<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM____TO____
COMMISSION FILE NO. 0-23934
DEEPTECH INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0289338
(STATE OR OTHER JURISDICTION) (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
600 TRAVIS STREET
SUITE 7500
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(713) 224-7400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING TWELVE MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
----- -----
AS OF FEBRUARY 13, 1997, THERE WERE OUTSTANDING 18,598,311 SHARES OF
COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF THE REGISTRANT.
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<PAGE> 2
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of December 31, 1996 (unaudited) and June 30, 1996 . . . . . . . . . . . . . 3
Unaudited Consolidated Statement of Operations for the Three and Six Months
Ended December 31, 1996 and 1995, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Unaudited Consolidated Statement of Cash Flows for the Six Months
Ended December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statement of Stockholders' Equity for the Six Months
Ended December 31, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
Legal Proceedings
Changes in Securities
Defaults Upon Senior Securities
Submission of Matters to a Vote of Security Holders
Other Information
Exhibits and Reports on Form 8-K
<PAGE> 3
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
--------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 6,236 $ 10,102
Restricted cash 12,054 --
Stock subscriptions receivable 1,405 --
Accounts receivable 13,769 7,014
Accounts receivable from affiliates 1,280 155
Notes receivable from affiliates 2,134 2,134
Other current assets 26 28
------------ ----------
Total current assets 36,904 19,433
------------ ----------
Property and equipment 91,676 26,572
Less: Accumulated depreciation and amortization 1,181 705
------------ ----------
Property and equipment, net 90,495 25,867
------------ ----------
Equity investments 5,596 4,586
Receivables from affiliates 60,000 100,490
Deferred income taxes 1,485 2,451
Debt issue costs, net and other 6,034 3,606
------------ ----------
Total assets $ 200,514 $ 156,433
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------
Current liabilities:
Accounts payable $ 1,725 $ 7,347
Accounts payable to affiliates 12,478 6,782
Notes payable 3,930 23,327
Notes payable to affiliates 640 6,640
Interest payable 485 546
Accrued liabilities 445 1,233
------------ ----------
Total current liabilities 19,703 45,875
Long-term debt 158,545 97,534
Accumulated losses of equity investee in excess of investment -- 196
Other noncurrent liabilities 385 360
------------ ----------
Total liabilities 178,633 143,965
------------ ----------
Minority interests in consolidated subsidiaries 441 186
------------ ----------
Commitments and contingencies (Note 7)
Stockholders' equity :
Preferred stock, $.01 par, 10,000,000 shares authorized -- --
Common stock, $.01 par, 100,000,000 shares authorized
as of December 31, 1996 and June 30, 1996, 18,598,311
and 17,016,510 shares issued and outstanding as of
December 31, 1996 and June 30, 1996, respectively 186 171
Additional paid-in capital 25,089 17,579
Accumulated deficit (3,835) (5,468)
------------ ----------
21,440 12,282
------------ ----------
Total liabilities and stockholders' equity $ 200,514 $ 156,433
============ ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE> 4
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
----------------------------- ------------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenue:
Oil and gas sales $ 32,530 $ 6,310 $ 55,630 $ 8,773
Drilling services 4,588 -- 4,588 --
Equity in earnings 2,773 1,613 5,557 5,719
Other 27 302 32 470
------------ ------------ ------------ ------------
39,918 8,225 65,807 14,962
------------ ------------ ------------ ------------
Costs and expenses:
Oil and gas purchases 32,069 6,027 54,934 8,283
Operating expenses 2,521 312 2,521 477
Losses of equity investees 277 1,336 164 1,368
Depreciation and amortization 439 60 476 129
General and administrative expenses 628 1,002 1,114 2,598
------------ ------------ ------------ ------------
35,934 8,737 59,209 12,855
------------ ------------ ------------ ------------
Operating income (loss) 3,984 (512) 6,598 2,107
Gain on sale of asset -- 186 -- 748
Interest and other income 2,078 3,196 5,063 7,641
Interest and other financing costs (4,052) (2,497) (8,225) (5,725)
------------ ------------ ------------ ------------
Income before minority interests and
income taxes 2,010 373 3,436 4,771
Minority interests in consolidated
subsidiaries (300) (159) (625) (311)
------------ ------------ ------------ ------------
Income before income taxes 1,710 214 2,811 4,460
Income tax expense 720 137 1,178 1,642
------------ ------------ ------------ ------------
Net income $ 990 $ 77 $ 1,633 $ 2,818
============ ============ ============ ============
Net income per share $ 0.05 $ 0.00 $ 0.08 $ 0.17
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
<PAGE> 5
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six months ended
December 31,
-----------------------------
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,633 $ $2,818
Adjustments to reconcile net income to net cash used in
operating activities:
Minority interests in consolidated subsidiaries 625 311
Depreciation and amortization 476 129
Amortization of debt issue costs 1,578 442
Equity in earnings (5,557) (5,719)
Losses of equity investees 164 1,368
Distributions from equity investments 5,207 4,074
Gain on sale of assets -- (748)
Deferred income taxes and other 1,538 3,909
Changes in operating working capital:
Increase in stock subscriptions receivable (1,405) --
Increase in accounts receivable (6,700) (2,299)
Increase in accounts receivable from affiliates (1,224) (2,489)
Decrease (increase) in other current assets 2 (335)
Decrease in accounts payable and accrued liabilities (6,410) (5,654)
Increase in accounts payable to affiliates 5,795 2,870
Decrease in interest payable (61) (361)
Increase in interest payable to affiliates --- 256
------------ ------------
Net cash used in operating activities (4,339) (1,428)
------------ ------------
Cash flows from investing activities:
Repayment of advances to affiliates 1,751 17,799
Advances to affiliates (1,317) (22,363)
Additions to property and equipment (25,313) ---
Investment in equity investee (1,017) (500)
Other (15) 64
------------ ------------
Net cash used in investing activities (25,911) (5,000)
------------ ------------
Cash flows from financing activities:
Restricted cash (12,054) --
Proceeds from notes payable 65,992 6,750
Repayments of notes payable (30,500) (2,927)
Repayment of note payable to affiliate -- (150)
Debt issue costs (3,634) --
Proceeds from issuance of common stock 7,185 --
Dividends on subsidiary common stock (605) (218)
------------ ------------
Net cash provided by financing activities 26,384 3,455
------------ ------------
Net decrease in cash and cash equivalents (3,866) (2,973)
Cash and cash equivalents at beginning of year 10,102 6,787
------------ ------------
Cash and cash equivalents at end of period $ 6,236 $ 3,814
============ ============
Cash paid for interest, net of amounts capitalized $ 6,708 $ 5,389
Cash paid for income taxes $ 1,000 $ 1,700
</TABLE>
The accompanying notes are an integral part of this financial statement.
5
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DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional
Number of Par paid - in Accumulated
shares value capital deficit Total
---------- -------- ---------- ------------ -----
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1996 17,017 $ 171 $ 17,579 $ (5,468) $ 12,282
Issuance of common stock (unaudited) 1,581 15 7,510 -- 7,525
Net income for the six months
ended December 31, 1996 (unaudited) -- -- -- 1,633 1,633
--------- -------- -------- ---------- ---------
Balance, December 31, 1996
(unaudited) 18,598 $ 186 $ 25,089 $ (3,835) $ 21,440
========= ======== ======== ========== =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
6
<PAGE> 7
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION:
DeepTech International Inc. ("DeepTech") is a diversified energy company
engaged, through its operating subsidiaries, in offshore contract drilling
services and the acquisition, development, production, processing,
transportation and marketing of, and the exploration for, oil and gas located
offshore the United States in the Gulf of Mexico (the "Gulf") and offshore
eastern Canada. DeepTech's activities are concentrated primarily in the
Flextrend (water depths of 600 to 1,500 feet) and Deepwater (water depths
greater than 1,500 feet) areas of the Gulf.
Transportation Services
Leviathan Gas Pipeline Partners, L.P. (the "Partnership") is a publicly held
Delaware limited partnership primarily engaged in the gathering and
transportation of natural gas and crude oil through its pipeline systems
located in the Gulf. The Partnership commenced operations in February 1993.
The Partnership's assets include interests in (i) eight natural gas pipeline
systems, (ii) a crude oil pipeline system, (iii) five strategically located
multi-purpose platforms, (iv) three producing oil and gas properties, (v) an
overriding royalty interest and (vi) a dehydration facility. Leviathan Gas
Pipeline Company ("Leviathan"), a wholly-owned subsidiary of Leviathan Holdings
Company ("Leviathan Holdings"), an 85%-owned subsidiary of DeepTech, is the
general partner and performs all management and operating functions of the
Partnership and its subsidiaries. Leviathan owned an effective 27.3% interest
in the Partnership as of December 31, 1996 and June 30, 1996 giving DeepTech an
effective 23.2% interest therein.
Exploration, Development and Production
Tatham Offshore, Inc. ("Tatham Offshore"), an approximately 37%-owned
subsidiary of DeepTech, is an independent energy company engaged in the
development, exploration and production of oil and gas reserves located
primarily offshore the United States in the Gulf and offshore eastern Canada.
Flextrend Development Company, L.L.C. ("Flextrend Development"), a subsidiary of
the Partnership, acquired Tatham Offshore's working interests, subject to
certain reversionary rights, in three oil and gas properties on June 30, 1995
and is currently engaged in the development and production of the oil and gas
reserves underlying these properties.
Marine Services
DeepFlex Production Services, Inc. ("DeepFlex"), a wholly-owned subsidiary of
DeepTech, through its subsidiaries and equity interests, focuses on the
acquisition and deployment of semisubmersible drilling rigs for contract
drilling services. In March 1995, DeepFlex entered into a partnership
agreement with an affiliate of Coflexip Stena Offshore Inc. ("Coflexip") to
form DeepFlex Production Partners, L.P. ("DeepFlex Partners"). DeepFlex
Partners, effectively owned 50% by DeepFlex and 50% by Coflexip, operated the
FPS Laffit Pincay, a second generation semisubmersible drilling rig, through
September 30, 1996.
In December 1995, DeepFlex entered into an agreement with Highwood Partners,
L.P. ("Highwood Partners") to form Deepwater Drillers, L.L.C. ("Deepwater
Drillers") to exercise an option assigned from the Company to acquire the FPS
Bill Shoemaker (formerly named the Treasure Searcher), a second generation
semisubmersible drilling rig. At inception, Deepwater Drillers was owned 50%
by a wholly-owned subsidiary of DeepFlex and 50% by Highwood Partners.
Effective June 30, 1996, FPS V, Inc. ("FPS V"), a wholly-owned subsidiary of
DeepTech, acquired Highwood Partners' 50% interest.
On September 30, 1996, Deepwater Drillers was merged with and into RIGCO North
America, L.L.C. ("RIGCO"), a newly formed wholly-owned indirect subsidiary of
DeepFlex. RIGCO also acquired the FPS Laffit Pincay from DeepFlex Partners in
exchange for payment-in-kind indebtedness ("PIK Notes") (See Note 4).
7
<PAGE> 8
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(unaudited)
Marketing
Offshore Gas Marketing, Inc. ("Offshore Marketing"), an 80%-owned subsidiary of
DeepTech, markets oil and gas production from the Partnership, Tatham Offshore
and third-party producers.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
DeepTech and those 50% or more owned subsidiaries controlled by DeepTech
(collectively referred to as the "Company"). The Company uses the equity
method to account for its investments in unconsolidated entities in which the
Company owns more than 20% of the voting interests. Losses of equity investees
in excess of DeepTech's investment are recognized to the extent indebtedness of
the equity investee is outstanding to DeepTech.
The accompanying consolidated financial statements have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, the statements reflect all normal recurring
adjustments which are, in the opinion of management, necessary for a fair
statement of the results of operations for the periods covered by such
statements. These interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto contained in the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1996.
Earnings per share
Earnings per share is computed by dividing common equity in net income by the
weighted average number of common shares and common stock equivalents
outstanding during the period. The weighted average number of common shares
and common stock equivalents outstanding for the three months ended December
31, 1996 and 1995 was 20,584,667 shares and 16,331,621 shares, respectively.
The weighted average number of common shares outstanding for the six months
ended December 31, 1996 and 1995 was 20,447,734 shares and 16,114,918 shares,
respectively.
Other
The Company adopted Statement of Financial Accounting Standard ("SFAS") No. 123
"Accounting for Stock Based Compensation" effective July 1, 1996. SFAS No. 123
encourages entities to adopt the fair value method of accounting for their
stock-based compensation plans. The adoption of SFAS No. 123 did not have a
material adverse effect on the Company's financial position or results of
operations. The Company issued 150,000 options during the six months ended
December 31, 1996 pursuant to DeepTech's Non-Employee Director Stock Option
Plan.
8
<PAGE> 9
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(unaudited)
NOTE 3 - EQUITY INVESTMENTS:
The summarized financial information for the Company's investments which are
accounted for using the equity method is as follows:
SUMMARIZED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
Leviathan Gas DeepFlex Production
Pipeline Partners, L.P. Tatham Offshore, Inc. Partners, L.P.
------------------------ ----------------------- -----------------------
December 31, June 30, December 31, June 30, December 31, June 30,
1996 1996 1996 1996 1996 1996
<S> <C> <C> <C> <C> <C>
Current assets $ 37,692 $ 25,867 $ 16,096 $ 20,636 $ 174 $ 659
Noncurrent assets 415,834 399,373 76,226 76,494 2,645 42,403 (a)
Current liabilities 21,273 35,961 5,230 9,489 170 57
Long-term debt 227,000 182,412 60,000 60,000 -- 40,490 (a)
Other noncurrent
liabilities 13,125 15,242 8,943 8,779 -- --
</TABLE>
_____________________
(a) Effective September 30, 1996, RIGCO acquired the FPS Laffit Pincay from
DeepFlex Partners for the assumption of all PIK Notes then outstanding of
$40.1 million. Accordingly, at December 31, 1996, the FPS Laffit Pincay is
included in property and equipment on the Company's consolidated balance
sheet.
SUMMARIZED HISTORICAL OPERATING RESULTS
(In thousands)
<TABLE>
<CAPTION>
For the Six Months
For the Six Months Ended December 31, 1996 Ended December 31, 1995
--------------------------------------------------- -----------------------------------------------
DeepFlex Tatham DeepFlex Tatham
Partnership Partners (c) Other Total Offshore Partnership Partners Total Offshore
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue $53,309 $4,448 $10,302 $22,717 $ -- $ 5,209
Other income 977 185 246 323 5,057 11,362
Operating expenses (10,462) (2,800) (6,296) (5,505) (86) (12,966)
Depreciation (20,505) (504) (2,140) (4,388) -- (379)
Other expenses (4,700) (1,195) (4,238) (265) (755) (4,049)
------- ------- ------ ------- ------ ---------
Net earnings (loss) 18,619 134 (2,126) 12,882 4,216 (823)
Preferred stock dividends -- -- (1,974) -- -- --
------- ------- ------ ------- ------ ---------
Net earnings (loss) available
to common shareholders 18,619 134 (4,100) 12,882 4,216 (823)
Effective ownership percent 27.3% 50% 37.34% 27.3% 50% 40%
------- ------- ------ ------- ------ ---------
5,083 67 (1,531) 3,517 2,108 (329)
Intercompany profit (a) -- -- 367 -- -- (1,039)
Preferred stock dividends (b) -- -- 420 -- -- --
Other equity investees -- -- (105)
Other 352 -- 55 685(d) 94 -- --
------- ------- ---- ------ ------ ------- ------ ---------- ---------
Equity in earnings (losses) $5,435 $ 67 $ 55 $5,557 $ (164) $ 3,611 $2,108 $ 5,719 $ (1,368)
====== ======= ==== ====== ====== ======= ====== ========== =========
Distributions from
equity investments $5,207 $ -- $ -- $5,207 $ -- $ 4,074 $ -- $ 4,074 $ --
====== ======= ==== ====== ====== ======= ====== ========== =========
</TABLE>
_________________________________________
(a) Represents the effect of the elimination of a portion of profit generated
from the sale of three oil and gas properties by Tatham Offshore to
Flextrend Development in June 1995, both of which are equity investees of
DeepTech. The profit is recognized as the oil and gas reserves are
produced.
(b) The Company's share of Tatham Offshore's Series A cumulative preferred
stock dividends.
(c) Effective September 30, 1996, RIGCO acquired the FPS Laffit Pincay from
DeepFlex Partners. Accordingly, activity related to the operations of the
FPS Laffit Pincay for the period from October 1, 1996 through December 31,
1996 is included in the Company's consolidated statement of operations.
(d) Includes the effect of a change during the period in the ownership
percentage of Tatham Offshore's common equity.
9
<PAGE> 10
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(unaudited)
The Partnership and its subsidiaries distribute 100% of available cash, as
defined, on a quarterly basis to the holders of the Preference Units and to
Leviathan, as general partner and holder of the Common Units.
NOTE 4 - INDEBTEDNESS:
Outstanding indebtedness is comprised of the following:
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1996
---------------------- ----------------------
Current Long-term Current Long-term
(in thousands)
<S> <C> <C> <C> <C>
Notes payable:
Highwood Notes $ -- $ -- $ 17,258 $ --
Term Loan -- -- 6,069 5,931
RIGCO Credit Facility 2,280 62,470 -- --
Senior Notes -- 80,725 -- 80,603
Wilrig AS promissory notes (see Note 8) 1,650 9,350 -- 11,000
Notes payable to affiliates:
Subordinated Promissory Notes, bearing interest at
15% per annum, payable quarterly, principal due
January 15, 1997 (see Note 8) 640 6,000 6,640 --
</TABLE>
Highwood Notes
In December 1995 and June 1996, the Company issued promissory notes to Highwood
Partners (the "Highwood Notes") for an aggregate principal amount of $17.3
million for the purchase of 100% interest in the FPS Bill Shoemaker. In July
1996, the Company borrowed an additional $1.0 million for refurbishment costs
bringing the total amount of outstanding Highwood Notes to $18.3 million. The
Company retired the Highwood Notes in connection with obtaining the RIGCO
Credit Facility discussed below. The Company capitalized interest related to
the Highwood Notes of $0.6 million for the six months ended December 31, 1996.
Term Loan
In February 1996, DeepFlex entered into a term loan agreement to borrow $12.0
million (the "Term Loan") from a syndicate of commercial lenders. The Company
retired the Term Loan in connection with obtaining the RIGCO Credit Facility
discussed below. For the six months ended December 31, 1996, interest expense
related to the Term Loan totaled $0.4 million and debt issue costs amortized in
connection with the repayment of the Term Loan totaled $0.5 million.
RIGCO Credit Facility
On September 30, 1996, RIGCO entered into a $65.0 million senior secured credit
facility with a syndicate of lenders (the "RIGCO Credit Facility"). Proceeds
from the credit facility were used to acquire the FPS Bill Shoemaker as well as
to retire the Highwood Notes and the Term Loan. A total of $30.9 million of
the proceeds are to be used to fund significant upgrades to the FPS Bill
Shoemaker, the remaining balance of which is currently maintained in a
construction fund collateral account, shown as restricted cash on the
accompanying consolidated balance sheet. The remaining proceeds of $1.4
million are available for RIGCO's general corporate purposes. RIGCO also
acquired the FPS Laffit Pincay from DeepFlex Partners for the assumption of all
of the then outstanding PIK Notes. The credit facility (i) matures on
September 30, 1998, (ii) bears interest at the prime rate plus 3% per annum,
payable quarterly, (iii) is secured by all tangible and intangible assets of
RIGCO including the two semisubmersible drilling rigs and (iv) requires a
quarterly principal payment of excess cash flow as defined in the credit
agreement with a minimum principal amortization of $250,000 per quarter
beginning on December 31, 1996. Debt issue costs related to the RIGCO Credit
Facility of $3.9 million were capitalized and are being amortized over the
two-year life of the credit facility. Interest and amortization of debt issue
costs related to the RIGCO Credit Facility totaled $0.8 million for the six
months ended December 31, 1996. In addition, the Company capitalized interest
related to the RIGCO Credit Facility of $1.6 million during the six months
ended
10
<PAGE> 11
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(unaudited)
December 31, 1996. In connection with providing the RIGCO Credit Facility,
lending syndicate members were issued warrants to purchase an aggregate of 5%
of RIGCO's outstanding equity.
Senior Notes
In 1994, DeepTech completed a public offering of $82.0 million of 12% senior
secured notes (the "Senior Notes") due December 15, 2000. Interest on the
Senior Notes is payable semi-annually in arrears on June 15 and December 15 of
each year at a rate of 12% per annum. Interest and amortization of debt issue
costs and bond discounts related to the Senior Notes totaled $5.4 million for
the six months ended December 31, 1996.
Wilrig AS promissory notes
In November 1994, the Company issued to Wilrig AS (i) promissory notes in the
aggregate principal amount of $11.0 million due December 1997 and (ii) warrants
which grant Wilrig the right to exchange the principal and interest outstanding
under the promissory notes for common stock of DeepTech at the rate of $10.00
per share up to a maximum of 1,100,000 shares. Interest expense related to this
debt is payable quarterly at 10% per annum and totaled $0.6 million for the six
months ended December 31, 1996. See Note 8.
NOTE 5 - STOCKHOLDERS' EQUITY:
Under various agreements and arrangements, DeepTech has authorized the issuance
of stock warrants to noteholders, employees, directors and financial
institutions. On September 30, 1996, Westgate International, L.P. ("Westgate")
exercised warrants to acquire 472,973 shares of DeepTech common stock at $5.00
per share. Highwood Partners acquired these warrants in December 1995 in
connection with DeepTech's financing of the acquisition of the FPS Bill
Shoemaker and subsequently assigned such warrants to Westgate. DeepTech has
agreed to register the shares of common stock acquired by Westgate pursuant to
the warrant agreement. A registration statement will be filed shortly to
register the common stock acquired by Westgate and certain other common stock.
In December 1996, the Company extended an offer to certain of its
warrantholders whereby the exercise period for certain vested warrants could be
extended for one, two or three years in consideration for the immediate
exercise of 25%, 37.5% or 50%, respectively, of the warrants so designated by
each warrantholder. As a result of this offer, on December 31, 1996, DeepTech
issued 1,080,701 shares of common stock pursuant to the exercise of warrants at
prices ranging from $4.00 to $4.50 per share and extended the exercise period
on 1,894,446 warrants. In addition, during the six months ended December 31,
1996, DeepTech issued 28,127 shares of common stock pursuant to the exercise of
other outstanding warrants and options. At December 31, 1996, DeepTech had
outstanding warrants and options to acquire 9,647,284 shares of common stock.
NOTE 6 - RELATED PARTY TRANSACTIONS:
DeepTech has entered into management agreements with certain of its affiliates,
including Leviathan and Tatham Offshore, pursuant to which each affiliate is
charged an annual management fee in exchange for operational, financial,
accounting and administrative services. Leviathan, as general partner of the
Partnership, is entitled to reimbursement of all reasonable expenses incurred
by it or its affiliates for or on behalf of the Partnership including amounts
payable by Leviathan to DeepTech under a management agreement. Effective July
1, 1996, the management agreements with Leviathan and Tatham Offshore were
amended to provide for an annual management fee of 54% and 24%, respectively,
of DeepTech's overhead expenses. During the six months ended December 31, 1996,
the Partnership and Tatham Offshore were charged $3.5 million and $1.6 million,
respectively, under their respective agreements.
During the six months ended December 31, 1996, Leviathan Holdings paid
dividends of $4.0 million to its common stockholders, which included DeepTech
as a result of its 85% ownership interest in Leviathan Holdings.
As of December 31, 1996, DeepTech holds an aggregate principal amount of $60.0
million of Tatham Offshore subordinated convertible promissory notes (the
"Subordinated Notes"). Interest income related to these notes totaled $3.5
million for the six months ended December 31, 1996.
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DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(unaudited)
Effective December 10, 1996, Flextrend Development exercised its option to
permanently retain 50% of the assigned working interest in all three of the
Assigned Properties in exchange for forgiving 50% of the then-existing Payout
Amount exclusive of the $7.5 million plus interest added to the Payout Amount
in connection with the restructuring of certain transportation agreements with
the Partnership. Accordingly, Tatham Offshore is entitled to receive a
reassignment of one-half interest in the Assigned Properties (37 1/2% working
interest in Viosca Knoll Block 817, 25% working interest in Garden Banks Block
72 and a 25% working interest in Garden Banks Block 117), subject to conditions
as discussed below, after Flextrend Development has received net revenues equal
to the Payout Amount. Flextrend Development remains obligated to fund any
further development costs attributable to Tatham Offshore's portion of the
working interests, such costs to be added to the Payout Amount. Flextrend
Development's election to retain 50% of the assigned working interest in all
three Assigned Properties reduced the Payout Amount from $94.0 million to $50.8
million. Subsequent to December 10, 1996, only 50% of the development and
operating costs attributable to the Assigned Properties are added to the Payout
Amount and 50% of the net revenue from the assigned working interests in the
Assigned Properties will reduce the Payout Amount. As of December 31, 1996,
the Payout Amount was $49.6 million comprised of (a) the sum of (i) initial
acquisition and transaction costs of $32.1 million, (ii) development and
operating costs of $84.6 million, (iii) prepaid demand charges of $7.5 million
and (iv) interest of $13.1 million reduced by (b) the sum of (i) net revenue of
$44.5 million and (ii) forgiveness of $43.2 million of the Payout Amount.
During the six months ended December 31, 1996, substantially all of Offshore
Marketing's oil and gas purchases were derived from purchases from Tatham
Offshore and the Partnership.
In December 1996, DeepFlex exercised 1,016,957 Tatham Offshore warrants to
acquire shares of Tatham Offshore's Series C 4% Convertible Exchangeable
Preferred Stock at $1.00 per share. The remaining 4,312,086 Tatham Offshore
warrants held by DeepFlex were automatically converted into 4,312,086 shares of
Tatham Offshore's Mandatory Redeemable Preferred Stock on January 1, 1997.
In February 1996, DeepFlex Partners' FPS Laffit Pincay began providing contract
drilling services to Flextrend Development, which will extend until Flextrend
Development concludes the drilling and completion of the Garden Banks Block 117
#2 well. During the six months ended December 31, 1996, DeepFlex Partners and
RIGCO reported operating revenue totaling $4.4 million and $4.6 million,
respectively, related to these services. Net proceeds from the contract
drilling services paid to DeepFlex Partners were used to pay interest and
principal to DeepFlex on the PIK Notes.
NOTE 7 - COMMITMENTS AND CONTINGENCIES:
Certain of DeepTech's affiliated companies will need substantial additional
capital in order to implement their business strategies and to meet their debt
service requirements and other long-term obligations. There can be no
assurances, however, that DeepTech or these subsidiaries will be able to raise
capital on terms it deems acceptable, if at all. Further, the Company's debt
agreements contain covenants that among other things, require the Company to
meet certain collateral coverage tests and restrict the ability of the Company
to incur additional indebtedness, effect certain asset sales and engage in
certain mergers or similar transactions.
Tatham Offshore has substantial future capital expenditures associated with the
full development of its oil and gas properties. Realization of the full
potential of Tatham Offshore's properties is dependent upon its ability to
obtain sufficient additional capital or project financing.
In the ordinary course of business, the Company is subject to various laws and
regulations. In the opinion of management, compliance with existing laws and
regulations will not materially affect the financial position or the results of
operations of the Company. Various legal actions which have arisen in the
ordinary course of business are pending with respect to the assets of the
Company. Management believes that the ultimate disposition of these actions,
either
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DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(unaudited)
individually or in the aggregate, will not have a material adverse effect on
the consolidated financial position or operations of the Company.
NOTE 8 - SUBSEQUENT EVENTS:
On January 15, 1997, the Company issued $6.0 million of renewal subordinated
promissory notes (the "Renewal Notes") to Mr. Tatham and paid $640,000 to other
affiliates in settlement of $6,640,000 of Subordinated Promissory Notes which
matured on that date. On January 23, 1997, DeepTech paid $1,650,000 principal
amount of the Wilrig Notes and issued $15,350,000 aggregate principal amount of
Senior Subordinated Notes (the "Senior Subordinated Notes") to an investment
banking firm in exchange for $9.35 million principal amount of the Wilrig Notes,
1,100,000 warrants to purchase common stock of DeepTech at $10.00 per share (the
"Wilrig Warrants") and $6.0 million of Renewal Notes, all of which were
concurrently purchased by the investment banking firm from the respective
holders thereof. The Senior Subordinated Notes are unsecured, bear interest at
11%, payable quarterly and are due on May 31, 2000. The Senior Subordinated
Notes, which are subordinated to the existing Senior Notes and will rank senior
to all subordinated indebtedness of the Company, are not redeemable before June
15, 1999 and thereafter may be redeemed at 101% of the principal amount thereof,
plus accrued interest. The Company is obligated to make an offer to repurchase
the Senior Subordinated Notes at 101% of the principal amount thereof, plus
accrued interest to the date of repurchase, in the event of a change of control
as defined. In addition, if the Company is required to make a repurchase offer
with respect to the Senior Notes, it will be obligated to make an offer to
purchase the Senior Subordinated Notes at a repurchase price of 100% of the
principal amount thereof, plus accrued interest, to the extent permitted by the
indenture covering the Senior Notes. The Company has also agreed to file a
registration statement with respect to the Senior Subordinated Notes upon
request from at least 75% of the holders thereof. The Company reimbursed the
investment banking firm for legal fees and expenses of $60,000 and paid an
underwriting fee of $307,000 in connection with such transaction.
In addition, in conjunction with Mr. Tatham's agreement to sell the Renewal
Notes to the investment banking firm, DeepTech agreed to assign the Wilrig
Warrants to Mr. Tatham and further agreed to provide Mr. Tatham and members of
his immediate family the right, for 90 days, to accept an offer previously made
to certain warrantholders to exercise 25%, 37.5% or 50% of their warrants in
exchange for an extension of one, two or three years, respectively, in the
expiration date of the remaining warrants. In addition, Mr. Tatham agreed to
waive certain prepayment provisions in the Renewal Notes.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in Part I of the
quarterly report.
GENERAL
OVERVIEW. DeepTech is a diversified energy company engaged, through its
operating subsidiaries (the "Subsidiaries"), in offshore contract drilling
services and the acquisition, development, production, processing,
transportation and marketing of, and the exploration for, oil and gas located
primarily offshore the United States in the Gulf, with principal focus in the
Flextrend and Deepwater areas, and offshore eastern Canada. As a holding
company whose material assets consist primarily of stock of the Subsidiaries,
DeepTech is, and expects to continue to be, dependent upon management fees,
dividends funded by distributions from the Partnership and interest on and
repayment of principal under borrowings by the Subsidiaries to pay its
operating expenses, service its debt and satisfy its other obligations.
The following discussion is intended to assist in the understanding of the
Company's financial position and results of operations for the three and six
months ended December 31, 1996.
LEVIATHAN AND THE PARTNERSHIP. Leviathan serves as the general partner of the
Partnership and currently owns a 27.3% effective interest in the Partnership
(23.2% effective interest net to DeepTech's interest). The Partnership's
operations consist primarily of the gathering and transportation of natural gas
and crude oil through its pipelines and the development and production of oil
and gas reserves from three offshore leases.
TATHAM OFFSHORE. Tatham Offshore is an independent energy company engaged in
the development and production of, and the exploration for, offshore oil and gas
reserves, with activities concentrated in the Flextrend and Deepwater areas of
the Gulf and offshore eastern Canada. DeepTech currently owns approximately 37%
of Tatham Offshore's outstanding common stock. In addition, DeepTech owns,
through DeepFlex, 4.7 million shares of Tatham Offshore's Series A 12%
Convertible Exchangeable Preferred Stock, 1.0 million shares of Tatham
Offshore's Series C 4% Convertible Exchangeable Preferred Stock and 4.3 million
shares of Tatham Offshore's Mandatory Redeemable Preferred Stock and the
Partnership owns 7,500 shares of Senior Preferred Stock of Tatham Offshore which
is convertible into Series A 12% Convertible Exchangeable Preferred Stock in
certain circumstances.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1996 Compared with Three Months Ended December
31, 1995
Oil and gas sales totaled $32.5 million for the three months ended December 31,
1996 as compared with $6.3 million for the three months ended December 31,
1995. During the three months ended December 31, 1996 and 1995, the Company
derived its oil and gas revenue by marketing oil and gas production from the
Partnership, Tatham Offshore and third-party producers. The increase in oil
and gas sales is a result of the initiation of production from three oil and
gas properties owned by the Partnership and Tatham Offshore during 1996. During
the three months ended December 31, 1996, the Company sold 10,373 million cubic
feet ("MMcf") of gas and 271,000 barrels of oil at average prices of $2.51 per
thousand cubic feet ("Mcf") and $23.92 per barrel, respectively. During the
same period in 1995, the Company sold 1,312 MMcf of gas and 187,000 barrels of
oil at average prices of $2.17 per Mcf and $18.54 per barrel, respectively.
Drilling services totaled $4.6 million for the three months ended December 31,
1996 and included revenue from contract drilling services provided by the
Company's FPS Laffit Pincay.
Equity in earnings totaled $2.8 million for the three months ended December 31,
1996 as compared with $1.6 million for the same period in 1995. Equity in
earnings for the three months ended December 31, 1996 primarily included equity
earnings of the Partnership and Tatham Offshore of $2.6 million and $0.2
million, respectively, whereas equity in earnings for the three months ended
December 31, 1995 included equity earnings of the Partnership of $1.6 million.
During the three months ended December 31, 1996, the Partnership had total
revenue of $29.1 million as compared with total Partnership revenue of $10.4
million for the three months ended December 31, 1995. For the three months
ended
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December 31, 1996, the total throughput, net to the Partnership, was 132
billion cubic feet ("Bcf") of gas and 1.3 million barrels of oil as compared
with 110 Bcf of gas for the three months ended December 31, 1995. In addition,
the Partnership sold 5,189 MMcf of gas and 199,000 barrels of oil at average
prices of $2.41 per Mcf and $21.37 per barrel, respectively, during the three
months ended December 31, 1996. During the same period in 1995, the Partnership
sold 392 MMcf of gas at an average price of $2.35 per Mcf. During the three
months ended December 31, 1996, Tatham Offshore had total operating revenue of
$5.8 million and nonoperating income of $0.1 million. During the three months
ended December 31, 1996, Tatham Offshore sold 1,803 MMcf of gas and 47,000
barrels of oil at average prices of $2.57 per Mcf and $24.57 per barrel,
respectively. Tatham Offshore's depreciation and operating expenses totaled
$4.2 million and other expenses totaled $2.1 million for the three months ended
December 31, 1996. In addition, Tatham Offshore's net income was reduced by
$1.0 million in preferred stock dividends in arrears for the three months ended
December 31, 1996.
Oil and gas purchases for the three months ended December 31, 1996 totaled
$32.1 million as compared with $6.0 million for the three months ended December
31, 1995. The activity for both periods represented the cost of oil and gas
purchased from the Partnership, Tatham Offshore and third parties for resale.
During the three months ended December 31, 1996, the Company purchased 10,373
MMcf of gas and 271,000 barrels of oil at average prices of $2.48 per Mcf and
$23.44 per barrel, respectively. During the three months ended December 31,
1995, the Company purchased 1,312 MMcf of gas and 187,000 barrels of oil at
average prices of $2.03 per Mcf and $17.68 per barrel, respectively.
Operating expenses for the three months ended December 31, 1996 totaled $2.5
million and included costs to operate the Company's FPS Laffit Pincay.
Operating costs for the three months ended December 31, 1995 totaled $0.3
million and included costs to operate the Company's multi-purpose service
vessel and to terminate the related charter agreement effective October 1,
1995.
Losses of equity investees for the three months ended December 31, 1996 totaled
$0.3 million which was primarily equity losses of DeepFlex Partners as compared
with $1.3 million for the three months ended December 31, 1995 which was equity
losses of Tatham Offshore. During the three months ended December 31, 1996,
DeepFlex Partners recorded a net loss of $0.5 million. During the three months
ended December 31, 1995, Tatham Offshore had total operating revenue of $3.7
million. For the three months ended December 31, 1995, Tatham Offshore sold
479 MMcf of gas and 149,000 barrels of oil at average prices of $2.18 per Mcf
and $17.73 per barrel, respectively. Tatham Offshore's depreciation and
operating expenses totaled $5.1 million and other expenses totaled $1.9 million
for the three months ended December 31, 1995.
Depreciation and amortization totaled $0.4 million for the three months ended
December 31, 1996 as compared with $0.1 million for the three months ended
December 31, 1995. The increase in depreciation and amortization related to
depreciation of the Company's FPS Laffit Pincay which was acquired by RIGCO on
September 30, 1996.
General and administrative expenses for the three months ended December 31,
1996 totaled $0.6 million as compared with $1.0 million for the three months
ended December 31, 1995. The decrease in general and administrative expenses
was primarily attributable to decreases in salary and related expenses due to a
reduction in personnel and the restructuring of certain compensation
arrangements.
