject to SECTION 6.2.4, either Borrower
may from time to time prepay Loans in whole or in part.
6.2.4 ALL PREPAYMENTS. The applicable Borrower shall give the Agent
(which shall promptly advise each Bank or Australian Bank, as the case may be)
notice of each prepayment not later than 11:00 a.m., Chicago time on the date of
such prepayment, in the case of a prepayment of Floating Rate Loans, not later
than 3:00 p.m., Chicago time, on the third Business Day preceding the day of
such prepayment, in the case of prepayment of Eurodollar Loans to the Company,
and not later than noon, Chicago time, on the fourth Business Day preceding the
date of such prepayment, in the case of prepayment of Australian Loans, in each
case specifying the Loans to be prepaid and the day (which shall be a
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Business Day) and amount of such prepayment. Each partial prepayment pursuant
to SECTION 6.2.3 shall be in a Dollar Equivalent principal amount of at least
U.S.$500,000 and an integral multiple of U.S.$100,000 (or, in the case of Bill
Rate Loans, an integral multiple of A$500,000). After giving effect to any
partial prepayment, the aggregate principal amount of each Group of Loans shall
be at least U.S.$500,000 and an integral multiple of U.S.$100,000 (or, in the
case of Bill Rate Loans, an integral multiple of A$500,000). Any prepayment of
a Fixed Rate Loan shall include accrued interest to the date of prepayment on
the principal amount being repaid and, if made on a day other than the last day
of an Interest Period therefor, shall be subject to SECTION 8.4.
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES.
7.1 MAKING OF PAYMENTS. All payments of principal of or interest on the
Notes, and of all facility fees and Letter of Credit fees, shall be made by the
applicable Borrower to the Agent in immediately available funds and in the
applicable currency at the Agent's Payment Office not later than noon, Chicago
time, on the date due; and funds received after that hour shall be deemed to
have been received by the Agent on the next following Business Day. The Company
hereby authorizes BofA, unless otherwise instructed in writing, to charge the
Company's demand deposit account no. 49-13582 maintained with BofA (or such
other account maintained with BofA or any of its Affiliates as the Company shall
designate in writing to BofA and the Agent) for the amount of any such payment
to be made by the Company on the due date therefor and to pay such amount to the
Agent, but BofA's failure to so charge such account shall in no way affect the
obligation of the Company to make any such payment. The Agent shall promptly
remit to each Bank its share (if any) of all such payments received in collected
funds by the Agent for the account of such Bank.
All payments under SECTIONS 8.1 and 8.4 shall be made by the applicable
Borrower to the Agent at the Agent's Payment Office for the account of the Bank
or Banks entitled thereto.
7.2 APPLICATION OF CERTAIN PAYMENTS. Each payment of principal shall be
applied to such Loans as the applicable Borrower shall direct by notice to be
received by the Agent on or before the date of such payment or, in the absence
of such notice, as the Agent shall determine in its discretion. Concurrently
with each remittance to any Bank of its share of any such payment, the Agent
shall advise such Bank as to the application of such payment.
7.3 DUE DATE EXTENSION. If any payment of principal or interest with
respect to any of the Notes, or of facility fees or
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Letter of Credit fees, falls due on a day which is not a Business Day, then such
due date shall be extended to the next following Business Day (unless, in the
case of a Fixed Rate Loan, such next following Business Day is the first
Business Day of a calendar month, in which case such due date shall be the
immediately preceding Business Day) and additional interest (in the case of
principal) or fees, as the case may be, shall accrue and be payable for the
period of any such extension.
7.4 SETOFF. Each Borrower agrees that the Agent and each Bank have all
rights of set-off and bankers' lien provided by applicable law, and in addition
thereto, each Borrower agrees that at any time (i) any payment or other amount
owing by such Borrower under this Agreement is then due to the Agent or any Bank
or (ii) any Unmatured Event of Default under SECTION 12.1.4 or any Event of
Default exists, the Agent and each Bank may apply to the payment of such payment
or other amount (or, in the case of CLAUSE (II), to any obligations of such
Borrower hereunder, whether or not then due) any and all balances, credits,
deposits, accounts or moneys of such Borrower then or thereafter with the Agent
or such Bank.
7.5 PRORATION OF PAYMENTS. If any Bank shall obtain any payment or other
recovery (whether voluntary, involuntary, by application of offset or otherwise)
on account of principal of or interest on any Note (or an account of its
participation in any Letter of Credit) in excess of its pro rata share of
payments and other recoveries obtained by all Banks on account of principal of
and interest on Notes (or such participations) then held by them (other than in
respect of an Affected Loan or as a result of replacement of a Bank pursuant to
SECTION 8.7), such Bank shall purchase from the other Banks such participation
in the Notes (or sub-participations in Letters of Credit) held by them as shall
be necessary to cause such purchasing Bank to share the excess payment or other
recovery ratably with each of them; PROVIDED, HOWEVER, that if all or any
portion of the excess payment or other recovery is thereafter recovered from
such purchasing Bank, the purchase shall be rescinded and the purchase price
restored to the extent of such recovery.
7.6 TAXES WITH RESPECT TO PAYMENTS BY THE COMPANY. (a) All payments by
the Company hereunder (including all payments of principal of and interest on
the U.S. Loans and all payments under the Guaranty set forth in SECTION 14) to
any Non-U.S. Person shall be made free and clear of and without deduction for
any present or future Taxes. If any deduction or withholding from any payment
to be made by the Company hereunder is required in respect of any Taxes in
respect of payments to a Non-U.S. Person, then the Company will:
(i) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
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(ii) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to
such authority; and
(iii) except to the extent that such deduction or withholding
results from the breach by such Person of its agreement contained in
CLAUSE (B) or (C) below, or would not be required if such Person's
representation and warranty contained in CLAUSE (C) below were true,
pay such additional amounts as may be necessary in order that the net
amount received by such Person after such deduction or withholding
(including any required deduction or withholding on such additional
amounts) shall equal the amount such Person would have received had no
such deduction or withholding been made.
Moreover, if any Taxes are directly asserted against the Agent or any Bank with
respect to any payment received by the Agent or such Bank from the Company
hereunder, the Agent or such Bank may pay such Taxes and the Company will
promptly pay such additional amount (including any penalty, interest and
expense) as is necessary in order that the net amount received by such Person
after the payment of such Taxes (including any Taxes on such additional amount)
shall equal the amount such Person would have received had such Taxes not been
asserted (except to the extent that such Taxes result from such Person's gross
negligence or willful misconduct or from the breach by such Person of its
agreement contained in CLAUSE (B) or (C) below or would not be asserted if such
Person's representation and warranty contained in CLAUSE (C) below were true).
For purposes of this SECTION 7.6, a distribution hereunder by the Agent or any
Bank to or for the account of any Bank of any amount received from the Company
shall be deemed a payment by the Company.
(b) Each Bank which is a Non-U.S. Person agrees (to the extent it is
permitted to do so under the laws of the United States, any applicable double
taxation treaties of the United States, the jurisdiction of its incorporation
and the jurisdiction in which its Eurodollar Office for Eurodollar Loans to the
Company is located) to execute and deliver to the Agent for delivery to the
Company, before the Effective Date and before the first scheduled payment date
in each taxable year thereafter of such Bank, either (i) a United States
Internal Revenue Service Form 1001 or (ii) a United States Internal Revenue Form
4224 together with a United States Internal Revenue Service Form W-9, or any
successor forms, as appropriate, and such other and further forms which the
Company and/or the Agent may reasonably request, in each case properly and
accurately completed and properly claiming complete or partial, as the case may
be,
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exemption from withholding and deduction of United States Federal Taxes in
respect of payments by the Company hereunder.
(c) Each Bank which is a Non-U.S. Person represents and warrants to the
Company and the Agent that, as of the date of this Agreement (or in the case of
any Assignee, as of the effective date of the assignment to such Assignee, or in
the case of any transfer of any rights under a Loan from one office to another
of a Bank, as of the effective date of such transfer),
(i) it is entitled to receive payments hereunder from the
Company without deduction or withholding for or on account of any
Taxes, and
(ii) it is permitted to take the actions described in CLAUSE (B)
above, claiming a complete exemption from withholding of United States
Federal Taxes in respect of payments by the Company hereunder, under
the laws of the United States and any applicable double taxation
treaties of the jurisdictions specified in CLAUSE (B) above.
Each Bank which is a Non-U.S. Person further agrees that, to the extent any form
claiming complete or partial exemption from withholding and deduction of United
States Federal Taxes delivered under CLAUSE (B) above is found to be incomplete
or incorrect in any material respect when delivered, or thereafter based on a
change in law or a change in circumstances or other factors, such Bank shall
execute and deliver to the Agent a complete and correct replacement form, or
shall notify the Agent, which shall give notice thereof to the Company, that
such form is incomplete or incorrect and that no replacement form claiming an
exemption from withholding and deduction of United States Federal Taxes can be
given.
7.7 TAXES WITH RESPECT TO PAYMENTS BY LAYNE AUSTRALIA. (a) All payments
by Layne Australia hereunder (including all payments of principal of and
interest on the Australian Loans) to the Agent or any Bank shall be made free
and clear of and without deduction for any present or future Taxes. If any
deduction or withholding from any payment to be made by Layne Australia
hereunder is required in respect of any Taxes in respect of payments to the
Agent or any Bank, then Layne Australia will:
(i) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(ii) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to
such authority; and
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(iii) except to the extent that such deduction or withholding
results from the breach by any Australian Bank of its agreement
contained in CLAUSE (B) below, or would not be required if such
Person's representation and warranty contained in CLAUSE (C) below
were true, pay such additional amounts as may be necessary in order
that the net amount received by such Australian Bank's after such
deduction or withholding (including any required deduction or
withholding on such additional amounts) shall equal the amount such
Person would have received had no such deduction or withholding been
made.
Moreover, if any Taxes are directly asserted against the Agent or any Bank with
respect to any payment received by the Agent or such Bank from Layne Australia
hereunder, the Agent or such Bank may pay such Taxes and Layne Australia will
promptly pay such additional amount (including any penalty, interest and
expense) as is necessary in order that the net amount received by such Person
after the payment of such Taxes (including any Taxes on such additional amount)
shall equal the amount such Person would have received had such Taxes not been
asserted (except to the extent that such Taxes result from such Person's gross
negligence or willful misconduct or from the breach by such Person of its
agreement contained in CLAUSE (B) below or would not be asserted if such
Person's representation and warranty contained in CLAUSE (C) below were true).
For purposes of this SECTION 7.7, a distribution hereunder by the Agent or any
Bank to or for the account of any Bank (including any payment with respect to a
participation pursuant to SECTION 2.3.4) of any amount received from Layne
Australia shall be deemed a payment by Layne Australia.
(b) Each Bank agrees (to the extent it is permitted to do so under
applicable law) to execute and deliver to the Agent and Layne Australia such
documents as may be necessary or appropriate from time to time in order to
properly claim any available exemption (whether partial or complete) from
withholding and deduction of any Taxes which are levied or imposed by a
Governmental Authority of or within the Commonwealth of Australia in respect of
payments by Layne Australia hereunder to (or for the benefit of) such Bank;
provided that no Bank which is not an Australian Bank shall have any obligation
under this CLAUSE (B) prior to the date on which such Bank receives notice that
the Agent has received an Australian Participation Funding Notice.
(c) Each Australian Bank represents and warrants to Layne Australia and
the Agent that, as of the date of this Agreement (or in the case of any Assignee
which is an Australian Bank, as of the effective date of the assignment to such
Assignee, or in the case of any transfer of any rights under a Loan from one
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office to another of an Australian Bank, as of the effective date of such
transfer), it is entitled to receive payments hereunder from Layne Australia
without deduction or withholding for or on account of any Taxes which are levied
or imposed by a Governmental Authority of or within the Commonwealth of
Australia.
SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR
FIXED RATE LOANS.
8.1 INCREASED COSTS. (a) If, after the date hereof, the adoption of any
applicable law, rule or regulation, or any change in any applicable law, rule or
regulations, or any change in the interpretation or administration of any
applicable law, rule or regulation by any Governmental Authority charged with
the interpretation or administration thereof, or compliance by any Bank (or any
Funding Office of such Bank) with any request or directive (whether or not
having the force of law) of any such Governmental Authority:
(A) shall subject any Bank (or any Funding Office of such Bank) to
any tax (other than any tax referred to in SECTION 7.6 or 7.7), duty or
other charge with respect to its Fixed Rate Loans, its Note or its
obligation to make Fixed Rate Loans, or shall change the basis of taxation
of payments to any Bank of the principal of or interest on its Fixed Rate
Loans or any other amounts due under this Agreement in respect of its Fixed
Rate Loans or its obligation to make Fixed Rate Loans (except for changes
in the rate of tax on the overall net income of such Bank or its applicable
Funding Office imposed by the jurisdiction in which such Bank's principal
executive office or Funding Office is located); or
(B) shall impose, modify or deem applicable any reserve (including,
without limitation, any reserve imposed by the Board of Governors of the
Federal Reserve System, but excluding any reserve included in the
determination of interest rates pursuant to SECTION 4), special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by any Bank (or any Funding Office of such Bank); or
(C) shall impose on any Bank (or its applicable Funding Office) any
other condition affecting its Fixed Rate Loans, its Note or its obligation
to make Fixed Rate Loans;
and the result of any of the foregoing is to increase the cost to (or in the
case of Regulation D of the Board of Governors of the Federal Reserve System, to
impose a cost on) such Bank (or any Funding Office of such Bank) of making or
maintaining any Fixed
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Rate Loan, or to reduce the amount of any sum received or receivable by such
Bank (or its applicable Funding Office) under this Agreement or under its Note
with respect thereto, then within 10 days after demand by such Bank (which
demand shall be accompanied by a statement setting forth in reasonable detail
the basis for and a calculation of the amount of such demand, a copy of which
shall be furnished to the Agent), the applicable Borrower shall pay directly to
such Bank such additional amount or amounts as will compensate such Bank for
such increased cost or such reduction; PROVIDED that neither Borrower shall be
liable for any increased cost or reduced amount as to which such Bank became
aware and failed to notify the applicable Borrower promptly if and to the extent
that prompt notice could have avoided or materially decreased the amount of
payment by such Borrower hereunder.
(b) If any Bank shall reasonably determine that any change in, or the
adoption or phase-in of, any applicable law, rule or regulation regarding
capital adequacy, or any change in the interpretation or administration of
any such law, rule or regulation by any Governmental Authority charged with
the interpretation or administration thereof, or compliance by any Bank (or
any Funding Office of such Bank) or any Person controlling such Bank with
any request or directive regarding capital adequacy (whether or not having
the force of law) of any such Governmental Authority, has or would have the
effect of reducing the rate of return on such Bank's or such controlling
Person's capital as a consequence of such Bank's obligations hereunder
(including, without limitation, such Bank's Commitment) to a level below
that which such Bank or such controlling Person could have achieved but for
such change, adoption, phase-in or compliance (taking into consideration
such Bank's or such controlling Person's policies with respect to capital
adequacy) by an amount deemed by such Bank or such controlling Person to be
material, then from time to time, within 10 days after demand by such Bank
(which demand shall be accompanied by a statement setting forth in
reasonable detail the basis for and a calculation of the amount of such
demand, a copy of which shall be furnished to the Agent), the Company shall
pay to such Bank such additional amount or amounts as will compensate such
Bank or such controlling Person for such reduction; PROVIDED that in
determining any reduction in rate of return on capital, each Bank shall act
reasonably and in good faith and will, to the extent any reduction relates
to such Bank's loans and commitments in general and is not specifically
attributable to the Loans and the Commitment hereunder, use averaging and
attribution methods which are reasonable and which cover all loans and
commitments made by such Bank which are similar to the Loans and Commitment
whether or not the loan documentation for
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such other loans and commitments permits such Bank to receive increased
costs of the type described in this CLAUSE (B).
8.2 BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR. If with
respect to any Interest Period:
(a) deposits in the relevant currency (in the applicable amounts) are
not being offered to the Agent in the relevant market for such Interest
Period, or the Agent otherwise reasonably determines (which determination
shall be binding and conclusive on the Borrowers) that by reason of
circumstances affecting the relevant market adequate and reasonable means
do not exist for ascertaining the applicable Eurodollar Rate or Bank Bill
Rate, as applicable;
(b) Banks having an aggregate Percentage of 40% or more, or
Australian Banks having an aggregate Australian Percentage of 40% or more,
advise the Agent that the Eurodollar Rate (Reserve Adjusted) or the Bank
Bill Rate, as applicable, as determined by the Agent will not adequately
and fairly reflect the cost to such Banks of maintaining or funding the
applicable Loans for such Interest Period (taking into account any amount
to which such Banks may be entitled under SECTION 8.1), or that the making
or funding of Eurodollar Loans or Bill Rate Loans, as applicable, has
become impracticable as a result of an event occurring after the date of
this Agreement which in the opinion of such Banks materially affects such
Loans,
THEN the Agent shall promptly notify the other parties thereof and, so long as
such circumstances shall continue, (i) no Bank shall be under any obligation to
make or convert into Loans of the type so affected, (ii) if the Loans so
affected are Eurodollar Loans to the Company, on the last day of the current
Interest Period for each Eurodollar Loan to the Company, such Loan shall, unless
then repaid in full, automatically convert to a Floating Rate Loan, and (iii) if
the Loans so affected are Australian Loans, on the last day of the current
Interest Period for each Loan of the type so affected, such Loan shall be repaid
in full (subject to Layne Australia's right to borrow Australian Loans of the
other type in accordance with, and upon satisfaction of the conditions of, this
Agreement).
