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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-26388
FALCON DRILLING COMPANY, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 76-0351754
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1900 WEST LOOP SOUTH, SUITE 1800,
HOUSTON, TEXAS 77027
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (713) 623-8984
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 12 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
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of common stock held by non-affiliates of the
registrant (based on the closing price as reported on the New York Stock
Exchange on March 21, 1997) was approximately $922,081,292. Shares of common
stock held by each executive officer and director and by each stockholder
affiliated with a director have been excluded from this calculation because such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes. The number of
outstanding shares of the registrant's Common Stock as of March 21, 1997 was
39,349,406.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Stockholders to be held on May 29,
1997 -- Part III
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TABLE OF CONTENTS
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PART I
Item. 1 Business.................................................... 1
General................................................... 1
Industry Conditions....................................... 1
Business Strategy......................................... 2
Developments During 1996.................................. 2
Recent Developments....................................... 3
Drilling Markets.......................................... 3
Contracts and Customers................................... 4
Related Oil and Gas Activities............................ 5
Governmental Regulation and Environmental Matters......... 5
Operating Risks and Insurance............................. 7
Employees................................................. 7
Item 2. Properties.................................................. 7
Rig Fleet................................................. 7
Inland Marine Vessels..................................... 12
Facilities................................................ 13
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 14
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
General................................................... 16
Changes in Financial Condition............................ 16
Results of Operations..................................... 16
Liquidity and Capital Resources........................... 18
New Accounting Standards.................................. 19
Item 8. Financial Statements and Supplementary Data................. 20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 52
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 52
Item 11. Executive Compensation...................................... 54
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 54
Item 13. Certain Relationships and Related Transactions.............. 54
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 55
SIGNATURES
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Certain statements in this Annual Report on Form 10-K include
forward-looking information within the meaning of Section 27A of the Securities
Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and are subject to the "safe harbor" created by those sections.
The statements regarding future financial performance and results and the
other statements which are not historical facts contained in this report are
forward-looking statements. The words "expect," "anticipate," "estimate," and
similar expressions are also intended to identify forward-looking statements.
Such statements involve risks and uncertainties, including, but not limited to,
oil and gas prices and other market factors, rig dayrates, rig utilization
rates, and operating costs. Should one or more such risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual outcomes
may vary materially from those indicated.
PART I
ITEM 1. BUSINESS.
GENERAL
Falcon Drilling Company, Inc., together with its subsidiaries ("Falcon" or
the "Company"), is a provider of contract drilling and workover services for the
domestic and international oil and gas industry. The Company's rig fleet
consists of barge drilling rigs, barge workover rigs, jackup rigs, submersible
rigs, and drillships. The Company's barge rig fleet is the largest in the world.
The Company also owns tugboats, crewboats and utility barges, which are
primarily used in conjunction with its barge drilling and workover operations.
The Company markets its rigs and vessels to oil and gas companies and
turnkey operators.
The Company was incorporated as a Delaware corporation in October 1991. The
Company's headquarters are located at 1900 West Loop South, Suite 1800, Houston,
Texas 77027 and its telephone number is (713) 623-8984.
INDUSTRY CONDITIONS
The Company's operations are materially dependent upon the levels of
activity in oil and gas exploration, development and production. Such activity
levels are affected by both short-term and long-term trends in oil and gas
prices. In recent years, oil and gas prices have been volatile. Worldwide
military, political and economic events have contributed to, and are likely to
continue to contribute to, price volatility. Any prolonged reduction in oil and
gas prices will likely depress the level of exploration, development and
production activity and result in a corresponding decline in the demand for the
Company's services and, therefore, have a material adverse effect on the
Company's revenues and profitability.
Much of the Company's equipment is currently in service in the U.S. Gulf of
Mexico transition zone and offshore drilling markets where, despite occasional
upturns, the demand for drilling and related services was severely depressed
from the early 1980's through 1992, due in large part to prolonged weakness and
uncertainty in the price of natural gas. Diminished drilling demand during this
period led to low day rates and low utilization of available equipment. In
addition to adverse effects that future declines in demand could have on the
Company, ongoing movement or reactivation of offshore rigs or construction of
new rigs could adversely affect dayrates and utilization levels, even in an
environment of stronger natural gas prices and increased drilling activity. The
Company can predict neither the future level of demand for its services nor
future conditions in the drilling industry.
During 1996, demand for the Company's drilling equipment strengthened,
particularly during the second half of the year. At the end of 1996, the
Company's domestic drilling fleets were operating essentially at full
utilization, and at the highest dayrates for such equipment that the Company has
experienced. However, there is no assurance that the current level of demand for
the Company's equipment will be maintained.
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BUSINESS STRATEGY
The Company's strategy is to focus on oil and gas drilling markets where
cost efficient acquisitions and economies of scale in operations will lead to
significant competitive positions. Key elements of this strategy include the
acquisition and consolidation of under-utilized assets, the deployment of assets
to more attractive markets and the reactivation of idle capacity in markets with
increasing demand.
The initial focus of the Company's strategy was the barge drilling
business. Barge drilling rigs are used for shallow-water drilling in areas
commonly referred to as "transition zones," typically found in and around major
river delta systems, bays and coastal tidal zones. Historically, the largest
such market has been south Louisiana. Outside the U.S., other barge drilling
markets include Venezuela (where the Company operates three rigs), Nigeria,
Indonesia, Tunisia, and Mexico.
The Company has also established a significant presence in the U.S. Gulf of
Mexico offshore drilling market, where it currently operates a fleet of 17
bottom-supported rigs, and in the international deepwater drilling market, where
it currently operates five drillships.
DEVELOPMENTS DURING 1996
The Company continued to increase its active fleet during 1996 through the
following transactions:
- The purchase for $6.0 million of a barge drilling rig (Rig 55) from Noble
Drilling (USA), Inc., which rig is currently operating in South
Louisiana.
- The purchase for $24.0 million of a drillship (Peregrine II) from UME
Drilling Ltd., which drillship is currently operating offshore Brazil.
- The lease from Nabors Drilling USA, Inc. of a barge drilling rig (Rig 3)
and a barge workover rig (Rig 24), which rigs are currently operating in
South Louisiana.
- The purchase for $8.0 million of a submersible rig (Falrig 78), which rig
is currently operating in the U.S. Gulf of Mexico.
- The purchase for $8.5 million of a mat-slot jackup rig (Falrig 83), which
rig is currently operating off the West Coast of Africa.
- The lease, with an option to purchase, of a mat-slot jackup rig (Falrig
82), which rig is currently operating in the U.S. Gulf of Mexico.
- The purchase for $34.5 million of a drillship (Peregrine III), which
drillship is currently contracted for work offshore Western Africa.
- The purchase for $20.0 million of a drillship (Falcon Duchess), which
drillship is currently operating offshore India.
- The lease, with an option to purchase, of a drillship (Falcon Ice), which
drillship is currently operating offshore Indonesia.
The Company's principal financing activities in 1996 were:
- The placement in March of $120 million of 8 7/8% senior notes maturing
March 15, 2003, resulting in net proceeds to the Company of approximately
$116 million.
- The establishment in November of a $40 million line of credit with its
bank lenders, maturing November 1998, secured primarily by five of the
Company's jack-up rigs. At the same time, the Company restructured its
$25 million receivable-secured line of credit, extending its maturity to
November 1999.
- The public offering in December of 3,212,500 shares of the Company's
common stock, resulting in net proceeds to the Company of $108.5 million.
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RECENT DEVELOPMENTS
During the first two months of 1997, the Company acquired 35 tugs and 29
utility barges, for an aggregate purchase price of $23.4 million. These assets
are used primarily in connection with the Company's domestic barge drilling and
workover operations. In addition, in January 1997, the Company purchased for
$7.5 million an inactive oil/bulk/ore carrier. The Company is evaluating
conversion of this vessel to a dynamically positioned drillship.
DRILLING MARKETS
The Company performs contract drilling and workover services in the U.S.
and international shallow-water markets, the offshore U.S. Gulf of Mexico
market, and the international deepwater market.
Domestic Barge Drilling Market. The Company's principal barge drilling
market is the transition zone area of the U.S. Gulf Coast (Alabama, Mississippi,
Louisiana and Texas). This area historically has been the world's largest market
for shallow-water drilling. Barge rigs are employed both inland, in lakes, bays,
rivers and marshes, and in shallow-water coastal areas. During the drilling boom
of the early 1980's, there were approximately 125 barge drilling rigs in the
U.S. Gulf Coast operating at dayrates as high as $18,000. As a result of the
severe decline in oil and gas exploration and development in the remainder of
the decade, dayrates fell as low as $6,000 and the number of barge drilling rigs
in operation dramatically decreased.
Since early 1989, the structure of the domestic shallow-water market has
changed materially as the result of (i) barge rigs being scrapped, committed to
international markets, or taken out of service and (ii) the consolidation of
barge rig companies. The Company estimates that at March 1, 1997, there were
approximately 32 barge drilling rigs being actively marketed on the U.S. Gulf
Coast (excluding rigs suitable principally for workover or shallow drilling), of
which 25 rigs were operated by the Company. The Company also owns 16 barge
drilling rigs that were not in service at March 1, 1997. The Company currently
anticipates that it will place at least two additional barge drilling rigs in
service in the domestic market during 1997.