Operating income for the three months ended December 31, 1996 totaled $4.0
million as compared with an operating loss of $0.5 million for the three months
ended December 31, 1995. The change in operating income primarily represented
the net effect of the items discussed above.
Interest and other income for the three months ended December 31, 1996 totaled
$2.1 million as compared with $3.2 million for the three months ended December
31, 1995. Interest and other income for the three months ended December 31,
1996 included interest income derived from (i) the Subordinated Notes of $1.8
million and (ii) other affiliate debt and available cash of $0.3 million.
Interest and other income for the three months ended December 31, 1995 included
interest income derived from (i) the Subordinated Notes of $1.8 million, (ii)
the PIK Notes payable from DeepFlex Partners of $1.2 million, (iii) interest
earned on available cash of $0.1 million and (iv) other of $0.1 million.
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<PAGE> 16
Interest and other financing costs for the three months ended December 31, 1996
totaled $4.1 million as compared with $2.5 million for the three months ended
December 31, 1995. Interest and other financing costs for the three months
ended December 31, 1996 included (i) interest and amortization of debt issue
costs and discounts related to the Senior Notes of $2.7 million, (ii) interest
and amortization of debt issue costs related to the RIGCO Credit Facility of
$0.8 million, (iii) interest related to the Wilrig AS promissory notes of $0.3
million and (iv) interest related to other debt of $0.3 million. In addition,
the Company capitalized $1.6 million of interest costs related to the RIGCO
Credit Facility during the three months ended December 31, 1996 in connection
with the FPS Bill Shoemaker make-ready project. Interest and other financing
costs for the three months ended December 31, 1995 included interest and
amortization of debt issue costs and discounts related to the Senior Notes of
$2.7 million and $0.5 million of interest expense related to other debt offset
by $0.7 million related to the accounting treatment of interest expense
previously recognized in connection with certain financing arrangements.
During the three months ended December 31, 1996, the Company recorded income
tax expense of $0.7 million as compared with $0.1 million for the three months
ended December 31, 1995.
After taking into account a $0.3 million loss resulting from minority interests
in consolidated subsidiaries, the Company's net income for the three months
ended December 31, 1996 totaled $1.0 million. For the three months ended
December 31, 1995, the Company reported net income of $0.1 million after taking
into account a $0.2 million loss resulting from minority interests in
consolidated subsidiaries.
Six Months Ended December 31, 1996 Compared with Six Months Ended December 31,
1995
Oil and gas sales totaled $55.6 million for the six months ended December 31,
1996 as compared with $8.8 million for the six months ended December 31, 1995.
During the six months ended December 31, 1996 and 1995, the Company derived its
oil and gas revenue by marketing oil and gas production from the Partnership,
Tatham Offshore and third-party producers. The increase in oil and gas sales
is a result of the initiation of production from three oil and gas properties
owned by the Partnership and Tatham Offshore during 1996. During the six months
ended December 31, 1996, the Company sold 18,106 MMcf of gas and 578,000
barrels of oil at average prices of $2.34 per Mcf and $22.87 per barrel,
respectively. During the same period in 1995, the Company sold 1,812 MMcf of
gas and 284,000 barrels of oil at average prices of $1.97 per Mcf and $18.34
per barrel, respectively.
Drilling services totaled $4.6 million for the six months ended December 31,
1996 and included revenue from contract drilling services provided by the
Company's FPS Laffit Pincay from October 1, 1996 through December 31, 1996.
Prior to October 1, 1996, the Company conducted its contract drilling services
related to the FPS Laffit Pincay through DeepFlex Partners which activity is
included in equity earnings for the period from July 1, 1996 through September
30, 1996, as discussed below.
Equity in earnings totaled $5.6 million for the six months ended December 31,
1996 as compared with $5.7 million for the same period in 1995. Equity in
earnings for the six months ended December 31, 1996 primarily included equity
earnings of the Partnership and DeepFlex Partners of $5.4 million and $0.1
million, respectively, whereas equity in earnings for the six months ended
December 31, 1995 included equity earnings of the Partnership and DeepFlex
Partners of $3.6 million and $2.1 million, respectively. During the six months
ended December 31, 1996, the Partnership had total revenue of $53.8 million as
compared with total Partnership revenue of $22.7 million for the six months
ended December 31, 1995. For the six months ended December 31, 1996, the total
throughput, net to the Partnership, was 266 Bcf of gas and 2.6 million barrels
of oil as compared with 219 Bcf of gas for the six months ended December 31,
1995. In addition, the Partnership sold 9,355 MMcf of gas and 368,000 barrels
of oil at average prices of $2.19 per Mcf and $21.78 per barrel, respectively,
during the six months ended December 31, 1996. During the same period in 1995,
the Partnership sold 392 MMcf of gas at an average price of $2.35 per Mcf.
DeepFlex Partners recorded net income of $0.2 million and $2.1 million for the
six months ended December 31, 1996 and 1995, respectively. Net income for the
six months ended December 31, 1995 included a gain of $5.1 million related to
the sale of the FPS Eddie Delahoussaye.
Oil and gas purchases for the six months ended December 31, 1996 totaled $54.9
million as compared with $8.3 million for the six months ended December 31,
1995. The activity for both periods represented the cost of oil and gas
purchased from the Partnership, Tatham Offshore and third parties for resale.
During the six months ended December 31, 1996,
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the Company purchased 18,112 MMcf of gas and 578,000 barrels of oil at average
prices of $2.32 per Mcf and $22.41 per barrel, respectively. During the six
months ended December 31, 1995, the Company purchased 1,812 MMcf of gas and
284,000 barrels of oil at average prices of $1.85 per Mcf and $17.16 per
barrel, respectively.
Operating expenses for the six months ended December 31, 1996 totaled $2.5
million and included costs to operate the Company's FPS Laffit Pincay
subsequent to its acquisition by RIGCO on September 30, 1996. Operating costs
for the six months ended December 31, 1995 totaled $0.5 million and included
costs to operate the Company's multi-purpose service vessel and to terminate
the related charter agreement effective October 1, 1995.
Depreciation and amortization totaled $0.5 million for the six months ended
December 31, 1996 as compared with $0.1 million for the six months ended
December 31, 1995. The increase in depreciation and amortization related to
depreciation of the Company's FPS Laffit Pincay, which was acquired by RIGCO on
September 30, 1996, for the period from October 1, 1996 through December 31,
1996. Prior to October 1, 1996, the Company conducted its contract drilling
services related to the FPS Laffit Pincay through DeepFlex Partners which
activity is included in equity earnings for the period from July 1, 1996
through September 30, 1996, as discussed above.
Losses of equity investees for the six months ended December 31, 1996 totaled
$0.2 million as compared with $1.4 million for the six months ended December
31, 1995 and related primarily to equity losses of Tatham Offshore. During the
six months ended December 31, 1996, Tatham Offshore had total operating revenue
of $10.3 million and nonoperating income of $0.2 million. During the six
months ended December 31, 1996, Tatham Offshore sold 3,279 MMcf of gas and
108,000 barrels of oil at average prices of $2.38 per Mcf and $23.05 per
barrel, respectively. Tatham Offshore's depreciation and operating expenses
totaled $8.4 million and other expenses totaled $4.2 million for the six months
ended December 31, 1996. In addition, Tatham Offshore's net income was reduced
by $2.0 million in preferred stock dividends in arrears for the six months
ended December 31, 1996. During the six months ended December 31, 1995, Tatham
Offshore had total operating revenue of $5.2 million and nonoperating income of
$11.3 million which was primarily related to the sale of three properties to
Flextrend Development. For the six months ended December 31, 1995, Tatham
Offshore sold 715 MMcf of gas and 221,000 barrels of oil at average prices of
$1.97 per Mcf and $17.17 per barrel, respectively. Tatham Offshore's
depreciation and operating expenses totaled $13.3 million and other expenses
totaled $4.0 million for the six months ended December 31, 1995.
General and administrative expenses for the six months ended December 31, 1996
totaled $1.1 million as compared with $2.6 million for the six months ended
December 31, 1995. The decrease in general and administrative expenses was
primarily attributable to decreases in salary and related expenses due to a
reduction in personnel and the restructuring of certain compensation
arrangements.
Operating income for the six months ended December 31, 1996 totaled $6.6
million as compared with operating income of $2.1 million for the six months
ended December 31, 1995. The change in operating income primarily represented
the net effect of the items discussed above.
Interest and other income for the six months ended December 31, 1996 totaled
$5.1 million as compared with $7.6 million for the six months ended December
31, 1995. Interest and other income for the six months ended December 31, 1996
included interest income derived from (i) the Subordinated Notes of $3.5
million and (ii) other affiliate debt and available cash of $1.6 million.
Interest and other income for the six months ended December 31, 1995 included
interest income derived from (i) the Subordinated Notes of $3.5 million, (ii)
the PIK Notes payable from DeepFlex Partners of $3.7 million, (iii) interest
earned on available cash of $0.2 million and (iv) other of $0.2 million.
Interest and other financing costs for the six months ended December 31, 1996
totaled $8.2 million as compared with $5.7 million for the six months ended
December 31, 1995. Interest and other financing costs for the six months ended
December 31, 1996 included (i) interest and amortization of debt issue costs
and discounts related to the Senior Notes of $5.4 million, (ii) interest and
amortization of debt issue costs related to the RIGCO Credit Facility of $0.8
million, (iii) interest related to the Wilrig AS promissory notes of $0.6
million, (iv) interest and amortization of debt issue costs related to the Term
Loan of $0.9 million and (v) interest related to other debt of $0.5 million.
In addition, the Company capitalized $1.6 million of interest costs related to
the RIGCO Credit Facility during the six months ended December 31, 1996 in
connection with the FPS Bill Shoemaker make-ready project. Interest and other
financing costs for the six
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months ended December 31, 1995 included interest and amortization of debt issue
costs and discounts related to the Senior Notes of $5.4 million and $1.0
million of interest expense related to other debt offset by $0.7 million
related to the accounting treatment of interest expense previously recognized
in connection with certain financing arrangements.
During the six months ended December 31, 1996, the Company recorded income tax
expense of $1.2 million as compared with $1.6 million for the six months ended
December 31, 1995.
After taking into account a $0.6 million loss resulting from minority interests
in consolidated subsidiaries, the Company's net income for the six months ended
December 31, 1996 totaled $1.6 million. For the six months ended December 31,
1995, the Company reported net income of $2.8 million after taking into account
a $0.3 million loss resulting from minority interests in consolidated
subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
DEEPTECH
Sources of cash. As a holding company whose material assets consist primarily
of stock of the Subsidiaries, DeepTech is, and expects to continue to be,
dependent upon management fees, dividends funded by distributions from the
Partnership and interest on and repayment of principal under borrowings by the
Subsidiaries (principally the Subordinated Notes issued by Tatham Offshore) to
pay its operating expenses, service its debt and satisfy its other obligations.
DeepTech has entered into management agreements with each of the Subsidiaries.
The management fees charged to the Subsidiaries are intended to approximate the
amount of resources allocated by DeepTech to each such Subsidiary for
operational, financial, accounting and administrative services. Each of the
management agreements has an initial term expiring on June 30, 1997, and may be
terminated thereafter upon 90 days' notice by either party thereto.
Historically, management fees payable by each Subsidiary during its development
stage have been funded through advances by DeepTech to each such Subsidiary,
thereby reducing cash available to DeepTech.
Effective July 1, 1996, DeepTech amended its management agreements with each
Subsidiary and began charging Leviathan, Tatham Offshore, DeepFlex and Offshore
Marketing a management fee equal to 54%, 24%, 18% and 4%, respectively, of
DeepTech's overhead expenses. Prior to July 1, 1996, DeepTech charged
Leviathan, Tatham Offshore, DeepFlex and Offshore Marketing 45.3%, 27.4%, 18.8%
and 8.5%, respectively, of DeepTech's overhead expenses. For the six months
ended December 31, 1996, Leviathan, Tatham Offshore and Offshore Marketing made
their required cash payments to DeepTech for their management fees. Leviathan
was reimbursed by the Partnership for management fees relating to the conduct
and business of the Partnership. DeepFlex, which is currently charged 18% of
DeepTech's general and administrative overhead costs, did not make payments of
management fees to DeepTech during such period.
In addition to management fees, DeepTech receives, through dividends from
Leviathan Holdings, an 85%-owned subsidiary of DeepTech, its proportionate
share of distributions paid by the Partnership to Leviathan in respect of
Leviathan's general partner interest, limited partner interest evidenced by
Common Units and interest in certain subsidiaries of the Partnership. For the
quarter ending June 30, 1996, the Partnership increased the quarterly
distribution to $0.70 per Unit. For the quarter ending September 30, 1996, the
Partnership increased the quarterly distribution to $0.75 per Unit. In January
1997, the Partnership effected a two for one split of its Preference and Common
Units. For the quarter ended December 31, 1996, the Partnership increased the
quarterly distribution to $0.40 per Unit ($0.80 per Unit on a pre-split basis).
Leviathan, as general partner, is also entitled to the payment of incentive
distributions if certain target levels of distributions are met. As a result,
DeepTech's proportionate share of the aggregate distributions paid to Leviathan
for the six months ended December 31, 1996 was approximately $4.4 million.
Leviathan is also required to reimburse DeepTech for certain tax liabilities
DeepTech incurs in connection with certain matters relating to the operations
of the Partnership.
DeepTech currently holds Subordinated Notes issued by Tatham Offshore with an
aggregate principal amount of $60.0 million. The Subordinated Notes bear
interest at a rate of 11 3/4% per annum, payable quarterly in arrears (an
aggregate of approximately $7.1 million per year); provided, however, effective
July 1, 1997, interest shall accrue at a rate of 13% per
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annum. For the six months ended December 31, 1996, interest income under the
Subordinated Notes totaled $3.5 million. The principal amount of the
Subordinated Notes is payable in seven equal annual installments commencing
August 1, 1999.
In connection with the issuance of the Highwood Notes, DeepTech granted
Highwood Partners warrants to acquire 472,973 shares of DeepTech common stock
at $5.00 per share which warrants were subsequently assigned to Westgate. On
September 30, 1996, Westgate exercised these warrants resulting in $2.4 million
of proceeds to DeepTech. DeepTech has agreed to register the shares of common
stock acquired by Westgate pursuant to the warrant agreement. A registration
statement will be filed shortly to register the common stock acquired by
Westgate and certain other common stock.
In December 1996, the Company extended an offer to certain of its
warrantholders whereby the exercise period for certain vested warrants could be
extended for one, two or three years in consideration for the immediate
exercise of 25%, 37.5% or 50%, respectively, of the warrants so designated by
each warrantholder. As a result of this offer, DeepTech has issued 1,080,701
shares of DeepTech common stock pursuant to the exercise of warrants to date,
raising proceeds of $4.8 million, and has extended the exercise period on
1,894,446 warrants.
On November 1, 1995, DeepTech agreed to assume $1.7 million of an affiliate's
accounts receivable from Tatham Offshore in exchange for reducing the
affiliates' payable to DeepTech under a line of credit arrangement for a like
amount. DeepTech then converted the $1.7 million of accounts receivable from
Tahtam Offshore into an unsecured promissory note (the "Affiliate Note") which
bears interest at 14.5% per annum, payable quarterly. The principal is due and
payable in six monthly installments, beginning on January 31, 1997.
On September 30, 1996, RIGCO entered into the RIGCO Credit Facility for $65.0
million. Proceeds from the credit facility were used to acquire the FPS Bill
Shoemaker and to perform significant upgrades to the rig as well as to retire
the Highwood Notes and the Term Loan. RIGCO also acquired the FPS Laffit
Pincay from DeepFlex Partners for the assumption of all of the then outstanding
PIK Notes. The credit facility (i) is secured by the FPS Laffit Pincay and the
FPS Bill Shoemaker, (ii) bears interest at the prime rate plus 3% per annum,
payable quarterly, (iii) matures September 30, 1998 and (iv) requires a
quarterly principal payment of excess cash flow as defined in the credit
agreement with a minimum principal amortization of $250,000 per quarter
beginning December 31, 1996. RIGCO incurred and capitalized debt issue costs
related to the RIGCO Credit Facility of $3.9 million which are being amortized
over the two-year life of the credit facility. Interest and amortization of
debt issue costs related to the RIGCO Credit Facility totaled $0.8 million for
the six months ended December 31, 1996. The Company capitalized interest
related to the RIGCO Credit Facility of $1.6 million during the six months
ended December 31, 1996. In connection with providing the RIGCO Credit
Facility, syndicate members were issued warrants to purchase an aggregate of 5%
of RIGCO's outstanding equity.
In February 1996, DeepFlex Partners' FPS Laffit Pincay began providing contract
drilling services to Flextrend Development. The contract will continue until
Flextrend Development completes the drilling of its Garden Banks Block 117 #2
well which should be completed during the third quarter of this fiscal year.
During the six months ended December 31, 1996, DeepFlex Partners and RIGCO
provided services totaling $4.4 million and $4.6 million, respectively, under
this agreement. Net proceeds from the contract drilling services paid to
DeepFlex Partners through September 30, 1996 were used to pay interest and
principal to DeepFlex on the PIK Notes. The RIGCO Credit Facility does not
permit payments on the PIK Notes until the credit facility has been repaid.
After completing the drilling contract for Flextrend Development, the FPS
Laffit Pincay is under contract to a major oil company to drill one well in the
Garden Banks area of the Gulf. This drilling contract includes three one well
options at market prices.
Upon completion of an extensive drilling make-ready upgrade, the FPS Bill
Shoemaker will be mobilized to Canada for a drilling contract with a major oil
company which is a one well program with a one well extension option. The
drilling make-ready is anticipated to be completed in April 1997.
Uses of Cash. In December 1996, DeepFlex exercised 1,016,957 Tatham Offshore
warrants to acquire shares of Tatham Offshore's Series C 4% Convertible
Exchangeable Preferred stock at $1.00 per share. The remaining 4,312,086
Tatham
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Offshore warrants were automatically converted into 4,312,086 shares of Tatham
Offshore's Mandatory Redeemable Preferred stock on January 1, 1997. See
"--Tatham Offshore."
On January 15, 1997, the Company issued $6.0 million of Renewal Notes and paid
$640,000 in principal in settlement of $6,640,000 of Subordinated Promissory
Notes payable to affiliates which matured on that date. On January 23, 1997,
DeepTech paid $1,650,000 principal amount of the Wilrig Notes and issued
$15,350,000 of Senior Subordinated Notes to an investment banking firm in
exchange for $9.35 million principal amount of the Wilrig Notes, $6.0 million of
the Renewal Notes and the Wilrig Warrants which had been concurrently purchased
by the investment banking firm. The Senior Subordinated Notes are unsecured,
bear interest at 11% per annum, payable quarterly, and are due on May 31, 2000.
The Company reimbursed such firm for legal fees and expenses of $60,000 and paid
an underwriting fee of $307,000 in connection with such transaction. In
addition, in conjunction with Mr. Tatham's agreement to sell the Renewal Notes
to such firm, DeepTech agreed to assign the Wilrig Warrants to Mr. Tatham and
further agreed to provide Mr. Tatham and members of his immediate family the
right, for 90 days, to accept an offer previously made to certain warrantholders
to exercise 25%, 37.5% or 50% of their warrants in exchange for an extension of
one, two or three years, respectively, in the expiration date of the remaining
warrants. In addition, Mr. Tatham agreed to waive certain prepayment provisions
in the Renewal Notes.
Management expects that the Company's expenditures through December 31, 1997
will include (i) scheduled payments of interest on the Senior Notes of $4.9
million on June 15 and December 15 of each year, or $9.8 million on an annual
basis, (ii) scheduled interest payments on the RIGCO Credit Facility of $1.8
million per quarter or $7.3 million on an annual basis and scheduled principal
payments equal to excess cash flow as defined in the credit agreement with a
minimum principal amortization of $250,000 per quarter, (iii) scheduled
interest payments on the Senior Subordinated Notes of $422,000 per quarter, or
$1.7 million on an annual basis and (iv) amounts necessary to pay general and
administrative and other operational expenses.
In addition, the Company anticipates that its capital expenditures for the year
ending December 31, 1997 will include additional investments in its contract
drilling services business, consisting of capital expenditures necessary to
perform an extensive upgrade, repair and refurbishment program on the FPS Bill
Shoemaker to enable it to perform contract drilling services. As of January
31, 1997, the Company has incurred $31.1 million related to the upgrade, repair
and refurbishment program on the FPS Bill Shoemaker. The Company anticipates
that the remaining capital requirements necessary to complete the upgrades on
the FPS Bill Shoemaker will be funded with proceeds from the RIGCO Credit
Facility or from cash on hand.
Liquidity Outlook. DeepTech intends to satisfy its capital requirements and
other working capital needs primarily from cash on hand and cash provided from
management fees, dividends funded by distributions from the Partnership,
interest on the Subordinated Notes and funds provided from the RIGCO Credit
Facility. As of December 31, 1996, the Company had $18.3 million of funds
available, including $12.1 million currently restricted for capital
expenditures related to the FPS Bill Shoemaker. DeepTech is and expects to
continue to be dependent upon payments from the Subsidiaries to service its
debt, pay its operating expenses and satisfy its other obligations. Based on
current projections which assume that the Company receives interest payments on
the Subordinated Notes when due, DeepTech believes that it will have sufficient
funds to meet its anticipated capital needs through at least December 31,1997
and to complete the make ready expenditures on the FPS Bill Shoemaker.
DeepTech anticipates that it will need significant additional funds from
outside sources to fund its financial obligations which mature in 1998 and
beyond. These obligations include the repayment by RIGCO of the remaining
balance of the RIGCO Credit Facility which is due is September 1998, the
repayment of DeepTech's Senior Subordinated Note which is due in May 2000 and
the principal balance of $82.0 million under DeepTech's Senior Notes which are
due in December 2000. The Company contemplates raising such funds through (i)
the issuance of additional debt or debt refinancing at the DeepTech or
subsidiary level, (ii) the sale of equity securities at the subsidiary level,
(iii) a repayment of amounts due DeepTech from Tatham Offshore and/or DeepFlex
and/or (iv) the exercise of additional outstanding warrants to acquire DeepTech
common stock. However, there can be no assurance that the Company will be able
to raise capital on terms it deems acceptable on a timely basis. Further, the
Senior Note Indenture contains covenants that, among other things, require
DeepTech to meet certain collateral coverage tests and restrict the ability of
DeepTech to incur additional indebtedness, effect certain asset sales and
engage in certain mergers or similar transactions. The failure
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to obtain additional capital would have a material adverse effect on DeepTech's
financial condition and results of operations.
LEVIATHAN/THE PARTNERSHIP
Sources of Cash. The Partnership intends to satisfy its capital requirements
and other working capital needs primarily from cash on hand, cash from
continuing operations and borrowings under the Partnership Credit Facility
(discussed below). Net cash provided by operating activities for the year
ended December 31, 1996 totaled $50.3 million. At December 31, 1996, the
Partnership had cash and cash equivalents of $16.5 million.
Cash from continuing operations is derived from (i) payments for transporting
gas through the 100% owned pipelines, (ii) cash distributions from the
Partnership's equity investees which include Stingray Pipeline Company
("Stingray"), High Island Offshore System ("HIOS"), U-T Offshore System
("UTOS"), Viosca Knoll Gathering System ("Viosca Knoll"), Poseidon Oil Pipeline
Company, L.L.C. ("POPCO"), West Cameron Dehydration Company ("West Cameron
Dehy") and effective January 1997, Manta Ray Offshore Gathering Company, L.L.C.
("Manta Ray Offshore") and Nautilus Pipeline Company, L.L.C. ("Nautilus"),
(iii) platform access and processing fees and (iv) the sale of oil and gas
attributable to the Partnership's interest in certain producing wells.
Stingray, HIOS, UTOS and Viosca Knoll are partnerships and POPCO, West Cameron
Dehy, Manta Ray Offshore and Nautilus are limited liability companies in which
the Partnership owns an interest. The Partnership's cash flows from operations
will be affected by the ability of such entities to make distributions.
Distributions from such entities are also subject to the discretion of their
respective management committees. Further, each of Stingray, POPCO and Viosca
Knoll is party to a credit agreement under which it has outstanding obligations
that may restrict the payments of distributions to its owners. In December
1995, Stingray amended an existing term loan agreement to provide for aggregate
outstanding borrowings of up to $29.0 million in principal amount. The
agreement requires the payment of principal by Stingray of $1.45 million per
quarter. As of December 31, 1996, Stingray had $23.2 million outstanding under
its term loan agreement and interest accrued at a floating rate of
approximately 6.2% per annum, payable quarterly.
In April 1996, POPCO entered into a revolving credit facility (the "POPCO
Credit Facility") with a group of commercial banks to provide up to $150.0
million for the construction of the second phase of the Poseidon Oil Pipeline
and for other working capital needs of POPCO. As of December 31, 1996, POPCO
had $84.0 million outstanding under the POPCO Credit Facility bearing interest
at a floating rate of approximately 6.7% per annum. POPCO's ability to borrow
money under the facility is subject to certain customary terms and conditions,
including borrowing base limitations. The POPCO Credit Facility is secured by
a substantial portion of POPCO's assets and matures on April 30, 2001.
In December 1996, Viosca Knoll entered into a revolving credit facility (the
"Viosca Knoll Credit Facility") with a syndicate of commercial banks to provide
up to $100.0 million for the addition of compression to the Viosca Knoll
Gathering System and for other working capital needs of Viosca Knoll, including
providing a distribution not to exceed $25.0 million to its partners. As of
December 31, 1996, Viosca Knoll had $33.3 million outstanding under the Viosca
Knoll Credit Facility bearing interest at a floating rate of approximately
6.69% per annum. In December 1996, the Partnership received a $12.5 million
distribution from Viosca Knoll as a result of its 50% interest. Viosca Knoll's
ability to borrow money under the facility is subject to certain customary
terms and conditions, including borrowing base limitations. The Viosca Knoll
Credit Facility is secured by all of Viosca Knoll's material contracts and
agreements, receivables and inventory and matures on December 20, 2002.
Flextrend Development has initiated production from the each of its oil and gas
properties. The Viosca Knoll Block 817 project is currently producing a total
of approximately 115 MMcf of gas and 300 barrels of oil per day. Flextrend
Development owns a 75% working interest in this property, one-half of which is
subject to certain reversionary rights. The Garden Banks Block 72 lease, which
began producing in May 1996, is currently producing an average of 3,850 barrels
of oil and 15 MMcf of gas per day. The Garden Banks Block 117 #1 well, which
began producing in July 1996, is currently producing an average of
approximately 1,750 barrels of oil, 3.5 MMcf of gas and 3,750 barrels of water
per day. Flextrend Development has drilled a second successful well at Garden
Banks Block 117 which should be placed on
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production during the first quarter of 1997. Flextrend Development owns a 50%
working interest in each of these properties, one-half of which is subject to
certain reversionary rights.
The Partnership Credit Facility, as amended and restated in December 1996, is a
secured revolving credit facility providing for up to $300.0 million of
available credit subject to certain incurrence limitations. Proceeds from the
Partnership Credit Facility are available to the Partnership for general
partnership purposes, including financing of capital expenditures, for working
capital, and subject to certain limitations, for paying distributions to the
unitholders. The Partnership Credit Facility can also be utilized to issue
letters of credit as may be required from time to time. As of December 31,
1996, borrowings totaled $227.0 million under the Partnership Credit Facility
bearing interest at an average floating rate of 6.6% per annum. There are no
letters of credit currently outstanding under the Partnership Credit Facility.
Uses of Cash. The Partnership's capital requirements consist primarily of (i)
quarterly distributions to holders of Preference Units and Common Units and to
Leviathan as general partner, including incentive distributions, as applicable,
(ii) expenditures for the maintenance of the pipelines and related
infrastructure and the construction of additional pipelines and related
facilities for the transportation and processing of gas and oil in the Gulf,
(iii) management fees and other operating expenses and (iv) debt service on its
outstanding debt. In addition, Flextrend Development's future capital
requirements will consist of expenditures related to the completion of drilling
operations on the second well at Garden Banks Block 117.
For every full quarter since its inception, the Partnership has declared and
subsequently paid a cash distribution to holders of Preference Units and Common
Units in an amount equal to or exceeding the Minimum Quarterly Distribution of
$0.55 per Unit per quarter. For the quarter ending June 30, 1996, the
Partnership increased the quarterly distribution to $0.70 per Unit. For the
quarter ending September 30, 1996, the Partnership increased the quarterly
distribution to $0.75 per Unit. In January 1997, the Partnership effected a two
for one split of its Preference and Common Units. For the quarter ended
December 31, 1996, the Partnership increased the quarterly distribution to
$0.40 per Unit ($0.80 per Unit on a pre-split basis). This distribution will
be paid on February 14, 1997 to Unitholders of record as of January 31, 1997.
At the current distribution rate of $0.40 per Unit, the Partnership anticipates
making quarterly Partnership distributions of $10.3 million in respect of the
Preference Units, Common Units and general partner interest ($41.3 million on
an annual basis). The Partnership believes that it will be able to continue to
pay at least the current quarterly distribution of $0.40 per Unit for the
foreseeable future.
In February 1996, Poseidon Pipeline Company, L.L.C. ("Poseidon LLC"), a
subsidiary of the Partnership, and Texaco Trading and Transportation Inc.
("Texaco Trading") formed POPCO to construct, own and operate the Poseidon Oil
Pipeline. Pursuant to the terms of the organizational documents, Poseidon LLC
initially contributed assets, at net book value, related to the construction of
the initial phase of the Poseidon Oil Pipeline as well as certain dedication
agreements and Texaco Trading initially contributed an equivalent amount of
cash as well as its rights under certain agreements. The Partnership has fully
funded its portion of the capital requirements of POPCO for the construction of
the first two phases of the Poseidon Oil Pipeline. In July 1996, Marathon Oil
Company ("Marathon") joined POPCO by contributing its interest in 58 miles of
nearby crude oil pipelines and dedicating its portion of oil reserves attached
to such pipelines to the Poseidon Oil Pipeline for transportation. As a
result, each of the Partnership and Texaco Trading now owns a 36% interest in
POPCO and Marathon owns the remaining 28% interest. The second phase of the
Poseidon Oil Pipeline was placed in service in December 1996. The Partnership
anticipates that POPCO's future capital requirements will be funded by
borrowings under the POPCO Credit Facility.
In January 1997, the Partnership and affiliates of Marathon and Shell Oil
Company ("Shell") formed Nautilus and Manta Ray Offshore to build and operate
an interstate natural gas pipeline system and a connecting gathering system to
serve growing production areas in the Green Canyon area of the Gulf. The total
cost of the two systems, including the Manta Ray System which was contributed
to Manta Ray Offshore by the Partnership, is approximately $270.0 million. The
Nautilus system, the new jurisdictional interstate pipeline segment of the
project, will consist of a 30-inch line downstream from Ship Shoal Block 207
connecting to the Exxon Company USA operated Garden City gas processing plant.
Upstream of the Ship Shoal 207 terminal, the Manta Ray System will be extended
into a broader gathering system that would serve shelf and deepwater production
around Ewing Bank Block 873 to the east and Green Canyon Block 65 to the west.
Affiliates of Marathon and Shell have committed to the Nautilus and Manta Ray
systems significant deep
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water acreage positions in the area, including the recently announced Troika
field (Green Canyon Block 244), and will provide the majority of the capital
funding for the new construction. The Partnership will provide some funding in
addition to the contribution of the Manta Ray System.
The Partnership anticipates that its total capital expenditures for 1997 will
relate to continuing construction and drilling activities. The Partnership
anticipates funding such costs primarily with available cash flow and
borrowings under the Partnership Credit Facility. Capital expenditures of
POPCO and Viosca Knoll are anticipated to be funded by borrowings under their
respective credit facilities. Total capital expenditures and equity investments
for 1996 were $101.7 million.
Interest and other financing costs, net of capitalized interest, related to the
Partnership's credit facilities totaled $5.6 million for the year ended
December 31, 1996. Such amount included commitment fees and amortization of
debt issue costs of $1.2 million. During the year ended December 31, 1996, the
Partnership capitalized $11.9 million of interest costs in connection with
construction projects and drilling activities in progress during the period.
TATHAM OFFSHORE
Sources of Cash. Tatham Offshore intends to satisfy its immediate capital
requirements and other working capital needs primarily from cash on hand, cash
generated from continuing operations and the collection of stock subscriptions
receivable from the exercise of outstanding warrants as of December 31, 1996.
At December 31, 1996, Tatham Offshore had $11.1 million of cash and cash
equivalents and $0.3 million of stock subscriptions receivable.
Cash from continuing operations is derived primarily from production from
Tatham Offshore's Viosca Knoll Block 817 project which is currently producing a
total of approximately 115 MMcf of gas and 300 barrels of oil per day. Tatham
Offshore currently owns a 25% working interest in the Viosca Knoll Block 817
project which interest is subject to a production payment equal to 25% of the
net operating cash flow from such working interest.
Tatham Offshore also has producing wells at Ewing Bank 914 and at its Silent
Beauty project at West Delta Block 35 which contribute to cash from continuing
operations. Tatham Offshore owns a 100% working interest in the Ewing Bank 914
#2 well and a 38% working interest in the Silent Beauty project. The Ewing
Bank 914 #2 well is currently producing at a rate of approximately 600 barrels
of oil, 1.2 MMcf of gas and 2,000 barrels of water per day. The Silent Beauty
project is currently producing at a rate of approximately 6.3 MMcf of gas and
100 barrels of oil per day.
As a result of a rights offering in February 1996, Tatham Offshore received
$12.6 million in gross proceeds ($11.3 million in net proceeds) pursuant to the
exercise of Rights to purchase 25,120,948 Warrants at $0.50 per warrant. As of
January 1, 1997, a total of 20,129,571 Warrants had been exercised to purchase
18,717,030 shares, 74,379 shares and 1,338,162 shares of Series A, B and C
Preferred Stock, respectively, at $1.00 per share which generated an additional
$20.1 million in proceeds to Tatham Offshore.
As of January 1, 1997, there were 4,991,377 Warrants outstanding. Each Warrant
remaining unexercised at 5:00 p.m. New York time on January 1, 1997 was
automatically converted, without any action on the part of the holder thereof,
into one share of Mandatory Redeemable Preferred Stock, which has a liquidation
preference of $0.50 per share and shall be mandatorily redeemable by Tatham
Offshore under certain circumstances, including from the net proceeds from the
sale of Tatham Offshore common stock pursuant to the exercise of Exchange
Warrants, subject to certain conditions. At any time until December 31, 1998,
each share of Series A, B or C Preferred Stock may be exchanged for four
Exchange Warrants each of which shall entitle the holder thereof to purchase
one share of Tatham Offshore common stock at $0.653 per share. The Exchange
Warrants will expire July 1, 1999. Alternatively, at any time, the holder of
any shares of Series A, B or C Preferred Stock will have the right, at the
holder's option, to convert the liquidation value of such stock and accrued and
unpaid dividends into shares of Tatham Offshore common stock at $0.653 per
share. On and after July 1, 1997, the Convertible Exchangeable Preferred Stock
will be redeemable at the option of Tatham Offshore. Through January 31, 1997,
a total of 551,164 shares of Series A Preferred Stock had been converted into
1,283,797 shares of Tatham Offshore common stock.
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Uses of Cash. Tatham Offshore's primary uses of cash consist of (i) amounts due
under the Subordinated Notes, (ii) expenses associated with operating its
producing properties, including its production payment and leasehold
abandonment liabilities, (iii) capital expenditures necessary to fund its
portion of the development costs attributable to its working interests
including its obligations under the Drilling Arrangement discussed below, (iv)
platform access fees and processing and commodity charges payable to the
Partnership, (v) payments due under the management agreement with DeepTech and
(vi) amounts due under the Affiliate Note, as discussed below.
As of December 31, 1996, Tatham Offshore had $60.0 million aggregate principal
amount of Subordinated Notes outstanding, the maximum principal amount of
Subordinated Notes issuable, all of which were held by DeepTech. The
Subordinated Notes bear interest at a rate of 11 3/4% per annum, payable in
arrears (approximately $1.8 million per quarter); provided, however, that
effective July 1, 1997, interest shall accrue at a rate of 13% per annum. The
principal amount of the Subordinated Notes is payable in seven equal annual
installments of approximately $8.6 million each commencing August 1, 1999. For
the six months ended December 31, 1996, Tatham Offshore paid DeepTech $3.5
million in interest on the Subordinated Notes.
During the six months ended December 31, 1996, Tatham Offshore completed its
abandonment of its West Cameron 436 property, in which it owns a 47% working
interest, at a cost of approximately $1.0 million which Tatham Offshore
anticipates it will pay in 1997.