8.3 CHANGES IN LAW RENDERING FIXED RATE LOANS UNLAWFUL. If any change in
(including the adoption of any new) applicable laws or regulations, or any
change in the interpretation of applicable laws or regulations by any
Governmental Authority or other regulatory body charged with the administration
thereof, should make it (or in the good faith judgment of any Bank cause a
substantial question as to whether it is) unlawful for any Bank
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to make, maintain or fund Eurodollar Loans to the Company or either type of
Australian Loans, THEN such Bank shall promptly notify each of the other parties
hereto and, so long as such circumstances shall continue, (a) in the case of
Eurodollar Loans to the Company, (i) such Bank shall have no obligation to make
or convert into Eurodollar Loans (but shall make Floating Rate Loans
concurrently with the making of or conversion into Eurodollar Loans to the
Company by the Banks which are not so affected, in each case in an amount equal
to such Bank's Percentage of all Eurodollar Loans to the Company which would be
made or converted into at such time in the absence of such circumstances) and
(ii) on the last day of the current Interest Period for each Eurodollar Loan of
such Bank to the Company (or, in any event, if such Bank so requests, on such
earlier date as may be required by the relevant law, regulation or
interpretation), such Eurodollar Loan shall, unless then repaid in full,
automatically convert to a Floating Rate Loan; and (b) in the case of Australian
Loans, (i) such Bank shall have no obligation to make or convert into Australian
Loans of the type so affected (but, if permitted by applicable law, shall make
Australian Loans of the other type concurrently with the making of Australian
Loans of the type so affected by the Australian Banks which are not so affected,
in each case in a Dollar Equivalent amount equal to such Australian Bank's
Australian Percentage of all Australian Loans of the type so affected which
would be made at such time in the absence of such circumstances) and (ii) on the
last day of the current Interest Period for each Australian Loan by such
Australian Bank of the type so affected (or, in any event, if such Australian
Bank so requests, on such earlier date as may be required by the relevant law,
regulation or interpretation), such Australian Loan shall be repaid in full
(subject to Layne Australia's right to borrow Australian Loans of the other type
in accordance with, and upon satisfaction of the conditions of, this Agreement).
Each Floating Rate Loan made by a Bank which, but for the circumstances
described in the foregoing sentence, would be a Eurodollar Loan, and each
Australian Loan made by an Australian Bank which, but for the circumstances
described in the foregoing sentence, would be an Australian Loan of the other
type (any such Floating Rate Loan or Australian Loan, an "Affected Loan"),
shall, notwithstanding any other provision of this Agreement, remain outstanding
for the same period (and be continued for such Interest Periods) as the Group of
Eurodollar Loans or Australian Loans to the applicable Borrower of which such
Affected Loan would be a part absent such circumstances.
8.4 FUNDING LOSSES. Each Borrower hereby agrees that, upon demand by any
Bank (which demand shall be accompanied by a statement setting forth the basis
for the calculations of the amount being claimed, a copy of which shall be
furnished to the Agent), such Borrower will indemnify such Bank against any net
loss or expense which such Bank may sustain or incur (including,
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without limitation, any net loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Bank to
fund or maintain any Fixed Rate Loan), as reasonably determined by such Bank, as
a result of (a) any payment or prepayment or conversion of any Fixed Rate Loan
of such Bank on a date other than the last day of an Interest Period for such
Loan (including, without limitation, any conversion pursuant to SECTION 8.3) or
(b) any failure of such Borrower to borrow, convert or continue any Loans on a
date specified therefor in a notice of borrowing, conversion or continuation
pursuant to this Agreement. For this purpose, all notices to the Agent pursuant
to this Agreement shall be deemed to be irrevocable.
8.5 RIGHT OF BANKS TO FUND THROUGH OTHER OFFICES. Each Bank may, if it so
elects, fulfill its commitment as to any Fixed Rate Loan by causing a foreign
branch or affiliate of such Bank to make such Loan, PROVIDED that in such event
for the purposes of this Agreement such Loan shall be deemed to have been made
by such Bank and the obligation of the applicable Borrower to repay such Loan
shall nevertheless be to such Bank and shall be deemed held by it, to the extent
of such Loan, for the account of such branch or affiliate.
8.6 DISCRETION OF BANKS AS TO MANNER OF FUNDING. Notwithstanding any
provision of this Agreement to the contrary, each Bank shall be entitled to fund
and maintain its funding of all or any part of its Loans in any manner it sees
fit, it being understood, however, that for the purposes of this Agreement all
determinations hereunder shall be made as if such Bank had actually funded and
maintained each Eurodollar Loan during each Interest Period for such Loan
through the purchase of deposits having a maturity corresponding to such
Interest Period and bearing an interest rate equal to the Eurodollar Rate for
such Interest Period.
8.7 MITIGATION OF CIRCUMSTANCES; REPLACEMENT OF AFFECTED BANK. (a) Each
Bank shall promptly notify the Company and the Agent of any event of which it
has knowledge which will result in, and will use reasonable commercial efforts
available to it (and not, in such Bank's good faith judgment, otherwise
disadvantageous to such Bank) to mitigate or avoid, (i) any obligation by either
Borrower to pay any amount pursuant to SECTION 7.6, 7.7 or 8.1 or (ii) the
occurrence of any circumstances of the nature described in SECTION 8.2 or 8.3
(and, if any Bank has given notice of any such event described in CLAUSE (I) or
(II) above and thereafter such event ceases to exist, such Bank shall promptly
so notify the Company and the Agent). Without limiting the foregoing, each Bank
will designate a different Funding Office if such designation will avoid (or
reduce the cost to the applicable Borrower of) any event
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described in CLAUSE (I) or (II) of the preceding sentence and such designation
will not, in such Bank's sole judgment, be otherwise disadvantageous to such
Bank.
(b) At any time any Bank is an Affected Bank, the Borrowers may
replace such Affected Bank (and any affiliate thereof) as a party to this
Agreement with one or more other bank(s) or financial institution(s)
reasonably satisfactory to the Agent, such bank(s) or financial
institution(s) to have a Commitment in such amount as shall be reasonably
satisfactory to the Agent (and upon notice from the Company such Affected
Bank (and any affiliate thereof) shall assign pursuant to an Assignment
Agreement, and without recourse or warranty, its Commitment, its Loans, its
Notes, its participation in Letters of Credit and all of its other rights
and obligations hereunder to such replacement bank(s) or other financial
institution(s) for a purchase price equal to the sum of the principal
amount of the Loans so assigned, all accrued and unpaid interest thereon,
its ratable share of all accrued and unpaid facility fees and Letter of
Credit fees, any amounts payable under SECTION 8.4 as a result of such Bank
(or any affiliate thereof) receiving payment of any Fixed Rate Loan prior
to the end of an Interest Period therefor and all other obligations owed to
such Affected Bank (or any affiliate thereof) hereunder).
8.8 CONCLUSIVENESS OF STATEMENTS; SURVIVAL OF PROVISIONS. Determinations
and statements of any Bank pursuant to SECTION 8.1, 8.2, 8.3 or 8.4 shall be
conclusive absent demonstrable error. Banks may use reasonable averaging and
attribution methods in determining compensation under SECTIONS 8.1 and 8.4, and
the provisions of such Sections shall survive the expiration or termination of
the Commitments, the repayment of the Loans and all other obligations of the
Borrowers hereunder, the expiration or termination of the Letters of Credit and
the termination of this Agreement.
SECTION 9 WARRANTIES.
To induce the Issuer to issue Letters of Credit and to induce the Agent and
the Banks to enter into this Agreement and to induce the Banks to make Loans and
purchase participations in Letters of Credit hereunder, the Company warrants to
the Agent and the Banks that:
9.1 ORGANIZATION, ETC. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware;
each Subsidiary is a corporation duly organized, validly existing and in good
standing under the jurisdiction of its incorporation; the Company and each
Subsidiary is duly qualified to do business in each jurisdiction
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where the nature of its business makes such qualification necessary, except
where the failure to be so qualified would not have a Material Adverse Effect;
and the Company and each Material Subsidiary has full corporate power and
authority to own its property and conduct its business as presently conducted by
it.
9.2 AUTHORIZATION; NO CONFLICT. The execution and delivery by each
Borrower of this Agreement and each other Loan Document to which it is a party,
the borrowings hereunder, the execution and delivery by each Guarantor of each
Loan Document to which it is a party and the performance by each Borrower and
each Guarantor of its obligations under each Loan Document to which it is a
party are within the corporate powers of each Borrower and each Guarantor, have
been duly authorized by all necessary corporate action on the part of each
Borrower and each Guarantor (including any necessary shareholder action), have
received all necessary governmental approval (if any shall be required), and do
not and will not (a) violate any provision of law or any order, decree or
judgment of any court or other government agency which is binding on either
Borrower or any Guarantor, (b) contravene or conflict with, or result in a
breach of, any provision of the Certificate of Incorporation, By-Laws or other
organizational documents of either Borrower or any Guarantor or of any material
agreement, indenture, instrument or other document, or material judgment, order
or decree, which is binding on either Borrower, any Guarantor or any other
Subsidiary or (c) result in, or require, the creation or imposition of any Lien
on any property of either Borrower, any Guarantor or any other Subsidiary (other
than (i) Liens arising under the Loan Documents and (ii) Liens securing
obligations not exceeding in the aggregate a Dollar Equivalent amount of
U.S.$100,000).
9.3 VALIDITY AND BINDING NATURE. Each of this Agreement and each other
Loan Document to which either Borrower is a party is, or upon the execution and
delivery thereof will be, the legal, valid and binding obligation of such
Borrower, enforceable against such Borrower in accordance with its terms, except
that enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, fraudulent transfer, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in
equity or at law); and each Loan Document to which any Guarantor is a party is,
or upon the execution and delivery thereof by such Guarantor will be, the legal,
valid and binding obligation of such Guarantor, enforceable against such
Guarantor in accordance with its terms, except that enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and
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by general principles of equity (regardless of whether enforcement is sought in
equity or at law).
9.4 FINANCIAL INFORMATION. (a) The audited consolidated financial
statements of the Company and its Subsidiaries at January 31, 1997 and the
unaudited consolidated financial statements of the Company and its Subsidiaries
as at April 30, 1997, copies of which have been delivered to each Bank, have
been prepared in accordance with GAAP (subject, in the case of such unaudited
statements, to the absence of footnotes and to normal year-end adjustments) and
present fairly the consolidated financial condition of the Company and its
Subsidiaries taken as a whole as at such date and the results of their
operations for the periods then ended.
(b) To the best of the Company's knowledge, the audited consolidated
financial statements of Stanley and its Subsidiaries as at June 30, 1996
and the unaudited consolidated financial statements of Stanley and its
Subsidiaries as at March 31, 1997, copies of which have been delivered to
each Bank, have been prepared in accordance with generally accepted
accounting principles applicable in Australia (subject, in the case of such
unaudited statements, to the absence of footnotes and to normal year-end
adjustments) and present fairly the consolidated financial condition of
Stanley and its Subsidiaries taken as a whole as at such dates and the
results of their operations for the periods then ended.
(c) The unaudited pro forma consolidated statements of income of the
Company and its Subsidiaries as of January 31, 1997 and April 30, 1997,
copies of which have been delivered to each Bank, have been prepared in
conformity with GAAP and present fairly (to the best of the Company's
knowledge to the extent such statements relate to Stanley and its
Subsidiaries) the pro forma financial condition of the Company and its
Subsidiaries as at such dates as if Stanley had been a Subsidiary of the
Company for the periods ending on such dates.
9.5 NO MATERIAL ADVERSE CHANGE. Since January 31, 1997, no event or
events have occurred which, individually or in the aggregate, has had or is
reasonably likely to have a Material Adverse Effect.
9.6 LITIGATION AND CONTINGENT LIABILITIES. No litigation (including,
without limitation, derivative actions), arbitration proceeding or governmental
proceeding is pending or, to the Company's knowledge, threatened against the
Company or any Subsidiary which is reasonably likely to have a Material Adverse
Effect except as set forth in SCHEDULE 9.6. Other than any
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liability incident to such litigation or proceedings, neither the Company nor
any Subsidiary has any material contingent liabilities not provided for or
disclosed in the financial statements referred to in SECTION 9.4 or listed in
SCHEDULE 9.6.
9.7 OWNERSHIP OF PROPERTIES; LIENS. Each of the Company and each Material
Subsidiary owns good and marketable title to, or a valid leasehold interest in,
all of its properties and assets, real and personal, tangible and intangible, of
any nature whatsoever (including patents, trademarks, trade names, service marks
and copyrights), free and clear of all Liens, charges and claims (including
infringement claims with respect to patents, trademarks, copyrights and the
like) except (a) as permitted pursuant to SECTION 10.8 and (b) that the
Company's use of the name "Layne" is restricted in certain states in the
northeastern United States pursuant to the Agreement dated August 15, 1989
between Hydro Group, Inc. and the Company.
9.8 SUBSIDIARIES. The Company has no Subsidiaries except those listed in
SCHEDULE 9.8.
9.9 PENSION AND WELFARE PLANS. Except as previously disclosed to the
Banks in writing, during the twelve-consecutive-month period prior to the date
of the execution and delivery of this Agreement or the making of any Loan
hereunder, (a) no steps have been taken to terminate any Pension Plan which
would be reasonably likely to result in the Company being required to make a
contribution to such Pension Plan, or incurring a liability or obligation to
such Pension Plan, in excess of U.S.$500,000, and (b) no contribution failure
has occurred with respect to any Pension Plan sufficient to give rise to a Lien
under Section 302(f) of ERISA. No condition exists or event or transaction has
occurred with respect to any Pension Plan which could result in the incurrence
by the Company of any material liability, fine or penalty. Except as set forth
on SCHEDULE 9.9, the Company has no contingent liability with respect to any
post-retirement benefit under a Welfare Plan, other than liability for
continuation coverage described in Part 6 of subtitle B of title I of ERISA.
9.10 INVESTMENT COMPANY ACT. Neither the Company nor any Subsidiary is an
"investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
9.11 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company nor any
Subsidiary is a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
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9.12 REGULATION U. The Company is not engaged principally, or as one of
its important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
9.13 TAXES. Each of the Company and each Subsidiary has filed all tax
returns and reports required by law to have been filed by it (except for such
tax returns and reports with respect to which the failure to file timely would
not have a Material Adverse Effect) and has paid all taxes and governmental
charges thereby shown to be owing, except for (a) any such taxes or charges
which are being diligently contested in good faith by appropriate proceedings
and for which adequate reserves in accordance with GAAP shall have been set
aside on its books and (b) taxes which in the aggregate do not exceed a Dollar
Equivalent amount of U.S.$100,000.
9.14 SOLVENCY, ETC. On the Effective Date (or, in the case of any Person
which becomes a Guarantor after the Effective Date, on the date such Person
becomes a Guarantor), and immediately prior to and after giving effect to the
issuance of each Letter of Credit and each borrowing hereunder and the use of
the proceeds thereof, (a) each of the Company's and each Guarantor's assets will
exceed its liabilities and (b) each of the Company and each Guarantor will be
solvent, will be able to pay its debts as they mature, will own property with
fair saleable value greater than the amount required to pay its debts and will
have capital sufficient to carry on its business as then constituted.
9.15 HAZARDOUS MATERIALS.
9.15.1 RELEASE AND DISPOSAL. Except as previously disclosed to the Agent
and the Banks in writing prior to the date of this Agreement, (a) neither the
Company nor, to the best of the Company's present knowledge or belief, any other
Person has ever caused or permitted a "reportable quantity" (as defined in the
Comprehensive Environmental Response, Compensation and Liability Act) or a
material quantity of any Hazardous Material to be released or disposed of on,
under or at any real property owned, leased or operated by the Company or any
Material Subsidiary, (b) no such real property has ever been used (by the
Company or, to the best of the Company's present knowledge or belief, by any
other Person) as a site for intentional disposal of any Hazardous Material or a
permanent storage site for any Hazardous Material, and (c) neither the Company
nor, to the best of the Company's present knowledge or belief, any of its
predecessors has ever caused or permitted any Hazardous Material to be disposed
of at any locations other than those identified pursuant to CLAUSE (A), except,
in the case of CLAUSES (A), (B) and (C) collectively, for any such event which
does not constitute a Prohibited Environmental Event.
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9.15.2 TREATMENT AND STORAGE. Except in compliance with applicable law,
or except as previously disclosed to the Banks in writing prior to the date of
this Agreement, (a) neither the Company nor, to the best of the Company's
present knowledge or belief, any other Person has ever caused or permitted any
Hazardous Material to be treated or stored on, under or at any real property
owned, leased or operated by the Company or any Material Subsidiary and (b)
neither the Company nor, to the best of the Company's present knowledge or
belief, any of its predecessors has ever caused or permitted any Hazardous
Material (except for any which may have been present in raw materials or any
products) to be transported to, treated, or stored at any locations other than
those identified pursuant to CLAUSE (A), except, in the case of CLAUSES (A) and
(B) collectively, for any such event which does not constitute a Prohibited
Environmental Event.
9.16 INFORMATION. All written information taken as a whole heretofore or
contemporaneously herewith furnished by the Company or any Subsidiary to the
Agent or any Bank for purposes of or in connection with this Agreement and the
transactions contemplated hereby is, and all written information taken as a
whole hereafter furnished by or on behalf of the Company or any Subsidiary to
the Agent or any Bank pursuant hereto or in connection herewith will be, true
and accurate in every material respect on the date as of which such information
is dated or certified, and none of such information is or will be incomplete by
omitting to state any material fact necessary to make such information not
misleading.
9.17 STANLEY ACQUISITION. (a) The Stanley Acquisition complies in all
material respects with all applicable legal requirements, and all necessary
governmental, regulatory, shareholder and other consents and approvals required
for the consummation of the Stanley Acquisition have been, or prior to the
consummation thereof will be, duly obtained and in full force and effect.
(b) The consummation by Layne Australia of the Stanley Acquisition
will not violate any statute or regulation of the United States, Australia
or any other applicable jurisdiction, or any order, judgment or decree of
any court or governmental body, or result in a breach of, or constitute a
default under, any material agreement or indenture, or any order or decree,
affecting the Company or any of its Subsidiaries (including any entity
which will be a Subsidiary after giving effect to the Stanley Acquisition).