During 1996, Company's domestic barge drilling fleet had a utilization rate
of approximately 91.3% and an average base dayrate of approximately $13,673.
International Barge Drilling Market. International markets for barge rigs
include Venezuela, West Africa, Southeast Asia, Tunisia and Mexico. Drilling in
these international markets is typically driven primarily by exploration for oil
as opposed to gas. International markets frequently offer a drilling contractor
the opportunity to enter into longer term contracts at higher operating margins
than can be obtained domestically. Offsetting these benefits are the risks of
political uncertainty and currency fluctuations, and increased overhead in
establishing a foreign base of operation.
During 1996, the Company operated three barge rigs in Venezuela under term
contracts with Maraven, S.A. (a subsidiary of Venezuela's government owned oil
company). These rigs experienced 99% utilization during the period, and an
average dayrate of $18,400. These contracts run through December, 1999. In
addition, through July 1996 the Company operated a barge rig in Venezuela under
contract with BP Venezuela (an affiliate of British Petroleum). This rig was
returned to the United States upon completion of the contract with BP Venezuela,
and is currently operating in the U.S. Gulf Coast.
Domestic Barge Workover Market. The Company's barge workover fleet operates
in the same geographical area as its domestic barge drilling fleet. The same
factors which have affected the structure of the barge drilling market have also
affected the barge workover market, with considerable consolidation of
competitors and reduction of available rigs since the early 1980's. The Company
estimates that at March 1, 1997 there were approximately 27 barge workover rigs
being actively marketed in the U.S. Gulf Coast, of which 10 were operated by the
Company.
During 1996, the Company's workover rigs experienced an average utilization
rate of approximately 67.2% and an average base dayrate of approximately $8,984.
Offshore Bottom-Supported Drilling Rig Market. At March 1, 1997, the
Company's offshore bottom-supported drilling fleet was located in the U.S. Gulf
of Mexico, except for one submersible rig in Venezuela
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and one jackup rig offshore West Africa. The number of offshore rigs under
contract in the U.S. Gulf of Mexico declined steadily from the early 1980's
until 1992, but has recovered since then. In particular, the last half of 1996
saw a significant strengthening in this market, and at December 31, 1996, all of
the Company's bottom-supported offshore rigs were contracted, including eight
rigs under term contract through December 31, 1997.
The Company estimates that at March 1, 1997, there were approximately 120
bottom-supported offshore drilling rigs being actively marketed in the U.S.
Gulf, of which the Company operates 17.
There are jackup rigs stacked in the U.S. Gulf of Mexico that, subject to
varying levels of expenditure, could be reactivated for drilling, and there are
jackup rigs currently located outside the U.S. that could be moved to the U.S.
Gulf of Mexico within a short period time. Either of the foregoing could have
the effect of reducing dayrates. There can be no assurance that the present
levels of drilling activity will be maintained.
International opportunities for the Company's offshore bottom-supported
rigs are limited to areas where soft bottom conditions are conducive to the use
of mat-supported rigs, including certain offshore waters of India, Southeast
Asia, West Africa and Mexico. At March 1, 1997, the Company was operating one
jackup off West Africa under a term contract and one submersible in Venezuela
under a well to well contract. Although the Company has no current plans to
mobilize any of its other offshore bottom-supported rigs to international
waters, it could do so if market conditions made that advantageous.
During 1996, the Company's Gulf of Mexico offshore fleet had a utilization
rate of approximately 96.4% and an average base dayrate of approximately
$19,962.
Drillship Market. Drillships are used to drill wells in water depths beyond
the capabilities of bottom-supported rigs. Because of their greater capacity to
store supplies and equipment, they may have a competitive advantage over
bottom-supported rigs and semisubmersibles in remote areas where getting
materials to a rig is costly. Markets that utilize drillships include West
Africa, Brazil, Australia, Southeast Asia, India and the U.S. Gulf of Mexico.
The Company's drillship fleet consists of three dynamically positioned
drillships and two conventionally moored drillships (one of which the Company
leases with an option to purchase). Two of the dynamically positioned drillships
are working offshore Brazil under long-term contracts with Petrobras, and the
third dynamically positioned drillship is under multi-well contracts for work
offshore West Africa. The two conventionally moored drillships are working under
well-to-well contracts in Southeast Asia.
The Company believes the deepwater market is attractive because (i)
advances in technology have made production from deeper waters more economical,
and (ii) there is a greater possibility of finding significant new reservoirs of
hydrocarbons in deeper waters than in shallower waters, which have been more
extensively explored.
CONTRACTS AND CUSTOMERS
Drilling in the areas served by the Company ranges from shallow wells (up
to 12,000 feet) to deep wells (up to 25,000 feet). Deeper wells generally take
disproportionately longer to drill than shallower wells, due primarily to more
varied and difficult subsurface conditions and the frequent need to run
protective casing. The Company's drilling rigs are competitive for all types of
drilling, but are particularly designed to drill to depths in excess of 12,000
feet.
The Company's drilling and workover rigs are generally operated under
dayrate contracts between the Company and its customers, which are major and
independent oil and gas companies, government owned oil and gas companies, and
turnkey operators. Historically, most domestic drilling contracts have been on a
well-to-well basis. However, since mid-1996, the U.S. Gulf of Mexico offshore
market has strengthened to the point that the Company has been able to place a
majority of its offshore bottom-supported rigs on term contracts. Domestic
workover contracts are typically on a well-to-well basis and shorter in duration
than drilling contracts. Contracts in the international markets are frequently
offered on a term basis.
The Company obtains most of its contracts through competitive bidding
against other contractors in response to solicitations of bids by oil and gas
companies and turnkey operators. The awarding of drilling
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contracts depends on numerous factors, including pricing, availability, rig
specifications, safety record and crew quality.
Dayrate contracts generally provide for a fixed dayrate, regardless of
whether drilling is successful. Drilling contracts also provide for lower rates
during periods when the rig is being moved or when drilling operations are
interrupted or restricted due to equipment breakdowns, adverse weather or water
conditions or other conditions beyond the control of the Company. Under dayrate
contracts, the Company generally pays operating expenses of the rig, including
wages and the cost of incidental supplies. Revenues from dayrate contracts have
historically accounted for substantially all of the Company's revenues. The
Company has generally been able to obtain contractual indemnification pursuant
to which the Company's customers agree to protect and indemnify the Company to
some degree from liability for reservoir, pollution and environmental damages,
but there can be no assurance that the Company can obtain such indemnities in
all of its contracts, that the level of indemnification that can be obtained
will be meaningful, that such indemnification agreements will be enforceable or
that the customer will be financially able to comply with its indemnity
obligations.
In 1994, 1995, and 1996, the Company contracted with 80, 75 and 102
customers, respectively. Applied Drilling Technology Inc., a provider of turnkey
drilling services, accounted for 11.2% of total revenues in 1994. Maraven, S.A.
accounted for 11.3% of total revenues in 1995. Applied Drilling Technology, Inc.
accounted for 12.4% of total revenues in 1996. No other customer accounted for
more than 10% of total revenues in any such period.
With the entry of the Company into the drillship market, Petrobras, which
has contracted for the use of the Peregrine I and Peregrine II, is expected to
become one of the most important customers of the Company.
RELATED OIL AND GAS ACTIVITIES
The Company has in the past entered into arrangements whereby it contracted
to provide a rig and related services in connection with the acquisition of a
working interest in a well. In some cases such an arrangement would provide for
a day rate structured to cover the Company's variable costs, with the Company
acquiring a working interest in the well in lieu of the difference between such
costs and the Company's normal rates. The Company has also in some cases
participated as a working interest owner in connection with providing a rig and
related services under a normal dayrate structure. Generally, these arrangements
are entered into only where the Company believes the standard day rate contract,
without any investment obligations as a working interest owner, would not be
available to the Company. In addition, the Company, through a subsidiary, has
engaged in the development of drilling prospects in the general areas of the
Company's barge drilling operations and, in one instance, has participated with
several other companies in the funding of seismic activities on an oil and gas
drilling prospect in South Louisiana. The Company's expenditures and commitments
to date for the prospect development and funding of these activities have been
limited to an aggregate of approximately $2.2 million. The Company has not yet
received any revenues from oil and gas production and has no current plans to
make any material additional commitments for such activities, as the Company
intends to devote its resources to the further growth of its drilling and
workover operations.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
The Company's business is affected by domestic and foreign laws relating to
the energy industry in general and the marine drilling industry in particular.
To the extent these laws materially restrict oil and gas exploration or make it
less economical, the Company's business would in all likelihood be adversely
affected.
Public interest in the protection of the environment has increased
dramatically in recent years, particularly in the United States, where the
Company derives a majority of its revenues. Drilling in certain areas has been
opposed by environmental groups and, in certain areas, has been restricted. To
the extent laws are enacted or other governmental action is taken that prohibits
or restricts drilling or imposes environmental protection requirements that
result in increased costs to the oil and gas industry in general and the
drilling industry in particular, the business and prospects of the Company could
be adversely affected.
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The transition zone and shallow-water areas of the U.S. Gulf Coast, where
the Company's operations are concentrated, are ecologically sensitive.