Tatham Offshore is obligated to pay to the Partnership commodity charges, based
on the volume of oil and gas transported or processed, under certain
transportation agreements. Also, Tatham Offshore is obligated to pay to the
Partnership $1.6 million in platform access fees annually relative to its 25%
working interest in its Phar Lap property.
The management fee agreement between Tatham Offshore and DeepTech provides for
an annual management fee which is intended to reimburse DeepTech for the
estimated costs of its operational, financial, accounting and administrative
services provided to Tatham Offshore. Effective July 1, 1996, the management
agreement was amended to provide for an annual management fee of 24% of
DeepTech's overhead expenses. For the six months ended December 31, 1996,
Tatham Offshore was charged $1.6 million in management fees pursuant to this
agreement.
On November 1, 1995, Tatham Offshore converted $1.7 million of its accounts
payable to an affiliate into an unsecured promissory note payable to DeepTech,
the Affiliate Note, which bears interest at 14.5% per annum, payable quarterly.
The principal is due and payable in six monthly installments, beginning on a
date which is the earlier of (i) November 1, 1997 or (ii) the last day of the
calendar month in which Tatham Offshore receives proceeds from the issuance of
preferred stock pursuant to the exercise of Tatham Offshore warrants in an
amount equal to or greater than $20.0 million. In January 1997, as a result of
the exercise of Tatham Offshore warrants to purchase shares of Series C
Preferred Stock, Tatham Offshore's total proceeds from the issuance of
preferred stock exceeded $20.0 million and, as a result, Tatham Offshore made a
$0.3 million principal payment to DeepTech on January 31, 1997.
Liquidity Outlook. During 1994 and 1995, Tatham Offshore experienced liquidity
problems resulting primarily from substantial negative cash flow from
operations. In order to improve liquidity and partially address its capital
requirements, Tatham Offshore (i) sold, subject to certain reversionary rights,
all of its then-existing working interests in its Viosca Knoll Block 817,
Garden Banks Block 72 and Garden Bank Block 117 properties (the "Assigned
Properties") to Flextrend Development for $30 million, (ii) raised additional
equity through the sale of Warrants and Series A, B and C Preferred Stock,
(iii) prepaid certain of its demand charge obligations through the assignment
of certain assets pursuant to an agreement with the Partnership and (iv)
reduced its overhead by lowering the levels of services required under its
management agreement with DeepTech.
Flextrend Development has initiated production from each of the Assigned
Properties. As discussed above, the Viosca Knoll Block 817 (Phar Lap) is
currently producing approximately 115 MMcf of gas and 300 barrels of oil per
day. In addition, five producing wells on Garden Banks Block 72 (Spectacular
Bid) are currently producing approximately 3,850 barrels of oil and 15 MMcf of
gas per day. The Garden Banks Block 117 (Spend A Buck) is currently producing
approximately 1,750 barrels of oil, 3.5 MMcf of gas and 3,750 barrels of water
per day from one well. Flextrend Development drilled a second successful well
at Garden Banks Block 117 which should be placed on production during the third
quarter of this fiscal year.
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Effective December 10, 1996, Flextrend Development exercised its option to
permanently retain 50% of the assigned working interest in all three of the
Assigned Properties in exchange for forgiving 50% of the then-existing Payout
Amount exclusive of the $7.5 million plus interest added to the Payout Amount
in connection with the restructuring of certain transportation agreements with
the Partnership. Accordingly, Tatham Offshore is entitled to receive a
reassignment of one-half interest in the Assigned Properties (37 1/2% working
interest in Viosca Knoll Block 817, 25% working interest in Garden Banks Block
72 and a 25% working interest in Garden Banks Block 117), subject to conditions
as discussed below, after Flextrend Development has received net revenues equal
to the Payout Amount. Flextrend Development remains obligated to fund any
further development costs attributable to Tatham Offshore's portion of the
working interests, such costs to be added to the Payout Amount. Flextrend
Development's election to retain 50% of the assigned working interest in all
three Assigned Properties reduced the Payout Amount from $94.0 million to $50.8
million. Subsequent to December 10, 1996, only 50% of the development and
operating costs attributable to the Assigned Properties are added to the Payout
Amount and 50% of the net revenue from the assigned working interests in the
Assigned Properties will reduce the Payout Amount. As of December 31, 1996,
the Payout Amount was $49.6 million comprised of (a) the sum of (i) initial
acquisition and transaction costs of $32.1 million, (ii) development and
operating costs of $84.6 million, (iii) prepaid demand charges of $7.5 million
and (iv) interest of $13.1 million reduced by (b) the sum of (i) net revenue of
$44.5 million and (ii) forgiveness of $43.2 million of the Payout Amount.
Tatham Offshore and the Partnership have agreed that in the event Tatham
Offshore furnishes the Partnership with a financing commitment from a lender
with a credit rating of BBB- or better covering 100% of the then outstanding
Payout Amount, the interest rate utilized to compute the Payout Amount shall be
adjusted from and after the date of such commitment to the interest rate
specified in such commitment, whether utilized or not.
In September 1996, Tatham Offshore entered into a drilling arrangement (the
"Drilling Arrangement") with Sedco Forex Division of Schlumberger Technology
Corporation ("Sedco Forex"). The Drilling Arrangement includes the use of
either the semisubmersible drilling rig, the FPS Bill Shoemaker, or a
substitute rig capable of drilling in up to 1,500 feet of water. The Drilling
Arrangement will become effective upon the mobilization of a rig to Tatham
Offshore's initial location. The initial contract term of the Drilling
Arrangement is for 90 days or, if sooner, the completion of Tatham Offshore's
initial drilling operation and the mobilization of the rig to another location.
Tatham Offshore may, at its option, extend the initial contract term through
(i) three successive one well options or (ii) two successive one year terms.
Under the terms of the Drilling Arrangement, Tatham Offshore has committed to
pay Sedco Forex a drilling rate of $70,000 per day with a standby rate of
$66,700 per day. As security for its obligations under the Drilling
Arrangement, Tatham Offshore is required to post an irrevocable letter of
credit or cash collateral of $6.3 million, which amount is equal to the
aggregate operating day rate for the contract term. In the event that Tatham
Offshore exercises it option to extend the Drilling Arrangement, Tatham
Offshore and Sedco Forex must agree upon additional security for the extension
period. During the term of the Drilling Arrangement, Tatham Offshore has the
right to sub-contract the rig to other operators. If the rig is sub-contracted
to another operator, Tatham Offshore will receive the difference between the
sub-contract rate and the above agreed upon rates, if any. The FPS Bill
Shoemaker is owned by an affiliate of DeepTech and is operated by Sedco Forex
under a charter agreement. Sedco Forex has the right to substitute a similar
drilling rig for the FPS Bill Shoemaker in the event the FPS Bill Shoemaker is
unavailable due to a prior contract commitment for work offshore Canada. In
the event Sedco Forex mobilizes the rig to Canada, Tatham Offshore has (i) an
option to use the FPS Bill Shoemaker in the Newfoundland Grand Banks Area
rather than the substitute rig to complete the initial contract term prior to
the use by the third party, subject to availability, and subject to higher
contract rates to account for the additional costs incurred by Sedco Forex as a
result of operations offshore Canada and (ii) an additional option, upon
completion of the third party work and subject to the use of the rig for one
other project, to contract to use the rig for the drilling of one well at the
then prevailing contract price.
Tatham Offshore has recently begun evaluating opportunities to acquire certain
license interests offshore eastern Canada. Emphasis is being placed on license
interests that could be acquired in exchange for (i) new securities to be
issued by Tatham Offshore, (ii) convertible notes to be issued by Tatham
Offshore, (iii) a portion of Tatham Offshore's existing Gulf of Mexico
leasehold interests, particularly its Sunday Silence field, or (iv) in
connection with Tatham Offshore's rights to utilize the FPS Bill Shoemaker.
Tatham Offshore currently intends to fund its operations with cash on hand and
cash from continuing operations. The restructuring of Tatham Offshore's
existing demand charge obligations with the Partnership, the reduction of its
overhead, the initiation of full production from the Viosca Knoll Block 817
(Phar Lap) project and improved commodity
25
<PAGE> 26
prices enabled Tatham Offshore to generate approximately $0.3 million in
positive cash flow for the three months ended December 31, 1996. Tatham
Offshore does not anticipate generating significant positive cash flow prior to
the first to occur of (i) obtaining a refinancing commitment which could allow
Tatham Offshore to reacquire all or a portion of the Assigned Properties from
Flextrend Development, (ii) actual payout of the Payout Amount and the
resulting reversion of one-half of the Assigned Properties or (iii) the initial
production from Tatham Offshore's Sunday Silence field. In order to initiate
production from the Sunday Silence field, Tatham Offshore will require
substantial additional capital to install a production facility and drill
additional development wells. There can be no assurance, however, that Tatham
Offshore will be able to obtain additional financing on terms that are
acceptable to Tatham Offshore.
To meet additional capital needs, Tatham Offshore will continue to pursue the
implementation of its business strategy which will focus primarily on (i)
attempting to develop and initiate production from Tatham Offshore's Sunday
Silence field under a farmout or financing arrangement with an industry partner
or financial institution, (ii) monitoring production from the Assigned
Properties in an effort to maximize the value of its reversionary interest and
attempting to obtain a financing commitment to reacquire the properties or, at
a minimum, to cause a reduction in the interest rate utilized in the
calculation of the Payout Amount, (iii) attempting to sell or farmout interests
in its other properties, including Genuine Risk (Ship Shoal Block 331) and (iv)
maximizing the value of its rights under the Drilling Arrangement with Sedco
Forex regarding the FPS Bill Shoemaker.
The ability of Tatham Offshore to satisfy its capital needs beyond those funded
with the proceeds from the sale of the equity securities offered pursuant to
the rights offering will depend upon its success in implementing its business
strategy, particularly its ability to develop and initiate production from the
Sunday Silence field. Although Tatham Offshore has pursued farmout and outside
financing arrangements for its Sunday Silence project, as of this date, Tatham
Offshore has not been able to obtain an acceptable farmout arrangement with an
industry partner or develop a financing arrangement under the current economic
conditions. On November 28, 1995, a federal law was enacted that offers
deepwater royalty relief for certain federal leases located in 200 meters or
greater of water depth in the Gulf. For federal leases acquired prior to
November 20, 1995, an applicant must demonstrate that the proposed new
production for which the royalty relief is sought would not be economic to
develop absent the royalty relief. Under the new legislation, a minimum of the
first 52.5 million equivalent barrels of oil production from the Sunday Silence
project would be exempt from federal royalties if such relief is granted.
Tatham Offshore submitted an application relative to its Sunday Silence field
which was deemed complete by the Minerals Management Service ("MMS") effective
November 13, 1996. Under federal law, the MMS has up to 180 days to evaluate
the application once the application is deemed complete. If the MMS requests
additional information or clarification of the submitted data during the
180-day period, the MMS may toll the review period until such information is
supplied by Tatham Offshore. Through February 13, 1997, Tatham Offshore has not
received a request for additional information. Tatham Offshore believes that
if the requested royalty abatement is granted, the resulting improved economics
for the project will be sufficient to obtain development financing or an
industry farmout arrangement. However, there can be no assurance that Tatham
Offshore will be able to obtain the requested royalty abatement, enter into a
farmout or financing arrangement on favorable terms, successfully develop the
Sunday Silence field or initiate production therefrom on a timely basis, if at
all.
Tatham Offshore has never declared or paid dividends on its common or preferred
stock. Tatham Offshore expects to retain all available earnings generated by
its operations for the growth and development of its business.
26
<PAGE> 27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
DeepTech held its Annual Meeting of Stockholders on October
22, 1996. At the Annual Meeting, the stockholders (i) elected
thirteen directors to hold office until the next annual meeting of
stockholders and until their respective successors are duly elected
and qualified and (ii) ratified the Board of Directors' appointment of
Price Waterhouse LLP as the Company's independent accountants for the
fiscal year ending June 30, 1997. The votes were cast as follows:
FOR WITHHELD
--- --------
Thomas P. Tatham 12,828,645 26,663
Conrad P. Albert 12,828,645 26,663
Laney Chouest 12,828,645 26,663
Charles M. Darling, IV 12,828,645 26,663
Ralph Eads 12,828,645 26,663
Robert E. Fox 12,828,645 26,663
Steven L. Gerard 12,828,645 26,663
Michael H. Lam 12,828,645 26,663
Ben T. Morris 12,828,645 26,663
Nancy K. Quinn 12,828,645 26,663
Janet E. Sikes 12,828,645 26,663
Grant E. Sims 12,828,645 26,663
Donald V. Weir 12,828,645 26,663
Ratify Selection of Independent Accounts
FOR AGAINST ABSTAIN
--- ------- -------
12,836,281 16,027 3,000
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 First Amended and Restated Drilling Make-Ready
Agreement dated November 29, 1996 between RIGCO North America,
L.L.C. and Schlumberger Technology Corporation (Sedco Forex
Division).
10.2 Note Purchase and Exchange Agreement dated
January 17, 1997 between DeepTech International Inc. and
BT Securities Corporation.
10.3 Credit Agreement dated September 30, 1996
among RIGCO North America, L.L.C., Lehman Commercial Paper,
Inc., as advisor, synidcation agent, arranger, collateral and
27
<PAGE> 28
documentation agent and administrative agent, and the banks and other financial
institutions from time to time party thereto.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
28
<PAGE> 29
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEEPTECH INTERNATIONAL INC.
Date: February 13, 1997 /s/ JANET E. SIKES
--------------------------------------
Janet E. Sikes
Treasurer and Secretary
(Principal Accounting Officer)
Date: February 13, 1997 /s/ DENNIS A. KUNETKA
--------------------------------------
Dennis A. Kunetka
Senior Vice President - Corporate Finance
<PAGE> 30
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
10.1 First Amended and Restated Drilling Make-Ready Agreement dated
November 29, 1996 between RIGCO North America, L.L.C. and
Schlumberger Technology Corporation (Sedco Forex Division).
10.2 Note Purchase and Exchange Agreement dated January 17, 1997
between DeepTech International Inc. and BT Securities Corporation.
10.3 Credit Agreement dated September 30, 1996 among RIGCO North
America, L.L.C., Lehman Commercial Paper, Inc., as advisor,
synidcation agent, arranger, collateral and documentation
agent and administrative agent, and the banks and other
financial institutions from time to time party thereto.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDED AND RESTATED
DRILLING MAKE-READY AGREEMENT
This First Amended and Restated Drilling Make-Ready Agreement (the "Agreement")
is made and entered into this 29th day of November, 1996 at Houston, Texas by
and between: RIGCO North America, L.L.C., a limited liability company duly
organized and existing under the laws of Delaware, with office address at 600
Travis, Suite 7400, Houston, Texas 77002, hereinafter referred to as "COMPANY";
- - and -
Schlumberger Technology Corporation (Sedco Forex Division), a corporation duly
organized and existing under the laws of Texas with office address at 1155
Dairy Ashford, Suite 402, Houston, Texas 77079 hereinafter referred to as
"CONTRACTOR".
WITNESSETH:
WHEREAS, COMPANY, desires that CONTRACTOR render management, purchasing,
engineering and labor services in connection with the management of the
"DRILLING MAKE-READY", of the COMPANY'S drilling unit formerly known as the
Treasure Searcher, and renamed the FPS Bill Shoemaker, carrying a Bahamian flag
and having official number 366166 (the "FPS Bill Shoemaker");
WHEREAS, CONTRACTOR represents that it has the experience, organizational
structure, and support structure to carry out said services as required by the
Agreement;
WHEREAS, Deepwater Drillers, L.L.C., an affiliate of COMPANY ("Deepwater
Drillers"), and CONTRACTOR entered into the Drilling Make-Ready Agreement dated
as of June 1, 1996 (the "Original Make-Ready Agreement");
WHEREAS, Deepwater Drillers transferred the Vessel to COMPANY, and CONTRACTOR
and COMPANY wish to amend and restate the Original Make-Ready Agreement to,
among other things, reflect such change in ownership;
NOW, THEREFORE,
In consideration of the respective obligations hereinafter set forth, COMPANY
and CONTRACTOR (hereinafter referred to jointly as the PARTIES), have agreed as
follows:
<PAGE> 2
1. TERM.
The term of this Agreement will commence on the date that the last
signature to this Agreement has been obtained and the conditions set
forth in Article 13.N hereto have been satisfied and shall terminate
at the time when the unit has been fully tested and is technically
ready to commence operations as contemplated by Article 3.
Should the conditions set forth in Section 13.N hereto not be
satisfied, neither COMPANY nor CONTRACTOR shall have any obligation to
enter into this Agreement or have any obligation under any of the
terms of this Agreement; except COMPANY shall pay CONTRACTOR all out
of pocket costs that CONTRACTOR shall have incurred, if any, in
relation to the DRILLING MAKE-READY.
2. SUPPLY OF PERSONNEL
A. CONTRACTOR shall at all times be the sole employer of its
employees. CONTRACTOR shall have the sole responsibility for
the preparation of payroll and the payment of said employee's
wages and compensation, including but not limited to vacation
pay, sick leave, medical facilities, remittances, allowances,
insurance, termination pay, bonuses and taxes and in complying
with all applicable labor and taxation regulations.
B. All employees of CONTRACTOR shall be thoroughly screened and
qualified for the jobs to which they are assigned. Upon
COMPANY'S written request, CONTRACTOR shall provide
documentary evidence specifying the background and
qualifications of its personnel.
C. COMPANY may request CONTRACTOR at any time, by written notice,
to remove forthwith at its own cost and expense any employee,
and replace him immediately with a duly qualified employee, in
the following circumstances:
a) where the worker is guilty of misconduct, whether in
the course of his duties or otherwise, inconsistent
with the express or implied conditions of this
Agreement; or
b) incompetence in his/her duties; or
c) for negligence in the performance of his/her duties;
or
d) for neglect or disregard of applicable safety
requirements of CONTRACTOR or of a regulatory agency
having jurisdiction.
D. COMPANY shall not pay any fee, commission, rebate or anything
of value to, or for the benefit of, any employee of
CONTRACTOR.
2
<PAGE> 3
E. CONTRACTOR shall ensure all CONTRACTOR'S employees are
provided with personal safety items required by CONTRACTOR'S
policies and by law, including but not limited to hearing
protection, safety helmets, safety belts, safety glasses,
safety footwear and hand gloves necessary for the safe
performance of the work. CONTRACTOR'S employees shall at all
times perform this work in accordance with CONTRACTOR'S
corporate safety program which shall be in full compliance
with all U.S. regulatory standards and requirements.
3. CONTRACTOR'S WORKSCOPE
CONTRACTOR AND COMPANY agree that the SCOPE OF CONTRACTOR'S obligation
related to the DRILLING MAKE-READY of the FPS Bill Shoemaker (also
called "workscope' or "work" or 'services") shall consist of:
A. Providing those services set forth in Appendix A.
B. Providing all management, rig crews, and engineering support
necessary or appropriate for the preparation of the FPS Bill
Shoemaker for return to drilling in accordance with industry
standards.
C. Equipping the FPS Bill Shoemaker for drilling with the
necessary tubulars.
D. Equipping the FPS Bill Shoemaker for drilling with the
necessary handling tools.
E. Equipping the FPS Bill Shoemaker for drilling with the
necessary Safety Equipment.
F. Equipping the FPS Bill Shoemaker for drilling with
miscellaneous equipment as required or appropriate for the
effective operation of the unit.
G. Engineering and supervision in connection with all
repairs/refurbishment to the satisfaction of DNV, USCG, MMS,
Bahamian Registry, or other governmental authority and
COMPANY.
H. Qualifying the existing Anchoring System or rental/purchase of
required equipment to the satisfaction of DNV, USCG, MMS,
Bahamian Registry, or other governmental authority and
COMPANY.
I. Repairing or qualifying the existing helideck to the
satisfaction of DNV, USCG, MMS, Bahamian Registry or other
governmental authority and COMPANY.
J. Coordinating all final DNV, USCG, MMS, Bahamian Registry or
other governmental authority and other regulatory body
approvals as required.
3
<PAGE> 4
K. Loading out the rig and equipping it with the necessary spares
in preparation for commencement of operations.
L. Function testing all rig systems and equipment in preparation
for commencing drilling operations; fully training all rig
crew and supervisory personnel for prudent, cost-effective
operations of the rig, its equipment and systems.
M. Implementing and maintaining a safety awareness program among
its rig crew aboard the FPS Bill Shoemaker.
N. Implementing and maintaining an inventory control system on
board rig.
O. Implementing and maintaining Standard Operating Procedures
comprised of the following procedures, controls and policies
which must be reasonably acceptable to COMPANY: preventive
maintenance; health, safety, environment and accident; and
marine operations, each in accordance with CONTRACTOR'S
policies.
P. Reporting to COMPANY weekly with regard to work progress,
schedule updates, costs/expenditures, budget forecasts, and
other information as deemed necessary by COMPANY for effective
schedule and cost control.
Q. Developing and implementing a suitable SPP/OSCP manual/program
meeting the requirements of federal and state pollution
regulations for offshore drilling rig operations.
R. Using commercially reasonable efforts to complete the
workscope at a cost to COMPANY less than or equal to the cost
estimates set forth in Appendix C.
CONTRACTOR shall perform the workscope with the CONTRACTOR personnel
provided by it pursuant to Appendix B; provided that CONTRACTOR may
utilize third party personnel to the extent necessary if COMPANY
consents in writing, which consent shall not be withheld unreasonably.
CONTRACTOR shall perform its services hereunder in a good, workmanlike
and economically efficient manner in accordance with all applicable
laws, rules and regulations and industry standards. CONTRACTOR shall
complete the workscope on or before March 18, 1997, including
satisfactory results of acceptance testing which shall be according to
the schedule outlined in Appendix D. Upon completion of the
acceptance testing pursuant to the schedule outlined in Appendix D, a
certificate of acceptance in the form shown in Appendix E shall be
executed by COMPANY and CONTRACTOR.
4
<PAGE> 5
4. COST REIMBURSEMENT
A. COMPANY shall reimburse CONTRACTOR for all reasonable
out-of-pocket costs CONTRACTOR incurs pursuant to Article 3 of
this Agreement except for the costs OF CONTRACTOR'S employees
which will be paid by COMPANY to CONTRACTOR as defined in
Article 5.B. Reimbursable costs include but are not limited to
the following:
i) Catering costs.
ii) Maintenance items.
iii) Fuel.
iii) Lubes.
iv) Spare parts.
v) Certifying Authority costs.
vi) Wharfage and shipyard costs.
vii) Third party inspection and repair costs.
viii) Capital expenditures including but not limited to
those pursuant to Article 3 above and for
miscellaneous equipment needed to complete the
workscope.
ix) Towing costs.
x) Trucking and handling costs.
xi) All third party services and rentals.
CONTRACTOR and COMPANY agree that above cost reimbursement
shall be based upon a mutually agreed AFE budget per Appendix
C, by which all cost commitments and expenditures shall be
based. CONTRACTOR further agrees to provide access to all
P.O. records to allow COMPANY representatives to monitor daily
cost control.
CONTRACTOR further agrees that no expenditure commitment shall
be made without COMPANY approval which exceeds the AFE line
item budget by the greater of 10% or $10,000 for any given
item or when added to AFE exceeds the total budget by 10% or
$10,000.
B. COMPANY shall pay CONTRACTOR interest calculated at 12% per
annum on all amounts not paid within the time specified.
5. COMPENSATION
A. COMPANY shall make advance payments to CONTRACTOR for the
express purpose of allowing Contractor to begin making
financial commitments to undertake and perform the workscope
under this Agreement. CONTRACTOR shall deposit such payments
into a non-commingled account set up solely for the
5
<PAGE> 6
purpose of administering this Agreement. Balances in such
account shall accrue interest for COMPANY'S benefit at the
Nassau Daily Time Deposit Rate (being the Federal Funds rate
in effect from time to time less one-half of one percent
(0.5%)) in effect from time to time. Advance payments shall
be made by OWNER to CONTRACTOR based on the following schedule
at COMPANY'S option:
PROJECTED SCHEDULE OF CASH COMMITMENTS
<TABLE>
<CAPTION>
Cumulative
Commitment Date $ $
---------- ---- --------- ----------
REQUIRED COMMITMENTS:
---------------------
<S> <C> <C> <C>
1 6/1/96 730,000 730,000
2 7/17/96 1,500,000 2,230,000
3 8/31/96 1,000,000 3,230,000
4 9/30/96 7,100,000 10,330,000
5 10/12/96 3,350,000 13,680,000
6 10/26/96 1,600,000 15,280,000
7 11/9/96 2,500,000 19,980,000
8 11/23/96 2,900,000 30,680,000
9 12/7/96 1,600,000 22,280,000
10 12/21/96 1,900,000 24,180,000
11 1/4/97 2,400,000 26,580,000
12 1/18/97 1,700,000 28,280,000
13 2/2/97 3,400,000 31,680,000
14 2/18/97 1,700,000 33,380,000
15 3/4/97 3,521,000 36,901,000
Subtotal 36,901,000 36,901,000
-------- ---------- ----------
CONTINGENCY COMMITMENTS:
------------------------
16 3/4/97 1,550,000 38,451,000
--------- ----------
Total with $ 38,451,000 $ 38,451,000
========== ============ ============
Contingency
===========
</TABLE>
At the end of each calendar month, Contractor shall prepare an
invoice for COMPANY documenting invoices paid, personnel
assigned, management fees earned, etc., with the top-drive
system being invoiced separately, and present the
6
<PAGE> 7
same to COMPANY. CONTRACTOR shall be authorized to draw such
invoiced amount from the advance payment account. COMPANY
shall within 30 days review such invoices and advise
CONTRACTOR if it is in agreement with such invoiced amounts.
If COMPANY and CONTRACTOR do not agree on such invoiced
amounts they shall meet to resolve such differences. At the
end of the workscope when all CONTRACTOR invoices and costs
have been invoiced (which invoicing shall be done as soon as
practicable) to COMPANY and COMPANY has paid all such
undisputed invoices, if there is an account balance remaining,
CONTRACTOR shall immediately return such money to COMPANY
including any accrued interest. If the account balance does
not cover all of CONTRACTOR'S invoices to OWNER, OWNER shall
pay CONTRACTOR such amounts within 15 days from receipt of
invoice. CONTRACTOR shall not have the right to apply or
withhold any portion of the deposit (including interest) with
respect to payments which COMPANY is disputing in good faith.
If advance payments are not made by Owner within 5 business
days from the due dates above, then CONTRACTOR shall be
entitled to stop work until such payments are made. In the
event no advance payments are made within 15 business days
then CONTRACTOR shall be entitled to terminate this Agreement.
Notwithstanding the foregoing, if CONTRACTOR'S cumulative
dollar commitment amount lags the Schedule of Advance Payments
set forth above by two weeks or more, then COMPANY shall have
the right to defer additional advance payments until the
CONTRACTOR'S cumulative dollar commitment amount equals the
cumulative advance payment amount.
B. In consideration of CONTRACTOR providing the COMPANY with the
services specified in this Agreement the COMPANY shall pay to
CONTRACTOR a daily management fee of $2,800.
C. In consideration of the provision of its employees specified
in this Agreement COMPANY shall pay to the CONTRACTOR the
daily personnel rates for personnel assigned at the rates
defined in Appendix B.
D. When CONTRACTOR deems it is necessary to bring in engineering
support from CONTRACTOR'S affiliated companies in France to
assist with the engineering for the DRILLING MAKE-READY, such
engineers will be charged to the COMPANY at a rate of
$800/day/man including travel time to and from the worksite
and for the cost of business class airplane tickets to and
from their offices in Paris, France. When such engineers are
performing assignments away from the rig, COMPANY shall be
obligated to reimburse CONTRACTOR for air fare related
thereto, but not for any related meals, lodging or other
travel expenses. All CONTRACTOR personnel shall be housed and
fed on the FPS Bill Shoemaker during the term of this
Agreement; provided, however, that
7
<PAGE> 8
when rig-based personnel are performing assignments off-site,
COMPANY shall reimburse CONTRACTOR for reasonable
out-of-pocket travel, lodging and meal expenses in connection
therewith.
E. At the end of each calendar month, CONTRACTOR shall submit to
the COMPANY its invoices, with supporting documents and
supporting time sheets for payment and the COMPANY shall pay
the invoiced amount in US Dollars not later than thirty (30)
days from the date of receipt of the invoice.
F. COMPANY shall pay CONTRACTOR interest calculated as 12% per
annum on interest amounts not paid within the time specified
in E. above.
G. In the event that the COMPANY is unable to pay to Contractor
the costs and expenses necessary to finalize the DRILLING
MAKE-READY, CONTRACTOR shall have the option to fund such
costs and expenses by making purchases of capital equipment on
the FPS Bill Shoemaker that is readily removable from the FPS
Bill Shoemaker (the "Capital Equipment"). The COMPANY may
purchase any of such Capital Equipment for an amount equal to
the amount paid by CONTRACTOR to the COMPANY for such Capital
Equipment plus 15% per annum through the earlier of (i) the
date of purchase of the Capital Equipment or (ii) the
termination of this Agreement. CONTRACTOR shall retain title
and full rights of ownership of the Capital Equipment and the
Capital Equipment shall not become part of the FPS Bill
Shoemaker unless and until COMPANY purchases from CONTRACTOR
the Capital Equipment as set forth herein.
H. Payment of monies due to CONTRACTOR hereunder shall be to
CONTRACTOR'S account via wire transfer as follows:
Morgan Guaranty Trust Company of New York
New York, New York
ABA No. 021-000-238
For Credit to: Schlumberger Technology
Corporation (Sedco Forex Division)
Acct # 001-78-787
6. PROCUREMENT
A. Where practical CONTRACTOR shall utilize its affiliated
purchasing facility, International Chandlers Inc. (better
known as JAWS), located on 54 acres at Channelview, Texas, to
purchase equipment, materials and supplies in fulfilling its
obligation hereunder. By utilizing this facility, equipment,
services and supplies purchased may qualify for the discounts
negotiated with suppliers, based
8
<PAGE> 9
on JAWS world wide purchasing volume. Orders placed through
JAWS will be invoiced to COMPANY as set forth in Article 4
above at cost plus a handling fee as follows:
$15.00 for each P.O. and fees of:
(i) 6% of invoices valued at less than $20,000;
(ii) 3% of invoices valued between $20,00 to $
50,000; and
(iii) 1% of invoices valued above $50,000.
B. CONTRACTOR shall use reasonable efforts to obtain and utilize
all reasonable discounts related to the procurement of
materials and services provided in connection with this
Agreement.
C. CONTRACTOR may use related parties to provide materials and
services in connection with this Agreement if the arrangement
therewith is on terms and conditions no less favorable to
CONTRACTOR and/or COMPANY than could be obtained in an
arms-length transaction with unrelated parties.
7. PERFORMANCE BONUS
A. COMPANY and CONTRACTOR agree that COMPANY shall pay CONTRACTOR
a performance Bonus if CONTRACTOR comes in both under budget
and on schedule, based on the following formula:
B =.20 (AFE - Actual) where:
B = Bonus payable to CONTRACTOR.
AFE = Agreed budget amount for total workscope per
Appendix C (excluding contingency).
Actual = Actual cost for such total workscope.
The performance against budget shall be determined at such time as the
FPS Bill Shoemaker is fully tested and technically ready to commence
operations (including acceptance testing), which date shall be no
later than March 18, 1997, with all classification and regulatory
approvals in-hand/in-writing even if the FPS Bill Shoemaker has not
yet commenced a drilling contract. Under no circumstances shall the
Bonus be negative.
8. INDEMNIFICATION
A. Compliance with Law
CONTRACTOR'S performance hereunder shall comply with all
applicable laws and regulations of any governmental authority
having jurisdiction.
9
<PAGE> 10
B. Property and Equipment
1) CONTRACTOR shall release, protect, defend, indemnify
and hold harmless COMPANY and its owners, parent and
affiliates and sub-contractors, and its and their
directors, officers, employees and representatives
("Company Representatives") from and against any and
all losses, costs, expenses and causes of action,
including attorney's fees and court costs, for any
damage or destruction of any kind to property or
equipment owned or leased by CONTRACTOR and its
owners, parent and affiliates and sub-contractors,
and its and their directors, officers, employees or
representatives ("Contractor Representatives")
(excluding property and equipment provided hereunder
as part of or to become part of the workscope and to
which title is vested in COMPANY) howsoever caused,
whether or not the damage or destruction is caused in
whole or in part by unseaworthiness of the FPS Bill
Shoemaker or the negligence of the indemnified party,
arising out of, incident to or in connection with any
and all services under this Agreement except to the
extent arising from or related to the Gross
Negligence (herein defined) or wilful misconduct of
such indemnified party.
2) COMPANY shall release, protect, defend, indemnify and
hold harmless each Contractor Representative from and
against any and all losses, costs, expenses and
causes of action, including attorney's fees and court
costs, for any damage or destruction of any kind to
property or equipment (including but not limited to
the FPS Bill Shoemaker) owned or leased by any
Company Representative howsoever caused, whether or
not the damage or destruction is caused in whole or
in part by the unseaworthiness of the FPS Bill
Shoemaker or the negligence of the indemnified party,
arising out of, incident to or in connection with any
and all services under this Agreement except to the
extent arising from or related to the Gross
Negligence or wilful misconduct of such indemnified
party.
Title in property and equipment provided by
CONTRACTOR hereunder as part of or to become part of
the workscope shall pass to COMPANY and risk of loss
shall pass to COMPANY under this Clause once such
property or equipment is located on the FPS Bill
Shoemaker or at the shipyard which is the site of the
work.
C. Personnel
1) CONTRACTOR shall release, protect, defend, indemnify
and hold harmless each Company Representative from
and against any and all losses, costs, expenses and
causes of action, including attorney's fees and
10
<PAGE> 11
court costs, for injuries (including death) to any
Contractor Representative and howsoever caused,
whether or not such injuries or deaths are caused in
whole or in part by the unseaworthiness of the FPS
Bill Shoemaker or the negligence of the indemnified
party, arising out of, incident to or in connection
with any and all service performed under this
Agreement except to the extent arising from or
related to the Gross Negligence or wilful misconduct
of such indemnified party or breach of this Agreement
by Company.
2) COMPANY shall release, protect, defend, indemnify and
hold harmless each Contractor Representative from and
against any and all losses, costs, expenses and
causes of action, including attorney's fees and court
costs, for injuries (including death) to any Company
Representative howsoever caused whether or not such
injuries or deaths are caused in whole or in part by
the unseaworthiness of the FPS Bill Shoemaker or the
negligence of the indemnified party, arising out of,
incident to or in connection with any and all
services performed under this Agreement except to the
extent arising from or related to the Gross
Negligence or wilful misconduct of such indemnified
party or breach of this Agreement by CONTRACTOR.
D. Claims and Liens by CONTRACTOR'S Subcontractor
All amounts due from CONTRACTOR to its employees (including
but not limited to, social benefits, termination pay or any
other benefits), suppliers, subcontractors or other third
parties for services rendered or supplies used in connection
with this Agreement by the CONTRACTOR shall be promptly paid
by CONTRACTOR. CONTRACTOR shall not create, incur or permit
to exist any liens or claims on the FPS Bill Shoemaker or
property or equipment provided by CONTRACTOR as part or to
become part of the work scope.
E. Disclaimer
EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, CONTRACTOR
CANNOT AND DOES NOT WARRANTY OR GUARANTEE THE SERVICES
PERFORMED BY IT, ITS EMPLOYEES OR SUBCONTRACTORS NOR THE
CONDITION NOR SUITABILITY FOR PURPOSE OF ANY EQUIPMENT,
MATERIALS AND SUPPLIES PROVIDED UNDER THIS AGREEMENT. EXCEPT
AS EXPRESSLY PROVIDED IN THIS AGREEMENT, COMPANY AGREES
CONTRACTOR SHALL NOT BE LIABLE UNDER ANY GUARANTEE OR
WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR BY OPERATION OF
LAW OR OTHERWISE.
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<PAGE> 12
CONTRACTOR'S only liability under this Agreement with regard
to defects is to promptly repair or replace defective work
performed by the personnel and, as regards defects in work
performed by its and equipment, materials and supplies
provided by its subcontractors, to assign to COMPANY only
warranties or guarantees obtained from those subcontractors.
CONTRACTOR'S above obligation regarding defects in the work of
its employees shall continue for a period of one year from the
date the FPS Bill Shoemaker has been tested and is technically
ready to commence operations and the acceptance certificate
described in Article 3 has been delivered. It shall be
COMPANY'S obligation, when necessary, to retrieve and
transport any defective work to CONTRACTOR at COMPANY'S
expense.
F. Consequential Damages
Notwithstanding anything to the contrary in this Agreement, a
party's damages resulting from a breach or violation of any
representation, warranty, covenant or condition contained
herein shall be limited to actual direct damages, and shall
not include any other damages, including, without limitation,
indirect, special, consequential, incidental or punitive
damages.