9.18 NO TRUSTEESHIPS. Neither the Company nor any Subsidiary acts as the
trustee of any trust.
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SECTION 10 COVENANTS.
Until the expiration or termination of the Commitments and thereafter until
all obligations of the Borrowers hereunder and under the other Loan Documents
are paid in full and all Letters of Credit have been terminated, the Company
agrees that, unless at any time the Required Banks shall otherwise expressly
consent in writing, it will:
10.1 REPORTS, CERTIFICATES AND OTHER INFORMATION. Furnish to the Agent
and each Bank:
10.1.1 AUDIT REPORT. Promptly when available and in any event within 90
days after the close of each Fiscal Year, (a) a copy of the annual audit report
of the Company and its Subsidiaries for such Fiscal Year, including therein
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such Fiscal Year and consolidated statements of earnings and cash flow of the
Company and its Subsidiaries for such Fiscal Year, which audit report shall be
without qualification as to going concern or scope and shall be prepared by
Deloitte & Touche or other independent auditors of recognized standing selected
by the Company and reasonably acceptable to the Required Banks, together with a
written statement from such auditors to the effect that in making the audit
necessary for the signing of such audit report by such accountants, they have
not become aware of any Event of Default or Unmatured Event of Default that has
occurred and is continuing or, if they have become aware of any such event,
describing it in reasonable detail; and (b) consolidating balance sheets of the
Company and its Subsidiaries as of the end of such Fiscal Year and consolidating
statements of earnings for the Company and its Subsidiaries for such Fiscal
Year, together with a certificate of the Chief Executive Officer, the Chief
Financial Officer or the Treasurer of the Company certifying that such financial
statements fairly present the financial condition and results of operations of
the Company and its Subsidiaries as of the dates and periods indicated.
10.1.2 QUARTERLY REPORTS. Promptly when available and in any event within
45 days after the end of each Fiscal Quarter (except the last Fiscal Quarter) of
each Fiscal Year, consolidated and consolidating balance sheets of the Company
and its Subsidiaries as of the end of such Fiscal Quarter and consolidated and
consolidating statements of earnings and consolidated statements of cash flow
for such Fiscal Quarter and for the period beginning with the first day of such
Fiscal Year and ending on the last day of such Fiscal Quarter, together with a
certificate of the Chief Executive Officer, the Chief Financial Officer or the
Treasurer of the Company, certifying that such financial statements fairly
present the financial condition and results of operations of the Company and its
Subsidiaries as of
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the dates and periods indicated, subject to changes resulting from audit and
normal year-end adjustments.
10.1.3 MONTHLY REPORTS. Promptly when available and in any event within
30 days after the end of each month of each Fiscal Year (except the last month
of each Fiscal Quarter), a financial report substantially in the form of the
monthly reports customarily prepared by the Company as of the date of this
Agreement, certified by the Chief Executive Officer, the Chief Financial Officer
or the Treasurer of the Company.
10.1.4 COMPLIANCE CERTIFICATES. Contemporaneously with the furnishing of
a copy of each annual audit report pursuant to SECTION 10.1.1 and of each set of
quarterly statements pursuant to SECTION 10.1.2, a duly completed certificate in
the form of EXHIBIT F, with appropriate insertions, dated the date of such
annual report or such quarterly statements and signed by the Chief Executive
Officer, the Chief Financial Officer or the Treasurer of the Company, containing
a computation of each of the financial ratios and restrictions set forth in this
SECTION 10 and to the effect that such officer has not become aware of any Event
of Default or Unmatured Event of Default that has occurred and is continuing or,
if there is any such event, describing it and the steps, if any, being taken to
cure it.
10.1.5 REPORTS TO SEC AND TO SHAREHOLDERS. Within 5 days of the filing or
sending thereof, a copy of any annual, periodic or special report or
registration statement (inclusive of exhibits thereto) filed with the SEC or any
securities exchange and any report, proxy statement or other communication to
the Company's shareholders generally.
10.1.6 NOTICE OF DEFAULT, LITIGATION AND ERISA MATTERS. Promptly (and in
any event within one Business Day in the case of CLAUSE (A) and within ten days
in the case of CLAUSES (B) through (F)) upon an executive officer of the Company
(which shall include, without limitation, the Chief Executive Officer, the Chief
Financial Officer, the President, the Treasurer and the General Counsel of the
Company) becoming aware of any of the following, written notice describing the
same and the steps being taken by the Company or the Subsidiary affected thereby
with respect thereto: (a) the occurrence of an Event of Default or an Unmatured
Event of Default; (b) any litigation, arbitration or governmental investigation
or proceeding not previously disclosed by the Company to the Agent or the Banks
which has been instituted or, to the knowledge of the Company, is threatened
against the Company or any Subsidiary or to which any of the properties of any
thereof is subject which has had or is reasonably likely to have a Material
Adverse Effect; (c) any material adverse development which occurs in any
litigation, arbitration or governmental investigation or proceeding
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previously disclosed pursuant to CLAUSE (B); (d) the institution of any steps by
the Company, any of its Subsidiaries or any other Person to terminate any
Pension Plan, or the failure to make a required contribution to any Pension Plan
if such failure is sufficient to give rise to a lien under Section 302(f) of
ERISA, or the taking of any action with respect to a Pension Plan which could
result in the requirement that the Company furnish a bond or other security to
the PBGC or such Pension Plan, or the occurrence of any event with respect to
any Pension Plan which could result in the incurrence by the Company of any
material liability, fine or penalty, or any material increase in the contingent
liability of the Company with respect to any post-retirement Welfare Plan
benefit; (e) any lapse, cancellation or termination of, or other material change
in, the pollution liability insurance policy maintained by the Company; and (f)
the occurrence of any other event or circumstance which has had or is reasonably
likely to have a Material Adverse Effect.
10.1.7 SUBSIDIARIES. Promptly upon the occurrences thereof, a written
report of any change in the list of its Subsidiaries.
10.1.8 MANAGEMENT REPORTS. Promptly upon the request of the Agent or any
Bank, copies of all detailed financial and management reports submitted to the
Company by independent auditors in connection with each annual or interim audit
made by such auditors of the books of the Company.
10.1.9 PROJECTIONS. As soon as practicable and in any event within 90
days after the commencement of each Fiscal Year, a consolidated plan and
financial forecast for such Fiscal Year, including, without limitation, (a) a
forecasted consolidated balance sheet and a consolidated statement of cash flow
of the Company for such Fiscal Year and (b) forecasted consolidated statements
of income and cash flows of the Company for each month of such Fiscal Year.
10.1.10 OTHER INFORMATION. From time to time such other information
concerning the Company and its Subsidiaries as any Bank or the Agent may
reasonably request.
10.2 BOOKS, RECORDS AND INSPECTIONS. Keep, and cause each Subsidiary to
keep, its books and records in accordance with sound business practices
sufficient to allow the preparation of financial statements in accordance with
GAAP; permit, and cause each Subsidiary to permit, on reasonable notice and at
reasonable times and intervals (or at any time without notice during the
existence of an Event of Default) any Bank or the Agent or any representative
thereof to inspect the properties and operations of the Company and of such
Subsidiary; and permit, and cause each Subsidiary to permit, on reasonable
notice and at reasonable
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times and intervals (or at any time without notice during the existence of an
Event of Default) any Bank or the Agent or any representative thereof to visit
any or all of its offices, to discuss its financial matters with its officers
and its independent auditors (and the Company hereby authorizes such independent
auditors to discuss such financial matters with any Bank or the Agent or any
representative thereof), and to examine (and, at the expense of the Company or
the applicable Subsidiary, photocopy extracts from) any of its books or other
corporate records. The Company agrees to pay the fees of its auditors incurred
in connection with any reasonable exercise of the rights of the Agent and the
Banks pursuant to this Section.
10.3 INSURANCE. Maintain, and cause each Subsidiary to maintain, with
reputable, financially sound insurance companies, insurance to such extent and
against such hazards and liabilities as is customarily maintained by companies
similarly situated (and, in any event, such insurance as may be required by any
law or governmental regulation or any court order or decree, provided that the
Company shall not be required to maintain any insurance so required if the
Company has reasonably determined that the failure to maintain such insurance
would not (i) be contrary to sound business practice and (ii) under any
reasonably foreseeable circumstances have a Material Adverse Effect); and, upon
request of the Agent or any Bank, furnish to the Agent or such Bank a
certificate setting forth in reasonable detail the nature and extent of all
insurance maintained by the Company and its Subsidiaries; PROVIDED THAT as of
the Effective Date, Stanley does not carry any insurance on equipment used in
the business operations of Stanley in Africa (such equipment, the "Africa
Equipment") and in order to give the Borrowers an opportunity to review
insurance which is appropriate for the Africa Equipment, for the period from the
Effective Date until the date four months after the Effective Date, neither
Stanley nor any Subsidiary of Stanley shall be required to carry any insurance
on any Africa Equipment.
10.4 COMPLIANCE WITH LAWS; PAYMENT OF TAXES AND LIABILITIES. (a) Comply,
and cause each Subsidiary to comply, in all material respects with all
applicable laws, rules, regulations and orders the noncompliance with which
would be reasonably likely to have a Material Adverse Effect; and (b) pay, and
cause each Subsidiary to pay, prior to delinquency, (i) all taxes and other
governmental charges against it or any of its property and (ii) all trade
accounts payable in accordance with usual and customary business terms, and all
claims for work, labor or materials, which if unpaid might become a Lien upon
any property of the Company or any Subsidiary; PROVIDED, HOWEVER, that (i) the
foregoing shall not require the Company or any Subsidiary to pay (x) any such
tax, trade account payable or charge so long as it shall contest the validity
thereof in good
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faith by appropriate proceedings and shall set aside on its books adequate
reserves with respect thereto in accordance with GAAP or (y) any trade account
payable, the nonpayment of which does not adversely affect the normal delivery
of supplies and services by vendors in the ordinary course of business; and (ii)
no Event of Default or Unmatured Event of Default shall arise under this CLAUSE
(B) if the aggregate Dollar Equivalent amount of all taxes, trade accounts
payable and other charges which have not been paid when due (and which are not
covered by SUBCLAUSE (I)) does not exceed U.S.$250,000.
10.5 MAINTENANCE OF EXISTENCE, ETC. Maintain and preserve, and (subject
to SECTION 10.12) cause each Material Subsidiary to maintain and preserve, (a)
its existence and good standing in the jurisdiction of its incorporation and (b)
its qualification and good standing as a foreign corporation in each
jurisdiction where the nature of its business makes such qualification necessary
(except in those instances in which the failure to be qualified or in good
standing would not (i) if cured, foreclose access to the courts of such
jurisdiction in respect of events occurring prior to such cure or (ii) in any
event, be reasonably likely to result in a Material Adverse Effect).
10.6 FINANCIAL COVENANTS.
10.6.1 MINIMUM INTEREST COVERAGE. Not permit the Interest Coverage Ratio
for any Computation Period, beginning with the Computation Period ending October
31, 1997, to be less than 2.50 to 1 for any Computation Period ending prior to
July 31, 1998, 2.75 to 1 for any Computation Period ending on or after July 31,
1998 but before July 31, 1999, and 3 to 1.00 for any Computation Period ending
on or after July 31, 1999.
10.6.2 MAXIMUM LEVERAGE. Not permit the Leverage Ratio as of the end of
any Fiscal Quarter, beginning with the Fiscal Quarter ending October 31, 1997,
to exceed 2.75 to 1.
10.6.3 DEBT TO CAPITALIZATION RATIO. Not permit the Debt to
Capitalization Ratio as of the end of any Fiscal Quarter to exceed (a) 0.625 to
1 for any Fiscal Quarter ending prior to January 31, 1998, (b) 0.60 to 1 for any
Fiscal Quarter ending on or after January 31, 1998 but before July 31, 1998, (c)
0.55 to 1 for any Fiscal Quarter ending on or after July 31, 1998 but before
April 30, 1999 or (d) 0.50 to 1 for any Fiscal Quarter ending on or after April
30, 1999; PROVIDED that if the Company completes a Qualified Public Offering,
then the Company will not permit the Debt to Capitalization Ratio to exceed (i)
0.55 to 1 as of the end of any Fiscal Quarter ending after the completion of
such Offering but before April 30, 1998 and (ii) 0.50 to 1 as the end of any
Fiscal Quarter on or after April 30, 1998.
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10.6.4 MINIMUM NET WORTH. Not permit Consolidated Adjusted Net Worth at
any time to be less than the sum of (a) U.S.$41,000,000 PLUS (b) 50% of
Consolidated Adjusted Net Income for each semiannual period consisting of the
first and second Fiscal Quarters and the third and fourth Fiscal Quarters from
and after January 31, 1996 to and including the date of any determination
thereof, computed on a cumulative basis for such entire period PLUS (c) an
amount equal to the Restricted Equity Amount. If Consolidated Adjusted Net
Income is a deficit for any such semiannual period, such deficit shall not
reduce the amount of Consolidated Adjusted Net Worth required to be maintained
pursuant to this SECTION 10.6.4.
10.6.5 CAPITAL EXPENDITURES. Not permit the aggregate amount of all
capital expenditures made by the Company and its Subsidiaries in any Fiscal Year
to exceed a Dollar Equivalent amount of U.S.$25,000,000; PROVIDED that the
limitation set forth above shall not apply to any Fiscal Year ending on or after
the first date occurring on or after October 31, 1997 on which, as of the last
day of a Fiscal Quarter, the Debt to Capitalization Ratio is less than 0.5 to 1.
10.7 LIMITATIONS ON DEBT. Not, and not permit any Material Subsidiary to,
create, incur, assume or suffer to exist any Debt, except (a) obligations
arising under the Loan Documents; (b) the Senior Notes; (c) Debt in respect of
Capital Leases; (d) Debt of Material Subsidiaries to the Company or to other
Material Subsidiaries; (e) unsecured Debt of the Company to Subsidiaries not
exceeding a Dollar Equivalent amount of U.S.$4,000,000; (f) Debt incurred in
connection with deferred compensation and supplemental pension payments of the
Company; (g) Hedging Obligations entered into by the Company or any Material
Subsidiary; (h) Suretyship Liabilities in respect of any obligation of the
Company or any Material Subsidiary permitted under this Agreement; (i) Debt in
respect of taxes, assessments or governmental charges to the extent that payment
thereof shall not at the time be required to be made in accordance with SECTION
10.4; (j) Debt in respect of judgments or awards not constituting an Event of
Default under SECTION 12.1.8; (k) Debt arising under non-compete agreements not
exceeding a Dollar Equivalent amount of U.S.$5,000,000; (l) other Debt
outstanding on the date hereof and listed in SCHEDULE 10.7(1) or hereafter
incurred in connection with Liens permitted by SECTION 10.8, and extensions,
renewals and refinancings of any Debt described in this CLAUSE (L) so long as
the principal amount thereof is not increased; (m) Suretyship Liabilities in
respect of indemnification obligations of the Company or any Material Subsidiary
pursuant to contractual agreements entered into by the Company or such
Subsidiary in the ordinary course of its business, not exceeding, in the
aggregate for the Company and its Material Subsidiaries, a Dollar Equivalent
amount of U.S.$2,500,000 at any time outstanding; (n)
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non-interest bearing demand promissory notes evidencing the Company's
obligations under various casualty insurance policies to reimburse the issuing
insurance companies for claims against the Company or any Subsidiary paid by
such insurance companies; (o) Debt of Stanley and its Subsidiaries listed in
SCHEDULE 10.7(O) which is repaid not less than 30 days after completion of the
Stanley Acquisition; (p) Suretyship Liabilities in respect of obligations of any
South American Affiliate of the Company in an aggregate Dollar Equivalent amount
not at any time exceeding U.S.$5,000,000; (q) Suretyship Liabilities in respect
of working capital Debt of Elgin Exploration Company Limited in an aggregate
Dollar Equivalent amount not at any time exceeding U.S.$2,000,000; (r) working
capital Debt of Stanley (and Suretyship Liabilities in respect thereof) in an
aggregate Dollar Equivalent amount not at any time exceeding U.S.$10,000,000;
(s) Suretyship Liabilities with respect to obligations of Stamm Scheele, Inc. in
connection with performance bonds issued in the ordinary course of business,
PROVIDED that the aggregate amount of all such Suretyship Liabilities shall not
at any time exceed U.S.$5,000,000; (t) Suretyship Liabilities with respect to
performance obligations of Elgin Exploration Company Limited relating to the
frozen barrier project at Echo Bay Mines, Ltd.'s Aquarius Gold Mine in Timmins,
Ontario, Canada; and (u) other Debt at any time outstanding, in addition to Debt
permitted by CLAUSES (A) through (T), which, when aggregated with the aggregate
Debt secured by Liens permitted pursuant to SECTION 10.8(N), shall not exceed a
Dollar Equivalent amount of U.S.$7,500,000.