Environmental issues have led to higher drilling costs, a more difficult and
lengthy well permitting process and, in general, have adversely affected
decisions of the oil companies to drill in these areas. U.S. laws and
regulations applicable to the Company's operations include those controlling the
discharge of materials into the environment, requiring removal and cleanup of
materials that may harm the environment, or otherwise relating to the protection
of the environment. For example, as an operator of drilling rigs in navigable
U.S. waters and certain offshore areas, the Company may be liable for damages
and costs incurred in connection with spills or discharges of oil or other
substances for which it is held responsible. The discharge of oil or other
substances in a wetland or inland waterway could produce substantial damage to
the environment, including wildlife and ground water. Laws and regulations
protecting the environment have become more stringent in recent years, and may,
in certain circumstances, impose "strict liability," rendering a person liable
for environmental damage without regard to negligence or fault on the part of
such person. Such laws and regulations may expose the Company to liability for
the conduct of or conditions caused by others, or for acts of the Company that
were in compliance with all applicable laws at the time such acts were
performed. The application of these requirements or the adoption of new
requirements could have a material adverse effect on the Company.
The Federal Water Pollution Control Act of 1972, commonly referred to as
the Clean Water Act ("CWA") prohibits the discharge of certain substances into
the navigable waters of the United States without a permit. The regulations
implementing the CWA require permits to be obtained by an operator before
certain exploration activities occur. Violations of monitoring, reporting and
permitting requirements can result in the imposition of civil and criminal
penalties. The provisions of the Clean Water Act can also be enforced by
citizen's groups.
The Oil Pollution Act of 1990 ("OPA") amends certain provisions of the CWA
and other statutes as they pertain to the prevention of and response to
hazardous substances and oil spills into navigable waters. CWA, OPA and
regulations promulgated pursuant thereto impose a variety of regulations on
"responsible parties" related to the prevention of oil spills and the regulation
and restriction of the discharge of other materials and liability for damages
resulting from such spills and discharge. A "responsible party" includes the
owner or operator of a facility or vessel, or the lessee or permittee of the
area in which an offshore facility is located. CWA and OPA assign liability to
each responsible party for removal costs of oil and other discharged materials
and a variety of public and private damages. While liability limits apply in
some circumstances, a responsible party for an offshore facility must pay all
removal costs incurred by a federal, state or local government. Few defenses
exist to the liability imposed by CWA and OPA. CWA and OPA also impose ongoing
requirements on a responsible party. The Company has to date been able to comply
with these financial responsibility requirements, but there is no assurance that
it will be able to do so in the future or that compliance will not increase its
cost of doing business.
OPA requires the Minerals Management Service to promulgate regulations to
implement the financial responsibility requirements for offshore facilities,
which regulations could have the effect of increasing significantly the amounts
of financial responsibility that oil and gas operators and drilling contractors
must demonstrate in order to comply with OPA. These regulations could make it
more difficult for drilling contractors to drill in U.S. waters.
The Outer Continental Shelf Lands Act authorizes regulations relating to
safety and environmental protection applicable to lessees and permittees
operating on the Outer Continental Shelf. Specific design and operational
standards may apply to Outer Continental Shelf vessels, rigs, platforms,
vehicles and structures. Violations of environmental-related lease conditions or
regulations issued pursuant to the Outer Continental Shelf Lands Act can result
in substantial civil and criminal penalties as well as potential court
injunctions curtailing operations and the cancellation of leases. Such
enforcement liabilities can result from either governmental or citizen
prosecution.
The Company believes it is in material compliance with applicable federal,
state, local and foreign legislation and regulations relating to environmental
controls. However, the existence of such laws and regulations has had and will
continue to have a restrictive effect on the Company and its customers.
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OPERATING RISKS AND INSURANCE
The Company's business is subject to operating risks that include fires,
well blowouts, explosions, collapse of rigs, capsizing of rigs under transport,
equipment failures, and accidents that occur both with and without negligence.
These events may result in damage to or loss of the Company's equipment,
personal injury and loss of life, pollution, and loss of revenues due to
unavailability of equipment. As a protection against operating hazards, the
Company maintains broad insurance coverage, including all-risk physical damage,
employer's liability, comprehensive commercial general liability and workers'
compensation insurance. The Company's current insurance program includes
coverage for well control, cratering, seepage, and pollution coverage for Outer
Continental Shelf Lands Act statutory obligations. Each form of coverage
provides for a deductible for the account of the Company, as well as a maximum
limit of liability. Each casualty is an occurrence, and there may be more than
one such occurrence on a well, each of which would be subject to a separate
deductible. The Company believes that it is adequately insured for public
liability and property damage to others with respect to its operations. However,
such insurance may not be sufficient to protect the Company against liability
for all consequences of well disasters, extensive fire damage or damage to the
environment. The Company also carries insurance to cover physical damage to or
loss of its drilling rigs. No assurance can be given that the Company will be
able to maintain the type and amount of coverage that it considers adequate. The
Company does not maintain business interruption insurance. Thus physical damage
to a rig, even if substantially covered by insurance, would result in loss of
revenue while the rig is repaired, which loss would not be insured.
EMPLOYEES
The Company emphasizes employee safety, training and retention. Through its
various acquisitions, the Company has retained many experienced personnel. The
number of employees varies depending on the level of drilling activity. As of
December 31, 1996, the Company employed approximately 2,896 persons,
approximately 2,413 of whom were hourly employees. There are no collective
bargaining contracts covering the Company's domestic employees in effect. Of the
Company's employees, 364 persons are employed in Venezuela, all of whom are
covered by the Collective Labor Contract of the Venezuelan Petroleum Industry.
The Company believes its relations with its employees are good.
The recent increase in rig utilization has resulted in increased demand for
the personnel necessary to operate the rigs. The Company has experienced delays
in placing rigs in service due to the shortage of qualified personnel. The
increased demand for labor may in the future result in increases in the
compensation the Company is required to pay to attract and retain qualified
personnel. In order to expand its pool of qualified personnel, the Company has
sometimes placed extra personnel on certain of its rigs in order to have them
gain experience. The cost of these extra personnel is borne by the Company, and
increases its operating costs.
ITEM 2. PROPERTIES.
RIG FLEET
The Company's actively marketed drilling rig fleet at March 1, 1997
consisted of 28 barge drilling rigs, ten barge workover rigs, 16 jackup rigs,
three submersible rigs, and five drillships. In addition, at such date the
Company owned two barge drilling rigs being refurbished for active service, 14
cold-stacked barge drilling rigs, one cold-stacked semisubmersible, one
drillship hull, and one inactive oil/bulk/ore carrier.
There are several factors that determine the type of rig most suitable for
a particular job, the most significant of which are the marine environment,
water depth and seabed conditions at the proposed drilling location, whether the
drilling or workover is being done over a platform or other structure, and the
intended well depth. The following sets forth a brief description of the types
and capabilities of the rigs operated by the Company.
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Domestic Barge Drilling Rigs. Barge drilling rigs are mobile drilling
platforms that are submersible and are built to work in eight to 20 feet of
water. They are towed by tugboats to the drill site with the derrick lying down.
The lower hull is then submerged by flooding until it rests on the sea floor.
The derrick is then raised and drilling operations are conducted with the barge
in this position. There are two basic types of barge rigs, "posted" and
"conventional." A posted barge is identical to a conventional barge except that
the hull and superstructure are separated by 10 to 14 foot columns, which
increases the water depth capabilities of the rig.