G. Gross Negligence and Related Matters
For purposes of Articles 8.B and 8.C, the term "Gross
Negligence" shall have the meaning ascribed to it in the
jurisprudence of the applicable jurisdiction (i.e. in Texas,
such term is currently interpreted as meaning, among other
things, conduct that is so shocking to common sensibility that
it would support belief that the act or omission complained of
was a result of conscious indifference to the right or welfare
of the person affected by it. 53 Tex. Jr.3d, Negligence
Section 55fn.).
The indemnities provided for above apply without regard to the
cause or causes thereof including, without limitation, breach
of contract, representation or warranty, or simple negligence,
whether active, passive, sole or concurrent, even if on the
part of the party seeking the benefit of the indemnity,
whether an action is founded on statute, common law, maritime
law or theory of strict liability.
Each party agrees to carry (at its expense) insurance adequate
to cover its indemnity obligations pursuant to this Agreement.
9. INSURANCE
A. CONTRACTOR shall at its sole cost and expense procure and keep
in force throughout the life of this Agreement all relevant
personnel insurance required by local laws governing
CONTRACTOR'S operations under this Agreement,
12
<PAGE> 13
including but not limited to Workmen's Compensation and
Employer's liability insurance or equivalent insurance
(Personal Accident Insurance) for covering adequately the
liabilities of CONTRACTOR.
B. COMPANY shall at its sole cost and expense procure and keep in
force throughout the life of this Agreement all relevant
personnel insurance required by local laws governing COMPANY'S
operations under this Agreement, including but not limited to
Workmen's Compensation and Employers liability insurance or
equivalent insurance (Personal Accident Insurance) for
covering adequately the liabilities of COMPANY.
C. COMPANY shall keep the FPS Bill Shoemaker fully insured for
all risks for the fair market value of the FPS Bill Shoemaker.
Without its obligations to fully insure its liabilities, each
of CONTRACTOR and COMPANY shall maintain comprehensive general
liability insurance (including contractual liability) in an
amount not less than $1,000,000. Such insurance shall name the
other party as an additional insured to the extent of
liabilities assumed by the insured party in this Agreement.
On request the insured party shall provide the other party
with a certificate from the insurers certifying that the
insured party has effected the above coverage, that the other
party is named as an additional assured to the above extent,
that the insured party's insurers have waived subrogation
against the other party thereunder and that insurer will
provide 30 days advance written notice to the other party.
10. LICENSES, PERMITS, ACCOUNT REPORTING, TAXES, ETC.
A. Each of COMPANY and CONTRACTOR shall be responsible for all
matters in connection with any license, permit, accounting and
reporting requirement, and the like in connection with its
employees including making and submitting reports to the
proper agencies and withholding taxes, social security system,
workmen's compensation and Medicare premiums and submitting
the same to the proper authorities. Any payments resulting
from the above responsibilities will be for the account of
COMPANY or CONTRACTOR, as applicable.
B. Each of COMPANY and CONTRACTOR shall be responsible for all
taxes levied on its personnel and/or invoices.
11. INDEPENDENT CONTRACTOR
It is clearly understood by both the COMPANY and the CONTRACTOR that
CONTRACTOR in the performance of this Agreement is an independent
CONTRACTOR and that neither it nor its employees or its subcontractors
are employees or agents of the COMPANY.
13
<PAGE> 14
12. FORCE MAJEURE
Each party to this Agreement shall be excused from complying with the
terms and conditions of this Agreement (except for the payment of
moneys when due), and neither party to this Agreement shall be liable
for failure to perform under the terms of this Agreement and for so
long as such performance is hindered or impeded by Force Majeure,
which is defined as civil or labor disturbances, riots, wars,
(declared or undeclared), military actions, insurrection, rebellion,
terrorist or any Government acts, acts of any Governmental or military
agency under actual or assumed authority, actions of elements
(excluding adverse sea and weather conditions), floods, storms or
other acts of nature, or any cause beyond the control of either party.
In an event of force majeure as described above, the affected party
within twenty-four (24) hours thereof shall take such steps as may be
possible to overcome or mitigate the effects of such event.
13. MISCELLANEOUS
A. Assignments and Subcontractors
Either party hereto (including a transferee of a party hereto)
may assign, alienate or otherwise transfer all or any portion
of its rights, title and interest and delegate any of its
obligations arising pursuant to this agreement. Unless
otherwise agreed to by the parties hereto (including a
transferee of a party hereto), both the transferor and the
transferee (other than a mortgagee, pledgee or other holder of
a security interest) shall be jointly and severally
responsible and primarily liable for the full and timely
performance of all covenants, agreements and other
obligations, and the timely payment and discharge of all
liabilities, costs and other expenses, arising (directly or
indirectly) pursuant to this agreement. Intermediary
transferees shall not be relieved of any obligations as a
result of a subsequent transfer to another individual or
entity. Upon transfer of all or any portion of its rights,
title and interest in and to this agreement, the transferor
shall promptly provide the other parties hereto with a copy of
such transfer document.
B. CONTRACTOR agrees that it shall enter into written agreements
with each subcontractor, vendor or other party providing
services or materials in connection with this Agreement, and
each such agreement shall allow CONTRACTOR (and CONTRACTOR
shall) assign any warranty or similar rights to COMPANY upon
COMPANY'S request. CONTRACTOR shall use commercially
reasonable efforts to obtain rights against such vendors,
contractors and other parties with respect to the quality and
condition of the services and materials provided.
14
<PAGE> 15
C. Heading
All headings used in this Agreement are inserted for
convenience only and are not intended to control the
interpretation hereof.
D. Non-waiver
Failure by either party to exercise any or all of its rights
hereunder, or any partial exercise thereof, shall not act as a
waiver of such rights granted hereunder or by general law.
E. Severability
If one or more of the provisions hereof shall be invalid,
illegal or unenforceable in any respect under any applicable
law or decision, the validity, legality and enforceability of
the remaining provisions contained herein shall not be
affected or impaired in any way. In any such case, the
parties agree to execute such additional documents or
amendments as may be required in order to give effect to the
intent of any provision hereof which is determined to be
invalid, illegal or enforceable.
F. Parties
Except as otherwise provided, this Agreement is not made for
the benefit of third parties, and no employees, servants,
agents or creditors of one party shall acquire any claim or
demand against the other party as a result of the provisions
hereof.
G. Entire Agreement
This Agreement embodies the entire understanding of the
parties hereto relating to the subject matter hereof and
supersedes all prior (oral or written) or oral contemporaneous
proposals or agreements, all previous negotiations and all
other communications or understandings between the parties
hereto with respect to the subject matter hereof.
H. Amendments
No amendments, supplements or modification of this Agreement
shall be valid or binding upon the parties hereto unless made
in writing and signed by an authorized representative of each
of the parties hereto.
15
<PAGE> 16
I. Survival
Any provision of this Agreement which reasonably requires a
party to act or forbear subsequent to the termination of this
Agreement shall be deemed to survive the termination of this
Agreement.
J. Records Inspection Rights
Contractor shall, and shall cause each of its subcontractors,
vendors and other representatives to, keep complete and
accurate records of all costs, expenses and expenditures in
connection with this Agreement. To the extent necessary or
appropriate to verify the amounts billed to Company pursuant
to this Agreement and for a period of two years after the
termination of this Agreement, Company or its designated
representatives, after ten (10) days' prior written notice to
Contractor, shall have the right during normal business hours
to audit or examine, all books and records maintained by
Contractor relating to such costs.
K. Governing Law and Arbitration
TO THE EXTENT THE LAW OF ANOTHER JURISDICTION IS NOT REQUIRED
TO BE APPLIED, (I) THE INDEMNITY PROVISIONS OF THIS AGREEMENT
SHALL BE GOVERNED AND INTERPRETED IN ACCORDANCE WITH FEDERAL
MARITIME LAWS AND (II) THE REMAINDER OF THIS AGREEMENT SHALL
BE DEEMED TO BE A CONTRACT UNDER, AND SHALL BE CONSTRUED,
INTERPRETED AND GOVERNED BY AND ACCORDING TO, THE LAWS OF THE
STATE OF TEXAS; IN THE CASE OF (I) AND (II) ABOVE, EXCLUDING
ANY CONFLICT OF LAWS PRINCIPLE WHICH, IF APPLIED, MIGHT PERMIT
OR REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION. VENUE FOR ANY LEGAL PROCEEDING, ARISING FROM OR
RELATING TO THIS AGREEMENT SHALL BE HOUSTON, HARRIS COUNTY,
TEXAS.
L. Notices
Notice shall be deemed properly given if delivered in writing
in person to the named representative of the other party or by
telex or by telefax to the numbers below, or by registered
mail to the addresses below:
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<PAGE> 17
FOR THE COMPANY:
Attention: Harvey Fleisher
RIGCO North America, L.L.C.
600 Travis
Suite 7400
Houston, Texas 77002
Telephone 713 224-7400
Telefax 713 224-7574
FOR THE CONTRACTOR:
Attention: John Powers
Schlumberger Technology Corporation (Sedco Forex Division)
1155 Dairy Ashford, Suite 402
Houston, Texas 77079
Telephone 713 556-3863
Telefax 713 558-3756
M. Offer to Purchase
In the event that the COMPANY defaults on any obligation and
such default would result in a creditor's right to foreclosure
on the FPS Bill Shoemaker, the Company agrees to provide to
CONTRACTOR as soon as reasonably practicable, but in no event
later than five days after such default, a written offer to
sell the FPS Bill Shoemaker to CONTRACTOR at a price equal to
the sum of $30 million plus any costs, fees and expenses
associated with the DRILLING MAKE-READY and paid by the
COMPANY at the time of the default; including, without
limitation, (i) any monies advanced to CONTRACTOR for the
DRILLING MAKE-READY, and (ii) any monies drawn on the interim
construction loan to fund the DRILLING MAKE-READY. Further,
the COMPANY agrees that it shall use any monies received by it
from CONTRACTOR for the purchase of the FPS Bill Shoemaker to
repay any outstanding loans to the extent such loans are
secured by the FPS Bill Shoemaker and CONTRACTOR is authorized
to pay such sums directly to any such secured creditor on
behalf of COMPANY pursuant to the COMPANY'S instructions.
Notwithstanding the foregoing, in the event COMPANY cures such
default prior to receiving written notice of CONTRACTOR'S
acceptance of the offer, such offer shall be deemed void and
of no further effect.
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<PAGE> 18
N. Payment to Restrictive Account
On or before the later of December 16, 1996 at 1700 hours
Houston, Texas time or the date of the signing of the Amoco
Canada contract at 1700 hours Houston, Texas time, COMPANY
shall have a minimum total funds in the Lehman Commercial
Paper Inc. bank syndicate construction fund collateral account
available for deposit, upon request by Contractor in
accordance with the Projected Schedule of Cash Commitments set
forth in Article 5, in the restrictive account described in
Articles 5.A. and 5.H of this Agreement, in an amount equal to
the difference between (a) $34,270,000 less (b) any payments
theretofore made under this Agreement plus (c) $2,631,000 by
March 4, 1997 plus (d) by March 4, 1997, any further
adjustments necessary to cover contingency and cost over runs.
Amounts deposited in such restrictive account shall be made
available to fund payments as they are due under this
Agreement.
[The remainder of this page is intentionally left blank.]
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<PAGE> 19
This Agreement is made into four copies in English. Each party hereto shall
possess two copies having the same legal value.
<TABLE>
<S> <C>
FOR COMPANY FOR CONTRACTOR
RIGCO NORTH AMERICA, L.L.C., SCHLUMBERGER TECHNOLOGY CORPORATION
(SEDCO FOREX DIVISION)
By: By:
---------------------------------- --------------------------------------------
Printed Name: Printed Name:
---------------------------------- --------------------------------------------
Title: Title:
---------------------------------- --------------------------------------------
</TABLE>
APPENDIX A: Contractor Detailed Workscope
APPENDIX B: Personnel Costs
APPENDIX C: Cost Estimate for Drilling Make-Ready
APPENDIX D: Acceptance Testing Schedule
APPENDIX E: Form of Certificate of Acceptance
19
<PAGE> 20
APPENDIX A
CONTRACTOR DETAILED WORKSCOPE
See attached.
A-1
<PAGE> 21
APPENDIX B
PERSONNEL COSTS
See attached.
B-1
<PAGE> 22
APPENDIX C
COST ESTIMATE FOR DRILLING MAKE-READY
See attached.
C-1
<PAGE> 23
APPENDIX D
ACCEPTANCE TESTING SCHEDULE
See attached.
D-1
<PAGE> 24
APPENDIX E
FORM OF CERTIFICATE OF ACCEPTANCE
See attached.
E-1
<PAGE> 1
EXHIBIT 10.2
DEEPTECH INTERNATIONAL INC.
NOTE PURCHASE AND EXCHANGE AGREEMENT
January 17, 1997
BT SECURITIES CORPORATION
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Ladies and Gentlemen:
DeepTech International Inc., a Delaware corporation (the "Company"),
hereby confirms its agreement with you (the "Initial Purchaser"), as set forth
below.
1. The Notes. Subject to the terms and conditions herein contained,
the Company proposes to issue and sell to the Initial Purchaser $15,350,000
aggregate principal amount of its 11% Senior Subordinated Notes due 2000 (the
"Notes"). The Notes will have the terms set forth on Exhibit A hereto and will
otherwise be in form and substance reasonably satisfactory to the Initial
Purchaser.
The Notes will be offered and sold to the Initial Purchaser without
being registered under the Securities Act of 1933, as amended (the "Act"), in
reliance on exemptions therefrom.
The Initial Purchaser and its direct and indirect transferees of the
Notes will be entitled to the benefits of a Registration Rights Agreement
containing the terms set forth on Exhibit A hereto and other customary terms
for private placements made pursuant to Rule 144A under the Act (the
"Registration Rights Agreement"), pursuant to which the Company will agree,
among other things, to file, under certain circumstances, a registration
statement (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") registering under the Act the Notes or exchange
notes with substantially identical terms to the Notes which will be issued in
exchange for the Notes (the "Exchange Notes"). The Exchange Notes will be
issued pursuant to an indenture (the "Indenture") which will contain terms and
<PAGE> 2
covenants substantially similar to those set forth in Article Four (except
Sections 4.10 and 4.18 thereof), Article Five and Article Six (appropriately
modified to reflect the priority of the Notes and the lack of security
therefor) in the indenture governing the Company's 12% Senior Secured Notes due
2000. The Registration Rights Agreement, the form of the Exchange Notes and the
Indenture will be in form and substance reasonably satisfactory to the Initial
Purchaser and, along with the form of the Notes, will be prepared by Cahill
Gordon & Reindel, counsel for the Initial Purchaser.
The purchase and sale of the Notes are being made in connection
with the concurrent purchase by the Initial Purchaser from the respective
holders of (i) a $1,650,000 Promissory Note dated November 8, 1994 issued by
FPS II, Inc., as Maker, in favor of Wilrig AS, as Payee, which is now held by
Transocean AS (the "$1.65 Million Promissory Note"), (ii) a $9,350,000
Promissory Note dated November 8, 1994 issued by the Company, as Maker, in
favor of Wilrig AS, as Payee, which is now owned by Transocean AS (the "$9.35
Million Promissory Note", and together with the $1.65 Million Promissory Note,
the "Wilrig Notes"), (iii) 1,100,000 warrants issued by the Company to Wilrig
AS pursuant to the Warrant Agreement dated as of November 8, 1994 between the
Company and Wilrig AS (the "Warrants") and (iv) two $3,000,000 Promissory
Notes, each dated January 15, 1997 issued by the Company, as Maker, in favor of
Mr. Thomas P. Tatham (the "Tatham Notes").
2. Purchase of the Notes, the Wilrig Notes, the Warrants and the
Tatham Notes. On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, (i) the Initial Purchaser agrees to sell to the Company, and the Company
agrees to purchase from the Initial Purchaser, the $1.65 Million Promissory
Note and the Warrants for an aggregate purchase price in cash of $1,650,000
plus an amount equal to accrued interest on the $1.65 Million Promissory Note
to the Closing Date and (ii) in order to refinance the indebtedness evidenced
by the $9.35 Million Promissory Note and the Tatham Notes, the Company agrees
to issue and sell to the Initial Purchaser the Notes and, in exchange therefor,
the Initial Purchaser agrees to surrender to the Company the $9.35 Million
Promissory Note and the Tatham Notes. The Initial Purchaser agrees that it will
not seek to enforce or collect any prepayment penalty due under the Tatham
Notes. One or more certificates in definitive form for the Notes that the
Initial Purchaser has agreed to purchase hereunder, and in such
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<PAGE> 3
denomination or denominations and registered in such name or names as the
Initial Purchaser requests, shall be delivered by or on behalf of the Company
to the Initial Purchaser. Such delivery and payment shall be made at the
offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New York at 10:00
A.M., New York time, on January 23, 1997, or such earlier time and place agreed
upon by the Initial Purchaser and the Company, such time and date of delivery
and payment being herein referred to as the "Closing Date."
3. Representations and Warranties. The Company represents and
warrants to and agrees with the Initial Purchaser that:
(a) Neither the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1996 or Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1996 (collectively, the "Disclosure Documents")
filed with the Commission pursuant to the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder (the "Exchange
Act") at the time they were filed with the Commission, as of the date hereof
and at all times subsequent hereto up to the Closing Date contained, contains
or will contain any untrue statement of a material fact or omitted, omits or
will omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
Disclosure Documents, when they were filed with the Commission under the
Exchange Act, complied in all material respects with the requirements of the
Exchange Act. The Company acknowledges that the Disclosure Documents will be
used by the Initial Purchaser in connection with resales of the Notes to
subsequent purchasers thereof and consents to such use.
(b) Each of the Company and the subsidiaries of the Company (the
"Subsidiaries") is duly incorporated, validly existing and in good standing
under the laws of its respective jurisdiction of incorporation; each of the
Company and the Subsidiaries is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions where the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the business, condition (financial or otherwise) or results
of operations of the Company and the Subsidiaries, taken as a whole (any such
event, a "Material Adverse Effect").
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<PAGE> 4
(c) The Company has all requisite corporate power and authority to
execute, deliver and perform each of its obligations under the Notes, the
Exchange Notes, the Registration Rights Agreement and the Indenture. The Notes
and the Exchange Notes have each been duly and validly authorized by the
Company and, when issued, sold and delivered by the Company and paid for by the
Initial Purchaser in accordance with the terms of this Agreement and the
Registration Rights Agreement, as the case may be, will constitute valid and
legally binding obligations of the Company and will be enforceable against the
Company in accordance with their terms, except that the enforcement thereof may
be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights and
remedies generally, and (ii) general principles of equity (regardless of
whether such enforcement may be sought in a proceeding in equity or law) and
the discretion of the court before which any proceeding therefor may be
brought.
(d) The Indenture has been duly and validly authorized by the
Company and, when executed and delivered by the Company (assuming the due
authorization, execution and delivery by the Trustee), will constitute a valid
and legally binding agreement of the Company, enforceable against the Company
in accordance with its terms, except that the enforcement thereof may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights and
remedies generally and (ii) general principles of equity (regardless of whether
such enforcement may be sought in a proceeding in equity or law) and the
discretion of the court before which any proceeding therefor may be brought.
(e) The Registration Rights Agreement has been duly and validly
authorized by the Company and, when executed and delivered by the Company
(assuming the due authorization, execution and delivery by the Initial
Purchaser), will constitute a valid and legally binding agreement of the
Company enforceable against the Company in accordance with its terms, except
that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and remedies generally and (ii) general
principles of equity (regardless of whether such enforcement may be sought in a
proceeding in equity or law) and the discretion of the court before which any
proceeding therefor may be brought and (B) any rights to indemnification or
contribution thereunder may be
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<PAGE> 5
limited by federal and state securities laws and public policy considerations.
(f) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. This Agreement and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by the Company. This Agreement has been duly
executed and delivered by the Company.
(g) No consent, approval, authorization or order of any court or
governmental agency or body, or third party is required for the issuance and
sale by the Company of the Notes to the Initial Purchaser or the consummation
by the Company of the other transactions contemplated hereby, except such as
have been obtained and such as may be required under state securities or "Blue
Sky" laws in connection with the purchase and resale of the Notes by the
Initial Purchaser. None of the Company or the Subsidiaries is (i) in violation
of its certificate of incorporation or bylaws (or similar organizational
document), (ii) in breach or violation of any statute, judgment, decree, order,
rule or regulation applicable to any of them or any of their respective
properties or assets, except for any such breach or violation which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, or (iii) in breach of or default under (nor, to the best
knowledge of the Company, has any event occurred which, with notice or passage
of time or both, would constitute a default under) or in violation of any of
the terms or provisions of any indenture, mortgage, deed of trust, loan
agreement, note, lease, license, franchise agreement, permit, certificate,
contract or other agreement or instrument to which any of them is a party or to
which any of them or their respective properties or assets is subject
(collectively, "Contracts"), except for any such breach, default, violation or
event which would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
(h) The execution, delivery and performance by the Company of this
Agreement, the Indenture and the Registration Rights Agreement and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance and sale of the Notes to the
Initial Purchaser) will not conflict with or constitute or result in a breach
of or a default under (or an event which
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<PAGE> 6
with notice or passage of time or both would constitute a default under) or
violation of any of (i) the terms or provisions of any Contract, except for any
such conflict, breach, violation, default or event which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, (ii) the certificate of incorporation or bylaws (or similar
organizational document) of the Company or any of the Subsidiaries, or (iii)
(assuming compliance with all applicable state securities or "Blue Sky" laws
and assuming the accuracy of the representations and warranties of the Initial
Purchaser in Section 7 hereof and except for any required filings with the
National Association of Securities Dealers, Inc., the filing of a registration
statement under the Act and qualification of the Indenture under the Trust
Indenture Act of 1939, as amended (the "TIA") in connection with the
Registration Rights Agreement) any statute, judgment, decree, order, rule or
regulation applicable to the Company or any of the Subsidiaries or any of their
respective properties or assets, except for any such conflict, breach or
violation which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(i) The consolidated financial statements of the Company and the
Subsidiaries included in the Disclosure Documents present fairly in all
material respects the financial position, results of operations and cash flows
of the Company and the Subsidiaries at the dates and for the periods to which
they relate and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, except as otherwise stated
therein. Price Waterhouse LLP (the "Independent Accountants") is an independent
public accounting firm within the meaning of the Act and the rules and
regulations promulgated thereunder.
(j) There is not pending or, to the knowledge of the Company,
threatened any action, suit, proceeding, inquiry or investigation to which the
Company or any of the Subsidiaries is a party, or to which the property or
assets of the Company or any of the Subsidiaries are subject, before or brought
by any court, arbitrator or governmental agency or body which, if determined
adversely to the Company or any of the Subsidiaries, would, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect or
which seeks to restrain, enjoin, prevent the consummation of or otherwise
challenge the issuance or sale of the Notes to be sold hereunder or the
consummation of the other transactions contemplated herein.
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<PAGE> 7
(k) Each of the Company and the Subsidiaries possesses all
licenses, permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals, presently required or
necessary to own or lease, as the case may be, and to operate its respective
properties and to carry on its respective businesses as now conducted
("Permits"), except where the failure to obtain such Permits would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect; each of the Company and the Subsidiaries has fulfilled and
performed all of its material obligations with respect to such Permits and no
event has occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material impairment
of the rights of the holder of any such Permit; and none of the Company or the
Subsidiaries has received any notice of any proceeding relating to revocation
or modification of any such Permit, except where such revocation or
modification would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(l) Since the date of the most recent financial statements
appearing in the Disclosure Documents, except as described therein, (i) none of
the Company or the Subsidiaries has incurred any liabilities or obligations,
direct or contingent, or entered into or agreed to enter into any transactions
or contracts (written or oral) not in the ordinary course of business which
liabilities, obligations, transactions or contracts would, individually or in
the aggregate, be material to the business, condition (financial or otherwise)
or results of operations of the Company and the Subsidiaries, taken as a whole,
(ii) none of the Company or the Subsidiaries has purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock (other than with respect to any
of such Subsidiaries, the purchase of, or dividend or distribution on, capital
stock owned by the Company) and (iii) there has not been any material change in
the capital stock or long-term indebtedness of the Company or the Subsidiaries.
(m) None of the Company, the Subsidiaries or any agent acting on
their behalf has taken or will take any action that might cause this Agreement
or the sale of the Notes to violate Regulation G, T, U or X of the Board of
Governors of
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<PAGE> 8
the Federal Reserve System, in each case as in effect, or as the same may
hereafter be in effect, on the Closing Date.
(n) Each of the Company and the Subsidiaries has good and
marketable title to all real property and good title to all personal property
described in the Disclosure Documents as being owned by it and good and
marketable title to a leasehold estate in the real and personal property
described in the Disclosure Documents as being leased by it free and clear of
all liens, charges, encumbrances or restrictions, except as disclosed in the
Disclosure Documents and to the extent the failure to have such title or the
existence of such liens, charges, encumbrances or restrictions would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. All leases, contracts and agreements to which the Company or
any of the Subsidiaries is a party or by which any of them is bound are valid
and enforceable against the Company or such Subsidiary, and are valid and
enforceable against the other party or parties thereto and are in full force
and effect with only such exceptions as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(o) There is no significant strike, labor dispute, slowdown or work
stoppage with the employees of the Company or any of the Subsidiaries which is
pending or, to the knowledge of the Company or any of the Subsidiaries,
threatened against any of them.
(p) No claims have been filed against the Company or any of the
Subsidiaries alleging violation of any provision of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(q) None of the Company or the Subsidiaries will be an "investment
company" or a company "controlled" by an "investment company," as such terms
are defined in the Investment Company Act of 1940, as amended, and the rules
and regulations thereunder.
(r) No holder of debt securities of the Company or any Subsidiary
will be entitled to have such securities registered under the registration
statement required to be filed by the Company pursuant to the Registration
Rights Agreement.
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<PAGE> 9
(s) None of the Company, the Subsidiaries or any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under the Act)
has directly, or through any agent, (i) sold, offered for sale, solicited
offers to buy or otherwise negotiated in respect of, any "security" (as defined
in the Act) which is or could be integrated with the sale of the Notes in a
manner that would require the registration under the Act of the Notes or (ii)
engaged in any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Act) in connection with the offering
of the Notes or in any manner involving a public offering within the meaning of
Section 4(2) of the Act. Assuming the accuracy of the representations and
warranties of the Initial Purchaser in Section 7 hereof, it is not necessary in
connection with the offer, sale and delivery of the Notes to the Initial
Purchaser in the manner contemplated by this Agreement to register any of the
Notes under the Act.
(t) No securities of the Company or any Subsidiary are of the same
class (within the meaning of Rule 144A under the Act) as the Notes and listed
on a national securities exchange registered under Section 6 of the Exchange
Act, or quoted in a U.S. automated inter-dealer quotation system.
4. Covenants of the Company. The Company covenants and agrees
with the Initial Purchaser that:
(a) The Company will cooperate with the Initial Purchaser in
arranging for the qualification of the Notes for offering and sale under the
securities or "Blue Sky" laws of such jurisdictions as the Initial Purchaser
may designate and will continue such qualifications in effect for as long as
may be necessary to complete the resale of the Notes; provided, however, that
in connection therewith, the Company shall not be required to qualify as a
foreign corporation or to execute a general consent to service of process in
any jurisdiction or subject itself to taxation in excess of a nominal dollar
amount in any such jurisdiction where it is not then so subject.
(b) For the period of two years following the Closing Date, the
Company will furnish to the Initial Purchaser copies of all reports and other
communications (financial or otherwise) furnished by the Company to the trustee
for the Indenture or to the holders of the Notes or Exchange Notes and, as soon
as available, copies of any reports or financial statements furnished to or
filed by the Company with the
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<PAGE> 10
Commission or any national securities exchange on which any class of securities
of the Company may be listed.
(c) Prior to the Closing Date, the Company will furnish to the
Initial Purchaser, as soon as they have been prepared, a copy of any unaudited
interim financial statements of the Company for any period subsequent to the
period covered by the most recent financial statements appearing in the
Disclosure Documents.
(d) None of the Company or any of its Affiliates will sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of any
"security" (as defined in the Act) which could be integrated with the sale of
the Notes in a manner which would require the registration under the Act of the
Notes.
(e) The Company will not, and will not permit any of the
Subsidiaries to, engage in any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Act) in
connection with the offering of the Notes or in any manner involving a public
offering within the meaning of Section 4(2) of the Act.
5. Fees and Expenses. The Company agrees to pay to the Initial
Purchaser the following non-refundable fees:
(a) an underwriting fee of 2.0% of the aggregate principal amount
of the Notes, payable on the Closing Date; and
(b) reasonable legal fees and expenses (not to exceed $125,000) of
Cahill Gordon & Reindel, counsel to the Initial Purchaser, incurred by the
Initial Purchaser in connection with the transactions contemplated hereby,
whether or not the transactions are consummated.
6. Conditions of the Initial Purchaser's
Obligations. The obligation of the Initial Purchaser to
purchase and pay for the Notes shall, in its sole discretion,
be subject to the satisfaction or waiver of the following
conditions on or prior to the Closing Date:
(a) On the Closing Date, the Initial Purchaser shall have received
the opinion, dated as of the Closing Date and addressed to the Initial
Purchaser, of Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel for the
Company, in form and
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<PAGE> 11
substance satisfactory to counsel for the Initial Purchaser, to
the effect that:
(i) The Company is duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation. The
Company, based solely on good standing certificates, is qualified to do
business as a foreign corporation in the jurisdictions listed on a
schedule to such opinion.
(ii) The Company has the corporate power and authority to execute,
deliver and perform each of its obligations under the Indenture, the
Notes and the Exchange Notes; the Indenture has been duly authorized by
the Company and, when duly executed and delivered by the Company
(assuming the due authorization, execution and delivery thereof by the
Trustee), will constitute the valid and legally binding agreement of the
Company, enforceable against the Company in accordance with its terms,
except that the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and remedies generally
and (ii) general principles of equity (regardless of whether such
enforcement may be sought in a proceeding in equity or law) and the
discretion of the court before which any proceeding therefor may be
brought.
(iii) The Notes have each been duly authorized, executed and
delivered by the Company and when paid for by the Initial Purchaser in
accordance with the terms of this Agreement will constitute the valid and
legally binding obligations of the Company and enforceable against the
Company in accordance with their terms, except that the enforcement
thereof may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and remedies generally and (ii) general principles of
equity (regardless of whether such enforcement may be sought in a
proceeding in equity or law) and the discretion of the court before which
any proceeding therefor may be brought.
(iv) The Exchange Notes have been duly authorized by the Company,
and when they are duly executed and delivered by the Company in
accordance with the terms of the Registration Rights Agreement and the
Indenture (assuming
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<PAGE> 12
the due authorization, execution and delivery of the Indenture by the
Trustee and due authentication and delivery of the Exchange Notes by the
Trustee in accordance with the Indenture), will constitute the valid and
legally binding obligations of the Company, entitled to the benefits of
the Indenture, and enforceable against the Company in accordance with
their terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights and remedies
generally and (ii) general principles of equity (regardless of whether
such enforcement may be sought in a proceeding in equity or law) and the
discretion of the court before which any proceeding therefor may be
brought.
(v) The Company has the corporate power and authority to execute,
deliver and perform its obligations under the Registration Rights
Agreement; the Registration Rights Agreement has been duly authorized,
executed and delivered by the Company and (assuming due authorization,
execution and delivery thereof by the Initial Purchaser) constitutes the
valid and legally binding agreement of the Company, enforceable against
the Company in accordance with its terms, except that (A) the enforcement
thereof may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and remedies generally and (ii) general principles of
equity (regardless of whether such enforcement may be sought in a
proceeding in equity or law) and the discretion of the court before which
any proceeding therefor may be brought and (B) any rights to
indemnification or contribution thereunder may be limited by federal and
state securities laws and public policy considerations.
(vi) The Company has the corporate power and authority to execute,
deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby; this Agreement and the
consummation by the Company of the transactions contemplated hereby have
been duly and validly authorized, executed and delivered by the Company.
(vii) The execution, delivery and performance of this Agreement, the
Notes, the Indenture, the Registration Rights Agreement and the
consummation of the transactions
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<PAGE> 13
contemplated hereby and thereby (including the transfer of ownership to
the Initial Purchaser of the Wilrig Notes, the Warrants and the Tatham
Notes and the redemption of the Wilrig Notes and the Tatham Notes on the
Closing Date) will not conflict with or constitute or result in a breach
or a default under (or an event which with notice or passage of time or
both would constitute a default under) or violation of any of (i) the
terms or provisions of any Contract known to such counsel, except for any
such conflict, breach, violation, default or event which would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect, (ii) the certificate of incorporation or bylaws
(or similar organizational document) of the Company or any of the
Subsidiaries, or (iii) (assuming compliance with all applicable state
securities or "Blue Sky" laws and assuming the accuracy of the
representations and warranties of the Initial Purchaser in Section 7
hereof) any statute, judgment, decree, order, rule or regulation known to
such counsel to be applicable to the Company or any of the Subsidiaries
or any of their respective properties or assets, except for any such
conflict, breach or violation which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(viii) No consent, approval, authorization or order of any
governmental authority is required for the issuance and sale by the
Company of the Notes to the Initial Purchaser or the consummation by the
Company of the other transactions contemplated hereby, except such as may
be required under Blue Sky laws, as to which such counsel need express no
opinion, and those which have previously been obtained and except for the
filing of a registration statement under the Act and qualification of the
Indenture under the TIA in connection with the Registration Rights
Agreement.
(ix) None of the Company or the Subsidiaries is, or immediately
after the sale of the Notes to be sold hereunder will be subject to
registration as an "investment company" under the Investment Company Act
of 1940, as amended.
(x) Prior to the issuance of the Exchange Notes, the offer,
issuance, sale and delivery of the Notes in the manner contemplated
herein do not require registration
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<PAGE> 14
under the Act or qualification of the Indenture under the TIA.
(b) The representations and warranties of the Company contained in
this Agreement shall be true and correct on and as of the date hereof and on
and as of the Closing Date as if made on and as of the Closing Date; the
Company shall have performed all covenants and agreements and satisfied all
conditions on their part to be performed or satisfied hereunder at or prior to
the Closing Date; and, subsequent to the date of the most recent financial
statements in the Disclosure Documents, there shall have been no event or
development, and no information shall have become known, that, individually or
in the aggregate, has or would be reasonably likely to have a Material Adverse
Effect.
(c) The sale of the Notes hereunder shall not be enjoined
(temporarily or permanently) on the Closing Date.
(d) The Initial Purchaser shall have received a certificate of the
Company, dated the Closing Date, signed on behalf of the Company by its
Chairman of the Board, President or any Senior Vice President and the Chief
Financial Officer, to the effect that:
(i) The representations and warranties of the Company contained in
this Agreement are true and correct on and as of the date hereof and on
and as of the Closing Date, and the Company has performed all covenants
and agreements and satisfied all conditions on its part to be performed
or satisfied hereunder at or prior to the Closing Date;
(ii) At the Closing Date, since the date hereof or since the date of
the most recent financial statements in the Disclosure Documents, no
event or development has occurred, and no information has become known,
that, individually or in the aggregate, has or would be reasonably likely
to have a Material Adverse Effect; and
(e) On or prior to the Closing Date, the Initial Purchaser shall
have purchased the Wilrig Notes, the Warrants and the Tatham Notes, and
received physical delivery thereof; provided, that this condition shall be
deemed waived in the event that such transactions are not consummated solely by
reason of a default by BTSC of its obligations under its agreements with
Transocean AS and Mr. Tatham relating thereto.
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<PAGE> 15
(f) On the Closing Date, the Initial Purchaser shall have received
the Registration Rights Agreement (together with the form of Indenture and
Exchange Note attached thereto as an Exhibit) executed by the Company and such
agreement shall be in full force and effect at all times from and after the
Closing Date.
(g) On the Closing Date and concurrently with the issuance of the
Notes, the Company shall have purchased the Wilrig Notes, the Warrants and the
Tatham Notes in accordance with Section 2 hereof.
All such documents, opinions, certificates, letters, schedules or
instruments delivered pursuant to this Agreement will comply with the
provisions hereof only if they are reasonably satisfactory in all material
respects to the Initial Purchaser and counsel for the Initial Purchaser.
7. Offering of Notes; Restrictions on Transfer. The Initial
Purchaser hereby represent and warrants that it has entered into an agreement
with Transocean AS to purchase the Wilrig Notes and the Warrants and has
furnished a true, correct and complete copy of such agreement to the Company.