10.8 LIENS. Not, and not permit any Material Subsidiary to, create or
permit to exist any Lien on any of its real or personal properties, assets or
rights of whatsoever nature (whether now owned or hereafter acquired), except
(a) Liens for taxes or other governmental charges not at the time delinquent or
thereafter payable without penalty or being contested in good faith by
appropriate proceedings and, in each case, for which it maintains adequate
reserves; (b) Liens arising in the ordinary course of business (such as (i)
Liens of carriers, warehousemen, mechanics and materialmen and other similar
Liens imposed by law and (ii) Liens incurred in connection with worker's
compensation, unemployment compensation and other types of social security
(excluding Liens arising under ERISA) or in connection with surety and appeal
bonds, bids, performance bonds and similar obligations) for sums not overdue or
being contested in good faith by appropriate proceedings and not involving any
deposits or advances or borrowed money or the deferred purchase price of
property or services, and, in each case, for which it maintains adequate
reserves; (c) Liens identified on SCHEDULE 10.8; (d) Liens in connection with
Capital Leases; (e) any Lien arising in connection with the acquisition,
construction or improvement of property after the date hereof, and attaching
only to the
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property being acquired, constructed or improved, if the Debt secured thereby
does not exceed 90% of the fair market value of the property acquired at the
time of acquisition thereof or 90% of the cost of such construction or
improvement, as the case may be, nor a Dollar Equivalent amount of
U.S.$5,000,000 in the aggregate for all such Debt of the Company and all
Material Subsidiaries at any one time outstanding; (f) attachments, judgments
and other similar Liens, for sums not exceeding a Dollar Equivalent amount of
U.S.$2,000,000 arising in connection with court proceedings, provided the
execution or other enforcement of such Liens is effectively stayed and claims
secured thereby are being actively contested in good faith and by appropriate
proceedings; (g) easements, rights of way, restrictions, minor defects or
irregularities in title and other similar Liens not interfering in any material
respect with the ordinary conduct of the business of the Company and its
Subsidiaries taken as a whole; (h) Liens in favor of the Agent arising under the
Loan Documents; (i) Liens securing obligations of a Subsidiary to the Company or
to a Wholly-Owned Subsidiary; (j) leases or subleases granted by the Company or
any Subsidiary in the ordinary course of its business; (k) the interest or title
of the lessor of any lease with respect to which the Company or a Subsidiary is
lessee; (l) extensions, renewals or replacements of any Lien permitted by the
foregoing provisions of this SECTION 10.8, but only if the principal amount of
the Debt secured thereby immediately prior to such extension, renewal or
replacement is not increased and such Lien is not extended to any other
property; (m) Liens on property of Stanley and its Subsidiaries securing Debt
described in SECTION 10.7(O); and (n) other Liens, in addition to Liens
permitted by CLAUSES (A) through (D) and (F) through (1), securing aggregate
Debt which, when aggregated with the Debt permitted to be outstanding pursuant
to SECTION 10.7(U), shall not exceed a Dollar Equivalent amount of
U.S.$7,500,000.
10.9 BUSINESS. The Company will not, and will not permit any Material
Subsidiary to, enter into any business which differs in any material respect
from the business in which the Company, or any Subsidiary of the Company
(including Stanley and its Subsidiaries), is engaged on the date of this
Agreement; PROVIDED that the Company or any Subsidiary may engage in other
businesses so long as the aggregate amount invested (whether via acquisition of
assets or stock, loans or advances, or otherwise) by the Company and its
Subsidiaries in all such businesses after the Effective Date shall not exceed a
Dollar Equivalent amount of U.S.$5,000,000.
10.10 RESTRICTED PAYMENTS. Not, and not permit any Subsidiary to, (a)
declare or pay any dividends on any of its capital stock (other than stock
dividends), (b) purchase or redeem any such stock or any warrants, options or
other rights in
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respect of such stock, (c) make any other distribution to shareholders (other
than the issuance of stock, or options in respect thereof, to directors,
officers and employees), (d) prepay, purchase or redeem any subordinated Debt or
(e) set aside funds for any of the foregoing; PROVIDED that (i) any Subsidiary
may declare and pay dividends to the Company or to a Wholly-Owned Subsidiary;
(ii) the Company may purchase stock of the Company on the open market and
re-issue such stock to officers and employees of the Company in connection with
incentive compensation plans or other agreements with officers, directors or
employees of the Company approved by the Board of Directors of the Company or
any committee thereof so long as the Company does not purchase more than
U.S.$1,000,000 of such stock in any Fiscal Year; (iii) G&K may make the G&K
Stock Repurchase; and (iv) so long as no Event of Default or Unmatured Event of
Default has occurred and is continuing or would result therefrom, the Company
may pay dividends to its shareholders and/or repurchase stock of the Company,
PROVIDED THAT the aggregate amount of all such dividends and repurchases made
after January 31, 1995 shall not exceed in the aggregate the sum of (x)
U.S.$1,000,000 plus (y) 25% of cumulative Consolidated Net Income for the period
commencing February 1, 1995 and terminating at the end of the last Fiscal
Quarter preceding the date of any proposed dividend or repurchase.
10.11 INVESTMENTS. The Company will not, nor will it permit any
Subsidiary to, make, incur, assume or suffer to exist any Investment in any
other Person, except:
(a) Investments existing on the Effective Date and identified in
EXHIBIT 10.11;
(b) Cash Equivalent Investments;
(c) Investments by the Company in its Subsidiaries or by any
Subsidiary in any other Subsidiary, in the form of contributions to capital
or loans or advances; PROVIDED that, immediately before or after giving
effect to such Investment, no Event of Default or Unmatured Event of
Default shall have occurred and be continuing;
(d) Investments received in connection with the bankruptcy,
insolvency or reorganization of customers and suppliers of the Company and
its Subsidiaries and the settlement of delinquent obligations of, and
disputes with, customers and suppliers of the Company and its Subsidiaries
in its ordinary course of business;
(e) loans or advances or capital contributions made by any Subsidiary
to the Company;
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(f) loans or advances to officers and employees not in excess of a
Dollar Equivalent amount of U.S.$1,500,000 in the aggregate outstanding at
any time;
(g) any loan to a Person purchasing real property or equipment from
the Company or any Subsidiary; PROVIDED that (i) such loan shall not exceed
50% of the sales price of such property or equipment, (ii) if such loan
exceeds a Dollar Equivalent amount of U.S.$200,000, the Company or such
Subsidiary shall retain a Lien on the property or equipment sold, and (iii)
the aggregate amount of all such loans shall not at any time exceed a
Dollar Equivalent amount of U.S.$1,000,000;
(h) Investments in equity securities listed on any national
securities exchange in the United States or Australia; provided that the
aggregate purchase price for all such securities held at any time shall not
exceed a Dollar Equivalent amount of U.S.$5,000,000;
(i) Investments by the Company in joint ventures or corporations that
are not Subsidiaries; provided that the aggregate Dollar Equivalent amount
of all such Investments made after the date of this Agreement shall not at
any time exceed 10% of Stockholders' Equity (calculated for each such
Investment as at the date such Investment is made);
(j) Investments made to consummate Acquisitions, provided that the
aggregate Dollar Equivalent amount of all such Investments (other than
Investments to consummate the Stanley Acquisition, the G&K Acquisition and
the Stamm Scheele Acquisition) made during the term of this Agreement shall
not exceed U.S.$10,000,000; and
(k) Investments in water wells drilled by the Company for local
municipalities in connection with which such municipality has entered into
a contract to purchase water from such well from the Company and to
purchase such well from the Company at a future date.
10.12 MERGERS, CONSOLIDATIONS, SALES. Not, and not permit any Subsidiary
to, be a party to any merger or consolidation, or purchase or otherwise acquire
all or substantially all of the assets or any stock of any class of, or any
partnership or joint venture interest in, any other Person, or, except in the
ordinary course of its business, sell, transfer, convey or lease any of its
assets, or sell or assign with or without recourse any receivables, except for
(i) any such merger or consolidation, sale, transfer, conveyance, lease or
assignment of or by any Wholly-Owned Subsidiary into the Company or into, with
or to any other Wholly-Owned Subsidiary, (ii) any such purchase or other
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acquisition by the Company or any Wholly-Owned Subsidiary of the assets or stock
of any Wholly-Owned Subsidiary, (iii) Investments permitted by SECTION 10.11,
and (iv) the sale of assets by the Company and its Subsidiaries so long as the
aggregate book value of such assets sold during the term of this Agreement shall
not at any time exceed 10% of the total assets of the Company and its
Subsidiaries as at the last day of the most recently-completed Fiscal Year.
10.13 MODIFICATION OF ORGANIZATIONAL DOCUMENTS. Not permit the
Certificate of Incorporation, By-Laws or other organizational documents of the
Company or any Material Subsidiary to be amended or modified in any way which
would materially adversely affect the interests of the Banks.
10.14 USE OF PROCEEDS. Use the proceeds of the Loans to refinance
existing Debt, for working capital, for capital expenditures and for other
general corporate purposes (including Acquisitions permitted hereunder); and not
use or permit any proceeds of any Loan to be used, either directly or
indirectly, for the purpose, whether immediate, incidental or ultimate, of
"purchasing or carrying" any Margin Stock.
10.15 FURTHER ASSURANCES. (a) Take, and cause each Material Subsidiary to
take, such actions as are necessary, or as the Agent or any Bank may reasonably
request, from time to time to ensure that the obligations of the Borrowers
hereunder are guarantied by all Material Subsidiaries of the Company (including,
promptly upon the acquisition or creation thereof, any Material Subsidiary
acquired or created after the date hereof). Notwithstanding the foregoing,
Layne Australia and any Subsidiary thereof which is a Material Subsidiary shall
not be obligated to guaranty such obligations until September 30, 1997 (it being
understood that by such date (x) the Company shall cause each such entity to
execute and deliver a counterpart of the Guaranty and (y) in conjunction
therewith, each such entity shall deliver to the Agent such resolutions,
incumbency certificates, opinions and other documents (including evidence of
compliance with Section 206(6) of the Corporations Law of Australia) as the
Agent or the Required Banks may reasonably request to confirm the authorization,
execution and delivery of the Guaranty by, and the enforceability of the
Guaranty against, such entity).
(b) If a Qualified Public Offering is not completed on or before
October 31, 1997, take, and cause each applicable Subsidiary to take, such
actions (including the execution and delivery of pledge agreements, the
delivery of stock certificates and stock powers signed in blank, and the
delivery of certificates and opinions to confirm the effectiveness of such
pledge agreements) as are necessary,
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or as the Agent or any Bank may reasonably request, so that (effective on
November 1, 1997 and at all times thereafter until the Collateral Release
Date (as defined below)) the obligations of the Borrowers and the
Guarantors under the Loan Documents are secured by perfected,
first-priority security interests (subject only to a PARI PASSU Lien in
favor of holders of the Senior Notes) in the stock of each Material
Subsidiary and in 65% of the capital stock of each Foreign Subsidiary which
(x) is a direct Subsidiary of the Company or a Subsidiary which is not a
Foreign Subsidiary and (y) which, together with all of its Subsidiaries,
owns 2% or more of the consolidated assets of the Company and its
Subsidiaries or had 2% or more of the consolidated revenues of the Company
and its Subsidiaries during the most recently ended Fiscal Quarter. For
purposes of the foregoing, the "Collateral Release Date" shall be the first
date on which (i) a Qualified Public Offering has been completed and (ii)
no Event of Default or Unmatured Event of Default exists or would result
from the release of the collateral described in the foregoing sentence.
10.16 TRANSACTIONS WITH AFFILIATES. Not, and not permit any Subsidiary
to, enter into or permit to exist any transaction, arrangement or contract with
any of its Affiliates (other than the Company and its Subsidiaries) which is on
terms which are less favorable than are obtainable from a Person which is not
one of its Affiliates; PROVIDED that the foregoing restriction shall not apply
to fees paid to KKR for the rendering of financial consulting services to the
Company.
10.17 EMPLOYEE BENEFIT PLANS. Maintain, and cause each Subsidiary to
maintain, each Pension Plan in compliance with all applicable requirements of
law and regulations.
10.18 ENVIRONMENTAL COVENANTS.
10.18.1 ENVIRONMENTAL RESPONSE OBLIGATION. (a) Comply, and cause each
Subsidiary to comply, in a reasonable and cost-effective manner with any valid
Federal, state or territory judicial or administrative order requiring the
performance at any real property owned, operated or leased by the Company or any
Subsidiary of activities in response to the release or threatened release of a
Hazardous Material except for the period of time that the Company or such
Subsidiary is diligently in good faith contesting such order; (b) notify the
Agent within ten days of the receipt of any written claim, demand, proceeding,
action or notice of liability by any Person arising out of or relating to the
release or threatened release of a Hazardous Material, except with respect to
any such release or threatened release which constitutes a Non-Reportable
Environmental Event; and (c) notify the Agent within ten days of any release,
threat of release, or
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disposal of Hazardous Material reported to any governmental regulatory authority
at any real property owned, operated, or leased by the Company or any
Subsidiary.
10.18.2 ENVIRONMENTAL LIABILITIES. Not violate any requirement of law
regarding Hazardous Materials if such violation is reasonably likely to result
in a Prohibited Environmental Event; and, without limiting the foregoing, not
commence disposal of any Hazardous Material into or onto any real property
owned, operated or leased by the Company or any Subsidiary nor allow any Lien
imposed pursuant to any law, regulation or order relating to Hazardous Materials
or the disposal thereof to remain on such real property. For purposes of this
Agreement "disposal" means the intentional placement of Hazardous Materials with
no intention of retrieval.
10.19 UNCONDITIONAL PURCHASE OBLIGATIONS. Not, and not permit any
Material Subsidiary to, enter into or be a party to any contract for the
purchase of materials, supplies or other property or services, if such contract
requires that payment be made by it regardless of whether or not delivery is
ever made of such materials, supplies or other property or services.
10.20 INCONSISTENT AGREEMENTS. Not, and not permit any Subsidiary to,
enter into any material agreement containing any provision which would be
violated or breached by any borrowing by the Company hereunder or by the
performance by the Company or any Subsidiary of any of its obligations hereunder
or under any other Loan Document.
10.21 SUBSIDIARIES. The Company will not at any time permit more than 10%
of its consolidated assets to be owned by, or more than 10% of its consolidated
revenues for any Fiscal Quarter to be earned by, Subsidiaries which are not
Material Subsidiaries or Foreign Subsidiaries; and consistent with current
practice, the Company will conduct a substantial part of its consolidated
business directly and not through Subsidiaries (provided that the Company may
(i) conduct its foreign operations through joint ventures, Foreign Subsidiaries
and Layne Australia and its Subsidiaries to the extent otherwise permitted
herein and (ii) conduct its environmental drilling and related environmental
business through one or more Subsidiaries).
10.22 OTHER FINANCIAL COVENANTS. Not, and not permit any Subsidiary to,
enter into or permit to exist any agreement relating to Debt of the Company or
any Material Subsidiary which contains financial covenants which are more
restrictive than the financial covenants set forth in SECTION 10.6.
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SECTION 11 CONDITIONS PRECEDENT.
11.1 CONDITIONS TO EFFECTIVENESS. This Agreement shall become effective,
and all Existing Letters of Credit shall be deemed to have been issued
hereunder, on the date (the "Effective Date") on which all of the following
conditions precedent shall have been satisfied: (i) the conditions for a credit
extension specified in SECTION 11.2 shall have been satisfied; (ii) the Agent
shall have received (x) for the account of each Bank, the closing fee separately
agreed to by such Bank, and (y) for the account of the Agent and the Arranger,
the fees described in SECTION 5.3 (to the extent then due); (iii) the Agent
shall have received evidence that all Loans, all interest thereon, all fees and
all other amounts then payable under the Existing Agreement have been, or on the
Effective Date will be, paid in full (which payment may be made with the
proceeds of the initial Loans hereunder); (iv) the Agent shall have received
evidence that the Senior Notes have been amended to permit the Stanley
Acquisition; (v) the Agent shall have received evidence, reasonably satisfactory
to the Agent, that the Stanley Acquisition will be consummated within three
Business Days after the Effective Date; and (vi) the Agent shall have received
all of the following, each duly executed and dated the Effective Date (or such
earlier date as shall be satisfactory to the Agent), in form and substance
satisfactory to the Agent and the Banks, and each (except for the Notes, of
which only the originals shall be signed) in sufficient number of signed
counterparts to provide one for the Agent and each Bank:
11.1.1 AGREEMENT AND NOTES. Counterparts of this Agreement executed by
each of the parties hereto (it being understood that the Agent may rely on a
facsimile copy of the applicable signature page of this Agreement in determining
whether any party hereto has executed and delivered counterparts hereof), a Note
for each Bank issued by the Company and a Note for each Australian Bank issued
by Layne Australia.
11.1.2 RESOLUTIONS. Certified copies of resolutions of the Board of
Directors of each Borrower authorizing or ratifying the execution, delivery and
performance by such Borrower of this Agreement, the Notes and the other Loan
Documents to which such Borrower is a party; and certified copies of resolutions
of the Board of Directors of each Guarantor authorizing or ratifying the
execution, delivery and performance by such Guarantor of each Loan Document to
which such Guarantor is a party.
11.1.3 INCUMBENCY AND SIGNATURE CERTIFICATES. A certificate of
the Secretary or an Assistant Secretary (or other appropriate officer) of each
Borrower and each Guarantor certifying the names of the officer or officers of
such entity authorized to sign the Loan Documents to which such entity is a
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party and any other document in connection with this Agreement, together with a
sample of the true signature of each such officer (it being understood that the
Agent and each Bank may conclusively rely on each such certificate until
formally advised by a like certificate of any changes therein).
11.1.4 GUARANTY. A guaranty (the "Guaranty"), substantially in the form
of EXHIBIT G, executed by each Guarantor.
11.1.5 OPINIONS OF COUNSEL FOR THE COMPANY AND THE GUARANTORS. The
opinions of (a) Latham & Watkins, counsel to the Company and the Guarantors,
substantially in the form of EXHIBIT H, (b) Kent B. Magill, Vice
President-General Counsel and Secretary of the Company, substantially in the
form of EXHIBIT I, (c) Baker & McKenzie, Australian counsel to the Company and
Layne Australia, substantially in the form of EXHIBIT J, and (d) Prince, Yeates
& Geldzahler, Utah counsel to Boyles Bros. Drilling Company, substantially in
the form of EXHIBIT K.
11.1.6 INSURANCE CERTIFICATE. A certificate setting forth in reasonable
detail the nature and extent of all insurance maintained by the Company and its
Subsidiaries.
11.1.7 OTHER. Such other documents as the Agent or any Bank may
reasonably request.