8
<PAGE> 11
The following table provides certain information regarding the Company's
domestic barge drilling fleet as of March 1, 1997:
<TABLE>
<CAPTION>
MAXIMUM
HORSEPOWER YEAR DRILLING
RIG DRILLING EQUIPMENT/MAIN POWER RATING BUILT DEPTH(FEET) CUSTOMER(1)
--- ----------------------------- ---------- ----- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Conventional Barge Rigs for Deep Drilling
1 Skytop Brewster/Caterpillar........... 2,000 1980 20,000 LLOG
3 Mid-continent/Caterpillar(2).......... 3,000 1981 25,000 Oryx Energy
4 Oilwell/Caterpillar................... 3,000 1981 25,000 Cold Stacked
6 Mid-Continent/Caterpillar............. 3,000 1981 25,000 Cold Stacked
11 Gardner Denver/Caterpillar............ 3,000 1982 30,000 (3)
15 National/EMD.......................... 2,000 1981 25,000 Castex
21 Oilwell/Caterpillar................... 1,500 1982 15,000 Kelley Operating
25 Continental Emsco/Caterpillar......... 3,000 1976 25,000 Cold Stacked
28 Continental Emsco/Caterpillar......... 3,000 1979 30,000 Plains Resources
29 Continental Emsco/Caterpillar......... 3,000 1980 30,000 Texaco
30 Continental Emsco/Caterpillar......... 3,000 1981 30,000 Texaco
31 Continental Emsco/Caterpillar......... 3,000 1981 30,000 Texaco
32 Continental Emsco/Caterpillar......... 3,000 1982 30,000 Forman
37 National/EMD.......................... 3,000 1965 20,000 Cold Stacked
38 National/EMD.......................... 3,000 1965 20,000 Cold Stacked
Posted Barge Rigs for Deep Drilling
2 Skytop Brewster/Caterpillar........... 2,000 1980 20,000 Cold Stacked
5 National/Caterpillar.................. 3,000 1981 25,000 Cold Stacked
7 Oilwell/Caterpillar................... 2,000 1978 25,000 Flores & Rucks
8 Oilwell/Caterpillar................... 2,000 1978 25,000 Cold Stacked
9 Oilwell/Caterpillar................... 2,000 1981 25,000 Denbury
10 Oilwell/Caterpillar................... 2,000 1981 25,000 Exxon
16 National/EMD.......................... 3,000 1981 30,000 Texaco
17 National/EMD.......................... 3,000 1981 30,000 Shell Western
27 Continental Emsco/Caterpillar......... 3,000 1978 30,000 (4)
39 National/EMD.......................... 3,000 1970 30,000 Cold Stacked
41 National/EMD.......................... 3,000 1981 30,000 Cold Stacked
44 Oilwell/Superior...................... 3,000 1979 30,000 Cold Stacked
45 Oilwell/Superior...................... 3,000 1979 30,000 Cold Stacked
46 Oilwell/EMD........................... 3,000 1981 30,000 Cold Stacked
47 Oilwell/EMD........................... 3,000 1982 30,000 OTV
48 Gardner Denver/Caterpillar............ 3,000 1982 30,000 UPRC
49 Oilwell/Caterpillar................... 3,000 1980 30,000 UPRC
52 Oilwell/Caterpillar................... 2,000 1981 25,000 Trans Texas Gas
54 National/EMD.......................... 3,000 1970 30,000 Fina
55 Ideco/EMD............................. 3,000 1981 30,000 Newfield
56 National/Caterpillar.................. 2,000 1973 25,000 Enserch
57 National/Caterpillar.................. 2,000 1975 25,000 Cold Stacked
61 Mid-Continent/EMD..................... 3,000 1978 30,000 Texaco
62 Mid-Continent/EMD..................... 3,000 1978 30,000 Amerada Hess
63 Mid-Continent/EMD..................... 3,000 1978 30,000 Shell Offshore
64 Mid-Continent/EMD..................... 3,000 1979 30,000 Phillips
</TABLE>
- ---------------
(1) Rigs listed as cold stacked are not being actively marketed and are in need
of refurbishment to be activated.
(2) This rig is leased to the Company.
(3) This is a hull built in 1982 that is being completed as a barge drilling
rig.
(4) This rig is being refurbished for active service.
9
<PAGE> 12
Lake Maracaibo Barge Rigs. Rigs designed to work in Lake Maracaibo,
Venezuela, require modification to work in a floating mode in up to 150 feet of
water. The typical domestic barge is modified by widening the hull, installing a
mooring system and cantilevering the drill floor. Three of the Company's barge
rigs have been so modified and are currently operating in Lake Maracaibo,
pursuant to contracts with Maraven. After such modifications, these rigs
generally are not suitable for deployment to other locations.
The following table provides certain information regarding the Company's
Lake Maracaibo barge rigs as of March 1, 1997:
<TABLE>
<CAPTION>
DRILLING MAXIMUM
EQUIPMENT/MAIN HORSEPOWER YEAR YEAR DRILLING
RIG POWER RATING BUILT REBUILT DEPTH(FEET) CUSTOMER
--- -------------- ---------- ----- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
40 Oilwell/EMD............ 3,000 1980 1994 25,000 Maraven
42 National/EMD........... 3,000 1982 1994 25,000 Maraven
43 National/EMD........... 3,000 1982 1994 25,000 Maraven
</TABLE>
Barge Workover Rigs. Barge workover rigs typically differ from barge
drilling rigs both in the size of the hull and the capability of the drilling
equipment. Because workover operations require less pulling power and mud system
capacity, a smaller, lower capacity unit can be used. In addition, workover
rigs, which are equipped with specialized pumps and handling tools, do not
require heavy duty drill pipe. Operating costs for workover rigs are lower
because the rigs require smaller crews, use less fuel and require less repair
and maintenance. Workover rigs can also be utilized to drill shallow wells to
depths ranging from 5,000 to 12,000 feet depending upon the rig's capabilities.
The following table provides certain information regarding the Company's
workover fleet as of March 1, 1997:
<TABLE>
<CAPTION>
MAST MAXIMUM
CAPACITY YEAR WORKOVER
RIG DRAWWORKS (POUNDS) BUILT DEPTH(FEET) CUSTOMER
--- --------- ---------- ----- ----------- --------
<S> <C> <C> <C> <C> <C>
SDI Ideco H-30.................... 250,000 1990(1) 15,000 Equinox
6 Ideco H-35.................... 450,000 1978 20,000 Ensearch
7 Gardner Denver 800............ 800,000 1972 25,000 Apache
14 Skytop Brewster N95(2)........ 1,000,000 1978 30,000 Flores & Rucks
16 Mid-Continent U36A............ 550,000 1979 25,000 Stone
18 Skytop Brewster N75........... 530,000 1980 25,000 Legacy
19 Skytop Brewster N75........... 750,000 1996(1) 25,000 Undergoing repair
22 Wilson 75..................... 369,000 1991(1) 20,000 Redfish Bay Dev.
23 Mid-Continent V-914(3)........ 1,000,000 1995(1) 25,000 Grand Operating
24 National(3)................... 760,000 1978 25,000 Apache
</TABLE>
- ---------------
(1) These rigs were reconstructed on the date indicated using the existing hull.
(2) This rig is a posted barge capable of deep drilling operations, but is
currently marketed for workover activity in areas requiring a posted barge.
(3) These rigs are leased to the Company.
Offshore Bottom-Supported Rigs. The Company operates two types of offshore
bottom-supported rigs: jackups and submersibles. Jackup rigs are mobile,
self-elevating drilling platforms equipped with legs that can be lowered to the
ocean floor until a foundation is established to support the drilling platform.
The rig hull includes the drilling rig, jacking system, crew quarters, loading
and unloading facilities, storage areas for bulk and liquid materials,
helicopter landing deck and other related equipment. The rig legs may operate
independently or have a mat attached to the lower portion of the legs in order
to provide a more stable foundation in soft bottom areas. All of the Company's
jackup rigs are mat-supported rigs. Moving a rig to the drill site involves
jacking up its legs until the hull is floating on the surface of the water. The
hull is then towed to the drill site by tugboats and the legs are jacked down
until contact is made with the seabed. The jacking operation continues until the
hull is raised to the desired elevation above sea level and drilling operations
are
10
<PAGE> 13
conducted with the hull in its raised position. Certain of the Company's jackup
rigs are cantilever design, a feature that permits the drilling platform to be
extended out from the hull, allowing it to perform drilling or workover
operations over pre-existing platforms or structures. The other jackups are slot
type rigs that are configured for the drilling operations to take place through
a keyway in the hull. Jackup rigs with the cantilever feature historically have
achieved higher day rates and utilization rates.
A submersible rig is a mobile drilling platform that is towed to the drill
site and submerged to drilling position by flooding the lower hull until it
rests on the sea floor, with the upper deck above the water surface. After
completion of the drilling operation, the rig is refloated by pumping the water
out of the lower hull, after which it may be towed to another location. The
Company's submersible rigs are cantilever design.
The following is a summary of the Company's offshore bottom-supported fleet
at March 1, 1997:
<TABLE>
<CAPTION>
MAXIMUM MAXIMUM
WATER DRILLING
DEPTH DEPTH YEAR
RIG RIG DESCRIPTION (FEET) (FEET) BUILT CUSTOMER
--- --------------- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C>
Slot type Mat-Supported Jackup Rigs
Falrig 17 Bethlehem JU-250MS 250 25,000 1974 ADTI
Falrig 18 Bethlehem JU-250MS 250 25,000 1978 Zilkha
Falrig 19 Bethlehem JU-250MS 250 25,000 1978 ADTI
Falrig 20 Bethlehem JU-250MS 250 25,000 1982 ADTI
Falrig 82 Baker Marine BMC 200MS 200 25,000 1978 Sonat
Falrig 83 Bethlehem JU-250MS 250 25,000 1978 Global Marine
Falrig 84 Bethlehem JU-250MS 250 25,000 1975 ADTI
Achilles Baker Marine BMC 250MS 200 25,000 1981 Triton
Sea Hawk Bethlehem JU-250MS 250 25,000 1976 King Ranch
Taurus Bethlehem JU-250MS 250 25,000 1976 Undergoing Repair
Cantilevered Mat-Supported Jackup
Rigs
Phoenix I Bethlehem JU-200MC 200 25,000 1981 ADTI
Phoenix II Bethlehem JU-200MC 200 25,000 1982 Houston Exploration
Phoenix III Bethlehem JU-200MC 200 25,000 1981 ADTI
Phoenix IV Bethlehem JU-200MC 200 25,000 1981 Petsec
Falrig 85 Bethlehem JU-200MC 200 25,000 1979 Unocal
Falrig 86 Bethlehem JU-200MC 200 25,000 1980 ADTI
Cantilevered Submersible Rigs
Rig 203 Pace 85G 85 30,000 1983 BP Venezuela
Falrig 77 Donhaiser Marine DMI85 85 30,000 1983 Undergoing Repair
Falrig 78 Donhaiser Marine DMI85 85 30,000 1983 ADTI
</TABLE>
Except for Rig 203, which was operating in Venezuela, and FALRIG 83, which
was operating offshore West Africa, all of the above rigs were located in the
U.S. Gulf of Mexico at March 1, 1997.