The Initial Purchaser hereby covenants and agrees that it will fully perform
its obligations under such agreement and that it will not amend, modify,
supplement, or terminate, or consent to or permit any such amendment,
modification, supplement or termination of, such agreement, without the prior
written consent of the Company. The Initial Purchaser hereby represents and
warrants that it is a QIB, with such knowledge and experience in financial and
business matters as are necessary in order to evaluate the merits and risks of
an investment in the Notes. The Initial Purchaser agrees with the Company that
(i) it has not and will not solicit offers for, or offer or sell, the Notes by
any form of general solicitation or general advertising (as those terms are
used in Regulation D under the Act) or in any manner involving a public
offering within the meaning of Section 4(2) of the Act; and (ii) it has
solicited, and will solicit, offers for the Notes only from, and will offer the
Notes only to (A) in the case of offers inside the United States, (x) persons
whom the Initial Purchaser reasonably believes to be QIBs or, if any such
person is buying for one or more institutional accounts for which such person
is acting as fiduciary or agent, only when such person has represented to the
Initial Purchaser that each such account is a QIB, to whom notice has been
given that such sale or delivery is being made in reliance on Rule 144A, and,
in each
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<PAGE> 16
case, in transactions under Rule 144A or (y) a limited number of other
institutional investors reasonably believed by the Initial Purchaser to be
Accredited Investors and (B) in the case of offers outside the United States in
a transaction meeting the requirements of Rule 904 under the Act, to persons
other than U.S. persons ("foreign purchasers," which term shall include dealers
or other professional fiduciaries in the United States acting on a
discretionary basis for foreign beneficial owners (other than an estate or
trust)).
The Initial Purchaser understands that the Company and, for
purposes of the opinion to be delivered to the Initial Purchaser pursuant to
Section 6 hereof, counsel to the Company will rely upon the accuracy and truth
of the foregoing representations and hereby consents to such reliance.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless the Initial Purchaser, its affiliates and their
respective directors, officers, partners, agents, employees, representatives
and control persons (collectively, the "Indemnified Persons") from and against
any losses, claims, damages or liabilities to which such Indemnified Person may
become subject under the Act, the Exchange Act or otherwise, insofar as any
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any Disclosure Document or the omission or
alleged omission to state in any Disclosure Document a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or any of the transactions contemplated hereby and will reimburse,
as incurred, the Indemnified Person for any legal or other expenses incurred by
Indemnified Person in connection with investigating, defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, that this indemnity shall not be
available for any loss, claim, damages, liability or action to the extent they
are determined by a court of competent jurisdiction in a final and
nonappealable judgment to have resulted from the intentional misconduct or
gross negligence of the Initial Purchaser. This indemnity agreement will be in
addition to any liability that the Company may otherwise have to the
indemnified parties. The Company shall not be liable under this Section 8 for
any settlement of any claim or action effected without its prior written
consent, which shall not be unreasonably withheld.
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<PAGE> 17
(b) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action for which such
Indemnified Person is entitled to indemnification under this Section 8, such
Indemnified Person will, if a claim in respect thereof is to be made against
the Company under this Section 8, notify the Company of the commencement
thereof in writing; but the omission to so notify the Company (i) will not
relieve it from any liability under paragraph (a) above unless and to the
extent such failure results in the forfeiture by the Company of substantial
rights and defenses and (ii) will not, in any event, relieve the Company from
any obligations to any Indemnified Person other than the indemnification
obligation provided in paragraphs (a) above. In case any such action is brought
against any Indemnified Person, and it notifies the Company of the commencement
thereof, the Company will be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof, with counsel reasonably
satisfactory to such Indemnified Person; provided, however, that if (i) the use
of counsel chosen by the Company to represent the Indemnified Person would
present such counsel with a conflict of interest, (ii) the defendants in any
such action include both the Indemnified Person and the Company and the
Indemnified Person shall have been advised by counsel that there may be one or
more legal defenses available to it and/or other Indemnified Persons that are
different from or additional to those available to the Company, or (iii) the
Company shall not have employed counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person within a reasonable time
after receipt by the Company of notice of the institution of such action, then,
in each such case, the Company shall not have the right to direct the defense
of such action on behalf of such Indemnified Person and such Indemnified Person
shall have the right to select separate counsel to defend such action on behalf
of such Indemnified Person. After notice from the Company to such Indemnified
Person of its election so to assume the defense thereof and approval by such
Indemnified Person of counsel appointed to defend such action, the Company will
not be liable to such Indemnified Person under this Section 8 for any legal or
other expenses, other than reasonable costs of investigation, subsequently
incurred by such Indemnified Person in connection with the defense thereof,
unless (i) the Indemnified Person shall have employed separate counsel in
accordance with the proviso to the immediately preceding sentence (it being
understood, however, that in connection with such action the Company shall not
be liable for the expenses of more than one
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<PAGE> 18
separate counsel (in addition to local counsel) in any one action or separate
but substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances, designated by the Indemnified
Person), as the case may be, who are parties to such action or actions) or (ii)
the Company has authorized in writing the employment of counsel for the
Indemnified Person at the expense of the Company.
(c) In circumstances in which the indemnity agreement provided for
in the preceding paragraphs of this Section 9 is unavailable to, or
insufficient to hold harmless, an Indemnified Person in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), the Company, in
order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect (i) the relative benefits received by
the Company on the one hand from the transactions contemplated hereby and the
Indemnified Person on the other from the offering of the Notes or (ii) if the
allocation provided by the foregoing clause (i) is not permitted by applicable
law, not only such relative benefits but also the relative fault of the Company
on the one hand and the Indemnified Person on the other in connection with the
statements or omissions or alleged statements or omissions or other actions
that resulted in such losses, claims, damages or liabilities (or actions in
respect thereof). The relative benefits received by the Company on the one hand
and the Initial Purchaser on the other shall be deemed to be in the same
proportion as the aggregate principal amount of the Notes bear to the total
commissions received hereunder by the Initial Purchaser. The relative fault of
the parties shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission or alleged
statement or omission, and any other equitable considerations appropriate in
the circumstances. The Company and the Initial Purchaser agree that it would
not be equitable if the amount of such contribution were determined by pro rata
or per capita allocation or by any other method of allocation that does not
take into account the equitable considerations referred to in the first
sentence of this paragraph (d). Notwithstanding any other provision of this
paragraph (d), the Initial Purchaser
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<PAGE> 19
shall not be obligated to make contributions hereunder that in the aggregate
exceed the total commissions received by the Initial Purchaser under this
Agreement, less the aggregate amount of any damages that the Initial Purchaser
has otherwise been required to pay by reason of the untrue or alleged untrue
statements or the omissions or alleged omissions to state a material fact, and
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this paragraph
(d), each person, if any, who controls the Initial Purchaser within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act shall have the same
rights to contribution as the Initial Purchaser.
9. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, its
officers and the Initial Purchaser set forth in this Agreement or made by or on
behalf of them pursuant to this Agreement shall remain in full force and
effect, regardless of (i) any investigation made by or on behalf of the
Company, any of its officers or directors, the Initial Purchaser or any
controlling person referred to in Section 8 hereof and (ii) delivery of and
payment for the Notes. The respective agreements, covenants, indemnities and
other statements set forth in Sections 5, 8 and 13 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
10. Termination. (a) This Agreement may be terminated by the
Initial Purchaser upon written notice to the Company given prior to the Closing
Date in the event that the Company shall have failed, refused or been unable to
perform all obligations and satisfy all conditions on its part to be performed
or satisfied hereunder at or prior thereto or, if at or prior to the Closing
Date and since the date of the most recent financial statement in the
Disclosure Documents there shall have been any event or development that,
individually or in the aggregate, has or could reasonably be expected to have a
Material Adverse Effect.
(b) Termination of this Agreement pursuant to this Section 10 shall
be without liability of any party to any other party.
11. Notices. All communications hereunder shall be in writing
and, if sent to the Initial Purchaser, shall be
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mailed or delivered to (i) BT Securities Corporation, 130 Liberty Street, New
York, New York 10006, Attention: Corporate Finance Department; if sent to the
Company, shall be mailed or delivered to the Company at 600 Travis Street,
Suite 7500, Houston, Texas 77002, Attention: Donald V. Weir; with a copy to
Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1900 Pennzoil Place - South Tower,
711 Louisiana Street, Houston, Texas 77002, Attention: Rick L. Burdick.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; and one business
day after being timely delivered to a next-day air courier.
12. Successors. This Agreement shall inure to the benefit of and be
binding upon the Initial Purchaser, the Company and their respective successors
and legal representatives, and nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any other person any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained; this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of
such persons and for the benefit of no other person except that the indemnities
of the Company contained in Section 9 of this Agreement shall also be for the
benefit of any person or persons who control the Initial Purchaser within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and. No
purchaser of Notes from the Initial Purchaser will be deemed a successor
because of such purchase.
13. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO
ANY PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW.
14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between the Company
and the Initial Purchaser.
Very truly yours,
DEEPTECH INTERNATIONAL INC.
By:
----------------------
Name:
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date first
above written.
BT SECURITIES CORPORATION
By:
----------------------
Name:
Title:
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<PAGE> 21
EXHIBIT A
SUMMARY TERMS OF THE NOTES
The Issuer: DeepTech International Inc.
Issue: $15,350,000 aggregate principal amount of
11% senior subordinated notes due 2000 (the
"Notes").
Maturity: May 31, 2000
Interest Rate: 11% per annum payable in cash quarterly in
arrears calculated on a 30-day month,
360-day year.
Ranking: The Notes will rank senior to all
Subordinated Indebtedness of the Company,
subordinated to the existing 12% Senior
Secured Notes due 2000 (the "Senior Notes")
and pari passu to all other unsecured
Indebtedness.
Security: None.
Mandatory Redemption: No sinking fund requirements.
Optional Redemption: The Notes will not be redeemable before
June 15, 1999, and thereafter may be
redeemed at 101% of the principal amount
thereof, plus accrued interest.
Change of Control and
Asset Sale Proceeds
Offers: In the event of a Change of Control, the
Company shall be obligated to make an offer
to purchase all outstanding Notes at a
repurchase price of 101% of the principal
amount thereof plus accrued interest to the
date of repurchase. In addition, if the
Company is required to make a repurchase
offer with respect to the Senior Notes, it
will be obligated to make an offer to
purchase the Notes at a repurchase price of
100% of the principal amount thereof plus
accrued interest to the date of repurchase,
to the extent permitted by the Indenture
governing the Senior Notes.
Exchange Offer; Registration
Rights The Company will agree, pursuant to a
registration rights agreement (the
"Registration Rights Agreement") between
the Company and the Initial Purchaser, (i)
to file a registration statement with
respect to an offer to exchange the Notes
(the "Exchange Offer") for exchange notes
of the Company with substantially identical
terms to the Notes (the "Exchange Notes")
within 30 days after receipt of demand
(which demand shall not be made prior to
the 30-day period following the date of the
Note Purchase and Exchange Agreement) from
holders of at least 75% of the principal
amount of the Notes and (ii) to use its
best efforts to cause such registration
statement to become effective under the
Securities Act within 90 days after such
issue date. In the event that applicable
interpretations of the staff of the
Commission do not permit the Company to
effect the Exchange Offer, or if for any
other reason the Exchange Offer is not
consummated, the Company will use its best
efforts to cause to become effective a
shelf registration statement with respect
to the resale of the Exchange Notes and to
keep such shelf registration statement
effective until the earlier of three years
after the date of original issue of the
Exchange Notes and such time as all of the
Exchange Notes have been sold thereunder.
If the Company is in default under the
Registration Rights Agreement, then the
Company shall promptly notify the holders
of the Notes of such noncompliance and
shall commence an offer to repurchase all
outstanding Notes at a price equal to 100%
of the principal amount thereof plus
accrued interest to the repurchase date.
Such offer shall remain open for not less
than 45 days after receipt thereof by the
holders. All expenses of registration shall
be for the Company's account, except for
underwriting discounts and commissions, if
any.
Covenants: Mirror the existing 12% Senior Notes due
2000 (as applicable).
Warrants: The Warrants (1,100,000 warrants issued to
Wilrig) will be surrendered to the Company
at closing.
Transaction Documentation: Issuance of the Exchange Notes will be made
pursuant to a Note Purchase Agreement with
the form of Exchange Note, Registration
Rights Agreement and Indenture for New
Exchange Notes attached as exhibits.
<PAGE> 1
================================================================================
CREDIT AGREEMENT
among
RIGCO NORTH AMERICA, L.L.C.,
The Several Lenders
from Time to Time Parties Hereto,
and
LEHMAN COMMERCIAL PAPER INC.,
AS ADMINISTRATIVE AGENT,
COLLATERAL AND DOCUMENTATION AGENT,
SYNDICATION AGENT,
ADVISOR AND ARRANGER
Dated as of September 30, 1996
================================================================================
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SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2. AMOUNT AND TERMS OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.1 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.2 Procedure for Loan Borrowing; Construction Fund Collateral Account . . . . . . . . . . . . . . . . . . 16
2.3 Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.4 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.5 Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.6 Interest Rates and Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.7 Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.8 Pro Rata Treatment and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.10 Administrative Agent's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.1 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.2 No Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.3 Existence; Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.4 Power; Authorization; Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.5 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.6 No Material Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.7 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.8 Ownership of Property; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.9 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.10 No Burdensome Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.12 Federal Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.14 Investment Company Act; Other Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.15 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.16 Purpose of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.17 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.18 Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.19 Majority-Owned Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.20 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.1 Conditions to Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
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5.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.2 Certificates; Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.3 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.4 Conduct of Business and Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.5 Maintenance of Property; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.6 Inspection of Property; Books and Records; Discussions . . . . . . . . . . . . . . . . . . . . . . . . 35
5.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.8 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.9 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.10 Additional Collateral; Release of Unrestricted Subsidiaries . . . . . . . . . . . . . . . . . . . . . 37
5.11 Charters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.12 Interest Rate Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.13 Upgrade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.14 Certain Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.1 Financial Condition Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.2 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.3 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.4 Limitation on Guarantee Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.5 Limitation on Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.6 Limitation on Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.7 Limitation on Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.8 Limitation on Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.9 Limitation on Investments, Loans and Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.10 Limitation on Optional Payments and Modifications of Debt Instruments . . . . . . . . . . . . . . . . 43
6.11 Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.12 Limitation on Sales and Leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.13 Limitation on Changes in Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.14 Limitation on Negative Pledge Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.15 Limitation on Lines of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.16 Other Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 7. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 8. THE AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.3 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.4 Reliance by Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.6 Non-Reliance on Agents and Other Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.8 Administrative Agent, Collateral and Documentation Agent and Arranger in Their Individual
Capacities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
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8.9 Successor Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.10 The Arranger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.4 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.5 Payment of Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.6 Successors and Assigns; Participations and Assignments . . . . . . . . . . . . . . . . . . . . . . . . 52
9.7 Adjustments; Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.10 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.11 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.12 Submission To Jurisdiction; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
9.13 Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
9.14 WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.15 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.16 Usury Savings Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>
SCHEDULES
Schedule I Commitments and Addresses of Lenders
Schedule 3.6 Litigation
Schedule 3.17 Environmental Matters
Schedule 6.4 Existing Guarantee Obligations
EXHIBITS
A Form of Note
B Form of Borrower Security Agreement
C Form of Parent Pledge Agreement
D Form of Borrowing/Non-Default Certificate
E-1 Form of Opinion of Counsel to the Borrower
E-2 Form of Opinion of Bahamian Counsel
F Form of Assignment and Acceptance
G Form of Subordination Agreement
H Form of Exemption Certificate
I Form of Qualified Non-U.S. Lender Note
J-1 Form of Pincay Ship Mortgage
J-2 Form of Shoemaker Ship Mortgage
K Form of PIK Note
- iii -
<PAGE> 5
EXHIBIT 10.3
CREDIT AGREEMENT, dated as of September 30, 1996, among RIGCO NORTH
AMERICA, L.L.C., a Delaware limited liability company (the "Borrower"), the
several banks and other financial institutions from time to time parties to
this Agreement (the "Lenders"), LEHMAN COMMERCIAL PAPER INC., as Advisor,
Syndication Agent and Arranger, LEHMAN COMMERCIAL PAPER INC., as collateral and
documentation agent (in such capacity, the "Collateral and Documentation
Agent") and LEHMAN COMMERCIAL PAPER INC., as administrative agent for the
Lenders hereunder (in such capacity, the "Administrative Agent").
W I T N E S S E T H :
WHEREAS, the Borrower wishes to acquire (as set forth in
greater detail below, the "Acquisition") the FPS Laffit Pincay and the FPS Bill
Shoemaker (collectively, the "Rigs");
WHEREAS, the Borrower has requested the Administrative Agent
and the Lenders to enter into this Credit Agreement and the Lenders to make the
loans as provided for herein to provide the Borrower with funds to be used to
finance (i) a portion of the consideration for the Acquisition and (ii) the
upgrade and make-ready of the Rigs after the consummation of the Acquisition;
and
WHEREAS, the Lenders have agreed to make such loans to the
Borrower on the terms and subject to the conditions set forth herein and for no
other purposes except as set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Acquisition": the collective reference to (i) the
acquisition by the Borrower of the Pincay and certain accounts
receivable with respect thereto from DeepFlex Production Partners L.P.
("DPP"), an Affiliate of the Borrower, in consideration of the
assumption by the Borrower of all indebtedness of DPP to DPSI, (ii)
the contribution to DPSI by DeepTech of all of the Capital Stock of
FPS V, (iii) the assumption by DPSI of $783,986 of indebtedness of FPS
V to Highwood Partners, L.P. (the "FPS V-Highwood Indebtedness") in
consideration of a promissory note from FPS V in like amount, (iv) the
assumption by FPS III of fifty percent (50%) of the Citibank
Obligations and the assumption by FPS V of fifty percent (50%) of the
Citibank Obligations, in each case, in consideration of a promissory
note from DPSI in like amount, (v) the assumption by FPS III of fifty
percent (50%) of the FPS V-
<PAGE> 6
2
Highwood Indebtedness and the assumption by FPS V of fifty
percent (50%) of the FPS V-Highwood Indebtedness, in each case, in
consideration of a promissory note from DPSI in like amount, (vi) the
merger of Deepwater Drillers, L.L.C. (the "Deepwater"), an Affiliate of
the Borrower and the owner of the Shoemaker, with and into the Borrower
in consideration of the assumption by the Borrower of the indebtedness
assumed by FPS III and FPS V under the preceding clauses (iv) and (v),
and (vii) the payment by the Borrower of the Highwood Obligations,
including the FPS V-Highwood Indebtedness, and the Citibank
Obligations, in each case in accordance with the Acquisition,
Assumption and Contribution Agreement.
"Acquisition, Assumption and Contribution Agreement": the
Acquisition, Assumption and Contribution Agreement among DeepTech,
DPP, DPSI, FPS III, FPS V, the Borrower and Deepwater dated as of the
date of this Agreement, a true and correct copy of which is attached
as Exhibit P.
"Administrative Agent": as defined in the preamble hereto.
"Affiliate": as to any Person, any other Person (other than a
Restricted Subsidiary) which, directly or indirectly, is in control
of, is controlled by, or is under common control with, such Person.
For purposes of this definition, "control" of a Person means the
power, directly or indirectly, either to (a) vote 10% or more of the
securities having ordinary voting power for the election of directors
of such Person or (b) direct or cause the direction of the management
and policies of such Person, whether by contract or otherwise.
"Agent" or "Agents": the individual or collective reference
to the Administrative Agent, the Collateral and Documentation Agent
and the Arranger.
"Agreement": this Credit Agreement, as amended, supplemented
or otherwise modified from time to time.
"Amoco Drilling Contract": as defined in subsection 4.1(w).
"Amoco Drilling Contract Date": the date on which the Amoco
Drilling Contract or a Drilling Contract equivalent or superior to the
Amoco Drilling Contract and acceptable to the Required Lenders has
been executed and delivered by the Charterer and the customer
thereunder.
"Arranger": Lehman Commercial Paper Inc., in its capacities
as Advisor, Syndication Agent and Arranger.
"Asset Sale": any sale, lease, sale-leaseback, assignment or
other disposition by the Borrower or any of its Subsidiaries of any of
its property or assets, including the stock of any Subsidiary of the
Borrower.
"Assignee": as defined in subsection 9.6(c).
<PAGE> 7
3
"Base Rate": for any day, a rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the
Prime Rate in effect on such day, (b) the Base CD Rate in effect on
such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean
the rate of interest per annum publicly announced from time to time by
Citibank, N.A. as its prime rate in effect at its principal office in
New York City (the Prime Rate not being intended to be the lowest rate
of interest charged by Citibank, N.A. in connection with extensions of
credit to debtors); "Base CD Rate" shall mean the sum of (a) the
product of (i) the Three-Month Secondary CD Rate and (ii) a fraction,
the numerator of which is one and the denominator of which is one
minus the C/D Reserve Percentage and (b) the C/D Assessment Rate;
"Three-Month Secondary CD Rate" shall mean, for any day, the secondary
market rate for three-month certificates of deposit reported as being
in effect on such day (or, if such day shall not be a Business Day,
the next preceding Business Day) by the Board of Governors of the
Federal Reserve System (the "Board") through the public information
telephone line of the Federal Reserve Bank of New York (which rate
will, under the current practices of the Board, be published in
Federal Reserve Statistical Release H.15(519) during the week
following such day), or, if such rate shall not be so reported on such
day or such next preceding Business Day, the average of the secondary
market quotations for three-month certificates of deposit of major
money center banks in New York City received at approximately 10:00
A.M., New York City time, on such day (or, if such day shall not be a
Business Day, on the next preceding Business Day) by the
Administrative Agent from three New York City negotiable certificate
of deposit dealers of recognized standing selected by it; and "Federal
Funds Effective Rate" shall mean, for any day, the weighted average of
the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published
on the next succeeding Business Day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of such
transactions received by the Administrative Agent from three federal
funds brokers of recognized standing selected by it. Any change in
the Base Rate due to a change in the Prime Rate, the Three-Month
Secondary CD Rate or the Federal Funds Effective Rate shall be
effective as of the opening of business on the effective day of such
change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate, respectively.
"Base Rate Loans": Loans the rate of interest applicable to
which is based upon the Base Rate.
"Borrower Security Agreement": the Security Agreement to be
executed and delivered by the Borrower, substantially in the form of
Exhibit B, as the same may be amended, supplemented or otherwise
modified from time to time.
"Business": as defined in subsection 3.17.
<PAGE> 8
4
"Business Day": a day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or
required by law to close.
"Capital Stock": any and all shares, interests,
participations or other equivalents (however designated) of capital
stock of a corporation, any and all equivalent ownership interests in
a Person (other than a corporation) and any and all warrants or
options to purchase any of the foregoing.
"Cash Equivalents": (a) securities with maturities of one
year or less from the date of acquisition issued or fully guaranteed
or insured by the United States Government or any agency thereof, (b)
certificates of deposit and eurodollar time deposits with maturities
of one year or less from the date of acquisition and overnight bank
deposits of any Lender or of any commercial bank having capital and
surplus in excess of $500,000,000, (c) repurchase obligations of any
Lender or of any commercial bank satisfying the requirements of clause
(b) of this definition, having a term of not more than 30 days with
respect to securities issued or fully guaranteed or insured by the
United States Government, (d) commercial paper of a domestic issuer
rated at least A-2 by Standard and Poor's Rating Group ("S&P") or P-2
by Moody's Investors Service, Inc. ("Moody's"), (e) securities with
maturities of one year or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United
States, by any political subdivision or taxing authority of any such
state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may
be) are rated at least A by S&P or A by Moody's, (f) securities with
maturities of one year or less from the date of acquisition backed by
standby letters of credit issued by any Lender or any commercial bank
satisfying the requirements of clause (b) of this definition or (g)
shares of money market mutual or similar funds which invest
exclusively in assets satisfying the requirements of clauses (a)
through (f) of this definition.
"Cash Interest Expense": for any period, Interest Expense for
such period minus the amount of all non- cash interest charges
included in Interest Expense for such period.
"C/D Assessment Rate": for any day, the annual assessment
rate in effect on such day which is payable by a member of the Bank
Insurance Fund maintained by the Federal Deposit Insurance Corporation
(the "FDIC") classified as well-capitalized and within supervisory
subgroup "B" (or a comparable successor assessment risk
classification) within the meaning of 12 C.F.R. Section 327.4 (or any
successor provision) to the FDIC (or any successor) for the FDIC's (or
such successor's) insuring time deposits at offices of such
institution in the United States.
"C/D Reserve Percentage": for any day, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed
by the Board of Governors of the Federal Reserve System (or any
successor) (the "Board"), for determining the maximum reserve
requirement for a Depositary Institution (as defined in Regulation D
<PAGE> 9
5
of the Board) in respect of new non-personal time deposits in Dollars
having a maturity of 30 days or more.
"Change of Control": the occurrence of any of the following:
(a) the acquisition by any Person or two or more
Persons acting in concert (other than the management of
DeepTech as of the Closing Date) of beneficial ownership
(within the meaning of Rule 13d- 3, promulgated by the
Securities and Exchange Commission and now in effect under the
Securities Exchange Act of 1934, as amended) of 50% or more of
the issued and outstanding shares of voting stock of DeepTech;
or
(b) any member of the Tatham Group shall sell or
otherwise dispose of any shares of common stock of DeepTech
if, after giving effect thereto, the Tatham Group shall
legally and beneficially own less than 25% of the common stock
of DeepTech; or
(c) DeepTech shall cease to legally and beneficially
own, whether directly or indirectly, at least 50% of the
Capital Stock of the Borrower, free and clear of Liens; or
(d) DeepTech shall cease to have the power to
control the management of the Borrower.
"Charters": the collective reference to (i) the Charter with
respect to the Pincay made October 13, 1995 between the Charterer and
the Borrower, a true and correct copy of which is attached hereto as
Exhibit N as the same may be amended, modified or supplemented from
time to time in accordance with the terms hereof, (ii) the Charter
with respect to the Shoemaker made September 13, 1996, between the
Charterer and the Borrower, a true and correct copy of which is
attached hereto as Exhibit M as the same may be amended, supplemented
or otherwise modified from time to time in accordance with the terms
hereof.
"Charterer": the Sedco Forex Division of Schlumberger
Technology Corporation.
"Citibank Creditors": the obligees in respect of the
Citibank Obligations.
"Citibank Obligations": the obligations secured by the
mortgage and related deed of covenants in favor of Citicorp USA, Inc.
as collateral agent covering the Pincay.
"Closing Date": the date, on or before September 30, 1996, on
which the conditions precedent set forth in subsection 4.1 shall be
satisfied and the Loans shall be made.
<PAGE> 10
6
"Code": the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral": all assets of the Loan Parties, now owned or
hereinafter acquired, upon which a Lien is purported to be created by
any Security Document.
"Collateral and Documentation Agent": Lehman Commercial Paper
Inc., in its capacity as collateral and documentation agent.
"Commitment": as to any Lender, the obligation of such Lender
to make a Loan to the Borrower hereunder in a principal amount not to
exceed the amount set forth opposite such Lender's name on Schedule I,
as such amount may be reduced from time to time in accordance with the
provisions of this Agreement.
"Commitment Percentage": as to any Lender at any time, the
percentage which such Lender's Commitment then constitutes of the
aggregate amount of the Commitments.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Borrower within
the meaning of Section 4001 of ERISA or is part of a group which
includes the Borrower and which is treated as a single employer under
Section 414 of the Code.
"Consent and Agreement": as defined in the Borrower Security
Agreement.
"Construction Fund Collateral Account: as defined in
subsection 2.2(b).
"Contractual Obligation": as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or
other undertaking to which such Person is a party or by which it or
any of its property is bound.
"Current Assets": at the date of determination, all assets
which, in accordance with GAAP, would be classified on a consolidated
balance sheet of the Borrower as current assets plus any Mobilization
Fees to be paid to the Borrower which, in accordance with the GAAP,
would not be classified on a consolidated balance sheet of the
Borrower as current assets.
"Current Liabilities": at the date of determination, all
liabilities which, in accordance with GAAP, would be classified on a
consolidated balance sheet of the Borrower as current liabilities,
other than the current portion of Indebtedness permitted hereunder.
"Deed of Covenants": each deed of covenants dated as of the
date of the related Ship Mortgage between the Borrower and the
Collateral and Documentation Agent.
"DeepTech": DeepTech International Inc., a Delaware
corporation.
<PAGE> 11
7
"Default": any of the events specified in Section 7, whether
or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Dollars" and "$": dollars in lawful currency of the United
States of America.
"Drilling Contracts": the collective reference to contracts
between the Charterer and Persons, which may be Affiliates of the
Borrower, for utilization of the Rigs.
"DPSI": DeepFlex Production Services, Inc., a Delaware
corporation.
"EBITDA": for any period, the sum of, without duplication,
(i) Net Income for such period, (ii) Interest Expense for such period,
(iii) the amount of taxes, depreciation and amortization deducted from
earnings in determining such Net Income and (iv) to the extent all or
any portion is not included in clauses (i) through (iii) above,
Mobilization Fees received by the Borrower during such period.
"Environmental Laws": any and all foreign, Federal, state,
local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, requirements of any Governmental Authority
or other Requirements of Law (including common law) regulating,
relating to or imposing liability or standards of conduct concerning
protection of human health or the environment, as now or may at any
time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Event of Default": any of the events specified in Section 7,
provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"Excess Cash Flow": for any period, Net Income for such
period, plus the sum of (i) depreciation expense and amortization
expense deducted from earnings in determining such Net Income, (ii)
the net increase during such period (if any) in deferred tax accounts
of the Borrower and its Restricted Subsidiaries, (iii) interest
expense attributable to interest accrued on the PIK Notes during such
period (other than PIK Notes issued pursuant to clause (ii) of the
definition of Permitted Issuance in this subsection 1.1) and (iv) to
the extent any portion or all is not included in the computation of
such Net Income, the amount of any Mobilization Fees received by the
Borrower during such period, and minus the sum of (i) the net decrease
during such period (if any) in deferred tax accounts of the Borrower
and its Restricted Subsidiaries, (ii) scheduled principal payments on
Indebtedness of the Borrower and its Restricted Subsidiaries during
such period, (iii) mandatory prepayments made during such period
pursuant to subsection 2.5(c), (iv) to the extent the amount of the
<PAGE> 12
8
Net Proceeds of any Asset Sale constitutes Net Income, mandatory
prepayments during such period with such Net Proceeds pursuant to
subsection 2.5(b), in each case, determined on a consolidated basis in
accordance with GAAP, (v) payments pursuant to the LLC Agreement
contemplated by subsection 4.1(c), (vi) Mobilization Fees received by
the Borrower during such period and utilized by the Borrower for
capital expenditures actually paid in cash during such period permitted
pursuant to subsection 6.8, (vii) the amount of capital expenditures
actually paid in cash during such period which constitute amounts
specified in clause (iii) of subsection 6.8 and (viii) any interest
expense capitalized for GAAP purposes that was actually paid in cash
during such period.
"Financing Lease": any lease of property, real or personal,
the obligations of the lessee in respect of which are required in
accordance with GAAP to be capitalized on a balance sheet of the
lessee.
"Foreign Subsidiary": any Subsidiary of the Borrower
organized under the laws of any jurisdiction outside the United States
of America.
"FPS III": FPS III, Inc., a Delaware corporation and
wholly-owned Subsidiary of DPSI.
"FPS V": FPS V, Inc., a Delaware corporation and wholly-
owned Subsidiary of DPSI.
"Funds Transfer Date": the later to occur of (i) the Amoco
Drilling Contract Date and (ii) the earlier to occur of (x) the Second
Closing Date and (y) November 30, 1996.
"GAAP": generally accepted accounting principles in the
United States of America in effect from time to time, except that the
Rigs shall be recorded on the balance sheet of the Borrower at their
fair market value on the Closing Date and except that in connection
with any calculation of any amount referenced, directly or indirectly,
in subsection 6.1, "GAAP" shall mean generally accepted accounting
principles in the United States of America on the date hereof.
"Governmental Authority": any nation or government, any state
or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another
Person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has
issued a reimbursement, counterindemnity or similar obligation, in
either case guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends or other obligations (the "primary obligations") of
any other third Person (the "primary obligor") in any manner, whether
directly or indirectly,
<PAGE> 13
9
including, without limitation, any obligation of the guaranteeing
person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security
therefor, (ii) to advance or supply funds (1) for the purchase or
payment of any such primary obligation or (2) to maintain working
capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation or (iv)
otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that
the term Guarantee Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (a) an amount equal to the
stated or determinable amount of the primary obligation in respect of
which such Guarantee Obligation is made and (b) the maximum amount for
which such guaranteeing person may be liable pursuant to the terms of
the instrument embodying such Guarantee Obligation, unless such
primary obligation and the maximum amount for which such guaranteeing
person may be liable are not stated or determinable, in which case the
amount of such Guarantee Obligation shall be such guaranteeing
person's maximum reasonably anticipated liability in respect thereof
as determined by the Borrower in good faith.
"Highwood Creditors": the obligees in respect of the Highwood
Obligations.
"Highwood Obligations": the obligations secured by (i) the
mortgage and related deed of covenants in favor of Highwood Partners,
L.P. covering the Shoemaker and (ii) the mortgage and related deed of
covenants in favor of FPS III covering the Shoemaker.
"Indebtedness": of any Person at any date, (a) all
indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services (other than current trade
liabilities incurred in the ordinary course of business and payable in
accordance with customary practices), (b) any other indebtedness of
such Person which is evidenced by a note, bond, debenture or similar
instrument, (c) all obligations of such Person under Financing Leases,
(d) all obligations of such Person in respect of acceptances issued or
created for the account of such Person and (e) all liabilities secured
by any Lien on any property owned by such Person even though such
Person has not assumed or otherwise become liable for the payment
thereof.
"Insolvency": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section
4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
<PAGE> 14
10
"Interest Expense": for any period, the amount of interest
expense, both expensed and capitalized, of the Borrower and its
Restricted Subsidiaries, in each case determined on a consolidated
basis in accordance with GAAP for such period.
"Interest Payment Date": the last day of each December,
March, June and September.
"Lien": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or
other security interest or any preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title
retention agreement and any Financing Lease having substantially the
same economic effect as any of the foregoing).
"Loan": as defined in subsection 2.1.
"Loan Documents": this Agreement, the Notes, the Security
Documents, the Subordination Agreement, the Warrant Agreement and any
Warrants issued pursuant to the Warrant Agreement.
"Loan Parties": the Borrower, the Pledgors, and any
Subordinated Creditor party to the Subordination Agreement.
"Management Agreement": the Management Agreement, dated
September 30, 1996, by and between DPSI and the Borrower, a true and
correct copy of which is attached hereto as Exhibit O, as the same may
be amended, supplemented or otherwise modified from time to time in
accordance with the terms hereof.
"Material Adverse Effect": a material adverse effect on (a)
the business, assets, property, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries taken as a whole or (b)
the validity or enforceability of this or any of the other Loan
Documents or the rights or remedies of any Agent or the Lenders
hereunder or thereunder.
"Materials of Environmental Concern": any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products or any hazardous or toxic substances, materials or wastes,
defined or regulated as such in or under any Environmental Law,
including, without limitation, asbestos, polychlorinated biphenyls and
urea-formaldehyde insulation.
"Mobilization Fees": mobilization and bonus fees paid or to
be paid to the Borrower pursuant to a definitive written contract for
the relocation of the Rigs less (i) the portion of such fees which
constitute reimbursed expenses of such relocation and (ii) any
unreimbursed expenses of such relocation.
<PAGE> 15
11
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Income": for any period, net income of the Borrower and
its Restricted Subsidiaries, determined on a consolidated basis in
accordance with GAAP.
"Net Proceeds": the aggregate cash proceeds received by the
Borrower or any of its Restricted Subsidiaries in respect of:
(a) any issuance by the Borrower or any of its
Subsidiaries of Capital Stock after the Closing Date;
(b) any Asset Sale;
(c) any cash payments received in respect of
promissory notes delivered to the Borrower or such Subsidiary
in respect of an Asset Sale;
in each case net of (without duplication) (A), in the case of an Asset
Sale, the amount required to repay any Indebtedness (other than the
Loans) secured by a Lien on any assets of the Borrower or a Subsidiary
of the Borrower that are sold or otherwise disposed of in connection
with such Asset Sale, (B) the reasonable expenses (including legal
fees and brokers' and underwriters' commissions, lenders fees or
credit enhancement fees, in any case, paid to third parties or, to the
extent permitted hereby, Affiliates) incurred in effecting such
issuance or sale and (C) any taxes reasonably attributable to such
sale and reasonably estimated by the Borrower or such Subsidiary to be
actually payable.
"Net Worth": as of the date of determination, all items which
in conformity with GAAP would be included under shareholders' equity
on a consolidated balance sheet of the Borrower and its Restricted
Subsidiaries at such date.
"Non-Excluded Taxes": as defined in subsection 2.10.
"Non-U.S. Lender": as defined in subsection 2.9(b).
"Note": as defined in subsection 2.3, which term shall, where
the context permits, include any Qualified Non-U.S. Lender Note.
"Obligations: as defined in the Borrower Security Agreement.
"Parent Pledge Agreement": the Pledge Agreement to be
executed and delivered by the Pledgors, substantially in the form of
Exhibit C, as the same may be amended, supplemented or otherwise
modified from time to time.