11.2 ALL LOANS AND LETTERS OF CREDIT. The obligation of each Bank to
make each Loan and of the Issuer to issue each Letter of Credit is subject to
the following further conditions precedent that:
11.2.1 NO DEFAULT. (a) No Event of Default or Unmatured Event of Default
has occurred and is continuing or will result from the making of such Loan or
the issuance of such Letter of Credit and (b) the warranties of the Company
contained in SECTION 9 (excluding, in the case of any Loan made or Letter of
Credit issued after the date of the initial Loans, SECTIONS 9.6 and 9.8 and
except to the extent changes in facts or conditions are expressly permitted or
required hereunder) are true and correct as of the date of the making of such
requested Loan or the issuance of such requested Letter of Credit, with the same
effect as though made on such date.
11.2.2 CONFIRMATORY CERTIFICATE. If requested by the Agent or any Bank,
the Agent shall have received (in sufficient counterparts to provide one to each
Bank) a certificate dated the date of the making of such requested Loan or the
issuance of such requested Letter of Credit and signed by a duly authorized
representative of the Company as to the matters set out in SECTION 11.2.1 (it
being understood that each request by a
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Borrower for the making of a Loan or by the Company for the issuance of a Letter
of Credit shall be deemed to constitute a representation and warranty that the
conditions precedent set forth in SECTION 11.2.1 will be satisfied at the time
of the making of such Loan or the issuance of such Letter of Credit), together
with such other documents as the Agent or any Bank may reasonably request in
support thereof.
SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT.
12.1 EVENTS OF DEFAULT. Each of the following shall constitute an Event
of Default under this Agreement:
12.1.1 NON-PAYMENT OF THE LOANS, ETC. Default in the payment when due of
the principal of any Loan; or default, and continuance thereof for five days, in
the payment when due of any interest, fee, reimbursement obligation with respect
to any Letter of Credit or other amount payable by either Borrower hereunder or
under any other Loan Document.
12.1.2 NON-PAYMENT OF OTHER DEBT. Any default shall occur under the terms
applicable to any Debt of the Company or any Subsidiary in an aggregate Dollar
Equivalent amount (for all Debt so affected) exceeding U.S.$1,000,000 and such
default shall (a) consist of the failure to pay such Debt when due (subject to
any applicable grace period), whether by acceleration or otherwise, or (b)
accelerate the maturity of such Debt or permit the holder or holders thereof, or
any trustee or agent for such holder or holders, to cause such Debt to become
due and payable prior to its expressed maturity.
12.1.3 OTHER MATERIAL OBLIGATIONS. Default in the payment when due, or in
the performance or observance of, any material obligation of, or condition
agreed to by, the Company or any Material Subsidiary with respect to any
material purchase or lease of goods or services (except only to the extent that
the existence of any such default is being contested by the Company or such
Material Subsidiary in good faith and by appropriate proceedings and appropriate
reserves have been made in respect of such default).
12.1.4 BANKRUPTCY, INSOLVENCY, ETC. The Company or any Material
Subsidiary becomes insolvent or generally fails to pay, or admits in writing its
inability or refusal to pay, debts as they become due; or the Company or any
Material Subsidiary applies for, consents to, or acquiesces in the appointment
of a trustee, receiver, receiver and manager, administrator, liquidator,
provisional liquidator or other custodian for the Company or such Material
Subsidiary or any property thereof, or makes a general assignment for the
benefit of creditors; or, in the absence of such application, consent or
acquiescence, a
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trustee, receiver, receiver and manager, administrator, liquidator, provisional
liquidator or other custodian is appointed for the Company or any Material
Subsidiary or for a substantial part of the property of any thereof and is not
discharged within 60 days; or any bankruptcy, reorganization, debt arrangement,
or other case or proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding (except the voluntary dissolution, not
under any bankruptcy or insolvency law, of a Subsidiary), is commenced in
respect of the Company or any Material Subsidiary, and if such case or
proceeding is not commenced by the Company or such Material Subsidiary, it is
consented to or acquiesced in by the Company or such Material Subsidiary, or
remains for 60 days undismissed; or the Company or any Material Subsidiary takes
any corporate action to authorize, or in furtherance of, any of the foregoing.
12.1.5 NON-COMPLIANCE WITH PROVISIONS OF THIS AGREEMENT. Failure by the
Company to comply with or to perform any covenant set forth in SECTIONS 10.6
through 10.8 and 10.10 through 10.14; or failure by either Borrower to comply
with or to perform any other provision of this Agreement (and not constituting
an Event of Default under any of the other provisions of this SECTION 12) and
continuance of such failure for 30 days after notice thereof to the Company from
the Agent or any Bank or the holder of any Note.
12.1.6 WARRANTIES. Any warranty made by the Company herein is breached or
is false or misleading in any material respect, or any schedule, certificate,
financial statement, report, notice or other writing furnished by the Company or
Layne Australia to the Agent or any Bank is false or misleading in any material
respect on the date as of which the facts therein set forth are stated or
certified.
12.1.7 PENSION PLANS. (i) Institution of any steps by the Company or any
other Person to terminate a Pension Plan if as a result of such termination the
Company could be required to make a contribution to such Pension Plan, or could
incur a liability or obligation to such Pension Plan, in excess of U.S.$500,000,
or (ii) a contribution failure occurs with respect to any Pension Plan
sufficient to give rise to a Lien under section 302(f) of ERISA.
12.1.8 JUDGMENTS. Final judgments which exceed an aggregate Dollar
Equivalent amount of U.S.$2,000,000 shall be rendered against the Company or any
Subsidiary and shall not have been discharged or vacated or had execution
thereof stayed pending appeal within 30 days after entry or filing of such
judgments.
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12.1.9 INVALIDITY OF GUARANTY, ETC. The Guaranty shall cease to be in
full force and effect with respect to any Guarantor, any Guarantor shall fail
(subject to any applicable grace period) to comply with or to perform any
applicable provision of the Guaranty, or any Guarantor (or any Person by,
through or on behalf of such Guarantor) shall contest in any manner the
validity, binding nature or enforceability of the Guaranty with respect to such
Guarantor.
12.1.10 CHANGE IN CONTROL. (a) Any Person or group of Persons (within the
meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended,
but excluding KKR and its Affiliates) shall acquire beneficial ownership (within
the meaning of Rule 13d-3 promulgated under such Act) of 30% or more of the
outstanding shares of common stock of the Company AND KKR and/or one or more
Affiliates thereof shall fail to have beneficial ownership of more outstanding
shares of common stock of the Company than such Person or group of Persons; or
(b) during any 24-month period, individuals who at the beginning of such period
constituted the Company's Board of Directors (together with any new directors
whose election by the Company's Board of Directors or whose nomination for
election by the Company's shareholders was approved by a vote of a majority of
the directors who either were directors at beginning of such period or whose
election or nomination was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company.
12.1.11 BONDING AGREEMENTS. (a) Any Person executing bonds, undertakings
or instruments of guaranty as surety for the Company or any of its Material
Subsidiaries with respect to any drilling contracts or similar contracts to be
entered into by the Company or such Subsidiary for any reason generally ceases
to issue such bonds, undertakings or instruments of guaranty and such cessation
could reasonably be expected to have a Material Adverse Effect; or (b) the
Company or any of its Material Subsidiaries breaches or defaults with respect to
any term of any bonded contract if the effect of such breach or default is to
cause any Person executing bonds, undertakings or instruments of guaranty as
surety for the Company or such Subsidiary to take possession of the work under
such bonded contract and such possession could reasonably be expected to have a
Material Adverse Effect.
12.2 EFFECT OF EVENT OF DEFAULT. If any Event of Default described in
SECTION 12.1.4 shall occur, the Commitments (if they have not theretofore
terminated) shall immediately terminate and the Notes and all other obligations
hereunder shall become immediately due and payable and the Company shall become
immediately obligated to deliver to the Agent cash collateral in a Dollar
Equivalent amount equal to the outstanding face amount
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of all Letters of Credit, all without presentment, demand, protest or notice of
any kind; and, in the case of any other Event of Default, the Agent may (and
upon written request of the Required Banks shall) declare the Commitments (if
they have not theretofore terminated) to be terminated and/or declare all Notes
and all other obligations hereunder to be due and payable and/or demand that the
Company immediately deliver to the Agent cash collateral in a Dollar Equivalent
amount equal to the outstanding face amount of all Letters of Credit, whereupon
the Commitments (if they have not theretofore terminated) shall immediately
terminate and/or all Notes and all other obligations hereunder shall become
immediately due and payable and/or the Company shall immediately become
obligated to deliver to the Agent cash collateral in a Dollar Equivalent amount
equal to the face amount of all Letters of Credit, all without presentment,
demand, protest or notice of any kind. The Agent shall promptly advise the
Company of any such declaration, but failure to do so shall not impair the
effect of such declaration. Notwithstanding the foregoing, the effect as an
Event of Default of any event described in SECTION 12.1.1 or 12.1.4 may be
waived by the written concurrence of all of the Banks, and the effect as an
Event of Default of any other event described in this SECTION 12 may be waived
by the written concurrence of the Required Banks. Any cash collateral delivered
hereunder shall be held by the Agent (without liability for interest thereon)
and applied to obligations arising in connection with any drawing under a Letter
of Credit. After the expiration or termination of all Letters of Credit, such
cash collateral shall be applied by the Agent to any remaining obligations
hereunder and any excess shall be delivered to the Company or as a court of
competent jurisdiction may direct.
SECTION 13 THE AGENT.
13.1 APPOINTMENT AND AUTHORIZATION. (a) Each Bank hereby irrevocably
(subject to Section 13.9) appoints, designates and authorizes the Agent to take
such action on its behalf under the provisions of this Agreement, each other
Loan Document and each other document executed by either Borrower or any
Guarantor in connection with this Agreement and to exercise such powers and
perform such duties as are expressly delegated to it by the terms of this
Agreement, any other Loan Document or any other document executed by either
Borrower or any Guarantor in connection with this Agreement, together with such
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary contained elsewhere in this Agreement, in any other Loan Document
or any other document executed by either Borrower or any Guarantor in connection
with this Agreement, the Agent shall not have any duties or responsibilities
except those expressly set forth herein, nor shall the Agent have or be deemed
to have any fiduciary relationship with any Bank, and no implied covenants,
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functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement, any other Loan Document or any other document executed by
either Borrower or any Guarantor in connection with this Agreement or otherwise
exist against the Agent.
(b) The Issuer shall act on behalf of the Banks with respect to all
Letters of Credit and the documents associated therewith until such time
and except for so long as the Agent may agree at the request of the Banks
to act for the Issuer with respect thereto; PROVIDED, HOWEVER, that the
Issuer shall have all of the benefits and immunities (i) provided to the
Agent in this SECTION 13 with respect to any acts taken or omissions
suffered by the Issuer in connection with Letters of Credit issued or
proposed to be issued by it and the Letter of Credit Applications and
related documents as fully as if the term "Agent", as used in this SECTION
13, included the Issuer with respect to such acts or omissions and (ii) as
additionally provided in this Agreement with respect to the Issuer.
13.2 DELEGATION OF DUTIES. The Agent may execute any of its duties under
this Agreement, any other Loan Document or any other document executed by either
Borrower or any Guarantor in connection with this Agreement by or through
agents, employees or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Agent shall not
be responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care.
13.3 LIABILITY OF AGENT. None of the Agent-Related Persons shall (i) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement, any other Loan Document or any other document
executed by either Borrower or any Guarantor in connection with this Agreement
or the transactions contemplated hereby (except for its own gross negligence or
willful misconduct), or (ii) be responsible in any manner to any of the Banks
for any recital, statement, representation or warranty made by the Company or
any Subsidiary or Affiliate of the Company, or any officer thereof, contained in
this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement, any other Loan Document or
any other document executed by the Company or any Subsidiary or Affiliate of the
Company in connection with this Agreement, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement, any other Loan
Document or any other document executed by either Borrower or any Guarantor in
connection with this Agreement, or for any failure of the Company or any other
party to any such document to perform its
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obligations hereunder or thereunder. No Agent-Related Person shall be under any
obligation to any Bank to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of the Company or any of the Company's Subsidiaries or Affiliates.
13.4 RELIANCE BY AGENT. (a) The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel
to either Borrower), independent accountants and other experts selected by the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement, any other Loan Document, or any other document
executed by either Borrower or any Guarantor in connection with this Agreement
unless it shall first receive such advice or concurrence of the Required Banks
as it deems appropriate and, if it so requests, it shall first be indemnified to
its satisfaction by the Banks against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.
The Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement, any other Loan Document or any other document
executed by either Borrower or any other Guarantor in connection with this
Agreement in accordance with a request or consent of the Required Banks and such
request and any action taken or failure to act pursuant thereto shall be binding
upon all of the Banks.
(b) For purposes of determining compliance with the conditions
specified in SECTION 11, each Bank that has executed this Agreement shall
be deemed to have consented to, approved or accepted or to be satisfied
with each document or other matter either sent by the Agent to such Bank
for consent, approval, acceptance or satisfaction, or required thereunder
to be consented to or approved by or acceptable or satisfactory to such
Bank.
13.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Event of Default or Unmatured Event of
Default, except with respect to defaults in the payment of principal, interest
and fees required to be paid to the Agent for the account of the Banks or the
Australian Banks, as applicable, unless the Agent shall have received written
notice from a Bank or the Company referring to this Agreement, describing such
Event of Default or Unmatured
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Event of Default and stating that such notice is a "notice of default". The
Agent will notify the Banks of its receipt of any such notice. The Agent shall
take such action with respect to such Event of Default or Unmatured Event of
Default as may be requested by the Required Banks in accordance with SECTION 12;
PROVIDED, HOWEVER, that unless and until the Agent has received any such
request, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Event of Default or
Unmatured Event of Default as it shall deem advisable or in the best interest of
the Banks.
13.6 CREDIT DECISION. Each Bank acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Agent hereinafter taken, including any review of the affairs of the
Company and its Subsidiaries, shall be deemed to constitute any representation
or warranty by any Agent-Related Person to any Bank. Each Bank represents to
the Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of the
Company and its Subsidiaries, and all applicable bank regulatory laws relating
to the transactions contemplated hereby, and made its own decision to enter into
this Agreement and to extend credit to the Borrower hereunder. Each Bank also
represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement,
the other Loan Documents and any other documents executed by either Borrower or
any Guarantor in connection with this Agreement, and to make such investigations
as it deems necessary to inform itself as to the business, prospects,
operations, property, financial and other condition and creditworthiness of the
Borrower. Except for notices, reports and other documents expressly herein
required to be furnished to the Banks by the Agent, the Agent shall not have any
duty or responsibility to provide any Bank with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of the Company or any of its Subsidiaries which
may come into the possession of any of the Agent-Related Persons.
13.7 INDEMNIFICATION. Whether or not the transactions contemplated hereby
are consummated, the Banks shall indemnify upon demand the Agent-Related Persons
(to the extent not reimbursed by or on behalf of the Company and without
limiting the obligation of the Company to do so), pro rata according to their
Percentages, from and against any and all Indemnified Liabilities; PROVIDED,
HOWEVER, that no Bank shall be liable for
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the payment to any Agent-Related Person of any portion of such Indemnified
Liabilities resulting from such Person's bad faith, gross negligence or willful
misconduct. Without limitation of the foregoing, each Bank shall reimburse the
Agent upon demand for its ratable share of any costs or out-of-pocket expenses
(including Attorney Costs) incurred by the Agent in connection with the
preparation, negotiation, execution, closing, delivery, ongoing administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, any other
document executed by either Borrower or any Guarantor in connection with this
Agreement, or any document contemplated by or referred to herein, to the extent
that the Agent is not reimbursed for such expenses by or on behalf of the
Borrowers. The undertaking in this Section shall survive the expiration or
termination of the Commitments, the repayment of the Loans and all other
obligations of the Borrowers hereunder, the expiration or termination of the
Letters of Credit, the termination of this Agreement and the resignation of the
Agent.
13.8 AGENT IN INDIVIDUAL CAPACITY. The Agent and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Company and its
Subsidiaries and Affiliates as though the Agent were not the Agent hereunder and
without notice to or consent of the Banks. The Banks acknowledge that, pursuant
to such activities, the Agent or its Affiliates may receive information
regarding the Company or its Subsidiaries or Affiliates (including information
that may be subject to confidentiality obligations in favor of the Company or
such Subsidiary or Affiliate) and acknowledge that the Agent shall be under no
obligation to provide such information to them. With respect to their
respective Loans (if any), the Agent and its Affiliates shall have the same
rights and powers under this Agreement as any other Bank and may exercise the
same as though BofA were not the Agent, and the terms "Bank", "Banks",
"Australian Bank" and "Australian Banks" include BofA (and any applicable
Affiliate thereof) in such capacity, as applicable.
13.9 SUCCESSOR AGENT. The Agent may, and at the request of the Required
Banks shall, resign as Agent upon 30 days' notice to the Banks and the Company.
If the Agent resigns under this Agreement, the Required Banks shall appoint from
among the Banks a successor agent for the Banks. If no successor agent is
appointed prior to the effective date of the resignation of the Agent, the Agent
may appoint, after consulting with the Banks and the Company, a successor agent
from among the Banks. Upon the acceptance of its appointment as successor agent
hereunder, such
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successor agent shall succeed to all the rights, powers and duties of the
retiring Agent and the term "Agent" shall mean such successor agent and the
retiring Agent's appointment, powers and duties as Agent shall be terminated.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this SECTION 13, SECTION 15.6 and SECTION 15.13 shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was Agent under this
Agreement. If no successor agent has accepted appointment as Agent by the date
which is 30 days following a retiring Agent's notice of resignation, the
retiring Agent's resignation shall nevertheless thereupon become effective and
the Banks shall perform all of the duties of the Agent hereunder until such
time, if any, as the Required Banks appoint a successor agent as provided for
above. Notwithstanding the foregoing, however, BofA shall not be required to
resign as the Agent at the request of the Required Banks unless BofA shall also
simultaneously be replaced as "Issuer" hereunder pursuant to documentation in
form and substance reasonably satisfactory to BofA.