The Company's offshore bottom-supported rigs, like most of the rigs with
which they compete, were constructed during the last drilling boom, which ended
about 1982. The average age of the Company's offshore bottom-supported fleet is
approximately 17.5 years. With increasing age, the likelihood that a rig will
require major repairs in order to remain operational increases. The Company
expects that repair and maintenance of its offshore bottom-supported rigs will
require increasing amounts of capital, and will result in such rigs being
unavailable for service from time to time. During any such period of repair to a
rig, the Company will not earn revenues from such rig, but will continue to
incur a substantial portion of the costs that would be incurred while the rig is
operating.
Drillships. A drillship is a self-propelled ship specifically outfitted for
drilling operations. Many of the drillships built after 1975 featured a dynamic
positioning system which allows the ship to position itself over the well site
through the use of thrusters controlled by a satellite navigation system. The
prior generation of drillships, often called "conventionally moored" drillships,
are anchored over the well site and thus are
11
<PAGE> 14
generally more limited in terms of water depth than dynamically positioned
drillships. Drillships typically are able to carry more supplies on board than
semisubmersible rigs, which frequently makes them better suited for drilling in
locations where resupply is difficult. However, drillships are limited to areas
of calmer water conditions than those in which semisubmersibles can operate, and
thus cannot compete with semisubmersibles in areas with harsh environments, such
as the North Sea.
The Company currently operates five drillships, four of which it owns and
one of which (Falcon Ice) it leases (with an option to purchase). A summary of
the Company's drillship fleet at March 1, 1997, is as follows:
Peregrine I is a dynamically positioned drillship contracted to
Petrobras for five years, for work offshore Brazil. The Peregrine I was
purchased by the Company in September 1995, and was extensively refurbished
and upgraded. The refurbishment and upgrade costs of the Peregrine I far
exceeded the Company's original estimates, and completion thereof was
substantially delayed. The vessel was mobilized to Brazil in the fourth
quarter of 1996, but as of March 1997, the Company continued to experience
difficulties in getting the vessel fully operational. The dayrate at March
1, 1997 was approximately $50,800 per day. The vessel is designed to drill
in water depths up to 7,000 feet.
Peregrine II is a dynamically positioned drillship purchased by the
Company in February 1996. It is contracted to Petrobras through August
1998, for work offshore Brazil, at a day rate of $44,900 per day. During
the period in 1996 that the vessel was owned by the Company, it had a 91%
utilization rate. The vessel is capable of drilling in water depths up to
3,300 feet.
Peregrine III is a dynamically positioned drillship purchased by the
Company in May 1996. It contracted to affiliates of Shell and Exxon for a
series of wells offshore West Africa. The Company estimates that these
wells will occupy the vessel through June 1999. At March 1, 1997, the
vessel was in Cape Town undergoing an upgrade and is expected to return to
service by May 1, 1997. The vessel will operate under its current contracts
at dayrates ranging from approximately $62,000 to $68,000. During the
period in 1996 that the vessel was owned by the Company, it had a 94%
utilization rate. The vessel is capable of drilling in water depths up to
4,200 feet.
Falcon Duchess is a conventionally moored drillship purchased by the
Company in December 1996. Following the purchase, the Company undertook
refurbishment of the vessel, and it was not placed in service until 1997.
At March 1, 1997, it was working offshore India for Vaalco Energy at a
dayrate of $52,500. The vessel is capable of drilling in water depths up to
1,500 feet.
Falcon Ice is a conventionally moored drillship. The Company leased
this drillship for a three-year term commencing in December 1996, and has
an option to purchase it at any time during the lease term. At the time the
vessel was leased by the Company, it was working offshore Indonesia under
contract with an affiliate of Arco, at a dayrate of $50,000. At March 1,
1997, it continued to work under this contract. The vessel is capable of
drilling in water depths up to 1,500 feet.
INLAND MARINE VESSELS
In connection with barge drilling and workover operations, it is necessary
to utilize other types of vessels:
- Utility barges are barges generally 100 to 120 feet in length, which are
positioned alongside the barge rig and are used (i) to store materials or
(ii) as a container in which to dump cuttings from the well bore, which
cuttings then are transported elsewhere for disposal.
- Service tugs are ships approximately 50 to 60 feet in length, having 400
to 900 horsepower, which are used to move and position utility barges and
transport materials and personnel to and from the barge rig.
- Rig moving tugs are ships approximately 60 to 70 feet in length, having
900 horsepower or greater, which are used to move barge rigs to and from
the drilling location. They can also be used to move and position utility
barges and move materials and personnel to and from the barge rig.
12
<PAGE> 15
A rig moving tug is typically used to move barge rigs and utility barges to
and from location, and is normally contracted by the hour. It may sometimes be
used in a service tug capacity if water conditions require a more powerful
vessel or if no smaller vessels are available, in which event it is normally
contracted on a dayrate basis. Once a barge rig is on location, the movement of
utility barges, supplies and personnel can normally be more economically handled
with service tugs, which are on contract throughout the operation, usually on a
dayrate basis. During drilling operations, anywhere from two to six utility
barges may be in use throughout the operation, as well as one to three service
tugs.
In a barge rig operation, the Company's customer may contract directly for
the utility barges and tugs, or may ask the Company to provide them. In the
first two months of 1997, the Company acquired, in three transactions, 35 tugs
and 29 utility barges. Although the Company expects that these assets will be
used primarily in conjunction with the Company's barge rig business, they will
also be used in other applications.
FACILITIES
The Company's headquarters occupy approximately 19,700 square feet of
office space in Houston, Texas, under a lease that expires in 2004. The
Company's barge drilling operations are located in Houma, Louisiana, and the
barge workover operations are located in Belle Chasse, Louisiana. The land at
Houma is leased under an agreement expiring in 2015 and the improvements are
owned by the Company. The lease for the Belle Chasse facility expires in 1997.
At Houma and Belle Chasse, in addition to office space, the Company maintains a
facility, including a slip, for the repair of barge rigs and drilling equipment
and a warehouse for storage of drilling supplies and equipment. The Company's
Gulf of Mexico offshore operations are located in Broussard, Louisiana, where
the Company maintains an office and a facility to repair drilling equipment and
store drilling supplies and equipment. The lease on this facility expires in
1999 but is subject to renewal for an additional five-year term at the Company's
option. In connection with its Venezuelan operations, the Company leases office
and warehouse space in Ojeda on Lake Maracaibo in Venezuela and has an office in
Maturin in the Orinoco Delta region of Venezuela. The Company owns an office and
warehouse facility in Macae, Brazil, that is used to support the Company'
drillship operations offshore Brazil. The Company leases office space in
Singapore from which it will support the operations of the Falcon Ice and Falcon
Duchess while such rigs work in southeast Asia. The Company leases a facility at
Morgan City, Louisiana and owns a facility in LaFourche Parish, Louisiana, both
of which are used in connection with its inland marine vessel operations.
ITEM 3. LEGAL PROCEEDINGS.
Various claims have been filed against the Company in the ordinary course
of business. These are primarily claims alleging personal injuries, which claims
the Company believes are covered by its insurance, subject to a deductible for
each claim, which is borne by the Company. In addition to such claims, the
Company is party to suits alleging patent infringement and breach of contract,
which are not covered by insurance. In the opinion of management, no pending
claims, actions or proceedings against the Company are expected to have a
material adverse effect on its consolidated financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
13
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company has not paid dividends and does not anticipate paying dividends
on the Common Stock in the foreseeable future. The Company expects that it will
retain all earnings for the development and growth of its business. Any future
determination as to the payment of dividends will be made in the discretion of
the Board of Directors of the Company and will depend upon the Company's
operating results, financial condition, capital requirements, general business
conditions and such other factors that the Board of Directors deems relevant.
The payment of cash dividends is restricted by the terms of the Company's bank
loan facilities and the debt instruments pursuant to which the Company's senior
notes and subordinated notes were issued.
The Company's Common Stock was traded on the NASDAQ National Market System
under the symbol "FLCN" from the Company's initial public offering in August
1995 until December 3, 1996. Since December 3, 1996, the Company's Common Stock
has been traded on the New York Stock Exchange under the symbol "FLC". The
following table sets forth for the periods indicated the high and low closing
sale prices for the Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year ending December 31, 1995
Third Quarter............................................. $13 1/2 $ 91/4
Fourth Quarter............................................ 15 1/4 97/8
Year ending December 31, 1996
First Quarter............................................. 25 5/8 12
Second Quarter............................................ 28 1/2 221/4
Third Quarter............................................. 27 7/8 20
Fourth Quarter............................................ 43 1/4 253/4
</TABLE>
As of March 21, 1997, there were 89 record holders of the Company's Common
Stock as reflected by the records of the Company's stock transfer agent. The
last sale price of the Common Stock as reported by the New York Stock Exchange
on March 21, 1997, was $35 5/8.