"Participant": as defined in subsection 9.6(b).
<PAGE> 16
12
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Permitted Issuance": (i) the issuance of Capital Stock
and/or the incurrence of Indebtedness evidenced by PIK Notes issued by
the Borrower for cash at par, the aggregate proceeds of which during
the term of this Agreement do not exceed $5,000,000 and the net
proceeds of which are used by the Borrower to make capital
improvements to the Rigs pursuant to subsection 6.8, (ii) the issuance
of Capital Stock and/or the incurrence of Indebtedness evidenced by
PIK Notes issued by the Borrower for cash at par the aggregate
proceeds of which during the term of this Agreement do not exceed
$1,000,000 and the net proceeds of which are used by the Borrower
solely for purposes of capitalizing one or more Unrestricted
Subsidiaries, and (iii) the issuance of Capital Stock and/or the
incurrence of Indebtedness by any Unrestricted Subsidiary the net
proceeds of which are used by the Unrestricted Subsidiary for any
purpose permitted by subsection 6.15.
"Person": an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or
other entity of whatever nature.
"PIK Notes": subordinated payment-in-kind notes of the
Borrower issued to DPSI or any other Affiliate of Deeptech, with a
maturity date no earlier than September 1, 2003 and interest prior to
maturity payable only in PIK Notes, each in the form of Exhibit K with
the blanks appropriately filled, as the same may be amended,
supplemented or otherwise modified from time to time in accordance
with this Agreement.
"Pincay": the FPS Laffit Pincay currently registered under
the laws of the Bahamas, including, without limitation, all boilers,
engines, machinery, masts, spars, rigging, boats, covers, anchors,
chains, tackle, apparel, furniture, fittings and equipment, drilling
equipment, production equipment, processing facilities (including,
without limitation, separators, dehydration equipment, heaters and gas
compressors), components including, without limitation, pumps, drill
pipes, collars, racking, housing, blowout preventers, spare parts and
supporting inventory and vehicles (whether on board or not on board),
living quarters and all other appurtenances thereto appertaining or
belonging, whether now owned or hereafter acquired, whether on board
or not, and all additions, improvements and replacements hereafter
made in or to the Pincay, and all proceeds and products of the
foregoing, as more particularly described in the relevant Ship
Mortgage; excluding such items as may be removed from the FPS Laffit
Pincay in accordance with this Agreement and the relevant Ship
Mortgage after such time as those items shall be removed.
<PAGE> 17
13
"Plan": at a particular time, any employee benefit plan which
is covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"Pledgors": the collective reference to FPS III and FPS V and
any other owner of interests in the Borrower which shall become a
pledgor party to the Parent Pledge Agreement after the Closing Date in
the manner contemplated therein.
"Properties": as defined in subsection 3.17.
"Qualified Non-U.S. Lender Note": as defined in subsection
9.6(d).
"Qualified Non-U.S. Lender Noteholder": as defined in
subsection 9.6(e).
"Register": as defined in subsection 9.6(f).
"Regulation U": Regulation U of the Board of Governors of the
Federal Reserve System as in effect from time to time.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty day
notice period is waived under subsections .13, .14, .16, .18, .19 or
.20 of PBGC Reg. Section 2615.
"Required Lenders": (a) at any time prior to the Closing
Date, Lenders the Commitment Percentages of which aggregate more than
66-2/3%; and (b) at any time from and after the Closing Date, Lenders
holding more than 66-2/3% of the aggregate outstanding principal
amount of the Loans.
"Requirement of Law": as to any Person, the Certificate of
Incorporation, By-Laws, articles of organization, operating agreement
or other organizational or governing documents of such Person, and any
law, treaty, rule or regulation or determination of an arbitrator or a
court or other Governmental Authority, in each case applicable to or
binding upon such Person or any of its property or to which such
Person or any of its property is subject.
"Restricted Subsidiary": any Subsidiary other than an
Unrestricted Subsidiary.
"Rigs": as defined in the recitals hereto.
"Second Closing Date": the date on which (i) this Agreement
and the other Loan Documents shall have been amended to appoint a new
administrative agent and collateral and documentation agent and to
reflect certain other amendments made at
<PAGE> 18
14
the request of the Arranger and certain financial institutions to
become Lenders hereunder and under the other Loan Documents, (ii) all
filings, registrations and other actions, including, without
limitation, the filing of duly executed UCC financing statements and
registrations in the Bahamas (with an accompanying opinion of Bahamian
counsel) or other relevant foreign jurisdictions, necessary or, in the
opinion of the Arranger, desirable to effectuate the appointment of a
new collateral and documentation agent and continue the perfection of
the Liens created by the Security Documents and the Ship Mortgages
shall have been completed and (iii) various financial institutions
satisfactory to the Arranger shall have become Lenders hereunder and
under the other Loan Documents, all in form and substance satisfactory
to the Arranger.
"Security Documents": the collective reference to the Ship
Mortgages, the Borrower Security Agreement, the Parent Pledge
Agreement and all other security documents hereafter delivered to the
Collateral and Documentation Agent granting a Lien on any asset or
assets of any Person to secure the obligations and liabilities of the
Borrower hereunder and under any of the other Loan Documents or to
secure any guarantee of any such obligations and liabilities.
"Ship Mortgages": the collective reference to (i) the Ship
Mortgage and related Deed of Covenants to be executed and delivered by
the Borrower in favor of the Collateral and Documentation Agent,
substantially in the form of Exhibit J-1, as the same may be modified
from time to time, in which a mortgage is granted on the Pincay to
secure the payment of the Obligations and (ii) the Ship Mortgage and
related Deed of Covenants to be executed and delivered by the Borrower
in favor of the Collateral and Documentation Agent, substantially in
the form of Exhibit J-2, as the same may be modified from time to
time, in which a mortgage is granted on the Shoemaker to secure the
payment of the Obligations.
"Shoemaker": the FPS Bill Shoemaker currently registered
under the laws of the Bahamas including, without limitation, all
boilers, engines, machinery, masts, spars, rigging, boats, covers,
anchors, chains, tackle, apparel, furniture, fittings and equipment,
drilling equipment, production equipment, processing facilities
(including, without limitation, separators, dehydration equipment,
heaters and gas compressors), components including, without
limitation, pumps, drill pipes, collars, racking, housing, blowout
preventers, spare parts and supporting inventory and vehicles (whether
on board or not on board), living quarters and all other appurtenances
thereto appertaining or belonging, whether now owned or hereafter
acquired, whether on board or not, and all additions, improvements and
replacements hereafter made in or to the Shoemaker, and all proceeds
and products of the foregoing, as more particularly described in the
relevant Ship Mortgage; excluding such items as may be removed from
the FPS Bill Shoemaker in accordance with this Agreement and the
relevant Ship Mortgage after such time as those items shall be
removed.
"Shoemaker Upgrade Agreement": the Drilling Make-Ready
Agreement dated June 1, 1996 between the Borrower and Schlumberger
Technology Corporation
<PAGE> 19
15
relating to the upgrade and make-ready of the Shoemaker, a true and
correct copy of which is attached hereto as Exhibit L, as the same may
be amended, supplemented or otherwise modified in accordance with the
terms hereof.
"Single Employer Plan": any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.
"Subordination Agreement": the Subordination Agreement, dated
as of September 30, 1996, by and among DPSI as the Subordinated
Creditor (as defined therein), the Borrower and the Collateral and
Documentation Agent, substantially in the form of Exhibit G.
"Subsidiary": as to any Person, a corporation, partnership or
other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the
time owned, or the management of which is otherwise controlled,
directly or indirectly through one or more intermediaries, or both, by
such Person. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Borrower.
"Tatham": Thomas P. Tatham.
"Tatham Group": Tatham, his spouse, their children and trusts
controlled by any of the foregoing the sole beneficiaries of which are
any of the foregoing.
"Trade Expenses": payables due any Person in respect of any
repairs, supplies, towage, use of dry dock or marine railway or other
"necessaries" as defined in 46 USC Section 31301 in respect of the
Pincay or the Shoemaker.
"Transferee": as defined in subsection 9.6(h).
"Unrestricted Subsidiary": any Subsidiary of the Borrower and
any other corporation, partnership or other entity (a) with respect to
which the Borrower owns, or has the ability to vote, whether directly
or indirectly through one or more intermediaries, or both, more than
fifty percent (50%) of the shares of stock or other ownership
interests having ordinary voting power (other than stock or such other
ownership interests having such power only by reason of the happening
of a contingency) to elect the directors or other managers of such
corporation, partnership or other entity and (b) which is initially
capitalized through proceeds of securities issued pursuant to clause
(ii) or (iii) of the definition of Permitted Issuance in subsection
1.1 and sources of capital, if any, other than the Loans.
<PAGE> 20
16
"U.S. Taxes": any tax, assessment, or other charge or levy
and any liabilities with respect thereto, including any penalties,
additions to tax, fines or interest thereon, imposed by or on behalf
of the United States or any taxing authority thereof.
"Warrant Agreement": the Warrant Agreement to be executed and
delivered by the Borrower to the Arranger (or one of its Affiliates)
on the Closing Date, in the form agreed by the Borrower and the
Arranger.
"Warrants": the warrants to purchase interests in the
Borrower issued pursuant to the Warrant Agreement.
"Working Capital": at any date, Current Assets minus Current
Liabilities, in each case at such date.
1.2 Other Definitional Provisions. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in any Notes or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein and in any Notes, and any certificate or
other document made or delivered pursuant hereto, accounting terms relating to
the Borrower and its Subsidiaries not defined in subsection 1.1 and accounting
terms partly defined in subsection 1.1, to the extent not defined, shall have
the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
subsection, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
(e) The Borrower has no Subsidiaries on the date of this
Agreement; accordingly, references in the Loan Documents to the Borrower and
its Subsidiaries shall be deemed to be references to the Borrower alone for so
long as the Borrower has no Subsidiaries.
SECTION 2. AMOUNT AND TERMS OF LOANS
2.1 Loans. Subject to the terms and conditions hereof, each
Lender severally agrees to make a term loan (a "Loan") to the Borrower on the
Closing Date in an amount not to exceed the amount of the Commitment of such
Lender then in effect.
2.2 Procedure for Loan Borrowing; Construction Fund
Collateral Account. (a) The Borrower shall give the Administrative Agent
irrevocable notice (which notice must
<PAGE> 21
17
be received by the Administrative Agent prior to 10:00 A.M., New York City
time, one Business Day prior to the Closing Date) requesting that the Lenders
make the Loans on the Closing Date and specifying the amount to be borrowed.
Upon receipt of such notice the Administrative Agent shall promptly notify each
Lender thereof. No later than 11:00 A.M., New York City time, on the Closing
Date, each Lender shall make available to the Administrative Agent at its
office specified in subsection 9.2 the full amount of its Loan. The
Administrative Agent shall, upon receipt of such sums, (i) credit the
Construction Fund Collateral Account with $24,294,782.64 and the Restricted
Funds Collateral Subaccount (as defined below) with $7,961,027.74 of the
proceeds of the Loans, (ii) disburse $16,062,430.08 to the Highwood Creditors
in payment of the Highwood Obligations (such amount being the net amount due
the Highwood Creditors after giving effect to the exercise by the Highwood
Creditors of certain warrants of DeepTech), (iii) disburse $12,116,000 to the
Citibank Creditors in payment of the Citibank Obligations, (iv) disburse
$1,618,286.92 to DeepTech in accordance with the summary of funds transfer
presented to the Administrative Agent and (v) credit the account of the
Borrower on the books of such office of the Administrative Agent with the
remainder of the amounts made available to the Administrative Agent by the
Lenders, in each case in like funds as received by the Administrative Agent.
(b) Prior to the Closing Date the Collateral and
Documentation Agent shall establish a cash collateral account (the
"Construction Fund Collateral Account") over which the Collateral and
Documentation Agent shall have sole dominion and control and from which the
Borrower shall have no right of withdrawal and shall also establish a
subaccount (the "Restricted Funds Collateral Subaccount") of the Construction
Fund Collateral Account. As provided in paragraph (a) above, on the Closing
Date $24,294,782.64 of the proceeds of the Loans will be deposited in the
Construction Fund Collateral Account and $7,961,027.74 of the proceeds of the
Loans will be deposited in the Restricted Funds Collateral Subaccount. Upon
presentation to the Collateral and Documentation Agent of (i) a copy of notices
issued in good faith by the Charterer to the Borrower to the effect that it is
undertaking commitments to obtain goods and services (and providing reasonable
detail of such goods and services) in accordance with the Shoemaker Upgrade
Agreement and (ii) the Borrower's written request to the Collateral and
Documentation Agent to release funds from the Construction Fund Collateral
Account (but, prior to the Second Closing Date, not from the Restricted Funds
Collateral Subaccount) in the amount specified in such notices and so long as
no Default or Event of Default shall have occurred and be continuing, the
Collateral and Documentation Agent will release such funds and transfer the
same as directed by the Charterer for safekeeping, pending payment of invoices
for such goods and services; provided, however, that (i) if the Amoco Drilling
Contract Date has not occurred by November 30, 1996, then all sums then on
deposit in the Restricted Funds Collateral Subaccount shall be applied to the
mandatory prepayment of the Loans for application in accordance with the
provisions of subsection 2.5(d), (ii) if the Amoco Drilling Contract Date has
occurred by November 30, 1996, then on the Funds Transfer Date, (x) so much of
the sums then on deposit in the Restricted Funds Collateral Subaccount as may,
in the view of the Borrower and the Charterer, be necessary to collateralize
and fund the remaining make ready of the Shoemaker (after giving effect to any
such make ready which is to be reimbursed by the customer under the applicable
Drilling Contract) in accordance with the Shoemaker Upgrade Agreement as then
in effect shall be transferred from the Restricted
<PAGE> 22
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Funds Collateral Subaccount to the general portion of the Construction Fund
Collateral Account and made available in accordance with this subsection
2.2(b), (y) the first $2,500,000 (or such lesser amount as may then be on
deposit in the Restricted Funds Collateral Subaccount) of the sum then on
deposit in the Restricted Funds Collateral Subaccount shall be released to the
Borrower and may be used by the Borrower to finance capital expenditures in
respect of any of the Rigs, without regard to any limit set forth in section
6.8 of this Agreement and (z) the remainder of the funds in the Restricted
Funds Collateral Subaccount shall remain in such account until such time as the
upgrade contemplated by the Shoemaker Upgrade Agreement shall have been
completed and thereafter released to the Borrower in the same manner
contemplated by clause (y) above; provided that if pursuant to the procedure
described in clause (x) above additional funds shall be required to complete
the make ready of the Shoemaker, such funds shall be transferred to the general
portion of the Construction Fund Collateral Account out of the Restricted Funds
Collateral Subaccount.
2.3 Note. The Loan made by each Lender shall be evidenced by
a promissory note of the Borrower, substantially in the form of Exhibit A (the
"Note"), with appropriate insertions therein as to payee, date and principal
amount, payable to the order of such Lender and in a principal amount equal to
the Loan of such Lender. Each Lender is hereby authorized to record the date
and amount of each payment or prepayment of principal of its Loan on the
schedule annexed to and constituting a part of its Note, and any such
recordation shall constitute prima facie evidence of the accuracy of the
information so recorded. The Note shall (a) be dated the Closing Date, (b) be
stated to mature in 8 consecutive quarterly installments, payable on the last
day of each December, March, June and September, commencing December 31, 1996,
the first seven installments of which shall each be in an aggregate amount for
all the Lenders of $250,000 and the eighth installment of which shall be in an
aggregate amount for all the Lenders of $63,250,000 and (c) provide for the
payment of interest in accordance with subsection 2.6.
2.4 Optional Prepayments. The Borrower may at any time and
from time to time prepay the Loans, in whole or in part, without premium or
penalty, upon at least four Business Days' irrevocable notice to the
Administrative Agent, specifying the date and amount of prepayment. Upon
receipt of any such notice the Administrative Agent shall promptly notify each
Lender thereof. If any such notice is given, the amount specified in such
notice shall be due and payable on the date specified therein, together with
accrued interest to such date on the amount prepaid. Subject to subsection
2.5(d), partial prepayments of the Loans shall be applied to the installments
of principal thereof in the inverse order of their scheduled maturities.
Amounts prepaid on account of the Loans may not be reborrowed. Partial
prepayments shall be in an aggregate principal amount of $1,000,000 or a whole
multiple thereof.
2.5 Mandatory Prepayments. (a) If, subsequent to the
Closing Date, the Borrower or any of its Subsidiaries shall issue and sell any
Capital Stock or incur any Indebtedness other than pursuant to a Permitted
Issuance, 100% of the Net Proceeds thereof shall be applied on each date of
receipt of such proceeds toward the prepayment of the Loans as set forth in
subsection 2.5(d).
<PAGE> 23
19
(b) If, subsequent to the Closing Date, the Borrower or any
of its Restricted Subsidiaries shall receive Net Proceeds from any Asset Sale,
including, without limitation, insurance and condemnation proceeds, 100% of
such Net Proceeds shall be applied on each date of receipt of such proceeds
toward the prepayment of the Loans as set forth in subsection 2.5(d).
(c) If for any fiscal quarter, commencing with the fiscal
quarter following the fiscal quarter in which the Closing Date occurs, there
shall be Excess Cash Flow for such fiscal quarter, 100% of such Excess Cash
Flow shall be applied toward prepayment of the Loans as set forth in subsection
2.5(d). Each such prepayment shall be made on or before the forty-fifth day
following the last day of such fiscal quarter.
(d) Subject to the third succeeding sentence, prepayments
made pursuant to this subsection 2.5 shall be applied by the Borrower to the
prepayment of the Loans pro rata according to the outstanding principal amounts
thereof held by the respective Lenders. Prepayments of the Loans pursuant to
this subsection 2.5 shall be applied to the remaining installments of each Loan
in the inverse order of their scheduled maturities. Amounts prepaid on account
of the Loans may not be reborrowed. With respect to any prepayment pursuant to
subsection 2.4 or this subsection 2.5 (other than a prepayment in full of the
Loans), at any time prior to the date of such prepayment, any holder of Loans
may notify the Borrower and the Administrative Agent that such holder of Loans
elects not to have such prepayment applied to such Loans pursuant to this
subsection 2.5(d). Any such notice given by any such holder of Loans shall
become effective on the date three Business Days after the date received by the
Borrower and the Administrative Agent and shall remain in effect until the date
three Business Days after the date on which the Borrower and the Administrative
Agent receive a notice of revocation from such holder; provided, however, in
the case of a mandatory prepayment pursuant to this subsection 2.5, a holder of
Loans which elects not to have such prepayment applied to such Loans may notify
the Borrower and the Administrative Agent of such election and in such event
shall immediately return any moneys it has received on account of such
mandatory prepayment to the Administrative Agent, which moneys (and any moneys
which such holder would be entitled to but had not yet received on account of
such mandatory prepayment had it not made such an election) shall be applied in
accordance with the immediately succeeding sentence. If any such holder of a
Loan shall have so elected not to have prepayments applied to such Loan, the
amount of such prepayment which would have been applied to such Loan shall be
instead applied to the Loans held by any holder which has not made an election
pursuant to this subsection 2.5(d), pro rata in accordance with the principal
amounts held by such holders.
(e) The Borrower shall give the Administrative Agent (which
shall promptly notify each Lender) at least one Business Day's notice of each
prepayment pursuant to this subsection 2.5 setting forth the date and amount
thereof.
2.6 Interest Rates and Payment Dates. (a) Each Loan shall
bear interest at a rate per annum equal to the Base Rate plus 3% per annum.
<PAGE> 24
20
(b) If all or a portion of (i) any principal of any Loan,
(ii) any interest payable thereon, (iii) any other amount payable hereunder or
in connection herewith shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), the principal of the Loans and any
such overdue interest or other amount shall bear interest at a rate per annum
which is the rate described in paragraph (a) of this subsection plus 2%, in
each case from the date of such non-payment until such overdue principal,
interest, commitment fee or other amount is paid in full (as well after as
before judgment).
(c) Interest shall be payable in arrears on each Interest
Payment Date, provided that interest accruing pursuant to paragraph (b) of this
subsection shall be payable from time to time on demand.
2.7 Computation of Interest. (a) Whenever it is calculated
on the basis of the Prime Rate, interest shall be calculated on the basis of a
365- (or 366-, as the case may be) day year for the actual days elapsed; and,
otherwise, interest shall be calculated on the basis of a 360-day year for the
actual days elapsed. Any change in the interest rate on a Loan resulting from
a change in the Base Rate, the C/D Assessment Rate or the C/D Reserve
Percentage shall become effective as of the opening of business on the day on
which such change becomes effective. The Administrative Agent shall as soon as
practicable notify the Borrower and the Lenders of the effective date and the
amount of each such change in interest rate.
(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower and the Lenders in the absence of
manifest error.
2.8 Pro Rata Treatment and Payments. (a) Except as provided
in subsection 2.5(d), each payment (including each prepayment) by the Borrower
on account of principal of and interest on the Loans shall be made pro rata
according to the respective outstanding principal amounts of the Loans then
held by the Lenders. All payments (including prepayments) to be made by the
Borrower hereunder, whether on account of principal, interest, fees or
otherwise, shall be made without set off or counterclaim and shall be made
prior to 12:00 Noon, New York City time, on the due date thereof to the
Administrative Agent, for the account of the Lenders, at the Administrative
Agent's office specified in subsection 9.2, in Dollars and in immediately
available funds. The Administrative Agent shall distribute such payments to
the Lenders promptly upon receipt in like funds as received. If any payment
hereunder becomes due and payable on a day other than a Business Day, such
payment shall be extended to the next succeeding Business Day, and, with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.
(b) Unless the Administrative Agent shall have been notified
in writing by any Lender prior to the Closing Date that such Lender will not
make the amount that would constitute its Commitment Percentage of the Loans
available to the Administrative Agent, the Administrative Agent may assume that
such Lender is making such amount available to the Administrative Agent, and
the Administrative Agent may, in reliance upon such assumption,
<PAGE> 25
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make available to the Borrower a corresponding amount. If such amount is not
made available to the Administrative Agent by the required time on the Closing
Date therefor, such Lender shall pay to the Administrative Agent, on demand,
such amount with interest thereon at a rate equal to the daily average Federal
Funds Effective Rate for the period until such Lender makes such amount
immediately available to the Administrative Agent. A certificate of the
Administrative Agent submitted to any Lender with respect to any amounts owing
under this subsection shall be conclusive in the absence of manifest error. If
such Lender's Commitment Percentage of the borrowing is not made available to
the Administrative Agent by such Lender within three Business Days of the
Closing Date, the Administrative Agent shall also be entitled to recover such
amount with interest thereon at the rate per annum applicable to Loans
hereunder, on demand, from the Borrower.
2.9 Taxes. (a) All payments made by the Borrower under this
Agreement and any Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any Governmental Authority, excluding net income taxes and franchise taxes
(imposed in lieu of net income taxes) imposed on any Agent or any Lender as a
result of a present or former connection between any Agent or such Lender and
the jurisdiction of the Governmental Authority imposing such tax or any
political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from such Agent or such Lender having executed,
delivered or performed its obligations or received a payment under, or
enforced, this Agreement or any Note). If any such non-excluded taxes, levies,
imposts, duties, charges, fees deductions or withholdings ("Non-Excluded
Taxes") are required to be withheld from any amounts payable to any Agent or
any Lender hereunder or under any Note, the amounts so payable to such Agent or
such Lender shall be increased to the extent necessary to yield to such Agent
or such Lender (after payment of all Non-Excluded Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts specified in
this Agreement, provided, however, that the Borrower shall not be required to
increase any such amounts payable to any Lender that is not organized under the
laws of the United States of America or a state thereof if such Lender fails to
comply with the requirements of paragraph (b) of this subsection. Whenever any
Non-Excluded Taxes are payable by the Borrower, as promptly as possible
thereafter the Borrower shall send to the relevant Agent for its own account or
for the account of such Lender, as the case may be, a certified copy of an
original official receipt received by the Borrower showing payment thereof. If
the Borrower fails to pay any Non-Excluded Taxes when due to the appropriate
taxing authority or fails to remit to the relevant Agent the required receipts
or other required documentary evidence, the Borrower shall indemnify the Agents
and the Lenders for any incremental taxes, interest or penalties that may
become payable by any Agent or any Lender as a result of any such failure. The
agreements in this subsection shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder.
(b) Each Lender, Assignee and Participant that is not a
citizen or resident of the United States of America, a corporation, partnership
or other entity created or organized in or under the laws of the United States
of America, or any estate or trust that is subject to
<PAGE> 26
22
U.S. federal income taxation regardless of the source of its income (a
"Non-U.S. Lender") shall deliver to the Borrower and the Administrative Agent,
and if applicable, the assigning Lender (or, in the case of a Participant, to
the Lender from which the related participation shall have been purchased) on
or before the date on which it becomes a party to this Agreement (or, in the
case of a Participant, on or before the date on which such Participant
purchases the related participation) either:
(A) (x) two duly completed and signed copies of either
Internal Revenue Service Form 1001 (relating to such Non-U.S. Lender
and entitling it to a complete exemption from withholding of U.S.
Taxes on all amounts to be received by such Non-U.S. Lender pursuant
to this Agreement and the other Loan Documents) or Form 4224 (relating
to all amounts to be received by such Non-U.S. Lender pursuant to this
Agreement and the other Loan Documents), or successor and related
applicable forms, as the case may be, and (y) two duly completed and
signed copies of Internal Revenue Service Form W-8 or W-9, or
successor and related applicable forms, as the case may be; or
(B) in the case of a Non-U.S. Lender that is not a "bank"
within the meaning of Section 881(c)(3)(A) of the Code and that does
not comply with the requirements of clause (A) hereof, (x) a statement
in the form of Exhibit H (or such other form of statement as shall be
reasonably requested by the Borrower from time to time) to the effect
that such Non-U.S. Lender is eligible for a complete exemption from
withholding of U.S. Taxes under Code Section 871(h) or 881(c), and (y)
two duly completed and signed copies of Internal Revenue Service Form
W-8 or successor and related applicable form (it being understood and
agreed that no Participant and, without the prior written consent of
the Borrower described in clause (B) of the proviso to the first
sentence of subsection 9.6(c), no Assignee shall be entitled to
deliver any forms or statements pursuant to this clause (B), but
rather shall be required to deliver forms pursuant to clause (A) of
this subsection 2.9(b)).
Each Non-U.S. Lender that delivers a statement in the form of Exhibit H (or
such other form of statement as shall have been requested by the Borrower)
agrees that it shall hold only Qualified Non-U.S. Lender Notes and that it
shall be the sole beneficial and record owner of all Qualified Non-U.S. Lender
Notes held by it. Further, each Non-U.S. Lender agrees (i) to deliver to the
Borrower and the Administrative Agent, and if applicable, the assigning Lender
(or, in the case of a Participant, to the Lender from which the related
participation shall have been purchased) two further duly completed and signed
copies of such Forms 1001, 4224, W-8 or W-9, as the case may be, or successor
and related applicable forms, on or before the date that any such form expires
or becomes obsolete and promptly after the occurrence of any event requiring a
change from the most recent form(s) previously delivered by it to the Borrower
(or, in the case of a Participant, to the Lender from which the related
participation shall have been purchased) in accordance with applicable U.S.
laws and regulations, (ii) in the case of a Non-U.S. Lender that delivers a
statement in the form of Exhibit H (or such other form of statement as shall
have been requested by the Borrower), to deliver to the Borrower and the
Administrative Agent, and if applicable, the assigning Lender, such statement
on an annual basis on the anniversary of the date on which such
<PAGE> 27
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Non-U.S. Lender became a party to this Agreement and to deliver promptly to the
Borrower and the Administrative Agent, and if applicable, the assigning Lender,
such additional statements and forms as shall be reasonably requested by the
Borrower from time to time, and (iii) to notify promptly the Borrower and the
Administrative Agent (or, in the case of a Participant, the Lender from which
the related participation shall have been purchased) if it is no longer able to
deliver, or if it is required to withdraw or cancel, any form or statement
previously delivered by it pursuant to this subsection 2.9(b). Each Non-U.S.
Lender agrees to indemnify and hold harmless the Borrower from and against any
taxes, penalties, interest or other costs or losses (including, without
limitation, reasonable attorneys' fees and expenses) incurred or payable by the
Borrower as a result of the failure of the Borrower to comply with its
obligations to deduct or withhold any U.S. Taxes from any payments made
pursuant to this Agreement to such Non-U.S. Lender or the Administrative Agent
which failure resulted from the Borrower's reliance on any form, statement,
certificate or other information provided to it by such Non-U.S. Lender
pursuant to clause (B) or clause (ii) of this subsection 2.9(b). The Borrower
hereby agrees that for so long as a Non-U.S. Lender complies with this
subsection 2.9(e), the Borrower shall not withhold any amounts from any
payments made pursuant to this Agreement to such Non-U.S. Lender, unless the
Borrower reasonably determines that it is required by law to withhold or deduct
any amounts from any payments made to such Non- U.S. Lender pursuant to this
Agreement. Notwithstanding any other provision of this subsection 2.9(b), a
Non-U.S. Lender shall not be required to deliver any form or statement
pursuant to the immediately preceding sentences in this subsection 2.9(b) that
such Non-U.S. Lender is not legally able to deliver (it being understood and
agreed that the Borrower shall withhold or deduct such amounts from any
payments made to such Non-U.S. Lender that the Borrower reasonably determines
are required by law). If any Loan Party other than the Borrower makes any
payment to any Non-U.S. Lender under any Loan Document, the foregoing
provisions of this subsection 2.9 shall apply to such Non-U.S. Lender and such
Loan Party as if such Loan Party were the Borrower (but a Non-U.S. Lender shall
not be required to provide any form or make any statement to any such Loan
Party unless such Non-U.S. Lender has received a request to do so from such
Loan Party and has a reasonable time to comply with such request).
2.10 Administrative Agent's Fee. The Borrower shall pay to
the Administrative Agent for its own account an annual agent's fee in the
amount agreed between the Borrower and the Administrative Agent, payable on
each of the Second Closing Date and each anniversary of the Closing Date.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Agents and the Lenders to enter into this
Agreement and to make the Loans, the Borrower hereby represents and warrants to
the Agents and each Lender that:
3.1 Financial Condition. The unaudited pro forma balance
sheet of the Borrower as at September 30, 1996 the "Pro Forma Balance Sheet"),
a copy of which has heretofore been furnished to each Lender, was prepared
after giving effect to the
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capitalization of the Borrower, the Acquisition and the transactions
contemplated thereby, the Loans hereunder and the use of the proceeds thereof
and the payment of related fees and expenses. The Pro Forma Balance Sheet
presents fairly on a pro forma basis the financial position of the Borrower as
at September 30, 1996 assuming that the events and assumptions specified in the
preceding sentence had actually occurred or are true, as the case may be, on
that date and subject to the recording of the Rigs contemplated by the
definition of GAAP. As of the date of the Pro Forma Balance Sheet, the
Borrower did not have any material obligation, contingent liability or
liability for taxes, or any long-term lease or unusual forward or long-term
commitment, including, without limitation, any interest rate or foreign
currency swap or exchange transaction, which is not reflected in the foregoing
statements or in the notes thereto.
3.2 No Change. (a) Since September 30, 1996 there has been
no development or event which has had or could reasonably be expected to have a
Material Adverse Effect, and (b) during the period from September 30, 1996 to
and including the date hereof no dividends or other distributions have been
declared, paid or made upon the Capital Stock of the Borrower nor has any of
the Capital Stock of the Borrower been redeemed, retired, purchased or
otherwise acquired for value by the Borrower or any of its Subsidiaries.
3.3 Existence; Compliance with Law. Each of the Borrower and
its Subsidiaries (a) is duly organized, validly existing and, in the case of
the corporate Subsidiaries of the Borrower, in good standing under the laws of
the jurisdiction of its organization, (b) has the power and authority, and the
legal right, to own and operate its property, to lease the property it operates
as lessee and to conduct the business in which it is currently engaged, (c) is
duly qualified and, in the case of the corporate Subsidiaries of the Borrower,
in good standing under the laws of each jurisdiction wherein the failure to be
so qualified and in good standing could have a Material Adverse Effect and (d)
is in compliance with all Requirements of Law except to the extent that the
failure to comply therewith could not, in the aggregate, have a Material
Adverse Effect.
3.4 Power; Authorization; Enforceable Obligations. Each of
the Loan Parties has the power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrower, to borrow hereunder and has taken all necessary action to
authorize the borrowings on the terms and conditions of this Agreement and any
Notes and to authorize the execution, delivery and performance of the Loan
Documents to which it is a party. No consent or authorization of, filing with,
notice to or other act by or in respect of, any Governmental Authority or any
other Person is required in connection with the borrowings hereunder or with
the execution, delivery, performance, validity or enforceability of the Loan
Documents other than the filings necessary to record Liens under the Security
Documents or such as have already been obtained. This Agreement has been, and
each other Loan Document to which it is a party will be, duly executed and
delivered on behalf of each Loan Party thereto. This Agreement constitutes,
and each other Loan Document to which it is a party when executed and delivered
will constitute, a legal, valid and binding obligation of each Loan Party
thereto, enforceable against such Loan Party in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
<PAGE> 29
25
creditors' rights generally, general equitable principles (whether considered
in a proceeding in equity or at law) and an implied covenant of good faith and
fair dealing.
3.5 No Legal Bar. The execution, delivery and performance of
the Loan Documents to which any Loan Party is a party, the borrowings hereunder
and the use of the proceeds thereof will not violate any Requirement of Law
(the violation of which could reasonably be expected to have a Material Adverse
Effect) or Contractual Obligation of such Loan Party or of any of its
Subsidiaries and will not result in, or require, the creation or imposition of
any Lien on any of its or their respective properties or revenues pursuant to
any such Requirement of Law or Contractual Obligation.
3.6 No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
of its Subsidiaries or against any of its or their respective properties or
revenues, except as disclosed in Schedule 3.6, none of which (a) is with
respect to any of the Loan Documents or any of the transactions contemplated
hereby or thereby, or (b) could reasonably be expected to have a Material
Adverse Effect.
3.7 No Default. Neither the Borrower nor any of its
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which could reasonably be expected to have a
Material Adverse Effect. No Default or Event of Default has occurred and is
continuing.
3.8 Ownership of Property; Liens. Each of the Borrower and
its Subsidiaries has good record and marketable title in fee simple to, or a
valid leasehold interest in, all its real property, and good title to, or a
valid leasehold interest in, all its other property (including, without
limitation, the Rigs), and none of such property is subject to any Lien except
as permitted by subsection 6.3.
3.9 Intellectual Property. The Borrower and each of its
Subsidiaries owns, or is licensed to use, all trademarks, tradenames,
copyrights, technology, know-how and processes necessary for the conduct of its
business as currently conducted except for those the failure to own or license
which could not have a Material Adverse Effect (the "Intellectual Property").
No claim has been asserted and is pending by any Person challenging or
questioning the use of any such Intellectual Property or the validity or
effectiveness of any such Intellectual Property, nor does the Borrower know of
any valid basis for any such claim. The use of such Intellectual Property by
the Borrower and its Subsidiaries does not infringe on the rights of any
Person, except for such claims and infringements that, in the aggregate, do not
have a Material Adverse Effect.
3.10 No Burdensome Restrictions. No Requirement of Law or
Contractual Obligation of the Borrower or any of its Subsidiaries has a
Material Adverse Effect.
3.11 Taxes. Each of the Borrower and its Subsidiaries has
filed or caused to be filed all tax returns which, to the knowledge of the
Borrower, are required to be filed and
<PAGE> 30
26
has paid all taxes shown to be due and payable on said returns or on any
assessments made against it or any of its property and all other taxes, fees or
other charges imposed on it or any of its property by any Governmental
Authority (other than any the amount or validity of which are currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the books of the
Borrower or its Subsidiaries, as the case may be); no tax Lien has been filed,
and, to the knowledge of the Borrower, no claim is being asserted, with respect
to any such tax, fee or other charge.
3.12 Federal Regulations. No part of the proceeds of any
Loans will be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation G or
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect. If requested by any Lender or the
Administrative Agent, the Borrower will furnish to the Administrative Agent and
each Lender a statement to the foregoing effect in conformity with the
requirements of FR Form G-1 or FR Form U-1 referred to in said Regulation G or
Regulation U, as the case may be.