13.10 OTHER AGENTS. None of the Banks identified on the signature pages
of this Agreement or any related document as a "Co-Agent" shall have any right,
power, obligation, liability, responsibility or duty under this Agreement other
than those applicable to all Banks as such. Without limiting the foregoing,
none of the Banks so identified as a "Co-Agent" shall have or be deemed to have
any fiduciary relationship with any Bank. Each Bank acknowledges that it has
not relied, and will not rely, on any of the Banks so identified in deciding to
enter into this Agreement or in taking or not taking action hereunder.
SECTION 14 GUARANTY BY THE COMPANY
14.1 GUARANTY. The Company hereby unconditionally and irrevocably
guarantees the full and punctual payment (whether at stated maturity, upon
acceleration or otherwise) of the principal of and interest on each Note issued
by Layne Australia, and the full and punctual payment of all other amounts
payable by Layne Australia under this Agreement. Upon failure by Layne
Australia to pay punctually any such amount, the Company shall forthwith on
demand pay the amount not so paid at the place, in the currency and in the
manner specified in this Agreement. In addition (and without limiting the
foregoing), upon any Loan to Layne Australia being declared or otherwise
becoming immediately due and payable pursuant to SECTION 12.2, the Company shall
forthwith on demand pay all amounts payable under such Loan at the place, in the
currency and in the manner specified in this Agreement.
14.2 GUARANTY UNCONDITIONAL. The obligations of the Company under this
SECTION 14 shall be unconditional and absolute
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and, without limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:
(a) any extension, renewal, settlement, compromise, waiver or release
in respect of any obligation of Layne Australia under this Agreement or any
Note, by operation of law or otherwise;
(b) any modification or amendment of or supplement to this Agreement
or any Note (it being understood that the foregoing shall not permit any
modification, amendment or supplement without the consent of the Company
or, in the case of a Note, the applicable Borrower);
(c) any release, impairment, non-perfection or invalidity of any
direct or indirect security for any obligation of Layne Australia under
this Agreement or any Note;
(d) any change in the corporate existence, structure or ownership of
Layne Australia or any insolvency, bankruptcy, reorganization or other
similar proceeding affecting Layne Australia or Layne Australia's assets or
any resulting release or discharge of any obligation of Layne Australia
contained in this Agreement or any Note;
(e) the existence of any claim, set-off or other right which the
Company may have at any time against Layne Australia, the Agent, any Bank
or any other Person, whether in connection herewith or any unrelated
transaction, PROVIDED that nothing herein shall prevent the assertion of
any such claim by separate suit or compulsory counterclaim;
(f) any invalidity or unenforceability relating to or against Layne
Australia for any reason of this Agreement or any Note, or any provision of
applicable law or regulation purporting to prohibit the payment by Layne
Australia of the principal of or interest on any Note or any other amount
payable by Layne Australia under this Agreement; or
(g) any other act or omission to act or delay of any kind by Layne
Australia, the Agent, any Bank or any other Person or any other
circumstance whatsoever which might, but for the provisions of this
paragraph, constitute a legal or equitable discharge of the Company's
obligations as guarantor hereunder.
14.3 DISCHARGE ONLY UPON PAYMENT IN FULL; REINSTATEMENT IN CERTAIN
CIRCUMSTANCES. The Company's obligations as guarantor hereunder shall remain in
full force and effect until the Commitments shall have terminated and all
obligations of Layne
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Australia under this Agreement and each Note shall have been paid in full. If
at any time any payment of principal, interest or any other amount payable by
Layne Australia under this Agreement or any Note is rescinded or must be
otherwise restored or returned upon the insolvency, bankruptcy or reorganization
of Layne Australia or otherwise, the Company's obligations hereunder with
respect to such payment shall be reinstated as though such payment had been due
but not made at such time.
14.4 WAIVER BY THE COMPANY. The Company irrevocably waives
acceptance hereof, presentment, demand, protest and any notice not provided for
herein, as well as any requirement that at any time any action be taken by any
Person against Layne Australia or any other Person.
14.5 SUBROGATION. Notwithstanding any payment made by or for the account
of Layne Australia pursuant to this SECTION 14, the Company shall not be
subrogated to any right of the Agent or any Bank until such time as the Agent
and the Banks shall have received final payment in cash of the full amount of
all obligations of Layne Australia hereunder.
14.6 STAY OF ACCELERATION. If acceleration of the time for payment of any
amount payable by Layne Australia under this Agreement or any Note is stayed
upon the insolvency, bankruptcy or reorganization of Layne Australia, all such
amounts otherwise subject to acceleration under the terms of this Agreement
shall nonetheless be payable by the Company hereunder forthwith on demand by the
Agent made at the request of the Required Banks.
SECTION 15 GENERAL.
15.1 WAIVER; AMENDMENTS. No delay on the part of the Agent or any Bank in
the exercise of any right, power or remedy shall operate as a waiver thereof,
nor shall any single or partial exercise by any of them of any right, power or
remedy preclude other or further exercise thereof, or the exercise of any other
right, power or remedy. No amendment, modification or waiver of, or consent
with respect to, any provision of this Agreement or the Notes shall in any event
be effective unless the same shall be in writing and signed and delivered by the
Agent and signed and delivered by Banks having an aggregate Percentage of not
less than the aggregate Percentage expressly designated herein with respect
thereto or, in the absence of such designation as to any provision of this
Agreement or the Notes, by the Required Banks, and then any such amendment,
modification, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No amendment, modification,
waiver or consent shall (i) extend or increase the amount of the Commitments,
(ii) extend the date for payment of any principal of or interest on the Loans or
any fees payable hereunder, (iii)
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reduce the principal amount of any Loan, the rate of interest thereon or any
fees payable hereunder, (iv) release the Guaranty or the guaranty by the Company
set forth in SECTION 14 or (v) change the aggregate Percentage required to
effect an amendment, modification, waiver or consent without, in each case, the
consent of all Banks. No provisions of SECTION 13 shall be amended, modified or
waived without the consent of the Agent.
15.2 CONFIRMATIONS. Each Borrower and each holder of a Note agree from
time to time, upon written request received by it from the other, to confirm to
the other in writing (with a copy of each such confirmation to the Agent) the
aggregate unpaid principal amount of the Loans then outstanding under such Note.
15.3 NOTICES. (a) All notices hereunder shall be in writing (including
by facsimile transmission) and shall be sent to the applicable party at its
address shown below its signature hereto or at such other address as such party
may, by written notice received by the other parties hereto, have designated as
its address for such purpose. Notices sent by facsimile transmission shall be
deemed to have been given when sent; notices sent by U.S. mail from a location
in the United States of America to a location in the United States of America
shall be deemed to have been given three Business Days after the date when sent
by registered or certified mail, postage prepaid; and notices sent by hand
delivery shall be deemed to have been given when received. Any agreement of the
Agent and the Banks herein to receive certain notices by telephone or facsimile
is solely for the convenience and at the request of the Borrowers. The Agent
and the Banks shall be entitled to rely on the authority of any Person
purporting to be a Person authorized by a Borrower to give such notice and the
Agent and the Banks shall not have any liability to either Borrower or any other
Person on account of any action taken or not taken by the Agent or the Banks in
reliance upon such telephone or facsimile notice. The obligation of the
Borrowers to repay the Loans shall not be affected in any way or to any extent
by any failure by the Agent and the Banks to receive written confirmation of any
telephone or facsimile notice or the receipt by the Agent and the Banks of a
confirmation which is at variance with the terms understood by the Agent and the
Banks to be contained in the applicable telephone or facsimile notice.
(b) Any notice to be given to Layne Australia may be given to the
Company (and shall conclusively be deemed to have been received by Layne
Australia when received, or deemed received, by the Company). Layne
Australia agrees that the Company may give notices hereunder on behalf of
Layne Australia, and that any such notice given by the Company on behalf of
Layne Australia shall be binding upon Layne Australia.
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15.4 COMPUTATIONS. Where the character or amount of any asset or
liability or item of income or expense is required to be determined, or any
consolidation or other accounting computation is required to be made, for the
purpose of this Agreement, such determination or calculation shall, to the
extent applicable and except as otherwise specified in this Agreement, be made
in accordance with GAAP applied on a basis consistent with those used in the
preparation of the Company's audited financial statements for the 1997 Fiscal
Year.
15.5 REGULATION U. Each Bank represents that it in good faith is not
relying, either directly or indirectly, upon any Margin Stock as collateral
security for the extension or maintenance by it of any credit provided for in
this Agreement.
15.6 COSTS, EXPENSES AND TAXES. The Borrowers jointly and severally agree
to pay on demand all reasonable out-of-pocket costs and expenses of the Agent
and the Arranger (including Attorney Costs) in connection with the preparation,
negotiation, execution, closing, delivery and ongoing administration of this
Agreement (other than fees and disbursements of internal legal counsel of the
Agent and the Arranger in connection with the preparation, negotiation,
execution and closing of this Agreement), the other Loan Documents and all other
documents provided for herein or delivered or to be delivered hereunder or in
connection herewith (including any amendment, supplement or waiver to any Loan
Documents), and all reasonable out-of-pocket costs and expenses (including
Attorney Costs) incurred by the Agent and each Bank after an Event of Default in
connection with the enforcement of this Agreement, the other Loan Documents or
any such other documents. In addition, the Borrowers jointly and severally
agree to pay, and to save the Agent, the Arranger and the Banks harmless from
all liability for, any stamp or other taxes (including financial institutions
duty and debits tax on credits and debits to bank and other accounts in
Australia) which may be payable in connection with the execution and delivery of
this Agreement, the borrowings hereunder, any payments made to or from any
account in Australia hereunder, the issuance of the Notes or the execution and
delivery of any other Loan Document or any other document provided for herein or
delivered or to be delivered hereunder or in connection herewith. All
obligations provided for in this SECTION 15.6 shall survive the expiration or
termination of the Commitments, the repayment of the Loans and all other
obligations of the Borrowers hereunder, the expiration or termination of the
Letters of Credit and the termination of this Agreement.
15.7 SUBSIDIARY REFERENCES. The provisions of this Agreement relating to
Subsidiaries shall apply only during such times as the Company has one or more
Subsidiaries.
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15.8 CAPTIONS. Section captions used in this Agreement are for
convenience only and shall not affect the construction of this Agreement.
15.9 ASSIGNMENTS; PARTICIPATIONS.
15.9.1 ASSIGNMENTS. Any Bank may, with the prior written consents of the
Company and the Agent (which consents shall not be unreasonably delayed or
withheld), at any time assign and delegate to one or more commercial banks or
other Persons (any Person to whom such an assignment and delegation is to be
made being herein called an "Assignee") all or any fraction of such Bank's
Loans, Commitment and other rights and obligations hereunder (which assignment
and delegation shall be of a constant, and not a varying, percentage of all the
assigning Bank's Loans, Commitment and other rights and obligations) in a
minimum aggregate amount equal to the lesser of (i) the assigning Bank's
remaining Commitment and (ii) U.S.$5,000,000; PROVIDED, HOWEVER, that (a) no
assignment and delegation may be made to any Person if, at the time of such
assignment and delegation, either Borrower would be obligated to pay any greater
amount under SECTION 7.6, 7.7 or SECTION 8 to the Assignee than such Borrower is
then obligated to pay to the assigning Bank under such Sections, (b) the consent
of the Company shall not be required in the case of an assignment from a Bank to
an Affiliate of such Bank, (c) no Australian Bank may make any assignment and
delegation unless (I) such assigning Bank assigns to the same Assignee (or an
affiliate of such Assignee designated to be an Australian Bank hereunder) a
corresponding portion of its Australian Loans and its obligation to make
Australian Loans or (II) the Agent and the Australian Banks agree to adjust the
Australian Percentages, and to make corresponding assignments of outstanding
Australian Loans, to the extent necessary to reflect the fact that such
assigning Bank's pro rata share of the Aggregate Australian Commitment has been
reduced pursuant to such assignment and delegation, and (d) the Borrowers and
the Agent shall be entitled to continue to deal solely and directly with such
Bank in connection with the interests so assigned and delegated to an Assignee
until the date when all of the following conditions shall have been met:
(x) five Business Days (or such lesser period of time as the Agent
and the assigning Bank shall agree) shall have passed after written notice
of such assignment and delegation, together with payment instructions,
addresses and related information with respect to such Assignee, shall have
been given to the Company and the Agent by such assigning Bank and the
Assignee,
(y) the assigning Bank and the Assignee shall have executed and
delivered to the Company and the Agent an
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assignment agreement substantially in the form of EXHIBIT L (an "Assignment
Agreement"), together with any documents required to be delivered
thereunder, which Assignment Agreement shall have been accepted by the
Agent, and
(z) the assigning Bank or the Assignee shall have paid the Agent a
processing fee of U.S.$3,000.
From and after the date on which the conditions described above have been met,
(x) such Assignee shall be deemed automatically to have become a party hereto
and, to the extent that rights and obligations hereunder have been assigned and
delegated to such Assignee pursuant to such Assignment Agreement, shall have the
rights and obligations of a Bank (and, if applicable, an Australian Bank)
hereunder, (y) the assigning Bank, to the extent that rights and obligations
hereunder have been assigned and delegated by it pursuant to such Assignment
Agreement, shall be released from its obligations hereunder and (z) upon the
distribution by the Agent to the Company and the Banks of a new SCHEDULE 1.1(A)
which reflects such assignment and delegation, SCHEDULE 1.1(A) hereto shall be
deemed to be automatically amended in the form of such SCHEDULE 1.1(A). Within
five Business Days after the effectiveness of any assignment and delegation to
an Assignee which was not previously a party hereto, the Company (and, if
applicable, Layne Australia) shall execute and deliver to the Agent (for
delivery to such Assignee) a new Note dated the effective date of such
assignment. If any assigning Bank assigns all of its rights and obligations
hereunder, such assigning Bank shall mark its Note or Notes "canceled" and
deliver such Note or Notes to the Company. Any attempted assignment and
delegation not made in accordance with this SECTION 15.9.1 shall be null and
void.
Notwithstanding the foregoing provisions of this SECTION 15.9.1 or any
other provision of this Agreement, (a) any Bank may at any time assign all or
any portion of its Loans and its Note to a Federal Reserve Bank (but no such
assignment shall release any Bank from any of its obligations hereunder) and (b)
no assignment pursuant to this SECTION 15.9.1 shall require the Company to file
any registration statement with the SEC or to apply to qualify any interest
herein or in any Note under the "blue sky" or other securities laws of any
jurisdiction.
15.9.2 PARTICIPATIONS. Any Bank may at any time sell to one or more
commercial banks or other Persons participating interests in any Loan owing to
such Bank, the Note held by such Bank, the Commitment of such Bank, the
participation interest of such Bank in any Letter of Credit or any other
interest of such Bank hereunder (any Person purchasing any such participating
interest being called a "Participant"). In the event of a sale by a Bank of a
participating interest to a Participant, (x) such
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Bank shall remain the holder of its Note for all purposes of this Agreement, (y)
the Borrowers and the Agent shall continue to deal solely and directly with such
Bank in connection with such Bank's rights and obligations hereunder and (z) all
amounts payable by the Borrowers shall be determined as if such Bank had not
sold such participation and shall be paid directly to such Bank. No Participant
shall have any direct or indirect voting rights hereunder except with respect to
any of the events described in the penultimate sentence of SECTION 15.1. Each
Bank agrees to incorporate the requirements of the preceding sentence into each
participation agreement which such Bank enters into with any Participant. The
Borrowers agree that if amounts outstanding under this Agreement and the Notes
are due and payable (as a result of acceleration or otherwise), each Participant
shall be deemed to have the right of setoff in respect of its participating
interest in amounts owing under this Agreement and any Note and with respect to
any Letter of Credit to the same extent as if the amount of its participating
interest were owing directly to it as a Bank under this Agreement or such Note;
PROVIDED that such right of setoff shall be subject to the obligation of each
Participant to share with the Banks, and the Banks agree to share with each
Participant, as provided in SECTION 7.5. The Borrowers also agree that each
Participant shall be entitled to the benefits of SECTION 7.6, 7.7 and SECTION 8
as if it were a Bank (provided that no Participant shall receive any greater
compensation pursuant to SECTION 7.6, 7.7 or SECTION 8 than would have been paid
to the participating Bank if no participation had been sold).
15.10 GOVERNING LAW. This Agreement and each Note shall be a contract
made under and governed by the laws of the State of Illinois applicable to
contracts made and to be performed entirely within such State. Whenever
possible each provision of this Agreement shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement. All obligations of the Borrowers and rights of the Agent and the
Banks expressed herein or in any other Loan Document shall be in addition to and
not in limitation of those provided by applicable law.
15.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts and
each such counterpart shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Agreement.
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15.12 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Borrowers, the Banks and the Agent and their respective successors and assigns,
and shall inure to the benefit of the Borrowers, the Banks and the Agent and the
permitted successors and assigns of the Banks and the Agent.
15.13 INDEMNIFICATION BY THE BORROWERS.
(a) Whether or not the transactions contemplated hereby are
consummated, the Borrowers shall indemnify and hold the Agent-Related
Persons and each Bank and each of their respective officers, directors,
employees, counsel, agents and attorneys-in-fact (each, an "Indemnified
Person") harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, charges,
expenses and disbursements (including Attorney Costs) of any kind or nature
whatsoever which may at any time be imposed on, incurred by or asserted
against any such Person in any way relating to or arising out of this
Agreement or any document contemplated by or referred to herein, or the
transactions contemplated hereby or thereby, or any action taken or omitted
by any such Person under or in connection with any of the foregoing,
including with respect to any investigation, litigation or proceeding
(including any bankruptcy or insolvency proceeding or any appellate
proceeding) related to or arising out of this Agreement or the Loans or
Letters of Credit or the use of the proceeds thereof, or related to any
transactions entered into in connection herewith, whether or not any
Indemnified Person is a party thereto (all the foregoing, collectively, the
"Indemnified Liabilities"); PROVIDED that no Borrower shall have any
obligation hereunder to any Indemnified Person with respect to (a)
Indemnified Liabilities resulting from the bad faith, gross negligence or
willful misconduct of such Indemnified Person or (b) any taxes for which a
Borrower is not liable pursuant to the provisions of SECTION 7.6 or 7.7.