14
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain historical financial data relating
to the Company. The information set forth below is not necessarily indicative of
the results of future operations and should be read in conjunction with "Item
7 -- Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the notes thereto
included in Item 8 of this Report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues(1)............................ $ 9,673 $ 61,840 $138,503 $177,505 $319,341
Operating costs........................ 9,674 46,126 95,256 120,992 198,755
General and administrative
expenses(2)......................... 1,625 5,520 11,887 13,871 18,176
Depreciation........................... 1,696 2,990 9,445 16,527 28,875
------- -------- -------- -------- --------
Operating income (loss)............. (3,322) 7,204 21,915 26,115 73,535
Interest expense....................... 1,880 2,743 12,046 18,021 23,894
Amortization of deferred costs......... 158 538 690 2,140 2,902
Foreign currency translation gain...... -- -- -- (1,023) --
Other (income) expense, net............ -- (927) (1,969) (2,850) (4,815)
------- -------- -------- -------- --------
Income (loss) before taxes.......... (5,360) 4,850 11,148 9,827 51,554
Provision for income taxes............. -- 952 3,232 3,481 19,075
------- -------- -------- -------- --------
Net income (loss) before minority
interest.......................... (5,360) 3,898 7,916 6,346 32,479
------- -------- -------- -------- --------
Minority interest...................... -- -- 3,486 1,291 --
------- -------- -------- -------- --------
Net income (loss)...................... $(5,360) $ 3,898 $ 4,430 $ 5,055 $ 32,479
------- -------- -------- -------- --------
Preferred stock dividends and
accretion........................... -- 743 565 374 --
------- -------- -------- -------- --------
Net income (loss) applicable to common
shares.............................. $(5,360) $ 3,155 $ 3,865 $ 4,681 $ 32,479
======= ======== ======== ======== ========
Net income (loss) per common share..... $ (0.46) $ 0.14 $ 0.14 $ 0.16 $ 0.90
======= ======== ======== ======== ========
Shares used to compute net income
(loss) per common share............. 11,695 21,899 26,880 29,543 36,238
======= ======== ======== ======== ========
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 572 $ 6,708 $ 4,868 $ 9,016 $ 85,050
Rigs and equipment, net................ 36,124 72,655 170,823 265,608 467,962
Total assets........................... 42,515 109,994 224,146 341,023 652,042
Long-term debt and other obligations... 35,536 39,006 141,379 179,362 292,305
Total debt............................. 36,060 42,030 158,400 183,361 295,051
Redeemable preferred stock............. -- 7,432 4,145 -- --
Total stockholders' equity............. 974 31,011 34,087 115,516 273,748
</TABLE>
- ---------------
(1) The historical revenues include management fee income of $170,000,
$2,987,000 and $92,000 for the years ended December 31, 1992, 1993 and 1994,
respectively, from rigs owned by affiliates.
(2) Included in general and administrative expenses is a nonrecurring executive
bonus of $2.0 million which was granted by the Company's board of directors
to the chief executive officer in September 1994.
15
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The Company's financial condition and historical results of operations have
been significantly affected by a series of acquisitions that have resulted in
the Company's current fleet. Changes in the number of actively marketed rigs and
their geographic locations significantly affect the Company's capital
expenditure requirements, working capital requirements and results of
operations. During 1996, the Company significantly expanded its fleet and
commenced operations in Brazil, West Africa, and Southeast Asia.
Revenues. The Company's revenues are determined primarily by (a) the number
of rigs it has available for service and (b) demand for contract drilling and
workover services, which affects the utilization rates and dayrates of the
Company's active rigs.
Operating Costs. Operating costs include all direct costs and expenditures
associated with operating active rigs and stacking inactive rigs. These costs
and expenditures vary based on rig utilization and the number of rigs actively
marketed by the Company. These costs and expenditures include rig labor costs,
repair, maintenance and supply expenditures, insurance costs, mobilization costs
and other costs related to operations.
Operating Income. Changes in the Company's operating income tends to be
more directly affected by revenue factors than expense factors, for several
reasons. First, changes in dayrates directly impact revenues but do not affect
operating expenses. Second, changes in utilization rates have an immediate
impact on revenues, but in the short term do not materially impact operating
expenses, since it is not the Company's current policy to lay off employees
during short-term declines in rig utilization. Over a longer period, significant
changes in rig utilization can change the level of operating expenses from
period to period as the Company may adjust the level of its actively marketed
rig fleet and labor force to match more closely the anticipated level of demand.
Third, general and administrative expenses, which generally include the costs of
the company's shore-based support functions, do not vary significantly from
period to period unless the Company materially expands its asset base, nor do
they vary over short periods of time with changes in rig utilization.
Depreciation, which is determined by the level of the Company's capital
expenditures and depreciation practices, is another major determinant of
operating income. It is not affected by changes in dayrates or utilization
rates.
CHANGES IN FINANCIAL CONDITION
Rig acquisitions, financings completed, upgrade and refurbishment of rigs,
and cash flow generated from operations were responsible for the significant
changes in the company's financial position between December 31, 1995, and
December 31, 1996. The following are the most significant of such activities:
(1) The purchase of three drillships, the significant upgrade of a
fourth drillship, and the acquisition of spares for drillships, for an
aggregate of approximately $148 million.
(2) The purchase of one jackup drilling rig, one barge drilling rig
and one submersible drilling rig, for an aggregate of approximately $28.2
million.
(3) The upgrade or refurbishment of eight barge drilling and workover
rigs for approximately $11 million.
(4) The charter to the Company of one drillship, one jackup drilling
rig, one barge drilling rig, and two barge workover rigs.
(5) The placement of $120 million of senior unsecured notes in March
1996.
(6) The issuance and sale of 3,212,500 shares of Common Stock in
December 1996.
RESULTS OF OPERATIONS
In general, during 1996, operating results in the domestic barge drilling
and domestic offshore markets exceeded the Company's expectations, operating
results in the international shallow-water market were in line
16
<PAGE> 19
with expectations, and operating results in the domestic barge workover and
deepwater markets were below expectations. The better than expected results in
the domestic drilling barge and domestic offshore fleets were primarily the
result of higher utilization and dayrates for such rigs, reflecting the
increased drilling demand in the U.S. Gulf of Mexico market. The international
shallow-water fleet, with the majority of its rigs under long-term contracts,
was not subject to material fluctuation in dayrates and utilization rates, and
with no unanticipated operating problems, achieved results in line with
expectations. Although the domestic barge workover fleet achieved increased
revenues as a result of additional equipment being placed in service and higher
utilization rates, its overall results were below expectations, due primarily to
the inability to achieve higher dayrates and to keep costs within expectations.
The disappointing results of the deepwater fleet were attributable primarily to
the failure to have the Peregrine I fully operational when anticipated, and
higher than expected operating costs in connection with the operation of the
Peregrine II and Peregrine III.
Comparative data relating to the Company's revenues and operating expenses
by major areas of operations are listed below. The results of operations of Rig
203 and Falrig 83 are included under international shallow water drilling.
<TABLE>
<CAPTION>
1994 1995 1996
--------------- --------------- ---------------
($000) % ($000) % ($000) %
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Domestic barge drilling...................... 58,922 42.5 75,145 42.3 114,068 35.7
Domestic barge workover...................... 9,020 6.5 14,350 8.1 20,231 6.4
Domestic offshore drilling................... 63,430 45.8 56,687 31.9 114,115 35.7
International shallow-water drilling......... 7,131 5.2 31,323 17.7 37,958 11.9
Deepwater operations......................... -- -- -- -- 32,969 10.3
------- ----- ------- ----- ------- -----
138,503 100.0 177,505 100.0 319,341 100.0
======= ===== ======= ===== ======= =====
Operating costs:
Domestic barge drilling...................... 42,585 44.7 50,672 41.9 72,230 36.3
Domestic barge workover...................... 4,934 5.2 8,497 7.0 16,356 8.2
Domestic offshore drilling................... 42,536 44.6 46,102 38.1 68,072 34.3
International shallow-water drilling......... 5,201 5.5 15,721 13.0 20,230 10.2
Deepwater operations......................... -- -- -- -- 21,867 11.0
------- ----- ------- ----- ------- -----
95,256 100.0 120,992 100.0 198,755 100.0
======= ===== ======= ===== ======= =====
Rig operating income:
Domestic barge drilling...................... 16,337 37.8 24,473 43.3 41,838 34.7
Domestic barge workover...................... 4,086 9.4 5,853 10.4 3,875 3.2
Domestic offshore drilling................... 20,894 48.3 10,585 18.7 46,043 38.2
International shallow-water drilling......... 1,930 4.5 15,602 27.6 17,728 14.7
Deepwater operations......................... -- -- -- -- 11,102 9.2
------- ----- ------- ----- ------- -----
43,247 100.0 56,513 100.0 120,586 100.0
======= ===== ======= ===== ======= =====
General and administrative expenses.......... 11,887 13,871 18,176
Depreciation expense......................... 9,445 16,527 28,875
------- ------- -------
Operating income............................. 21,915 26,115 73,535
======= ======= =======
</TABLE>
Revenues. Revenues were $138.5 million, $177.5 million and $319.3 million
for 1994, 1995, and 1996, respectively. The increases in revenues were primarily
due to the acquisition and placing in service of additional drilling equipment,
and, during 1996, increases in utilization rates and dayrates in the domestic
market.