3.13 ERISA. Neither a Reportable Event nor an "accumulated
funding deficiency" (within the meaning of Section 412 of the Code or Section
302 of ERISA) has occurred during the five-year period prior to the date on
which this representation is made or deemed made with respect to any Plan, and
each Plan has complied in all material respects with the applicable provisions
of ERISA and the Code. No termination of a Single Employer Plan has occurred,
and no Lien in favor of the PBGC or a Plan has arisen, during such five-year
period. The present value of all accrued benefits under each Single Employer
Plan (based on those assumptions used to fund such Plans) did not, as of the
last annual valuation date prior to the date on which this representation is
made or deemed made, exceed the value of the assets of such Plan allocable to
such accrued benefits. Neither the Borrower nor any Commonly Controlled Entity
has had a complete or partial withdrawal from any Multiemployer Plan, and
neither the Borrower nor any Commonly Controlled Entity would become subject to
any liability under ERISA if the Borrower or any such Commonly Controlled
Entity were to withdraw completely from all Multiemployer Plans as of the
valuation date most closely preceding the date on which this representation is
made or deemed made. No such Multiemployer Plan is in Reorganization or
Insolvent. None of DeepTech or any of its Subsidiaries maintains, or is
subject to any liabilities or obligations under, any Plan.
3.14 Investment Company Act; Other Regulations. The Borrower
is not an "investment company", or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended.
The Borrower is not subject to regulation under any Federal or State statute or
regulation (other than Regulation X of the Board of Governors of the Federal
Reserve System) which limits its ability to incur Indebtedness.
3.15 Subsidiaries. The Borrower has no Subsidiaries on the
date hereof.
<PAGE> 31
27
3.16 Purpose of Loans. The proceeds of the Loans shall be
used by the Borrower for the purposes set forth in subsection 2.2.
3.17 Environmental Matters. Except as set forth on Schedule
3.17:
(a) The facilities and properties owned, leased or operated
by the Borrower or any of its Subsidiaries (the "Properties") do not
contain, and have not previously contained, any Materials of
Environmental Concern in amounts or concentrations which (i)
constitute or constituted a violation of, or (ii) could reasonably be
expected to give rise to liability under, any Environmental Law.
(b) The Properties and all operations at the Properties are
in compliance, and have in the last five years been in compliance,
with all applicable Environmental Laws, and there is no contamination
at, under or about the Properties or violation of any Environmental
Law with respect to the Properties or the business operated by the
Borrower or any of its Subsidiaries (the "Business") which could
interfere with the continued operation of the Properties or materially
impair the fair saleable value thereof.
(c) Neither the Borrower nor any of its Subsidiaries has
received any notice of violation, alleged violation, non-compliance,
liability or potential liability regarding environmental matters or
compliance with Environmental Laws with regard to any of the
Properties or the Business, nor does the Borrower have knowledge or
reason to believe that any such notice will be received or is being
threatened.
(d) Materials of Environmental Concern have not been
transported or disposed of from the Properties in violation of, or in
a manner or to a location which could reasonably be expected to give
rise to liability under, any Environmental Law, nor have any Materials
of Environmental Concern been generated, treated, stored or disposed
of at, on or under any of the Properties in violation of, or in a
manner that could reasonably be expected to give rise to liability
under, any applicable Environmental Law.
(e) No judicial proceeding or governmental or administrative
action is pending or, to the knowledge of the Borrower, threatened,
under any Environmental Law to which the Borrower or any Subsidiary is
or will be named as a party with respect to the Properties or the
Business, nor are there any consent decrees or other decrees, consent
orders, administrative orders or other orders, or other administrative
or judicial requirements outstanding under any Environmental Law with
respect to the Properties or the Business.
(f) There has been no release or threat of release of
Materials of Environmental Concern at or from the Properties, or
arising from or related to the operations of the Borrower or any
Subsidiary in connection with the Properties or otherwise in
connection with the Business, in violation of or in amounts or in a
<PAGE> 32
28
manner that could reasonably be expected to give rise to liability
under Environmental Laws.
(g) Each of the representations and warranties set forth in
subsections 3.17(a) through (f) is true and correct with respect to
the Rigs.
3.18 Security Interests. At all times after execution and
delivery of each Security Documents by the parties thereto and satisfaction of
the conditions specified in subsection 4.1, the security interests created for
the benefit of the Collateral and Documentation Agent and the Lenders under the
Security Documents will constitute valid, perfected security interests in the
pledged securities thereunder, subject to no other Liens, except as permitted
hereunder.
3.19 Majority-Owned Subsidiary. The Borrower is an indirect
wholly-owned subsidiary of DeepTech.
3.20 Solvency. (a) Immediately following the Acquisition
and the making of each Loan made on the Closing Date and after giving effect to
the application of the proceeds thereof, (i) the fair value of the assets of
each of the Borrower, at a fair valuation, will exceed the debts and
liabilities, direct, subordinated, contingent or otherwise, of the Borrower;
(ii) the present fair saleable value of the property of the Borrower will be
greater than the amount that will be required to pay the probable liability of
the Borrower on its debts and other liabilities, direct, subordinated,
contingent or otherwise, as such debts and other liabilities become absolute
and matured; (iii) the Borrower will be able to pay its debts and liabilities,
direct, subordinated, contingent or otherwise, as such debts and liabilities
become absolute and matured; and (iv) the Borrower will not have unreasonably
small capital with which to conduct the businesses in which it is engaged as
such businesses are now conducted and are proposed to be conducted following
the Closing Date.
(b) The Borrower does not intend to, or believe that it will,
incur debts beyond its ability to pay such debts as they mature, taking into
account the timing and amounts of cash to be received by it and the timing and
amounts of cash to be payable on or in respect of its Indebtedness.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Loans. The agreement of each Lender to
make the Loan requested to be made by it is subject to the satisfaction,
immediately prior to or concurrently with the making of such Loan on the
Closing Date, of the following conditions precedent:
(a) Loan Documents. The Administrative Agent shall have
received (i) this Agreement, executed and delivered by a member or
duly authorized manager of the Borrower, with a counterpart for each
Lender, (ii) the Parent Pledge Agreement, executed and delivered by a
duly authorized officer of each Pledgor party thereto, with a
counterpart or a conformed copy for each Lender, (iii) the Borrower
Security
<PAGE> 33
29
Agreement, executed and delivered by a member or duly authorized
manager of the Borrower, with a counterpart or a conformed copy for
each Lender, (iv) each of the Ship Mortgages, each executed and
delivered by a member or duly authorized manager of the Borrower, with
a conformed copy for each Lender, and (v) the Subordination Agreement,
executed and delivered by a member or duly authorized officer or
manager of each party thereto, with a counterpart or a conformed copy
for each Lender.
(b) Related Agreements. The Administrative Agent shall have
received, with a copy for each Lender, true and correct copies,
certified as to authenticity by the Borrower, of the Charters, the
Shoemaker Upgrade Agreement, each Drilling Contract, each Consent and
Agreement, the principal documents relating to the Acquisition
(including the Bills of Sale by which the Rigs are being transferred
to the Borrower) and such other documents or instruments as may be
reasonably requested by any Lender to which the Borrower, its
Subsidiaries or any Pledgor may be a party, all of which shall be in
full force and effect and in form and substance satisfactory to the
Arranger.
(c) LLC Agreement; Management Agreement. The Administrative
Agent shall have received, with a copy for each Lender, (i) the
Limited Liability Company Agreement of the Borrower (the "LLC
Agreement") and (ii) the Management Agreement, each of which shall be
in full force and effect and in form and substance satisfactory to the
Arranger.
(d) Borrowing Certificate. The Administrative Agent shall
have received, with a counterpart for each Lender, a certificate of
the Borrower, dated the Closing Date, substantially in the form of
Exhibit D, with appropriate insertions and attachments, satisfactory
in form and substance to the Administrative Agent, executed by any
member or authorized manager of the Borrower.
(e) Limited Liability Company Proceedings of the Borrower.
The Administrative Agent shall have received, with a counterpart for
each Lender, a copy of the resolutions, in form and substance
satisfactory to the Administrative Agent, of the Management Committee
of the Borrower authorizing (i) the execution, delivery and
performance of this Agreement and the other Loan Documents to which it
is a party, (ii) the borrowings contemplated hereunder, (iii) the
granting by it of the Liens created pursuant to the Security Documents
to which it is a party and (iv) the issuance of the Warrants,
certified by the Management Committee of the Borrower as of the
Closing Date, which certificate shall be in form and substance
satisfactory to the Administrative Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked
or rescinded.
(f) Borrower Incumbency Certificate. The Administrative
Agent shall have received, with a counterpart for each Lender, a
Certificate of the Management Committee of the Borrower, dated the
Closing Date, as to the incumbency and
<PAGE> 34
30
signature of the members or managers of the Borrower executing any
Loan Document satisfactory in form and substance to the Administrative
Agent.
(g) Corporate Proceedings of Pledgors. The Administrative
Agent shall have received, with a counterpart for each Lender, a copy
of the resolutions, in form and substance satisfactory to the
Administrative Agent, of the Board of Directors of each of the
Pledgors party to the Parent Pledge Agreement authorizing (i) the
execution, delivery and performance of the Parent Pledge Agreement and
(ii) the granting by it of the Liens created pursuant to the Parent
Pledge Agreement, certified by the Secretary or an Assistant Secretary
of such Pledgor as of the Closing Date, which certificate shall be in
form and substance satisfactory to the Administrative Agent and shall
state that the resolutions thereby certified have not been amended,
modified, revoked or rescinded.
(h) Incumbency Certificates of Pledgors. The Administrative
Agent shall have received, with a counterpart for each Lender, a
certificate of each of the Pledgors party to the Parent Pledge
Agreement, dated the Closing Date, as to the incumbency and signature
of the officers of such Pledgor executing the Parent Pledge Agreement
satisfactory in form and substance to the Administrative Agent,
executed by the President or any Vice President and the Secretary or
any Assistant Secretary of such Pledgor, as the case may be.
(i) Third-Party Consents. All governmental and third party
approvals (including landlords' and other consents) necessary or
advisable in connection with the Acquisition, the making of the Loans
and the continuing operations of the Borrower and its Subsidiaries
shall have been obtained and be in full force and effect, and all
applicable waiting periods shall have expired without any action being
taken or threatened by any competent authority which would restrain,
prevent or otherwise impose materially adverse conditions on the
Acquisition or the making of the Loans.
(j) Organizational Documents. The Administrative Agent shall
have received, with a counterpart for each Lender, true and complete
copies of the certificate of incorporation, by-laws, charter,
partnership agreement or limited liability company agreement, as the
case may be, each Loan Party, certified as of the Closing Date as
complete and correct copies thereof by a member or authorized manager
or the Secretary or an Assistant Secretary of such Loan Party.
(k) Consummation of Acquisition. The Acquisition shall have
been consummated for an aggregate effective purchase price of
$71,055,853, of which up to $31,000,000 shall be paid in cash and
$40,055,853 shall be in the form of the PIK Notes, pursuant to
satisfactory documentation, and no material provision thereof shall
have been waived, amended, supplemented or otherwise modified. The
Citibank Obligations and the Highwood Obligations shall have been paid
in full and all Liens in favor of the Citibank Obligees and the
Highwood Obligees on either Rig shall have been released.
<PAGE> 35
31
(l) PIK Notes. The PIK Notes shall be satisfactory in all
respects to the Lenders.
(m) Fees. The Arranger, the Administrative Agent and the
Lenders shall have received all invoiced fees and expenses required to
be paid on or before the Closing Date. The total amount of all fees
and expenses payable by the Borrower and its Subsidiaries in
connection with the Acquisition shall not exceed an amount
satisfactory to the Arranger.
(n) Warrant Agreement. The Arranger (or one of its
Affiliates) shall have received the Warrant Agreement and each Warrant
required to be issued pursuant thereto, executed and delivered by a
member or duly authorized manager of the Borrower.
(o) Legal Opinions. The Administrative Agent shall have
received, with a counterpart for each Lender, the following executed
legal opinions:
(i) the executed legal opinion Akin, Gump,
Strauss, Hauer & Feld, L.L.P., counsel to the Borrower and the
other Loan Parties, substantially in the form of Exhibit E-1;
and
(ii) the executed legal opinion of Graham,
Thompson & Co., Nassau, special counsel to the Administrative
Agent with respect to matters of Bahamian law, substantially
in the form of Exhibit E-2.
(p) Pro Forma Balance Sheet. The Administrative Agent shall
have received, with a copy for each Lender, the Pro Forma Balance
Sheet described in subsection 3.1.
(q) Solvency Opinion. The Administrative Agent shall have
received, with a counterpart for each Lender, a solvency opinion
reasonably satisfactory to the Lenders from an independent valuation
firm reasonably satisfactory to the Lenders which shall document the
solvency of the Borrower and its Subsidiaries after giving effect to
the Acquisition, the making of the Loans and the other transactions
contemplated hereby.
(r) Pledged Securities, etc. The Administrative Agent shall
have received a Transaction Statement in the form of Exhibit A to the
Parent Pledge Agreement confirming that the Borrower has registered
the pledge of its Capital Stock effected by the Parent Pledge
Agreement on its books.
(s) Actions to Perfect Liens; The Rigs. The Administrative
Agent shall have received evidence in form and substance satisfactory
to it that all filings, recordings, registrations and other actions,
including, without limitation, the filing of duly executed financing
statements on form UCC-1, necessary or, in the opinion of the
Administrative Agent, desirable to perfect the Liens created by the
Security Documents shall have been completed. The Administrative
Agent shall have received evidence satisfactory to it that the Rigs
are duly documented in the name of the
<PAGE> 36
32
Borrower and are not subject to any Lien other than the Liens of
the Ship Mortgages and Liens permitted thereby.
(t) Lien Searches. The Administrative Agent shall have
received the results of a recent search by a Person satisfactory to
the Administrative Agent, of the Uniform Commercial Code, judgement
and tax lien filings which may have been filed with respect to
personal property of the Borrower in each of the jurisdictions and
offices where assets of the Borrower or its Subsidiaries are located
or recorded, and such search shall reveal no material liens on any of
the assets of the Borrower or its Subsidiaries except for liens
permitted by the Loan Documents or liens to be discharged on or prior
to the Closing Date pursuant to documentation in form and substance
satisfactory to the Administrative Agent.
(u) Insurance. The Administrative Agent shall have received
evidence in form and substance satisfactory to it that all of the
requirements of subsection 5.5, Section 4.2 of the Borrower Security
Agreement and Section 14 of the Ship Mortgages shall have been
satisfied.
(v) Shoemaker Upgrade Agreement. The Administrative Agent
shall have received the Shoemaker Upgrade Agreement executed and
delivered by a member or duly authorized officer or manager of each of
the parties thereto, with a conformed copy for each Lender, in form
and substance satisfactory to the Arranger.
(w) Drilling Contracts. The Charterer shall have (i) with
respect to the Pincay, entered into a Drilling Contract with a major
international oil company and (ii) with respect to the Shoemaker, (A)
entered into a Drilling Contract with Tatham Offshore, Inc. and (B)
received a mandate letter from Amoco to enter into a Drilling Contract
(such Drilling Contract, the "Amoco Drilling Contract"), in all cases
providing for a minimum operating day rate thereunder of $62,500 per
Rig per day and with a term satisfactory to the Arranger.
(x) No Default. No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the
Loans requested to be made on the Closing Date.
(y) Use of Proceeds. The Lenders shall have received a
certificate of the Borrower setting forth the intended use of proceeds
of the Loans, certified by a member or authorized manager of the
Borrower, which statement shall be satisfactory to the Lenders.
(z) Special Conditions. The Lenders shall have received (i)
a detailed business plan for fiscal years 1996-1998 of the Borrower
and a written analysis of the business and prospects of the Borrower
and its Subsidiaries for the period from the Closing Date through
August, 1998, in form and substance satisfactory to the Arranger, (ii)
an appraisal of the Rigs in form and substance and by appraisers
satisfactory to the Arranger and (iii) evidence that managers
acceptable to the
<PAGE> 37
33
Arranger shall have been appointed by the members of the Borrower and
shall be available to manage the operations of the Borrower and its
Subsidiaries.
(aa) Additional Matters. All corporate, limited liability
company and other proceedings, and all documents, instruments and
other legal matters in connection with the transactions contemplated
by this Agreement, the other Loan Documents and the Acquisition shall
be satisfactory in form and substance to the Administrative Agent, and
the Administrative Agent shall have received such other documents and
legal opinions in respect of any aspect or consequence of the
transactions contemplated hereby or thereby as it shall reasonably
request.
The borrowing by the Borrower on the Closing Date shall constitute a
representation and warranty by the Borrower as of the Closing Date that the
conditions contained in this subsection have been satisfied.
SECTION 5. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments
remain in effect or any amount is owing to any Lender or any Agent hereunder or
under any other Loan Document, the Borrower shall and (except in the case of
delivery of financial information, reports and notices) shall cause each of its
Subsidiaries to:
5.1 Financial Statements. Furnish to each Lender:
(a) as soon as available, but in any event within 90 days
after the end of each fiscal year of the Borrower, a copy of the
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such year and the related consolidated
statements of income and retained earnings and of cash flows for such
year, setting forth in each case in comparative form the figures for
the previous year, reported on without a "going concern" or like
qualification or exception, or qualification arising out of the scope
of the audit, by Price Waterhouse LLP or other independent certified
public accountants of nationally recognized standing;
(b) as soon as available, but in any event not later than 45
days after the end of each of the first three quarterly periods of
each fiscal year of the Borrower, the unaudited consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at the end
of such quarter and the related unaudited consolidated statements of
income and retained earnings and of cash flows of the Borrower and its
consolidated Subsidiaries for such quarter and the portion of the
fiscal year through the end of such quarter, setting forth in each
case in comparative form the figures for the previous year, certified
by a member or authorized manager of the Borrower with responsibility
for financial matters as being fairly stated in all material respects
(subject to normal year-end audit adjustments); and
<PAGE> 38
34
(c) as soon as available, but in any event not later than 45
days after the end of each calendar month, the unaudited consolidated
balance sheet of the Borrower and its consolidated Subsidiaries as at
the end of such month and the related unaudited consolidated
statements of income and retained earnings and of cash flows of the
Borrower and its consolidated Subsidiaries for such month and the
portion of the fiscal year through the end of such month, setting
forth in each case in comparative form the figures for the previous
year, certified by a member or authorized manager of the Borrower with
responsibility for financial matters as being fairly stated in all
material respects (subject to normal year-end audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or manager, as the case may be,
and disclosed therein).
5.2 Certificates; Other Information. Furnish to each Lender:
(a) concurrently with the delivery of the financial
statements referred to in subsection 5.1(a), a certificate of the
independent certified public accountants reporting on such financial
statements stating that in making the examination necessary therefor
no knowledge was obtained of any Default or Event of Default, except
as specified in such certificate;
(b) concurrently with the delivery of the financial
statements referred to in subsections 5.1(a), (b) and (c), a
certificate of a member or authorized manager of the Borrower stating
that, to the best of such member's or manager's knowledge, during such
period (i) no Subsidiary of the Borrower has been formed or acquired
(or, if any such Subsidiary has been formed or acquired, the Borrower
has complied with the requirements of subsection 5.10 with respect
thereto), (ii) neither the Borrower nor any of its Subsidiaries has
changed its name, its principal place of business, its chief executive
office or the location of any material item of Collateral without
complying with the requirements of this Agreement and the Security
Documents with respect thereto, (iii) each Loan Party has observed or
performed all of their covenants and other agreements, and satisfied
every condition, contained in this Agreement and the other Loan
Documents to be observed, performed or satisfied by it, and that such
member or manager has obtained no knowledge of any Default or Event of
Default except as specified in such certificate and setting forth its
calculation of the covenants set forth in subsection 6.1, and (iv) all
insurance required to be maintained pursuant to the Loan Documents
(including any charter or lease of the Pincay or the Shoemaker) is in
full force and effect;
(c) not later than thirty days prior to the end of each
fiscal year of the Borrower, a copy of the projections by the Borrower
of the operating budget and cash flow budget of the Borrower and its
Subsidiaries for the succeeding fiscal year, such projections to be
accompanied by a certificate of a member or authorized manager of the
Borrower with responsibility for financial matters to the effect that
such
<PAGE> 39
35
projections have been prepared on the basis of sound financial
planning practice and that such member or manager has no reason to
believe they are incorrect or misleading in any material respect;
(d) within five days after the same are sent, copies of all
financial statements and reports which the Borrower or any of its
Subsidiaries sends to holders of its Capital Stock, and within five
days after the same are filed, copies of all financial statements and
reports which the Borrower may make to, or file with, the Securities
and Exchange Commission or any successor or analogous Governmental
Authority;
(e) not later than the forty-fifth day of each fiscal
quarter, commencing with the fiscal quarter which begins on January 1,
1997, a statement setting forth its calculation of Excess Cash Flow
for the preceding fiscal quarter;
(f) not later than the first Business Day of each month, a
non-default certificate from a member or authorized manager of the
Borrower with responsibility for financial matters, substantially in
the form of Exhibit D hereto, which certificate shall also set forth
the aggregate amount of unpaid Trade Expenses as of the last day of
the prior month and the Trade Expenses projected to be incurred or
created in the current month;
(g) concurrently with the delivery of the financial
statements referred to in subsections 5.1(a), (b) and (c), a
management narrative report explaining all significant variances from
forecasts, projections and previous results and all significant
current developments in staffing, marketing, sales and operations; and
(h) promptly, such additional financial and other information
as any Lender may from time to time reasonably request.
5.3 Payment of Obligations. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all its obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Borrower or its Subsidiaries, as the case may be.
5.4 Conduct of Business and Maintenance of Existence.
Continue to engage in business of the same general type as now conducted by it
or permitted by subsection 6.15 and preserve, renew and keep in full force and
effect its existence and take all reasonable action to maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of its
business except as otherwise permitted pursuant to subsection 6.5; comply with
all Contractual Obligations and Requirements of Law except to the extent that
failure to comply therewith could not, in the aggregate, have a Material
Adverse Effect.
5.5 Maintenance of Property; Insurance. Keep all property
useful and necessary in its business in good working order and condition;
maintain with financially
<PAGE> 40
36
sound and reputable insurance companies insurance on all its property in at
least such amounts and against at least such risks as are usually insured
against in the same general area by companies engaged in the same or a similar
business (it being acknowledged that neither product liability nor business
interruption are included within such risks); and furnish to each Lender, upon
written request, full information as to the insurance carried.
5.6 Inspection of Property; Books and Records; Discussions.
Keep proper books of records and account in which full, true and correct
entries in conformity with GAAP and all Requirements of Law shall be made of
all dealings and transactions in relation to its business and activities; and
permit representatives of any Lender to visit and inspect any of its properties
and examine and make abstracts from any of its books and records at any
reasonable time and as often as may reasonably be desired and to discuss the
business, operations, properties and financial and other condition of the
Borrower and its Subsidiaries with officers and employees of the Borrower and
its Subsidiaries and with its independent certified public accountants.
5.7 Notices. Promptly give notice to the Administrative
Agent and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries or (ii)
litigation, investigation or proceeding which may exist at any time
between the Borrower or any of its Subsidiaries and any Governmental
Authority, which in either case, if not cured or if adversely
determined, as the case may be, could have a Material Adverse Effect;
(c) any litigation or proceeding (including, without
limitation, any notice of violation, alleged violation, liability or
potential liability under any Environmental Law) affecting the
Borrower or any of its Subsidiaries in which the amount involved is
$250,000 or more and such potential liability is not covered by
insurance or in which injunctive or similar relief is sought;
(d) the following events, as soon as possible and in any
event within 30 days after the Borrower knows or has reason to know
thereof: (i) the occurrence or expected occurrence of any Reportable
Event with respect to any Plan, a failure to make any required
contribution to a Plan, the creation of any Lien in favor of the PBGC
or a Plan or any withdrawal from, or the termination, Reorganization
or Insolvency of, any Multiemployer Plan or (ii) the institution of
proceedings or the taking of any other action by the PBGC or the
Borrower or any Commonly Controlled Entity or any Multiemployer Plan
with respect to the withdrawal from, or the terminating,
Reorganization or Insolvency of, any Plan;
(e) the Pincay (after the Closing Date) or the Shoemaker
(after the completion of the work contemplated by the Shoemaker
Upgrade Agreement) not working for a period of 30 consecutive days;
<PAGE> 41
37
(f) the occurrence of a confiscation, requisition or seizure
of either the Pincay or the Shoemaker; and
(g) any material adverse change in the business, assets,
property, condition (financial or otherwise) or prospects of the
Borrower and its Subsidiaries taken as a whole.
Each notice pursuant to this subsection shall be accompanied by a statement of
a member or authorized manager of the Borrower setting forth details of the
occurrence referred to therein and stating what action the Borrower proposes to
take with respect thereto.
5.8 Environmental Laws. (a) Comply with, and ensure
compliance by all tenants and subtenants, if any, with, all applicable
Environmental Laws and obtain and comply with and maintain, and ensure that all
tenants and subtenants obtain and comply with and maintain, any and all
licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws except to the extent that failure to do so could
not have a Material Adverse Effect.
(b) Conduct and complete all investigations, studies,
sampling and testing, and all remedial, removal and other actions required
under Environmental Laws and promptly comply with all lawful orders and
directives of all Governmental Authorities regarding Environmental Laws.
5.9 Further Assurances. Upon the request of the Collateral
and Documentation Agent, promptly perform or cause to be performed any and all
acts and execute or cause to be executed any and all documents (including,
without limitation, financing statements and continuation statements) for
filing under the provisions of the Uniform Commercial Code or any other
Requirement of Law which are necessary or advisable to maintain in favor of the
Collateral and Documentation Agent, for the benefit of the Lenders, Liens on
the Collateral that are duly perfected in accordance with all applicable
Requirements of Law.
5.10 Additional Collateral; Release of Unrestricted
Subsidiaries. (a) With respect to any assets acquired after the Closing Date
by the Borrower or any of its Restricted Subsidiaries, or previously encumbered
assets of the Borrower or any of its Restricted Subsidiaries which become
unencumbered, to the extent permissible under applicable law (other than any
assets described in paragraph (b) of this subsection), promptly (and in any
event within 30 days after the acquisition thereof): (i) execute and deliver
to the Collateral and Documentation Agent such amendments to the relevant
Security Documents or such other documents as the Collateral and Documentation
Agent shall deem necessary or advisable to grant to the Collateral and
Documentation Agent, for the benefit of the Lenders, a Lien on such assets,
(ii) take all actions necessary or advisable to cause such Lien to be duly
perfected in accordance with all applicable Requirements of Law, including,
without limitation, the filing of financing statements in such jurisdictions as
may be requested by the Collateral and Documentation Agent, and (iii) if
requested by the Collateral and Documentation Agent, deliver to the Collateral
and Documentation Agent legal opinions
<PAGE> 42
38
relating to the matters described in clauses (i) and (ii) immediately
preceding, which opinions shall be in form and substance, and from counsel,
reasonably satisfactory to the Collateral and Documentation Agent.
(b) With respect to any Capital Stock acquired after the date
hereof by the Borrower or any of its Restricted Subsidiaries (unless doing so
would result in a pledge of more than 65% of the Capital Stock of a Foreign
Subsidiary), promptly upon the request of the Collateral and Documentation
Agent: (i) execute and deliver to the Collateral and Documentation Agent, for
the benefit of the Lenders, a new pledge agreement as the Collateral and
Documentation Agent shall deem necessary or advisable to grant to the
Collateral and Documentation Agent, for the benefit of the Lenders, a Lien on
such Capital Stock which is owned by the Borrower or any of its Restricted
Subsidiaries, (ii) deliver to the Collateral and Documentation Agent (A) the
certificates representing such Capital Stock, together with undated stock
powers executed and delivered in blank by a member or authorized manager or
officer of the Borrower or such Restricted Subsidiary, as the case may be, or
(B) if such Capital Stock is issued by or in respect of a partnership or
limited liability company, a Transaction Statement in the form of Exhibit A to
the Parent Pledge Agreement (with appropriate modifications) confirming that
such issuer has registered the pledge of its Capital Stock on its books, (iii)
if the Capital Stock is issued or acquired by a Restricted Subsidiary of the
Borrower acquired or created after the Closing Date (this provision creating no
implication that the Borrower is permitted to create or acquire such
Subsidiary), cause such new Restricted Subsidiary (A) to become a party to a
guarantee and security agreement, in each case pursuant to documentation which
is in form and substance satisfactory to the Collateral and Documentation
Agent, and (B) to take all actions necessary or advisable to create a duly
perfected Lien in such Capital Stock and all assets of such Restricted
Subsidiary in accordance with all applicable Requirements of Law, including,
without limitation, the filing of financing statements in such jurisdictions as
may be requested by the Collateral and Documentation Agent and (iv) if
requested by the Collateral and Documentation Agent, deliver to the Collateral
and Documentation Agent legal opinions relating to the matters described in
clauses (i), (ii) and (iii) immediately preceding, which opinions shall be in
form and substance, and from counsel, reasonably satisfactory to the Collateral
and Documentation Agent.
5.11 Charters. Maintain in full force and effect the
Charters and, without the prior written consent of the Required Lenders, not
amend either Charter to reduce the day rate payable to the Borrower thereunder
or the term thereof or modify the timing of payments to the Borrower
thereunder; provided that the Borrower shall be permitted to obtain a
replacement charter for either Charter upon terms and conditions and with
another charterer satisfactory to the Required Lenders.
5.12 Interest Rate Protection. Within 180 days after the
Closing Date, obtain interest rate protection for a period of at least through
September 30, 1998 for a notional amount of at least $32,500,000, on terms and
conditions reasonably satisfactory to the Lenders; provided that such interest
rate protection shall not increase the effective cost of funds to the Borrower
of the Loans (including both interest on the Loans and the cost of such
interest rate protection) to a per annum rate greater than 3.75% above the then
Base Rate.
<PAGE> 43
39
5.13 Upgrade. Complete the upgrade contemplated by the
Shoemaker Upgrade Agreement by no later than May 15, 1997 for a cost (exclusive
of capitalized interest and costs which are reimbursable from the customer
under the applicable Drilling Contract) of no more than $40,000,000.
5.14 Certain Restrictions. Maintain both an office at which
its business is and will be conducted and a telephone number separate from each
of its members; maintain bank accounts separate from the bank accounts of its
members; refrain from commingling funds and other assets of the Borrower with
those of its members; hold appropriate meetings to authorize all of the
Borrower's actions, and maintain appropriate minutes of such actions; always be
described and held out as a separate and distinct entity under its own name,
and never as a department, division or a part of its members; cause all written
and oral communications, including, without limitations, letters, invoices,
purchase orders and contracts, to be made solely in the name of the Borrower;
have its own stationery and business forms, which stationery and business forms
are separate from those of its members; cause all invoices and other statements
of account from creditors of the Borrower to be addressed and mailed directly
to the Borrower; and issue separate financial statements for itself in
accordance with GAAP.
SECTION 6. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as any amount is
owing to any Lender or any Agent hereunder or under any other Loan Document,
the Borrower shall not, and (except with respect to subsections 6.1) shall not
permit any of its Subsidiaries to, directly or indirectly:
6.1 Financial Condition Covenants.
(a) Maintenance of Net Worth. Permit Net Worth at the last
day of any fiscal quarter set forth below to be less than the amount
set forth opposite such fiscal quarter below (provided, however, to
the extent not included in Net Income in accordance with GAAP during
the fiscal quarter then ended or in any previous fiscal quarter, Net
Worth shall include any Mobilization Fees actually received by the
Borrower during the fiscal quarter then ended):
Fiscal Quarter Ending Amount
--------------------- ------
December 31, 1996 $3,000,000
March 31, 1997 $3,000,000
June 30, 1997 $5,000,000
September 30, 1997 $6,500,000
December 31, 1997 $6,500,000
March 31, 1998 $6,500,000
June 30, 1998 $6,500,000
September 30, 1998 $6,500,000
<PAGE> 44
40
(b) Maintenance of EBITDA to Interest Expense Ratio. Permit
the ratio of (i) EBITDA for any period of four consecutive fiscal
quarters ending with any fiscal quarter set forth below to (ii) Cash
Interest Expense for such period of four consecutive fiscal quarters
to be less than the ratio set forth opposite such fiscal quarter
below:
Fiscal Quarter Ending Ratio
--------------------- -----
March 31, 1997 .50 to 1.00
June 30, 1997 1.50 to 1.00
September 30, 1997 2.00 to 1.00
December 31, 1997 2.75 to 1.00
March 31, 1998 2.75 to 1.00
June 30, 1998 3.00 to 1.00
September 30, 1998 3.25 to 1.00
(c) Maintenance of EBITDA. Permit EBITDA for any period of
four consecutive fiscal quarters ending with any fiscal quarter set
forth below to be less than the amount set forth opposite such fiscal
quarter below:
Fiscal Quarter Ending Amount
--------------------- ------
March 31, 1997 $1,750,000
June 30, 1997 $9,000,000
September 30, 1997 $14,000,000
December 31, 1997 $20,000,000
March 31, 1998 $20,000,000
June 30, 1998 $21,000,000
September 30, 1998 $21,000,000
(d) Maintenance of Working Capital. Permit at any time
prior to the date on which the Shoemaker is delivered to commence work
under a Drilling Contract Working Capital to be less than $500,000.
6.2 Limitation on Indebtedness. Create, incur, assume or
suffer to exist any Indebtedness, except:
(a) Indebtedness of the Borrower under this Agreement;
(b) Indebtedness constituting a Permitted Issuance;
(c) Indebtedness of the Borrower under the PIK Notes issued
to DPSI in an aggregate principal amount not to exceed the sum of
$40,055,853 as part of the Acquisition;
(d) the principal amount of any PIK Notes issued in lieu of
payment of interest on any PIK Notes at any one time outstanding; and
<PAGE> 45
41
(e) Indebtedness of Unrestricted Subsidiaries.
6.3 Limitation on Liens. Create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested
in good faith by appropriate proceedings, provided that adequate
reserves with respect thereto are maintained on the books of the
Borrower or its Subsidiaries, as the case may be, in conformity with
GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business, including, without limitation, liens arising under the
Charters and the Drilling Contracts, which are not overdue for a
period of more than 60 days or which are being contested in good faith
by appropriate proceedings;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation and deposits securing liability to insurance carriers
under insurance or self- insurance arrangements;
(d) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower or such Subsidiary;
(f) Liens securing Indebtedness permitted by clause (ii) of
the definition of Permitted Issuance solely on property acquired with
the proceeds of such Indebtedness;
(g) Liens created pursuant to the Security Documents and
Liens on the Rigs permitted by the Ship Mortgages; and
(h) Liens on the assets of an Unrestricted Subsidiary to
secure Indebtedness of such Unrestricted Subsidiary.
6.4 Limitation on Guarantee Obligations. Create, incur,
assume or suffer to exist any Guarantee Obligation except Guarantee Obligations
incurred by an Unrestricted Subsidiary, Guarantee Obligations in existence on
the date hereof and listed on Schedule 6.4
<PAGE> 46
42
but not any amendments, refinancings, refundings, renewals or extensions
thereof and Guarantee Obligations incurred pursuant to subsection 5.10(b).
6.5 Limitation on Fundamental Changes. Except in the case of
an Unrestricted Subsidiary, enter into any merger, consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease, assign, transfer or
otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in its present method of conducting
business.
6.6 Limitation on Sale of Assets. Except in the case of an
Unrestricted Subsidiary, convey, sell, lease (other than pursuant to a Charter
or any replacement charter entered into pursuant to subsection 5.11), assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired, or, in the case of any Subsidiary, issue or
sell any shares of such Subsidiary's Capital Stock to any Person other than the
Borrower or any wholly owned Restricted Subsidiary, except the sale or other
disposition of obsolete or worn out property in the ordinary course of
business, provided that the Net Proceeds of each such transaction are applied
to the prepayment of the Loans as provided in 2.5(b) and except that an
Unrestricted Subsidiary may issue or sell shares of its Capital Stock to
Persons other than the Borrower or any wholly owned Subsidiary so long as such
issuance or sale does not cause it to cease to be an Unrestricted Subsidiary.
6.7 Limitation on Dividends. Except for Tax Distributions
permitted under and as defined in Section 5.7(i) of the LLC Agreement, make any
distributions to its members or and except in the case of an Unrestricted
Subsidiary, declare or pay any dividend on, or make any payment on account of,
or set apart assets for a sinking or other analogous fund for, the purchase,
redemption, defeasance, retirement or other acquisition of, any shares of any
class of Capital Stock of the Borrower or any of its Subsidiaries or any
warrants or options to purchase any such Stock (other than the Warrants),
whether now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of the Borrower or any Subsidiary.
6.8 Limitation on Capital Expenditures. Except in the case
of an Unrestricted Subsidiary, make or commit to make (by way of the
acquisition of securities of a Person or otherwise) any expenditure in respect
of the purchase or other acquisition of fixed or capital assets (excluding any
such asset acquired in connection with normal replacement and maintenance
programs properly charged to current operations) except for capital
improvements with respect to the Rigs in the ordinary course of business not
exceeding, in the aggregate for the Borrower and its Restricted Subsidiaries
during the term of this Agreement, $5,000,000 with respect to each Rig and
which capital improvements shall be funded solely from (i) the proceeds of the
Permitted Issuance specified in clause (i) of the definition thereof, (ii)
Mobilization Fees paid to the Borrower and (iii) $1,000,000 during each year of
the term of this Agreement from any other sources; provided, however, the
Borrower shall also be permitted to make the capital expenditures (i) specified
in clause (ii) of the definition of Permitted Issuance and (ii) contemplated by
the Shoemaker Upgrade Agreement in accordance with subsection 5.13.