(b) Without limiting the provisions of CLAUSE (A) above, the
Borrowers agree to reimburse each Indemnified Person for, and hold each
Indemnified Person harmless against, any and all losses, claims, damages,
penalties, judgments, liabilities and expenses (including Attorney Costs)
which any Indemnified Person may pay, incur or become subject to arising
out of or relating to the use, handling, release, emission, discharge,
transportation, storage, treatment or disposal of any Hazardous Material at
any real property owned or leased by the Company or any Subsidiary or used
by the Company or any Subsidiary in its business or operations, except to
the extent caused by the acts or omissions of any Indemnified Person.
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(c) All obligations in this SECTION 15.13 shall survive the
expiration or termination of the Commitments, the repayment of the Loans
and all other obligations of the Borrowers hereunder, the expiration or
termination of the Letters of Credit, and the termination of this
Agreement.
15.14 CONFIDENTIALITY. The Agent, the Issuer and the Banks shall hold all
non-public information obtained pursuant to the requirements of this Agreement
which has been identified as such by either Borrower in accordance with their
customary procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices and, in any event, may make
disclosure on the same confidential basis as provided for herein that is
reasonably required by any actual or bona fide potential transferee or
participant in connection with the contemplated transfer of any Note or
participation therein or in any Letter of Credit or as required or requested by
any governmental agency or representative thereof or pursuant to legal process;
PROVIDED that, unless specifically prohibited by applicable law or court order,
each of the Agent and each Bank shall notify the Company of any request by any
governmental agency or representative thereof (other than any such request in
connection with an examination of the financial condition of the Agent or such
Bank by such governmental agency) for disclosure of any such non-public
information prior to disclosure of such information; and PROVIDED FURTHER that
in no event shall the Agent or any Bank be obligated or required to return any
materials furnished by Company.
15.15 PAYMENTS SET ASIDE. To the extent that either Borrower makes a
payment to the Agent or the Banks, or the Agent or the Banks exercise their
right of set-off, and such payment or the proceeds of such set-off or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or required (including pursuant to any settlement entered into by the
Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any
other party, in connection with any insolvency proceeding or otherwise, then (a)
to the extent of such recovery the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such set-off had not occurred, and (b)
each Bank severally agrees to pay to the Agent upon demand its pro rata share of
any amount so recovered from or repaid by the Agent.
15.16 NO THIRD PARTIES BENEFITED. This Agreement is made and entered into
for the sole protection and legal benefit of the Borrowers, the Banks, the Agent
and the Agent-Related Persons, and their permitted successors and assigns, and
no other Person shall be a direct or indirect legal beneficiary of, or have any
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direct or indirect cause of action or claim in connection with, this Agreement
or any of the other Loan Documents.
15.17 FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS
OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT
AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION,
IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE
FOUND. EACH OF THE AGENT, EACH BORROWER AND EACH BANK HEREBY EXPRESSLY AND
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS
AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS
FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. EACH OF THE COMPANY,
THE AGENT, EACH BORROWER AND EACH BANK FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE
WITHIN OR WITHOUT THE STATE OF ILLINOIS. EACH BORROWER HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION
BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH
LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT EITHER
BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY, SUCH BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
15.18 WAIVER OF JURY TRIAL. EACH OF THE AGENT, EACH BORROWER, THE ISSUER
AND EACH BANK HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY
OTHER LOAN DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
THEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH
ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.
15.19 JUDGMENT. If, for the purposes of obtaining judgment in any court,
it is necessary to convert a sum due hereunder or under any other Loan Document
in one currency into another currency, the rate of exchange used shall be that
at which in accordance with normal banking procedures the Agent could purchase
the first currency with such other currency on the Business Day preceding that
on which final judgment is given.
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The obligation of each Borrower in respect of any such sum due from it to the
Agent or any Bank hereunder or under any other Loan Document shall,
notwithstanding any judgment in a currency (the "JUDGMENT CURRENCY") other than
that in which such sum is denominated in accordance with the applicable
provisions of this Agreement (the "AGREEMENT CURRENCY"), be discharged only to
the extent that on the Business Day following receipt by the Agent or such Bank
of any sum adjudged to be so due in the Judgment Currency, the Agent or such
Bank may in accordance with normal banking procedures purchase the Agreement
Currency with the Judgment Currency. If the amount of the Agreement Currency so
purchased is less than the sum originally due to the Agent or such Bank in the
Agreement Currency, the applicable Borrower agrees, as a separate obligation and
notwithstanding any such judgment, to indemnify the Agent or such Bank against
such loss. If the amount of the Agreement Currency so purchased is greater than
the sum originally due to the Agent or such Bank in such currency, the Agent or
such Bank agrees to return the amount of any excess to the applicable Borrower
(or to any other Person who may be entitled thereto under applicable law).
15.20 AMENDMENT AND RESTATEMENT; RETURN OF NOTES. This Agreement amends
and restates the Existing Agreement in its entirety and, after the effectiveness
of this Agreement on the Effective Date, the Existing Agreement shall be of no
further force or effect (except for any provisions thereof which by their terms
survive termination thereof). Each Bank which is a party to the Existing
Agreement agrees that it will, as promptly as practicable after the Effective
Date, return to the Company the note issued to such Bank under the Existing
Agreement, marked to show that such note has been superseded.
15.21 ENTIRE AGREEMENT. This Agreement, together with the other Loan
Documents (and any fee letter between the Company and the Agent and/or the
Arranger), embodies the entire agreement and understanding among the Company,
the Banks, the Issuer and the Agent, and supersedes all prior or contemporaneous
agreements and understandings of such Persons, verbal or written, relating to
the subject matter hereof and thereof.
15.22 INTERCREDITOR AGREEMENT. Each Bank hereby authorizes the Agent to
sign an Intercreditor Agreement substantially in the form of EXHIBIT M hereto,
which Intercreditor Agreement shall be binding on each of the Banks (including
any Assignee).
[SIGNATURES BEGIN ON THE NEXT PAGE]
-91-
<PAGE>
Delivered at Chicago, Illinois, as of the day and year first above written.
LAYNE CHRISTENSEN COMPANY
By: /s/ Jerry W. Fanska
----------------------------------
Title: Jerry W. Fanska, Vice President
--------------------------------
1900 Shawnee Mission Parkway
Mission Woods, Kansas 66205
Attention: Jerry W. Fanska
Facsimile: (913) 362-8823
LAYNE CHRISTENSEN AUSTRALIA
PTY LIMITED ACN 078 167 610
By: /s/ Andrew B. Schmitt
------------------------------------
Title: A.B. Scmitt, Director
---------------------------------
c/o Layne Christensen Company
1900 Shawnee Mission Parkway
Mission Woods, Kansas 66205
Attention: Jerry W. Fanska
Facsimile: (913) 362-8823
-92-
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: /s/ Robert G. Stapleton
-----------------------------
Managing Director
Agency Administrative Services #5596
1455 Market Street, 12th Floor
San Francisco, California 94103
Attention: Myrna Lara
Facsimile: (415) 436-2700
Agent's Payment Office for all
payments in U.S. Dollars:
ABA No. 121-000-358
Attn: Agency Administrative Services #5596
1850 Gateway Boulevard
Concord, California 94520
For Credit To: 12339-14497
Reference: Layne Christensen Company/
Layne Australia (as applicable)
Agent's Payment Office for all payments in
Australian Dollars:
Bank of America NT & SA, Sydney
135 King Street
Sydney 2000
Australia
Account Name: BOFA SAN FRAN GLOBAL AGENCY
Account Number: 95714019
SWIFT CODE: BOAAUSX
Reference: Layne Australia
-93-
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as a Bank
By: /s/ Robert G. Stapleton
--------------------------------
Managing Director
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Robert G. Stapleton
Facsimile: 312-987-1276
BA AUSTRALIA LIMITED ACN 004 617 841
By: /s/ Robert G. Stapleton
-----------------------------------
Attorney in Fact
c/o Bank of America National Trust
and Savings Association
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Robert G. Stapleton
Facsimile: 312-987-1276
-94-
<PAGE>
MERCANTILE BANK, as Co-Agent and
as a Bank
By: /s/ Roger A. Lumley
--------------------------------
Title: Senior Vice President
-----------------------------
1101 Walnut
7th Floor
Kansas City, Missouri 64106
Attention: Roger A. Lumley
Facsimile: (816) 871-2226
-95-
<PAGE>
MICHIGAN NATIONAL BANK, as Co-Agent
and as a Bank
By: /s/ Christopher J. Mayone
-----------------------------------
Title: COMMERCIAL RELATIONSHIP MANAGER
--------------------------------
27777 Inkster Road 10-25
Farmington Hills, Michigan 48333
Attention: Christopher J. Mayone
Facsimile: 248-615-5910
-96-
<PAGE>
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
----------------------------------
Title: F.C.H. Ashby
-------------------------------
Senior Manager Loan Operations
Atlanta Agency
600 Peachtree Street, NE
Suite 2700
Atlanta, Georgia 30308
Attention: Shannon Law
Facsimile: 404-888-8998
WITH A COPY TO:
The Bank of Nova Scotia
Chicago Representative Office
181 West Madison, Suite 3700
Chicago, Illinois 60602
Attention: Gayne Underwood
Facsimile: 312-201-4108
-97-
<PAGE>
SOCIETE GENERALE - CHICAGO BRANCH
By: /s/ Joseph A. Philbin
---------------------------------
Title: Joseph A. Philbin
------------------------------
Vice President
181 West Madison Street
Suite 3400
Chicago, Illinois 60602
Attention: Robert W. Bolt
Facsimile: 312-578-5099
-98-
<PAGE>
SCHEDULE 1.1(a)
COMMITMENT LIMITS AND PERCENTAGES
AMOUNT OF AUSTRALIAN
NAME OF BANK COMMITMENT PERCENTAGE PERCENTAGE
- ------------ ---------- ---------- -----------
Bank of America National U.S.$25,000,000 25.0% N/A
Trust and Savings Association
BA Australia Limited* N/A N/A 100%
Mercantile Bank U.S.$20,000,000 20.0% N/A
Michigan National Bank U.S.$20,000,000 20.0% N/A
The Bank of Nova Scotia U.S.$17,500,000 17.5% N/A
Societe Generale-Chicago U.S.$17,500,000 17.5% N/A
Branch
--------------------------------------------------
TOTALS U.S.$100,000,000 100% 100%
* Designated as an Australian Bank by the Bank listed immediately above such
Australian Bank.
<PAGE>
SCHEDULE 1.1(b)
PRICING SCHEDULE
The Margin, the Facility Fee Rate and the LC Fee Rate (for the applicable
type of Letter of Credit) shall be determined based on the applicable Debt to
Capitalization Ratio as set forth below.
<TABLE>
<CAPTION>
LC FEE RATE - LC FEE RATE-
DEBT TO FACILITY FINANCIAL NON-FINANCIAL
CAPITALIZATION RATIO MARGIN FEE RATE LETTERS OF CREDIT LETTERS OF CREDIT
-------------------- ------ -------- ----------------- -----------------
<S> <C> <C> <C> <C>
Less than 0.45 to 1 0.500% 0.250% 0.500% 0.125%
Equal to or greater than 0.700% 0.300% 0.700% 0.200%
0.45 to 1 but less than
0.60 to 1
Equal to or greater than 0.875% 0.375% 0.875% 0.250%
0.60 to 1
</TABLE>
The Margin initially shall be 0.7%, the Facility Fee Rate initially shall
be 0.3%, the LC Fee Rate for Financial Letters of Credit initially shall be 0.7%
and the LC Fee Rate for Non-Financial Letters of Credit initially shall be 0.2%.
Each of the foregoing shall be adjusted, to the extent applicable, 45 days (or,
in the case of the last Fiscal Quarter of any Fiscal Year, 90 days) after the
end of each Fiscal Quarter beginning with the Fiscal Quarter ending July 31,
1997 based on the Debt to Capitalization Ratio as of the last day of such Fiscal
Quarter; PROVIDED that if the Company fails to deliver the financial statements
required by SECTION 10.1.1 or 10.1.2, as applicable, by the due date therefor,
the Margin, the Facility Fee Rate and the LC Fee Rate (for each type of Letter
of Credit) that would apply if the Debt to Capitalization Ratio were greater
than 0.60 to 1 shall apply from such due date until such financial statements
are delivered.
<PAGE>
SCHEDULE 1.1(c)
EXISTING LETTERS OF CREDIT
EXPIRY
LETTER NO. BENEFICIARY DATE AMOUNT
- ---------- ----------- -------- --------------
C7208785 Hartford Fire
Insurance Co. 09/18/97 U.S.$206,755.00
C7228396 Hartford Fire
Insurance Co. 05/01/98 660,936.00
C7260510 BHN Multibanco S.A. 08/26/97 109,577.000
C7264202 Hartford Fire
Insurance Co. 04/30/98 786,000.00
C7275332 Reliance National
Indemnity Co. 04/30/98 2,750,000.00*
C7283163 BHN Multibanco S.A. 10/03/97 50,343.25
C7289299 Liberty Mutual
Insurance Company 04/30/98 400,000.00
C7298316 Krung Thai Bank, Ltd. 07/14/98 34,600.00
C7330328 Hong Kong and Shanghai
Banking 08/15/98 120,000.00
* Will increase to U.S.$3,200,000 on 11/1/97.
<PAGE>
SCHEDULE 1.1(d)
INVESTMENTS AS OF FEBRUARY 29, 1996
(WHICH DO NOT CONSTITUTE RESTRICTED INVESTMENTS)
G.A. Nicoll U.S.$ 2,026
Rancho Verdugo 59,181
Central Oregon Drilling 4,164
Carlos Paredes 22,053
Employee Computer Purchases 2,948
Employee Loans 21,810
Officer Loans 313,318
Employee Advances 233,315
Investment in Affiliates - Domestic 2,310,354
Investment in Affiliates - Foreign 15,176,973
Nalco Chemical Co. 479
Homestake Mining 500
----------------
TOTAL U.S.$18,147,121
----------------
----------------
<PAGE>
SCHEDULE 6.1.1
SCHEDULED COMMITMENT REDUCTIONS
COMMITMENT AGGREGATE
REDUCTION COMMITMENT
DATE REDUCED TO:
---------- -----------
April 30, 1998 $97,500,000
July 31, 1998 $96,000,000
October 31, 1998 $94,500,000
January 31, 1999 $93,000,000
April 30, 1999 $91,500,000
July 31, 1999 $90,000,000
October 31, 1999 $87,000,000
January 31, 2000 $84,000,000
April 30, 2000 $81,000,000
July 31, 2000 $78,000,000
October 31, 2000 $74,500,000
January 31, 2001 $71,000,000
April 30, 2001 $67,500,000
July 31, 2001 $64,000,000
October 31, 2001 $60,500,000
January 31, 2002 $57,000,000
April 30, 2002 $53,500,000
July 31, 2002 $ 0
<PAGE>
SCHEDULE 9.6
LITIGATION AND CONTINGENT LIABILITIES
-NONE-
-3-
<PAGE>
SCHEDULE 9.8
SUBSIDIARIES
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
STOCK OWNED BY
JURISDICTION COMPANY AND EACH
NAME OF SUBSIDIARY OF INCORPORATION OTHER SUBSIDIARY
<S> <C> <C>
Boyles Bros. Drilling Company** Utah 100%
Christensen Boyles Corporation** Delaware 100%
Christensen Boyles International** Cayman Islands 100%
Christensen Mining Products Export Barbados 100%
Company, Ltd.**
Christensen Products (Thailand) Thailand 100%
Co., Ltd.**
Elgin Exploration Company, Ltd.** Calgary, Alberta, 100%
Canada
Glindemann & Kitching Pty Ltd. *** Australia 51%
Hydroresources Co., Ltd.** Thailand 100%
International Mining Services Australia 100%
Pty Ltd. ***
Layne Arkansas Company Arkansas 100%
Layne Atlantic Company, Inc. Indiana 100%
Layne de Bolivia S.R.L.** Cochabamba, Bolivia 99.9%
Layne de Mexico, S.A. de C.V.** Hermosillo, 99.9%
Sonora, Mexico
Layne Central Company Tennessee 100%
Layne Christensen Australia Pty Australia 100%
Limited**
Layne GeoSciences, Inc.** Delaware 100%
Layne Louisiana Company Louisiana 100%
Layne Northern Company, Inc. Indiana 100%
Layne-Northwest Company, Inc. Wisconsin 100%
Layne Ohio Company West Virginia 100%
Layne Texas, Incorporated** Delaware 100%
Layne (Thailand) Limited** Bangkok, Thailand 99.9%
</TABLE>
<PAGE>
Mid-Continent Drilling Company** Delaware 100%
SMS Offshore Pty Ltd. Australia 100%
Stamm Scheele, Inc. Louisiana 100%
Stanley Exploration Mining Company Australia 100%
Ltd. ***
Stanley Mining Services Limited ** Australia 100%
Stanley Mining Services (Tanzania) Tanzania 100%
Ltd **
Stanmines Ghana Ltd. Ghana 100%
Stanmines NL ** Australia 100%
__________________
* Will be a Subsidiary upon completion of Stanley Acquisition
** Designates a Restricted Subsidiary
-2-
<PAGE>
SCHEDULE 9.9
WELFARE PLANS
1. Prior to April 30, 1993, the Company provided life insurance in an amount
equal to the lesser of U.S.$10,000 or 25% of the salaried retiree's basic
life insurance on the date of retirement provided (i) the retiree retired
on or after the normal retirement age of 65, AND (ii) the retiree had at
least 20 years of service with the Company as of the date of retirement.