Operating Costs. Operating costs were $95.3 million, $121.0 million and
$198.8 million for 1994, 1995, and 1996, respectively. The increases in
operating costs were primarily the result of the expansion of the Company's
operations.
17
<PAGE> 20
Operating Income. Operating income was $21.9 million, $26.1 million and
$73.5 million for 1994, 1995 and 1996, respectively. The increases in operating
income were primarily attributable to the increases in revenues, partially
offset by the increases in operating costs, general and administrative expenses
and depreciation expense. The increase in general and administrative expenses
for each such year was primarily due to the increasing number of shore-based
personnel required to support the Company's growing rig fleet. Depreciation
expense increased each year as a result of the Company's expanded rig fleet.
Interest Expense. Interest expense was $12.0 million in 1994, $18.0 million
in 1995, and $23.9 million in 1996. The increasing interest expense primarily
reflects (i) the issuance by the Company of $50 million in subordinated notes in
1995, and (ii) increased borrowings during 1995 under the Company's revolving
credit facility, and (iii) the issuance by the Company of $120 million in senior
notes in 1996. Interest expense excludes interest capitalized in connection with
rig betterments of $0.6 million, $0.4 million, and $4.9 million in 1994, 1995
and 1996 respectively. The significant increase in capitalized interest in 1996
was attributable to the refurbishment and upgrade of the Peregrine I.
Amortization of Deferred Costs. Amortization of deferred costs was
$700,000, $2.1 million and $2.9 million for the years ended December 31, 1994,
1995, and 1996, respectively. The increases were due primarily to increases in
deferred financing costs associated with the Company's debt financings during
the periods.
Foreign Currency Translation Gain. In December 1995, the Venezuelan
government devalued its currency (the Bolivar). At the time of the devaluation,
the obligation of the Company payable in Bolivars exceeded the receivables of
the Company that were payable in Bolivars, and accordingly, the Company
recognized a translation gain of $1.0 million during the fourth quarter of 1995,
which has been included in other income. There were no foreign currency
translation gains or losses in 1994 or 1996.
Other Income and Expense. Other income was $2.0 million during 1994, $2.9
million in 1995 and $4.8 million in 1996. Substantially all of the other income
for all three years ended December 31, 1994, 1995 and 1996, was from gains on
the sale of surplus assets and interest income.
Net Income. Net income applicable to common shares was $3.9 million in
1994, $4.7 million in 1995 and $32.5 million in 1996. The increase in 1995 as
compared to 1994 was primarily as a result of improved operating results in the
Company's domestic barge and international shallow water drilling operations,
which more than offset a decline in the results for the Company's domestic
offshore rig fleet and increases in depreciation expense, interest expense, and
general and administrative expenses. The increase in 1996 as compared to 1995
was primarily the result of higher utilization rates and dayrates in the
domestic markets.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $18.6 million, $23.6 million
and $65.1 million for 1994, 1995 and 1996, respectively. The increases during
each year were the result of improved operating results, partially offset by an
increase in the receivables component of working capital. Operating results
improved primarily as a result of a significant expansion of the Company's
operations.
Net cash used in investing activities was $101.2 million for 1994, $113.9
million for 1995, and $207.4 million for 1996. The increase of $93.5 million
from 1995 to 1996 was primarily due to expenditures related to the expansion of
the Company's rig fleet, including approximately $148 million expended in
connection with the acquisition, upgrade and purchase of fleet spares related to
the Company's dynamically positioned deep water drillships. In addition, during
1996, the Company also expended approximately $28.2 million in connection with
the acquisition of three other drilling rigs (one barge rig, one submersible rig
and one jackup rig) and approximately $26.1 million of the purchase of
drillpipe, rig reactivations, and rig upgrades. The cost of the upgrade of the
Peregrine I substantially exceeded the Company's original estimates and
completion was approximately nine months behind schedule, due in part to delays
in equipment deliveries and technical problems with certain of the equipment
delivered.
Net cash provided by financing activities was $80.7 million for 1994, $94.7
million for 1995 and $218.4 million for 1996. The $123.7 million increase from
1995 to 1996 was primarily due (i) to the issuance by the
18
<PAGE> 21
Company of $120 million of senior notes in March 1996, and (ii) the sale of
3,212,500 shares of common stock in December 1996, which yielded net proceeds of
$108.5 million. During 1995, the Company issued $50.0 million of subordinated
notes and sold 7,425,000 shares of stock yielding net proceeds of $65.3 million.
The Company's principal financing activity in 1994 was the issuance of $110
million of senior notes.
In November 1996, the Company restructured and increased its bank credit
facilities, which now consist of (i) a $25 million revolving loan facility
secured by accounts receivable, maturing in November 1999, and (ii) a $40
million revolving loan facility secured by certain drilling rigs and
receivables, maturing in November 1998.
As of December 31, 1996, the Company had cash of approximately $85 million
and credit availability under its line of credit of $65 million. The Company
believes that its available funds, together with cash generated from operations,
will be sufficient to fund its capital expenditure program, working capital and
debt service requirements. Future commitments for capital expenditures will
depend upon market conditions and opportunities, as well as the availability of
adequate financing.
The improvement in the offshore Gulf of Mexico market during 1996 has
allowed the Company to place some of its domestic offshore rigs under term
contracts of up to one year in duration. However, the Company's domestic based
rigs are historically contracted on a well-to-well basis or on short-term
contracts which typically expire within six months. A decline in demand for oil
and gas drilling could therefore adversely impact the Company's cash flow from
operations. Should these circumstances occur and persist for a material length
of time, there could be no assurance that the Company's cash flow from
operations would remain adequate to meet its requirements and the Company would
likely scale back the scope of its operations and dispose of assets.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
Implementation of this statement in 1996 did not have an effect on the Company's
financial position or results of operations.
The FASB also issued SFAS No. 123, "Accounting for Stock Based
Compensation", effective for fiscal years beginning after December 15, 1995.
This statement allows companies to choose to adopt the statement's new rules for
accounting for employee stock-based compensation plans. For those companies who
choose not to adopt the new rules, the statement requires disclosures as to what
net income and net income per share would be if the new rules were adopted.
Management has adopted the disclosure requirements in 1996.
19
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF FALCON DRILLING
COMPANY, INC.
Report of Independent Public Accountants.................. 21
Consolidated Balance Sheets as of December 31, 1995 and
1996................................................... 22
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996....................... 23
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996....................... 24
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1994, 1995 and 1996........... 26
Notes to Consolidated Financial Statements................ 27
</TABLE>
20
<PAGE> 23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Falcon Drilling Company, Inc.:
We have audited the accompanying consolidated balance sheets of Falcon
Drilling Company, Inc. (a Delaware corporation) (Falcon) and subsidiaries as of
December 31, 1995 and 1996 and the related consolidated statements of
operations, cash flows and stockholders' equity for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of Falcon's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Falcon Drilling Company,
Inc. and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 13, 1997
21
<PAGE> 24
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
-------- --------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 9,016 $ 85,050
Accounts receivable, net of allowance for doubtful
accounts of $375 and $1,471 at December 31, 1995 and
1996, respectively..................................... 38,000 71,591
Other current assets...................................... 4,888 9,933
-------- --------
Total current assets.............................. 51,904 166,574
EQUIPMENT AND PROPERTY:
Drilling rigs and equipment............................... 295,004 520,025
Vessels and other equipment............................... 3,903 6,803
-------- --------
298,907 526,828
Less -- Accumulated depreciation.......................... (33,299) (58,866)
-------- --------
265,608 467,962
OTHER ASSETS, net........................................... 23,511 17,506
-------- --------
Total assets...................................... $341,023 $652,042
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.................. $ 31,326 $ 53,903
Income tax payable........................................ 141 413
Debt due within one year.................................. 3,999 2,746
-------- --------
Total current liabilities......................... 35,466 57,062
LONG-TERM DEBT, less current portion........................ 179,362 292,305
DEFERRED INCOME TAXES....................................... 10,679 28,927
COMMITMENTS AND CONTINGENCIES............................... -- --
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares
authorized, 35,244,384 and 39,285,473 shares issued and
outstanding at December 31, 1995 and 1996,
respectively........................................... 352 393
Preferred stock, no par value, 526,489 shares of all
Series authorized, none issued and outstanding at
December 31, 1995 and 1996............................. -- --
Additional paid-in capital................................ 112,853 238,565
Accumulated earnings...................................... 2,311 34,790
-------- --------
Total stockholders' equity........................ 115,516 273,748
-------- --------
Total liabilities and stockholders' equity........ $341,023 $652,042
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE> 25
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
OPERATING REVENUES.......................................... $138,503 $177,505 $319,341