<PAGE> 47
43
6.9 Limitation on Investments, Loans and Advances. Make any
advance, loan, extension of credit or capital contribution to, or purchase any
stock, bonds, notes, debentures or other securities of or any assets
constituting a business unit of, or make any other investment in, any Person,
except:
(a) extensions of trade credit in the ordinary course of
business;
(b) investments in Cash Equivalents; and
(c) investments in Unrestricted Subsidiaries consisting of
capital contributions in an aggregate amount no greater than
$1,000,000 (all of which shall be funded with the proceeds of
Permitted Issuances).
6.10 Limitation on Optional Payments and Modifications of
Debt Instruments. (a) Make any optional payment or prepayment on or
redemption or purchase of any Indebtedness (other than the Loans and other than
with respect to Indebtedness of an Unrestricted Subsidiary) or (b) amend,
modify or change, or consent or agree to any amendment, modification or change
to any of the terms of any such Indebtedness (other than any such amendment,
modification or change which would extend the maturity or reduce the amount of
any payment of principal thereof or which would reduce the rate or extend the
date for payment of interest thereon and other than with respect to
Indebtedness of an Unrestricted Subsidiary).
6.11 Limitation on Transactions with Affiliates. Enter into
any transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Agreement, (b) in the
ordinary course of the Borrower's or such Subsidiary's business and (c) upon
fair and reasonable terms no less favorable to the Borrower or such Subsidiary,
as the case may be, than it would obtain in a comparable arm's length
transaction with a Person which is not an Affiliate, provided that (i) this
subsection 6.11 shall not prohibit (x) the issuance of the PIK Notes to an
Affiliate of the Borrower, (y) the Drilling Contracts in existence on the date
of this Agreement, or (z) the payment of management fees to DPSI in amounts and
on dates provided in the Management Agreement and (ii) upon entering into any
transaction with an Affiliate the value of which exceeds $250,000, the Borrower
must deliver a certificate to the Administrative Agent certifying that such
transaction complies with this subsection 6.11.
6.12 Limitation on Sales and Leasebacks. Enter into any
arrangement with any Person providing for the leasing by the Borrower or any
Subsidiary of real or personal property which has been or is to be sold or
transferred by the Borrower or such Subsidiary to such Person or to any other
Person to whom funds have been or are to be advanced by such Person on the
security of such property or rental obligations of the Borrower or such
Subsidiary.
6.13 Limitation on Changes in Fiscal Year. Permit the fiscal
year of the Borrower to end on a day other than June 30.
<PAGE> 48
44
6.14 Limitation on Negative Pledge Clauses. Enter into with
any Person any agreement, other than this Agreement (in which case, any
prohibition or limitation shall only be effective against the assets financed
thereby), which prohibits or limits the ability of the Borrower or any of its
Restricted Subsidiaries to create, incur, assume or suffer to exist any Lien
upon any of its property, assets or revenues, whether now owned or hereafter
acquired.
6.15 Limitation on Lines of Business. Enter into any
business, either directly or through any Subsidiary, except for those
businesses in which the Borrower and its Affiliates are engaged on the date of
this Agreement.
6.16 Other Modifications. Consent or agree to any material
amendments, modification or change to any of the terms of, or cancellation or
satisfaction of, the Shoemaker Upgrade Agreement, the Management Agreement, the
LLC Agreement or, other than in accordance with subsection 5.11, the Charters.
SECTION 7. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan
when due in accordance with the terms thereof or hereof; or the
Borrower shall fail to pay any interest on any Loan, or any other
amount payable hereunder, within five days after any such interest or
other amount becomes due in accordance with the terms thereof or
hereof; or
(b) Any representation or warranty made or deemed made by the
Borrower or any other Loan Party herein or in any other Loan Document
or which is contained in any certificate, document or financial or
other statement furnished by it at any time under or in connection
with this Agreement or any such other Loan Document shall prove to
have been incorrect in any material respect on or as of the date made
or deemed made; or
(c) The Borrower or any other Loan Party shall default in the
observance or performance of any agreement contained in (i)
subsections 5.1, 5.2, 5.4, 5.5 or 5.13 or Section 6 hereof, Section 5
of the Parent Pledge Agreement or Sections 4.4, 5.5 or 6.4 of the
Borrower Security Agreement or (ii) either Ship Mortgage beyond the
period of grace provided for in such Ship Mortgage for such defaults;
or
(d) The Borrower or any other Loan Party shall default in the
observance or performance of any other agreement contained in this
Agreement or any other Loan Document (other than as provided in
paragraphs (a) through (c) of this Section), and such default shall
continue unremedied for a period of 30 days; or
(e) The Borrower or any of its Subsidiaries, DeepTech or any
Pledgor shall (i) default in any payment of principal of or interest
of any Indebtedness (other than
<PAGE> 49
45
the Loans) or in the payment of any Guarantee Obligation, beyond the
period of grace (not to exceed 30 days), if any, provided in the
instrument or agreement under which such Indebtedness or Guarantee
Obligation was created if the aggregate amount of the Indebtedness
and/or Guarantee Obligations in respect of which such default or
defaults shall have occurred is more than $100,000; or (ii) default in
the observance or performance of any other agreement or condition
relating to any such Indebtedness or Guarantee Obligation or contained
in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause, or to permit
the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Guarantee Obligation (or a trustee or agent on
behalf of such holder or holders or beneficiary or beneficiaries) to
cause, with the giving of notice if required, such Indebtedness to
become due prior to its stated maturity or such Guarantee Obligation
to become payable; or
(f) (i) The Borrower or any of its Subsidiaries, DeepTech,
the Charterer or any Pledgor shall commence any case, proceeding or
other action (A) under any existing or future law or any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (B) seeking appointment of
a receiver, trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or the
Borrower or any of its Subsidiaries, DeepTech, the Charterer or any
Pledgor shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Borrower or
any of its Subsidiaries, DeepTech, the Charterer or any Pledgor any
case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 60 days; or (iii) there shall
be commenced against the Borrower or any of its Subsidiaries,
DeepTech, the Charterer or any Pledgor any case, proceeding or other
action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of
its assets which results in the entry of an order for any such relief
which shall not have been vacated, discharged, or stayed or bonded
pending appeal within 60 days from the entry thereof; or (iv) the
Borrower or any of its Subsidiaries, DeepTech, the Charterer, or any
Pledgor shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth
in clause (i), (ii), or (iii) above; or (v) the Borrower or any of its
Subsidiaries, DeepTech, the Charterer, or any Pledgor shall generally
not, or shall be unable to, or shall admit in writing its inability
to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) involving any Plan, (ii) any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not
waived, shall exist with respect to any Plan or any Lien in favor of
the PBGC or
<PAGE> 50
46
a Plan shall arise on the assets of the Borrower or any Commonly
Controlled Entity, (iii) a Reportable Event shall occur with respect
to, or proceedings shall commence to have a trustee appointed, or a
trustee shall be appointed, to administer or to terminate, any Single
Employer Plan, which Reportable Event or commencement of proceedings
or appointment of a trustee is, in the reasonable opinion of the
Required Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Borrower or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Required Lenders is likely to, incur any liability in connection with
a withdrawal from, or the Insolvency or Reorganization of, a
Multiemployer Plan or (vi) any other event or condition shall occur or
exist with respect to a Plan; and in each case in clauses (i) through
(vi) above, such event or condition, together with all other such
events or conditions, if any, could have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against
the Borrower or any of its Subsidiaries involving in the aggregate a
liability (not paid or fully covered by insurance) of $100,000 or
more, and all such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within 60 days from the
entry thereof; or
(i) (i) Any of the Security Documents shall cease, for any
reason, to be in full force and effect, or the Borrower or any other
Loan Party which is a party to any of the Security Documents shall so
assert or (ii) the Lien created by any of the Security Documents shall
cease to be enforceable and of the same effect and priority purported
to be created thereby; or
(j) A Change of Control shall occur; or
(k) The charterer party to either Charter (or any replacement
thereof entered into pursuant to subsection 5.11) shall default in the
performance of any of its material obligations under such Charter or
replacement Charter; or
(l) Any Person other than an Affiliate of the Borrower shall
hold interests (ownership or otherwise) in PIK Notes in an aggregate
principal amount of more than $20,000,000;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of this Section with respect to the
Borrower, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement shall immediately become due and payable, and (B) if such
event is any other Event of Default, either or both of the following actions
may be taken: (i) with the consent of the Required Lenders, the Administrative
Agent may, or upon the request of the Required Lenders, the Administrative
Agent shall, by notice to the Borrower declare the Loans hereunder (with
accrued interest thereon) and all other amounts owing under this Agreement to
be due and payable forthwith,
<PAGE> 51
47
whereupon the same shall immediately become due and payable. Except as
expressly provided above in this Section, presentment, demand, protest and all
other notices of any kind are hereby expressly waived.
SECTION 8. THE AGENTS
8.1 Appointment. Each Lender hereby irrevocably designates
and appoints each of the Agents as the agent of such Lender under this
Agreement and the other Loan Documents, and each such Lender irrevocably
authorizes each of the Agents, in such capacity, to take such action on its
behalf under the provisions of this Agreement and the other Loan Documents and
to exercise such powers and perform such duties as are expressly delegated to
each of the Agents by the terms of this Agreement and the other Loan Documents,
together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, none
of the Agents shall have any duties or responsibilities, except those expressly
set forth herein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or any other Loan Document or otherwise exist
against any of the Agents.
8.2 Delegation of Duties. The Agents may execute any of
their duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. None of the Agents shall be
responsible for the negligence or misconduct of any agents or attorneys in-fact
selected by it with reasonable care.
8.3 Exculpatory Provisions. Neither any of the Agents nor
any of their officers, directors, employees, agents, attorneys-in-fact or
Affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except for its or such Person's own gross negligence or
willful misconduct) or (ii) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by the Borrower or
any officer thereof contained in this Agreement or any other Loan Document or
in any certificate, report, statement or other document referred to or provided
for in, or received by such Agent under or in connection with, this Agreement
or any other Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or for any failure of the Borrower to perform its obligations
hereunder or thereunder. None of the Agents shall be under any obligation to
any Lender 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
Borrower.
8.4 Reliance by Agents. The Agents shall be entitled to
rely, and shall be fully protected in relying, upon any Note, writing,
resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or
teletype message, statement, order or other document or conversation believed
by it to be genuine and correct and to have been signed, sent or made
<PAGE> 52
48
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower), independent
accountants and other experts selected by such Agent. The Agents may deem and
treat the payee of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with such Agent. The Agents shall be fully justified in failing or
refusing to take any action under this Agreement or any other Loan Document
unless it shall first receive such advice or concurrence of the Required
Lenders as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders 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 Agents shall in all cases be fully protected in acting, or in refraining
from acting, under this Agreement and the other Loan Documents in accordance
with a request of the Required Lenders, and such request and any action taken
or failure to act pursuant thereto shall be binding upon all the Lenders and
all future holders of the Loans.
8.5 Notice of Default. No Agent shall be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless such Agent has received notice from a Lender or the Borrower
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that any Agent
receives such a notice, such Agent shall give notice thereof to the Lenders.
Each Agent shall take such action with respect to such Default or Event of
Default as shall be reasonably directed by the Required Lenders; provided that
unless and until such Agent shall have received such directions, such Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default or Event of Default as it shall deem
advisable in the best interests of the Lenders.
8.6 Non-Reliance on Agents and Other Lenders. Each Lender
expressly acknowledges that neither any of the Agents nor any of their
officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or warranties to it and that no act by any of the
Agents hereafter taken, including any review of the affairs of the Borrower,
shall be deemed to constitute any representation or warranty by any of the
Agents to any Lender. Each Lender represents to each of the Agents that it
has, independently and without reliance upon any of the Agents or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Borrower and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon any of the Agents or any other Lender, 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 and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Borrower. Except for notices, reports and other documents expressly required
to be furnished to the Lenders by any of the Agents hereunder, none of the
Agents shall have any duty or responsibility to provide any Lender with any
credit or other information concerning the business, operations, property,
condition (financial or otherwise), prospects or
<PAGE> 53
49
creditworthiness of the Borrower which may come into the possession of such
Agent or any of its officers, directors, employees, agents, attorneys-in-fact
or Affiliates.
8.7 Indemnification. The Lenders agree to indemnify each of
the Agents in their respective capacities as such (to the extent not reimbursed
by the Borrower and without limiting the obligation of the Borrower to do so),
ratably according to their respective Commitment Percentages in effect on the
date on which indemnification is sought, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at any
time (including, without limitation, at any time following the payment of the
Loans) be imposed on, incurred by or asserted against any of the Agents in any
way relating to or arising out of, the Commitments, this Agreement, any of the
other Loan Documents or any documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby or any action taken
or omitted by any of the Agents under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from such
Agent's gross negligence or willful misconduct. The agreements in this
subsection shall survive the payment of the Loans and all other amounts payable
hereunder.
8.8 Administrative Agent, Collateral and Documentation Agent
and Arranger in Their Individual Capacities. The Administrative Agent, the
Collateral and Documentation Agent, the Arranger and their respective
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Borrower as though the Administrative Agent, the
Collateral and Documentation Agent and the Arranger were not acting in such
capacities hereunder and under the other Loan Documents. With respect to the
Loans made by it, the Administrative Agent and the Collateral and Documentation
Agent shall have the same rights and powers under this Agreement and the other
Loan Documents as any Lender and may exercise the same as though it were not
the Administrative Agent and the Collateral and Documentation Agent, and the
terms "Lender" and "Lenders" shall include the Administrative Agent and the
Collateral and Documentation Agent in their individual capacities.
8.9 Successor Administrative Agent and Collateral and
Documentation Agent. The Administrative Agent or the Collateral and
Documentation Agent may resign as Administrative Agent or Collateral and
Documentation Agent, as the case may be, upon 10 days' notice to the Lenders.
If the Administrative Agent shall resign as Administrative Agent under this
Agreement and the other Loan Documents or if the Collateral and Documentation
Agent shall resign as Collateral and Documentation Agent under this Agreement
and the other Loan Documents, then the Required Lenders shall appoint from
among the Lenders a successor agent for the Lenders (or, so long as Lehman
Commercial Paper Inc. is the Administrative Agent and/or the Collateral and
Documentation Agent, Lehman Commercial Paper Inc. shall appoint a financial
institution as successor agent for the Lenders), which successor agent
(provided that it shall have been approved by the Borrower), shall succeed to
the rights, powers and duties of the Administrative Agent or the Collateral and
Documentation Agent, as the case may be, hereunder. Effective upon such
<PAGE> 54
50
appointment and approval, the term "Administrative Agent" or "Collateral and
Documentation Agent", as the case may be, shall mean such successor agent, and
the former Administrative Agent's or Collateral and Documentation Agent's, as
the case may be, rights, powers and duties as Administrative Agent or
Collateral and Documentation Agent, as the case may be, shall be terminated,
without any other or further act or deed on the part of such former
Administrative Agent or Collateral and Documentation Agent, as the case may be,
or any of the parties to this Agreement or any holders of the Loans. After any
retiring Administrative Agent's or Collateral and Documentation Agent's
resignation as Administrative Agent or Collateral and Documentation Agent, as
the case may be, the provisions of this Section 8 shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was Administrative
Agent or Collateral and Documentation Agent, as the case may be, under this
Agreement and the other Loan Documents.
8.10 The Arranger. Except as expressly set forth herein, the
Arranger, in its capacity as such, shall have no duties or responsibilities,
and shall incur no liabilities, under this Agreement or the other Loan
Documents.
SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement nor any
other Loan Document, nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
subsection. The Required Lenders may, or, with the written consent of the
Required Lenders, the Administrative Agent may, from time to time, (a) enter
into with the Borrower written amendments, supplements or modifications hereto
and to the other Loan Documents for the purpose of adding any provisions to
this Agreement or the other Loan Documents or changing in any manner the rights
of the Lenders or of the Borrower hereunder or thereunder or (b) waive, on such
terms and conditions as the Required Lenders or the Administrative Agent, as
the case may be, may specify in such instrument, any of the requirements of
this Agreement or the other Loan Documents or any Default or Event of Default
and its consequences; provided, however, that no such waiver and no such
amendment, supplement or modification shall (i) reduce the amount or extend the
scheduled date of maturity of any Loan or of any installment thereof, or reduce
the stated rate of any interest or fee payable hereunder or extend the
scheduled date of any payment thereof, in each case without the consent of each
Lender affected thereby, or (ii) amend, modify or waive any provision of this
subsection or reduce the percentage specified in the definition of Required
Lenders, or consent to the assignment or transfer by the Borrower of any of its
rights and obligations under this Agreement and the other Loan Documents or
release all or substantially all of the Collateral, in each case without the
written consent of all the Lenders, or (iii) amend, modify or waive any
provision of Section 8 without the written consent of the then Administrative
Agent and the then Collateral and Documentation Agent, or (iv) release any
material portion of the Collateral or waive any provision of subsection 2.5, in
each case without the written consent of the Required Lenders, or (v) amend,
modify or waive any provision of this Agreement or any other Loan Document
which would directly and adversely affect the Arranger or the Collateral and
Documentation Agent without the written consent of the then Arranger or
<PAGE> 55
51
Collateral and Documentation Agent, as the case may be. Any such waiver and
any such amendment, supplement or modification shall apply equally to each of
the Lenders and shall be binding upon the Borrower, the Lenders, the Agents and
all future holders of the Loans. In the case of any waiver, the Borrower, the
Lenders and the Agents shall be restored to their former positions and rights
hereunder and under the other Loan Documents, and any Default or Event of
Default waived shall be deemed to be cured and not continuing; no such waiver
shall extend to any subsequent or other Default or Event of Default or impair
any right consequent thereon.
9.2 Notices. All notices, requests and demands to or upon
the respective parties hereto to be effective shall be in writing (including by
facsimile transmission) and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made (a) in the case of delivery by hand,
when delivered, (b) in the case of delivery by mail, three days after being
deposited in the mails, postage prepaid, or (c) in the case of delivery by
facsimile transmission, when sent and receipt has been confirmed, addressed as
follows in the case of the Borrower, the Administrative Agent and the
Collateral and Documentation Agent, and as set forth in Schedule I in the case
of the other parties hereto, or to such other address as may be hereafter
notified by the respective parties hereto:
The Borrower or
any of its
Subsidiaries: c/o DeepTech International Inc.
7500 Texas Commerce Tower
600 Travis Street
Houston, Texas 77002
Attention: Thomas P. Tatham and
Donald V. Weir
Fax: (713) 224-7574
With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1900 Penzoil Place - South Tower
711 Louisiana Street
Houston, Texas 77002
Attention: Rick L. Burdick
Fax: (713) 236-0822
The Administrative
Agent: Lehman Commercial Paper Inc.
3 World Financial Center, 9th Floor
New York, New York 10285
Attention: Robert Chambers
Fax: (212) 528-6600
The Collateral and
Documentation
<PAGE> 56
52
Agent: Lehman Commercial Paper Inc.
3 World Financial Center, 9th Floor
New York, New York 10285
Attention: Robert Chambers
Fax: (212) 528-6600
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to subsection 2.2, 2.4 or 2.8 shall not be effective
until received.
9.3 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of any Agent or any Lender, any right,
remedy, power or privilege hereunder or under the other Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
9.4 Survival of Representations and Warranties. All
representations and warranties made hereunder, in the other Loan Documents and
in any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this Agreement
and the making of the Loans hereunder.
9.5 Payment of Expenses and Taxes. The Borrower agrees (a)
to pay or reimburse each of the Agents for all its out-of-pocket costs and
expenses incurred in connection with the development, preparation and execution
of, and any amendment, supplement or modification to, this Agreement and the
other Loan Documents and any other documents prepared in connection herewith or
therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including, without limitation, the reasonable
fees and disbursements of counsel to any of the Agents, (b) to pay or reimburse
each Lender and each Agent for all its costs and expenses incurred in
connection with the enforcement or preservation of any rights under this
Agreement, the other Loan Documents and any such other documents, including,
without limitation, the fees and disbursements of counsel to each Lender and of
counsel to any Agent, (c) to pay, indemnify, and hold each Lender and each
Agent harmless from, any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any delay in paying, stamp,
excise and other taxes, if any, which may be payable or determined to be
payable in connection with the execution and delivery of, or consummation or
administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, the other Loan Documents and any such other documents, and (d)
to pay, indemnify, and hold each Lender and each Agent harmless from and
against any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever with respect to the Acquisition or the execution, delivery,
enforcement, performance and administration of this Agreement, the other Loan
Documents or the use of the proceeds of the Loans in connection with the
Acquisition and any such other documents,
<PAGE> 57
53
including, without limitation, any of the foregoing relating to the violation
of, noncompliance with or liability under, any Environmental Law applicable to
the operations of the Borrower, any of its Subsidiaries or any of the
Properties (all the foregoing in this clause (d), collectively, the
"indemnified liabilities"), provided that the Borrower shall have no obligation
hereunder to any Agent or any Lender with respect to indemnified liabilities
arising from the gross negligence or willful misconduct of such Agent or any
such Lender. The agreements in this subsection shall survive repayment of the
Loans and all other amounts payable hereunder.
9.6 Successors and Assigns; Participations and Assignments.
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Lenders, the Agents and their respective successors and assigns,
except that the Borrower may not assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of each
Lender.
(b) Any Lender may, in the ordinary course of its business
and in accordance with applicable law, at any time sell to one or more banks or
other entities ("Participants") participating interests in any Loan owing to
such Lender or any other interest of such Lender hereunder and under the other
Loan Documents. In the event of any such sale by a Lender of a participating
interest to a Participant, such Lender's obligations under this Agreement to
the other parties to this Agreement shall remain unchanged, such Lender shall
remain solely responsible for the performance thereof, such Lender shall remain
the holder of any such Loan for all purposes under this Agreement and the other
Loan Documents, and the Borrower and the Agents shall continue to deal solely
and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. No Lender shall
be entitled to create in favor of any Participant, in the participation
agreement pursuant to which such Participant's participating interest shall be
created or otherwise, any right to vote on, consent to or approve any matter
relating to this Agreement or any other Loan Document except for those
specified in clauses (i) and (ii) of the proviso to subsection 9.1. The
Borrower agrees that if amounts outstanding under this Agreement are due or
unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant shall, to the maximum
extent permitted by applicable law, be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest were owing
directly to it as a Lender under this Agreement, provided that, in purchasing
such participating interest, such Participant shall be deemed to have agreed to
share with the Lenders the proceeds thereof as provided in subsection 9.7(a) as
fully as if it were a Lender hereunder. The Borrower also agrees that each
Participant shall be entitled to the benefits of subsections 2.9 with respect
to its participation in the Loans outstanding from time to time as if it was a
Lender; provided that such Participant shall have complied with the
requirements of said subsection and provided, further, that no Participant
shall be entitled to receive any greater amount pursuant to any such subsection
than the transferor Lender would have been entitled to receive in respect of
the amount of the participation transferred by such transferor Lender to such
Participant had no such transfer occurred.
<PAGE> 58
54
(c) Any Lender may, in the ordinary course of its business
and in accordance with applicable law, at any time and from time to time assign
to any Lender or any affiliate thereof or, with the consent of the
Administrative Agent and the Arranger (which shall not be unreasonably
withheld), to an additional bank or financial institution (an "Assignee") all
or any part of its rights and obligations under this Agreement and the other
Loan Documents pursuant to an Assignment and Acceptance, substantially in the
form of Exhibit F, executed by such Assignee, such assigning Lender (and, in
the case of an Assignee that is not then a Lender or an affiliate thereof, by
the Administrative Agent and the Arranger) and delivered to the Administrative
Agent for its acceptance and recording in the Register, provided that, in the
case of any such assignment to an additional bank or financial institution, (A)
the aggregate principal amount of the Loans being assigned and, if such
assignment is of less than all of the rights and obligations of the assigning
Lender, the aggregate principal amount of the Loans remaining with the
assigning Lender are each not less than $2,500,000 (or such lesser amount as
may be agreed to by the Borrower, the Administrative Agent and the Arranger)
and (B) each Assignee which is a Non-U.S. Lender shall comply with the
provisions of clause (A) of subsection 2.9(d) hereof, or, with the prior
written consent of the Borrower, which shall not be unreasonably withheld, the
provisions of clause (B) of subsection 2.9(d) hereof (and, in either case, with
all of the other provisions of subsection 2.9(d) hereof). Upon such execution,
delivery, acceptance and recording, from and after the effective date
determined pursuant to such Assignment and Acceptance, (x) the Assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender
hereunder and (y) the assigning Lender thereunder shall, to the extent provided
in such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such assigning Lender shall cease to be a party hereto).
(d) Any Non-U.S. Lender (other than a Participant or an
Assignee, with respect to which the Borrower has not provided the prior written
consent described in clause (B) of the proviso to the first sentence of
subsection 9.6(c), in the case of an Assignee) that could become completely
exempt from withholding of any U.S. Taxes in respect of payment of any interest
due to such Non-U.S. Lender under this Agreement if the Note held by such
Non-U.S. Lender were in registered form for U.S. federal income tax purposes
may request the Borrower (through the Administrative Agent), and the Borrower
agrees thereupon, to exchange any Note held by such Non-U.S. Lender, or to
issue to such Non-U.S. Lender on the date it becomes a party to this Agreement,
Note registered as provided in paragraph (e) below and substantially in the
form of Exhibit I (a "Qualified Non-U.S. Lender Note"). Qualified Non-U.S.
Lender Notes may not be exchanged for promissory notes that are not Qualified
Non-U.S. Lender Notes.
(e) A Qualified Non-U.S. Lender Note and the Obligations
evidenced thereby may be assigned or otherwise transferred in whole or in part
only by registration of such assignment or transfer of such Qualified Non-U.S.
Lender Note and the Obligations evidenced thereby on the Register (and each
Qualified Non-U.S. Lender Note shall expressly so provide). Any assignment or
transfer of all or part of such Obligation and the Qualified Non-U.S. Lender
Note evidencing the same shall be registered on the Register only upon
<PAGE> 59
55
surrender for registration of assignment or transfer of the Qualified Non-U.S.
Lender Note evidencing such Obligation, duly endorsed by (or accompanied by a
written instrument of assignment or transfer duly executed by) the holder
thereof (a "Qualified Non-U.S. Lender Noteholder"), and thereupon a new
Qualified Non-U.S. Lender Note in the same aggregate principal amount shall be
issued to the designated Assignee and the old Qualified Non-U.S. Lender Note
shall be returned to the Borrower marked "cancelled". No assignment of a
Qualified Non-U.S. Lender Note and the Obligations evidenced thereby shall be
effective unless it shall have been recorded in the Register by the
Administrative Agent as provided in this subsection 9.6(e).
(f) The Administrative Agent, on behalf of the Borrower,
shall maintain at the address of the Administrative Agent referred to in
subsection 9.2 a copy of each Assignment and Acceptance delivered to it and a
register (the "Register") for the recordation of the names and addresses of the
Lenders and the principal amounts of the Loans owing to, each Lender from time
to time and the registered owners of the Obligations evidenced by the Qualified
Non-U.S. Lender Notes (including Qualified Non-U.S. Lender Noteholders). The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, the Administrative Agent and the Lenders may treat each
Person whose name is recorded in the Register as the owner of a Loan, a
Qualified Non-U.S. Lender Note or other obligation hereunder as the owner
thereof for all purposes of this Agreement and the other Loan Documents,
notwithstanding any notice to the contrary. Any assignment of any Loan or
other obligation hereunder not evidenced by a Note shall be effective only upon
appropriate entries with respect thereto being made in the Register. The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(g) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender and an Assignee (and, in the case of an Assignee that is
not then a Lender or an affiliate thereof, by the Administrative Agent)
together with payment to the Administrative Agent of a registration and
processing fee of $2,000, the Administrative Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto record the information contained therein in the Register and
give notice of such acceptance and recordation to the Lenders and the Borrower.
(h) The Borrower authorizes each Lender to disclose to any
Participant or Assignee (each, a "Transferee") and any prospective Transferee,
subject to the provisions of subsection 9.15, any and all financial information
in such Lender's possession concerning the Borrower and its Affiliates which
has been delivered to such Lender by or on behalf of the Borrower pursuant to
this Agreement or which has been delivered to such Lender by or on behalf of
the Borrower in connection with such Lender's credit evaluation of the Borrower
and its Affiliates prior to becoming a party to this Agreement.
(i) If, pursuant to this subsection 9.6, any interest in this
Agreement or any Loan is transferred to any Transferee which would be a
Non-U.S. Lender upon the effectiveness of such transfer, the assigning Lender
shall cause such Transferee, concurrently with the effectiveness of such
transfer, (i) to represent to the assigning Lender (for the
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56
benefit of the assigning Lender, the Administrative Agent and the Borrower)
that under applicable law and treaties no U.S. Taxes will be required to be
withheld by the Administrative Agent, the Borrower or the assigning Lender with
respect to any payments to be made to such Transferee in respect of the Loans,
(ii) to furnish to the assigning Lender (and, in the case of any Assignee
registered in the Register, the Administrative Agent and the Borrower such
Internal Revenue Service Forms required to be furnished pursuant to subsection
2.9(d) and (iii) to agree (for the benefit of the assigning Lender, the
Administrative Agent and the Borrower) to be bound by the provisions of
subsection 2.9(d).
(j) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this subsection concerning assignments of
Loans and Notes relate only to absolute assignments and that such provisions do
not prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
9.7 Adjustments; Set-off. (a) If any Lender (a "benefitted
Lender") shall at any time receive any payment of all or part of its Loans
(otherwise than as permitted in subsection 2.5(d)), or interest thereon, or
receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 7(f), or otherwise), in a greater proportion than any
such payment to or collateral received by any other Lender, if any, in respect
of such other Lender's Loans, or interest thereon, such benefitted Lender shall
purchase for cash from the other Lenders a participating interest in such
portion of each such other Lender's Loan, or shall provide such other Lenders
with the benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such benefitted Lender to share the excess payment or
benefits of such collateral or proceeds ratably with each of the Lenders;
provided, however, that if all or any portion of such excess payment or
benefits is thereafter recovered from such benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders
provided by law, each Lender shall have the right, without prior notice to the
Borrower, any such notice being expressly waived by the Borrower to the extent
permitted by applicable law, upon any amount becoming due and payable by the
Borrower hereunder (whether at the stated maturity, by acceleration or
otherwise) to set-off and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Lender or any branch or agency
thereof to or for the credit or the account of the Borrower. Each Lender
agrees promptly to notify the Borrower and the Administrative Agent after any
such set-off and application made by such Lender, provided that the failure to
give such notice shall not affect the validity of such set-off and application.
9.8 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts
(including by facsimile transmission), and all of said counterparts taken
together shall be deemed to constitute one
<PAGE> 61
57
and the same instrument. A set of the copies of this Agreement signed by all
the parties shall be lodged with the Borrower and the Administrative Agent.
9.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9.10 Integration. This Agreement and the other Loan
Documents represent the agreement of the Borrower, the Agents and the Lenders
with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by any Agent or any Lender relative
to subject matter hereof not expressly set forth or referred to herein or in
the other Loan Documents.
9.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
9.12 Submission To Jurisdiction; Waivers. The Borrower
hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action
or proceeding relating to this Agreement and the other Loan Documents
to which it is a party, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general jurisdiction
of the Courts of the State of New York, the courts of the United
States of America for the Southern District of New York, and appellate
courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Borrower at its address set forth in subsection 9.2 or
at such other address of which the Administrative Agent shall have
been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction; and
<PAGE> 62
58
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or
proceeding referred to in this subsection any special, exemplary,
punitive or consequential damages.
9.13 Acknowledgements. The Borrower hereby acknowledges
that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents;
(b) none of the Agents nor any Lender has any fiduciary
relationship with or duty to the Borrower arising out of or in
connection with this Agreement or any of the other Loan Documents, and
the relationship between any of the Agents and the Lenders, on one
hand, and the Borrower, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Borrower and the
Lenders.
9.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS, THE
LENDERS AND THE OTHER PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
9.15 Confidentiality. Each Lender agrees to keep
confidential all non-public information provided to it by the Borrower pursuant
to this Agreement that is designated by the Borrower in writing as
confidential; provided that nothing herein shall prevent any Lender from
disclosing any such information (i) to any Agent or any other Lender, (ii) to
any Transferee which receives such information having been made aware of the
confidential nature thereof, (iii) to its employees, directors, agents,
attorneys, accountants and other professional advisors, (iv) upon the request
or demand of any Governmental Authority having jurisdiction over such Lender,
(v) in response to any order of any court or other Governmental Authority or as
may otherwise be required pursuant to any Requirement of Law, (vi) which has
been publicly disclosed other than in breach of this Agreement, or (vii) in
connection with the exercise of any remedy hereunder.
9.16 Usury Savings Clause. It is the intention of the
parties hereto to comply with applicable usury laws (now or hereafter enacted);
accordingly, notwithstanding any provision to the contrary in this Agreement,
any Notes, any of the other Loan Documents or any other document related hereto
or thereto, in no event shall this Agreement or any such other document require
the payment or permit the collection of interest in excess of the maximum
amount permitted by such laws. If from any circumstances whatsoever,
fulfillment of any provision of this Agreement, any Notes, any of the other
Loan Documents or of any other document pertaining hereto or thereto, shall
involve transcending the limit of validity prescribed by applicable law for the
collection or charging of interest, then, ipso
<PAGE> 63
59
facto, the obligation to be fulfilled shall be reduced to the limit of such
validity, and if from any such circumstances the Agents and the Lenders shall
ever receive anything of value as interest or deemed interest by applicable law
under this Agreement, any Notes, any of the other Loan Documents or any other
document pertaining hereto or otherwise an amount that would exceed the highest
lawful rate, such amount that would be excessive interest shall be applied to
the reduction of the principal amount owing under the Loans or on account of
any other indebtedness of the Borrower, and not to the payment of interest, or
if such excessive interest exceeds the unpaid balance of principal of such
indebtedness, such excess shall be refunded to the Borrower. In determining
whether or not the interest paid or payable with respect to any indebtedness of
the Borrower to the Agents and the Lenders, under any specified contingency,
exceeds the Highest Lawful Rate (as hereinafter defined), the Borrower, the
Agents and the Lenders shall, to the maximum extent permitted by applicable
law, (a) characterize any non-principal payment as an expense, fee or premium
rather than as interest, (b) exclude voluntary prepayments and the effects
thereof, (c) amortize, prorate, allocate and spread the total amount of
interest throughout the full term of such indebtedness so that interest thereon
does not exceed the maximum amount permitted by applicable law, and/or (d)
allocate interest between portions of such indebtedness, to the end that no
such portion shall bear interest at a rate greater than that permitted by
applicable law.
To the extent that Article 5069-1.04 of the Texas Revised
Civil Statutes is relevant to the Agents and the Lenders for the purpose of
determining the Highest Lawful Rate, the Agents and the Lenders hereby elect to
determine the applicable rate ceiling under such Article by the indicated
(weekly) rate ceiling form time to time in effect. Nothing set forth in this
subsection 9.16 is intended to or shall limit the effect or operation of
subsection 9.11.
For purposes of this subsection 9.16, "Highest Lawful Rate"
shall mean the maximum rate of nonusurious interest that may be contracted for,
taken, reserved or received on the Loans under laws applicable to the Agents
and the Lenders.
<PAGE> 64
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
RIGCO NORTH AMERICA, L.L.C.
By:___________________________________
Title:
LEHMAN COMMERCIAL PAPER INC., as
Administrative Agent, Collateral and
Documentation Agent, Arranger and as a
Lender
By:___________________________________
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DEEPTECH
INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AT
DECEMBER 31, 1996 INCLUDED IN ITS FORM 10-Q FOR THE PERIOD ENDED DECEMBER 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 18,290
<SECURITIES> 0
<RECEIVABLES> 17,183
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,904
<PP&E> 91,676
<DEPRECIATION> 1,181
<TOTAL-ASSETS> 200,514
<CURRENT-LIABILITIES> 19,703
<BONDS> 158,545
0
0
<COMMON> 186
<OTHER-SE> 21,254
<TOTAL-LIABILITY-AND-EQUITY> 200,514
<SALES> 60,218
<TOTAL-REVENUES> 65,807
<CGS> 57,455
<TOTAL-COSTS> 57,619
<OTHER-EXPENSES> 476
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,225
<INCOME-PRETAX> 2,811
<INCOME-TAX> 1,178
<INCOME-CONTINUING> 1,633
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,633
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