This benefit was discontinued effective May 1, 1993.
2. Prior to April 30, 1993, the Company provided reimbursement to eligible
salaried retirees and qualified spouses up to U.S.$25 per month each of
premiums paid to obtain health insurance which provides supplemental
coverage to Medicare. To be eligible, the retiree must have been at least
age 65 and had at least 20 years of service with the Company. This benefit
was discontinued effective May 1, 1993.
<PAGE>
SCHEDULE 10.7(l)
PERMITTED DEBT
Non-Compete - Datum U.S.$296,000
Notes Payable U.S.$60,000
Mortgage Loan U.S.$1,372,000
ABN AMRO U.S.$107,000*
Hunter Premium U.S.$320,000*
*INDICATES DEBT OF STANLEY OR A SUBSIDIARY THEREOF WHICH WILL BE PERMITTED
PURSUANT TO SECTION 10.7(L) AFTER STANLEY BECOMES A SUBSIDIARY.
<PAGE>
SCHEDULE 10.7(o)
STANLEY DEBT TO BE REPAID
Bank of New Zealand Debt under a revolving credit
facility in an aggregate
amount not at any time
exceeding a Dollar Equivalent
amount of U.S. $10,000,000
<PAGE>
SCHEDULE 10.8
LIENS
-NONE-
<PAGE>
SCHEDULE 10.11
INVESTMENTS
Rancho Verdugo
U.S.$ 7,000
Investments in foreign affiliates: 19,094,000
Geotec Boyles Bros., S.A. (Chile)
Geotec, S.A. (Peru)
Boyles Bros. Diamantina, S.A. (Peru)
Christensen Chile, S.A. (Chile)
Christensen Comercial, S.A. (Peru)
Christensen Comercial, S.A. (Chile)
Boytec, S.A. (Panama)
Plantel Industrial (Chile)
Technidrill, Ltd. (France)
Christensen Boyles GmbH (Germany)
Equigold (Ghana)* 833,000
Equigold (Coite D'Ivoire)* 186,000
*Indicates Investment of Stanley or a Subsidiary thereof which will be permitted
pursuant to Section 10.11(a) after Stanley becomes a Subsidiary.
<PAGE>
================================================================================
LAYNE CHRISTENSEN COMPANY
(FORMERLY LAYNE, INC.)
___________________________________
FIRST AMENDMENT
Dated as of July 25, 1997
to
NOTE AGREEMENT
Dated as of March 15, 1996
___________________________________
Re: $25,000,000 6.75% Senior Notes
Due March 15, 2006
================================================================================
<PAGE>
FIRST AMENDMENT TO NOTE AGREEMENT
THIS FIRST AMENDMENT dated as of July 25, 1997 (the or this "FIRST
AMENDMENT") to the Note Agreement dated as of March 15, 1996 is between LAYNE
CHRISTENSEN COMPANY (FORMERLY LAYNE, INC.), a Delaware corporation (the
"COMPANY"), and the institution which is a signatory to this First Amendment
(the "NOTEHOLDER").
RECITALS:
A. The Company and Noteholder have heretofore entered into the Note
Agreement dated as of March 15, 1996 (the "NOTE AGREEMENT") pursuant to which
the Company issued its $25,000,000 6.75% Senior Notes Due March 15, 2006 (the
"NOTES"). The Noteholder is the holder of 100% of the outstanding principal
amount of the Notes.
B. The Company and the Noteholder now desire to amend the Note Agreement
in the respects, but only in the respects, hereinafter set forth.
C. Capitalized terms used herein shall have the respective meanings
ascribed thereto in the Note Agreement unless herein defined or the context
shall otherwise require.
D. All requirements of law have been fully complied with and all other
acts and things necessary to make this First Amendment a valid, legal and
binding instrument according to its terms for the purposes herein expressed have
been done or performed.
NOW, THEREFORE, the Company and the Noteholder, in consideration of good
and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, do hereby agree as follows:
SECTION 1. AMENDMENTS.
1.1. Section 5.6 of the Note Agreement shall be and is hereby
amended in its entirety to read as follows:
<PAGE>
SECTION 5.6. CONSOLIDATED ADJUSTED NET WORTH. The Company will at
all times keep and maintain Consolidated Adjusted Net Worth at an amount
not less than the sum of (i) $41,000,000, plus (ii) 50% of Consolidated
Adjusted Net Income for each semiannual period consisting of the first and
second fiscal quarters of the Company and the third and fourth fiscal
quarters of the Company from and after January 31, 1996 to and including
the date of any determination thereof, computed on a cumulative basis for
such entire period, plus (iii) an amount equal to the Restricted Equity
Amount.
If Consolidated Adjusted Net Income is a deficit for any such
semiannual fiscal period, such deficit shall not reduce the amount of
Consolidated Adjusted Net Worth required to be maintained pursuant to this
Section 5.6.
Compliance with the provisions of this Section 5.6 will be determined
as of the last day of each fiscal quarter of the Company.
1.2. Section 5.9 of the Note Agreement shall be and is hereby amended by
deleting the "and" at the end of paragraph (g), by amending paragraph (h) in its
entirety and by adding a new paragraph (i) as follows:
(H) Liens on capital stock of any Subsidiary securing Debt
evidenced by the Notes, the Subsidiary Guaranties, the Credit Agreement and
the Subsidiary Bank Guaranties, PROVIDED that the Notes are equally and
ratably secured with any and all other obligations secured thereby pursuant
to an agreement satisfactory in scope and form to the Holders holding at
least 51% in aggregate principal amount of the Notes; and
(i) in addition to the Liens permitted by the preceding paragraphs
(a) through (h) of this Section 5.9, Liens securing Debt of the Company and
its Restricted Subsidiaries; PROVIDED that such Debt shall be permitted by
Section 5.8.
-3-
<PAGE>
1.3. Clause (4) of Section 5.8(a) of the Note Agreement shall be and is
hereby amended to read as follows:
(4) additional Debt of the Company and its Restricted Subsidiaries;
PROVIDED that at the time of issuance thereof and after giving effect
thereto and the application of the proceeds thereof:
(i) Total Debt shall not exceed (w) 62.5% of Total
Capitalization for the period from the Closing Date through
October 31, 1997, (x) 60% of Total Capitalization for the period from
November 1, 1997 through April 30, 1998, (y) 55% of Total
Capitalization for the period from May 1, 1998 through January 31,
1999, and (z) 50% of Total Capitalization thereafter; PROVIDED that
if at any time prior to January 31, 1998, the Company shall complete
a Qualified Public Offering, Total Debt shall not exceed (x) 55% of
Total Capitalization for the period from the completion of such
Qualified Public Offering through January 31, 1998, and (y) 50% of
Total Capitalization thereafter, and
(ii) in the case of any Priority Debt the aggregate
principal amount of such Debt shall not exceed 10% of Consolidated
Adjusted Net Worth.
1.3. Section 5.10 of the Note Agreement shall be and is hereby
amended to read as follows:
SECTION 5.10. restricted payments. The Company will not
except as hereinafter provided:
(a) Declare or pay any dividends, either in cash or property, on
any shares of its capital stock of any class (except dividends or other
distributions payable solely in shares of capital stock of the Company);
(b) Directly or indirectly, or through any Subsidiary, purchase,
redeem or retire any shares of its capital stock
-4-
<PAGE>
of any class or any warrants, rights or options to purchase or acquire any
shares of its capital stock; or
(c) Make any other payment or distribution, either directly or
indirectly or through any Subsidiary, in respect of its capital stock;
(such declarations or payments of dividends, purchases, redemptions
or retirements of capital stock and warrants, rights or options and all
such other payments or distributions being herein collectively called
"RESTRICTED PAYMENTS"), if at such time or after giving effect thereto any
Default or Event of Default shall have occurred and be continuing or the
aggregate amount of Restricted Payments made during the period from and
after January 31, 1996 to and including the date of the making of the
Restricted Payment in question would exceed the sum of (i) $10,000,000 plus
(ii) 50% of Consolidated Adjusted Net Income for such period, computed on a
cumulative basis for said entire period (or if such Consolidated Adjusted
Net Income is a deficit figure, then minus 100% of such deficit) plus
(iii) the Unrestricted Equity Amount, plus (iv) any cash received by the
Company which constitutes a return of capital or principal of any
Restricted Investment made after January 31, 1996.
The Company will not declare any dividend which constitutes a
Restricted Payment payable more than 60 days after the date of declaration
thereof.
For the purposes of this Section 5.10, the amount of any Restricted
Payment declared, paid or distributed in property shall be deemed to be the
greater of the book value or fair market value (as determined in good faith
by the Board of Directors of the Company) of such property at the time of
the making of the Restricted Payment in question.
1.5. Subparagraph (a) of Section 5.19 of the Note Agreement shall be
and is hereby amended by adding the following sentence at the end of said
Subparagraph (a):
-5-
<PAGE>
Notwithstanding the foregoing, the Company shall cause Layne
Australia and Stanley to execute and deliver a Guaranty Agreement to the
Holders no later than September 30, 1997, which shall be satisfactory in
scope and form to the Holders holding at least 51% in aggregate principal
amount of the outstanding Notes, together with an opinion of Australian
counsel to the effect as described in paragraph (b) of this Section 5.19.
1.6. The following shall be added as a new Section 5.20 of the Note
Agreement:
SECTION 5.20. PAYMENT OF FEES. On October 31, 1997 and on the last
day of each quarter thereafter in which the ratio of Total Debt to Total
Capitalization shall exceed the Original Leverage Ratio, the Company shall
pay to each Noteholder its pro rata share (based on the unpaid principal
amount of the Notes outstanding) of the Quarterly Bonus; PROVIDED that if
the Company completes a Qualified Public Offering on or prior to January
31, 1998, no Quarterly Bonus shall be paid for the quarter in which such
Qualified Public Offering is consummated or for any quarter thereafter so
long as after giving effect to the application of the proceeds from such
Qualified Public Offering, the ratio of Total Debt to Total Capitalization
shall not exceed the Original Leverage Ratio.
1.7. The definition of "CREDIT AGREEMENT" and "PRIORITY DEBT" shall
be amended in its entirety so that it shall read as follows:
"CREDIT AGREEMENT" shall mean the Amended and Restated Credit
Agreement dated as of July 25, 1997 between the Company, Layne Australia
and Bank of America National Trust and Savings Association, as agent, and
the other financial institutions party thereto, as such agreement may be
amended or modified from time to time.
"PRIORITY DEBT" as of any date of determination shall mean the sum of
(without duplication) (a) Debt of Restricted
-6-
<PAGE>
Subsidiaries (excluding the Subsidiary Guaranty, the Guaranties of the
obligations of the Company under the Credit Agreement, any such Debt
described in Section 5.8(A)(3) and the Layne Australia Debt following the
occurrence of the Designated Event) PLUS (b) Debt of the Company and its
Restricted Subsidiaries secured by a Lien permitted by Section 5.9(I).
1.8. The following shall be added as new definitions in alphabetical
order to Section 8.1 of the Note Agreement:
"DESIGNATED EVENT" shall be deemed to have occurred at such time as
(i) Layne Australia and Stanley shall have executed and delivered to the
Holders the Guaranty Agreements (together with the opinions of Australian
counsel) as described in Section 5.19(A) and (ii) the Amended and Restated
Intercreditor Agreement dated as of July 25, 1997 shall have been amended,
in scope and form satisfactory to the Holders holding at least 51% in
aggregate principal amount of the outstanding Notes, to include any
payments by Layne Australia on the Layne Australia Debt.
"LAYNE AUSTRALIA" shall mean Layne Christensen Australia Pty Limited
ACN 078 167 610, a company incorporated in New South Wales, Australia, and
any Person who succeeds to all, or substantially all, of the assets and
business of Layne Christensen Australia Pty Ltd.
"LAYNE AUSTRALIA DEBT" shall mean the Debt of Layne Australia in an
aggregate principal amount not to exceed $30,000,000, which shall have been
incurred by Layne Australia pursuant to the Credit Agreement.
"MINIMUM EQUITY AMOUNT" shall mean an amount equal to the greater of
(i) $15,000,000, or (ii) the minimum amount of net cash proceeds received
by the Company from the issue or sale of its capital stock which is
required to make the ratio of Total Debt to Total Capitalization,
immediately after giving effect to such issue or sale of capital stock
-7-
<PAGE>
and the application of the proceeds thereof, equal to or less than the
Original Leverage Ratio.
"ORIGINAL LEVERAGE RATIO" shall mean 55% for any date of
determination on or prior to January 31, 1998 and 50% for any date of
determination thereafter.
"QUALIFIED PUBLIC OFFERING" shall mean a public offering of the
capital stock of the Company in which the Company shall receive net cash
proceeds equaling not less than $15,000,000.
"QUARTERLY BONUS" shall mean an amount equal to (in the aggregate)
0.025% multiplied by the aggregate principal amount of the Notes
outstanding as of the last day of any fiscal quarter of the Company.
"RESTRICTED EQUITY AMOUNT" shall mean an amount equal to the lesser
of (i) the net cash proceeds received by the Company from the issue or sale
of its capital stock from and after January 31, 1996, or (ii) the Minimum
Equity Amount.
"STANLEY" shall mean Stanley Mining Services Limited ACN 009 117 533,
a company incorporated in Western Australia, Australia, and any Person who
succeeds to all, or substantially all, of the assets and business of
Stanley Mining Services Limited.
"UNRESTRICTED EQUITY AMOUNT" shall mean the difference (if any)
between (i) the amount of net cash proceeds received by the Company from
the issue or sale of its common stock from and after January 31, 1996, and
(ii) the Restricted Equity Amount.
SECTION 2. CONDITIONS TO EFFECTIVENESS OF THIS FIRST AMENDMENT.
2.1. This First Amendment shall not become effective until, and
shall become effective when, each and every one of the following conditions
shall have been satisfied:
-8-
<PAGE>
(a) the Intercreditor Agreement dated as of March 15, 1996 among
Bank of America Illinois, Mercantile Bank, Bank of America National
Association, as agent, and the Noteholder, shall have been amended, in
scope and form satisfactory to the Noteholder, to include the banks which
are party to the Company's $100 million multi-currency syndicated facility;
and
(b) the Noteholder shall have received a fee from the Company, as
an inducement to, and in consideration of, entering into this First
Amendment in an aggregate amount equal to $25,000.
Upon receipt of all of the foregoing, this First Amendment shall become
effective.
SECTION 3. MISCELLANEOUS.
3.1. The Company represents and warrants that no Default or Event of
Default has occurred and is continuing.
3.2. This First Amendment shall be construed in connection with and
as part of each of the Note Agreement, and except as modified and expressly
amended by this First Amendment, all terms, conditions and covenants contained
in the Note Agreement and the Notes are hereby ratified and shall be and remain
in full force and effect.
3.3. Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and delivery of this
First Amendment may refer to the Note Agreement without making specific
reference to this First Amendment but nevertheless all such references shall
include this First Amendment unless the context otherwise requires.
3.4. The descriptive headings of the various Sections or parts of
this First Amendment are for convenience only and shall not affect the meaning
or construction of any of the provisions hereof.
-9-
<PAGE>
3.5. This First Amendment shall be governed by and construed in
accordance with Illinois law.
-10-
<PAGE>
The execution hereof by you shall constitute a contract between us for the
uses and purposes hereinabove set forth, and this First Amendment may be
executed in any number of counterparts, each executed counterpart constituting
an original, but all together only one agreement.
LAYNE CHRISTENSEN COMPANY
(FORMERLY LAYNE, INC.)
By: /s/ Jerry W. Fanska
Jerry W. Fanska
Vice President--Finance
-11-
<PAGE>
Accepted and Agreed to:
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: /s/ Richard C. Morrison
Its Managing Director
------------------------
-12-
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-29581 of Layne Christensen Company on Form S-2 of our report dated March 7,
1997, included and incorporated by reference in the Annual Report on Form 10-K
of Layne Christensen Company for the year ended January 31, 1997, and to the use
of our report dated March 7, 1997 (July 7, 1997 as to Note 14), appearing in
this Prospectus, which is part of this Registration Statement. We also consent
to the reference to us under the headings "Selected Consolidated Financial Data"
and "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of Layne Christensen
Company listed in Item 16B. This financial statement schedule is the
responsibility of the Corporation's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
August 6, 1997
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Boards of Directors
Stanley Mining Services Limited and
Glindemann & Kitching Pty Ltd:
We consent to the inclusion of our reports dated 17 June, 1997 with respect
to the consolidated financial statements of Stanley Mining Services Limited and
its controlled entities ("Stanley") as of June 30, 1996 and 1995 and for each of
the years in the two-year period ended June 30, 1996 and with respect to the
financial statements of Glindemann & Kitching Pty Ltd ("G&K") as of for the year
ended June 30, 1996, which reports appear in the Form S-2 Registration Statement
and Prospectus of Layne Christensen Company dated August 8, 1997 and to the
reference to our firm under the heading "Experts" in the prospectus.
Our reports dated 17 June, 1997 contain explanatory paragraphs that state
that accounting principles generally accepted in Australia vary in certain
significant respects from accounting principles in the United States. The
application of United States generally accepted accounting principles would have
affected results of operations for the years ended June 30, 1996 and 1995 and
shareholders' equity as of June 30, 1996 and 1995, to the extent summarized in
Note 33 to the consolidated financial statements of Stanley and the results of
operations for the years ended June 30, 1996 and shareholders' equity as of June
30, 1996, to the extent summarized Note 19 to the financial statements of G&K.
KPMG
Perth, Western Australia
August 6, 1997