COSTS AND EXPENSES:
Operating costs........................................... 95,256 120,992 198,755
General and administrative expenses....................... 11,887 13,871 18,176
Depreciation.............................................. 9,445 16,527 28,875
-------- -------- --------
OPERATING INCOME............................................ 21,915 26,115 73,535
OTHER (INCOME) EXPENSE:
Interest expense.......................................... 12,046 18,021 23,894
Amortization of deferred costs............................ 690 2,140 2,902
Foreign currency translation gain......................... -- (1,023) --
Other income, net......................................... (1,969) (2,850) (4,815)
-------- -------- --------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST............ 11,148 9,827 51,554
INCOME TAX PROVISION........................................ 3,232 3,481 19,075
-------- -------- --------
INCOME BEFORE MINORITY INTEREST............................. 7,916 6,346 32,479
MINORITY INTEREST........................................... 3,486 1,291 --
-------- -------- --------
NET INCOME.................................................. 4,430 5,055 32,479
PREFERRED STOCK DIVIDENDS AND ACCRETION..................... 565 374 --
-------- -------- --------
NET INCOME APPLICABLE TO COMMON SHARES...................... $ 3,865 $ 4,681 $ 32,479
======== ======== ========
NET INCOME PER COMMON SHARE................................. $ 0.14 $ 0.16 $ 0.90
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE> 26
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 4,430 $ 5,055 $ 32,479
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization.......................... 10,135 18,667 31,777
Realized gain on sale of assets........................ (1,337) (962) (2,290)
Minority interest in earnings of subsidiary............ 3,486 1,291 --
Provision for deferred income taxes.................... 1,643 3,481 18,248
Foreign currency translation gain...................... -- (1,023) --
Changes in assets and liabilities --
Accounts receivable, trade, net...................... (8,446) (6,251) (33,591)
Other assets, less deposits for rigs and equipment... (5,026) (283) (4,420)
Accounts payable and accrued liabilities............. 13,746 3,582 22,849
-------- -------- --------
Net cash provided by operating activities......... 18,631 23,557 65,052
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and property....................... (50,348) (104,138) (217,145)
(Deposits) refunds of deposits for drillpipe, rigs and
equipment, net......................................... -- (11,155) 6,505
Proceeds from sale of equipment and property.............. 2,550 3,201 3,208
Distribution for minority owner's interest in Blake
Workover............................................... -- (1,804) --
Purchase of FALRIG Offshore Inc., net of cash acquired.... (25,389) -- --
Purchase of FALRIG Offshore (USA), L.P., net of cash
acquired............................................... (28,015) -- --
-------- -------- --------
Net cash used in investing activities............. (101,202) (113,896) (207,432)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt.......................................... 120,000 50,000 120,000
Payments of outstanding debt.............................. (35,288) (19,071) (3,310)
Borrowings pursuant to revolving credit facility.......... 5,000 28,000 67,000
Payments of amounts borrowed pursuant to revolving credit
facility............................................... -- (28,000) (72,000)
Issuance of common stock, net............................. -- 70,423 110,753
Debt issuance costs....................................... (5,130) (2,125) (4,029)
Redemption of preferred stock............................. (3,500) (3,500) --
Dividends on preferred stock.............................. (351) (1,019) --
-------- -------- --------
Net cash provided by financing activities......... 80,731 94,708 218,414
-------- -------- --------
EFFECT OF EXCHANGE RATES ON CASH............................ -- (221) --
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (1,840) 4,148 76,034
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 6,708 4,868 9,016
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 4,868 $ 9,016 $ 85,050
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE> 27
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid............................................. $ 6,925 $ 17,488 $ 25,803
Income taxes paid......................................... 2,125 -- 1,139
Purchase of FALRIG Offshore, Inc., net of cash acquired --
Equipment and property................................. (36,005) -- --
Accounts receivable, net............................... (3,850) -- --
Other current assets................................... (85) -- --
Accounts payable and accrued liabilities............... 1,247 -- --
Income taxes payable................................... 1,584 -- --
Deferred income taxes.................................. 11,720 -- --
-------- -------- --------
Net cash used for acquisition..................... (25,389) -- --
Noncash investing and financing activities --
Issuance of common stock for purchase of rigs and
equipment.............................................. -- -- 15,000
Issuance of common stock for purchase of 50% of Blake
Workover and one barge rig............................. -- 6,325 --
Debt issuance for rig acquisition......................... 11,700 -- --
Issuance of common stock for debt cancellation............ 605 -- --
Warrants exercised for shares of common stock and debt
cancellation........................................... 4 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE> 28
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE
COMMON STOCK PREFERRED STOCK ADDITIONAL ACCUMULATED
------------------- ----------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
---------- ------ ------- ------- ---------- -----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.......... 15,545,100 $155 25,989 $14,328 $ 21,365 $(4,837)
NET INCOME.......................... -- -- -- -- -- 4,430
ISSUANCE OF COMMON STOCK FOR
CONVERSION OF SUBORDINATED DEBT... 212,700 2 -- -- 603 --
WARRANTS EXERCISED FOR SHARES OF
COMMON STOCK...................... 164,700 2 -- -- 2 --
EXCESS OF COST OF ASSETS ACQUIRED
FROM STOCKHOLDERS IN EXCESS OF
STOCKHOLDER'S HISTORICAL NET BOOK
VALUE............................. -- -- -- -- -- (1,398)
DIVIDENDS AND ACCRETION OF
REDEEMABLE PREFERRED STOCK........ -- -- -- -- -- (565)
---------- ---- ------- ------- -------- -------
BALANCE, December 31, 1994.......... 15,922,500 159 25,989 14,328 21,970 (2,370)
NET INCOME.......................... -- -- -- -- -- 5,055
CONVERSION OF SERIES A CONVERTIBLE
PREFERRED STOCK................... 7,796,700 78 (25,989) (14,328) 14,250 --
ISSUANCE OF COMMON STOCK............ 7,425,000 75 -- -- 65,225 --
ISSUANCE OF COMMON STOCK FOR
PURCHASE OF BUSINESS AND ASSETS... 702,778 7 -- -- 6,318 --
ISSUANCE OF COMMON STOCK FOR
EXERCISE OF WARRANTS AND
OPTIONS........................... 3,397,406 33 -- -- 5,090 --
DIVIDENDS AND ACCRETION OF PREFERRED
STOCK............................. -- -- -- -- -- (374)
---------- ---- ------- ------- -------- -------
BALANCE, December 31, 1995.......... 35,244,384 352 -- -- 112,853 2,311
ISSUANCE OF COMMON STOCK............ 3,212,500 32 -- -- 108,424 --
ISSUANCE OF COMMON STOCK FOR
PURCHASE OF ASSETS................ 392,157 4 -- -- 14,996 --
NET INCOME.......................... -- -- -- -- -- 32,479
ISSUANCE OF COMMON STOCK FOR
EXERCISE OF WARRANTS AND
OPTIONS........................... 436,432 5 -- -- 2,292 --
---------- ---- ------- ------- -------- -------
BALANCE, December 31, 1996.......... 39,285,473 $393 -- $ -- $238,565 $34,790
========== ==== ======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE> 29
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Business
Falcon Drilling Company, Inc., a Delaware corporation, and its subsidiaries
(collectively Falcon or the Company) are primarily engaged in domestic and
international oil and gas contract drilling and workover operations for oil and
gas companies and turnkey operators. The accompanying consolidated financial
statements include the accounts of Falcon Drilling Company, Inc., its
wholly-owned subsidiaries and its controlled subsidiaries. Intercompany accounts
and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, all liquid investments with
maturities at date of purchase of three months or less are considered cash
equivalents.
Equipment and Property
Equipment and property are stated at cost. Depreciation of drilling rigs,
vessels and equipment is provided on the straight-line method over their
remaining estimated useful lives from the date the rigs are acquired by Falcon,
including periods when the rigs are in a nonoperating status. Falcon anticipates
being required to refurbish significantly and modify some of its rigs in order
to operate in international and domestic drilling markets. At December 31, 1996,
drilling rigs and other related equipment with a carrying value of $17,758,000
were held in a nonoperating status pending modification and decisions regarding
their deployment. Such assets are being depreciated, and management believes
market value exceeds their net book value.
Routine maintenance and repairs are charged to operations as incurred;
significant betterments are capitalized. Interest capitalized in connection with
significant betterments totaled $647,000, $405,000 and $4,921,000 in 1994, 1995,
and 1996, respectively. Falcon incurred $14,716,905, $19,052,904 and $30,424,554
in repair and maintenance expense in 1994, and 1995 and 1996 respectively. The
costs of assets sold, retired or otherwise disposed of are removed from the
accounts at the time of disposition, and any resulting gains or losses are
reflected in the period's results of operations. Drilling rigs are depreciated
over an estimated useful life of 15 years. Vessels and other equipment are
depreciated over estimated lives of three to five years.
Other Assets
Falcon has incurred costs and paid fees in connection with Falcon's various
financing arrangements as discussed in Note 5. These costs, primarily legal
fees, underwriters costs and loan commitment fees, have been deferred and are
included in other assets at December 31, 1996 and are being amortized into the
results of operations over the term of the related financing instruments. Also
included in other assets is approximately $3.1 million in costs associated with
the mobilization of three barge rigs to Venezuela pursuant to an agreement with
Maraven (Note 3). Falcon is amortizing these costs over the five year term of
the agreement which began in January 1995.
27
<PAGE> 30
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Falcon sold two barge drilling rigs to a third party during 1995 for a
price of $4 million for which Falcon received credits towards the future
purchase of drillpipe. Unused credits of $2.6 million were included in other
assets at December 31, 1995. All credits were fully utilized as of December 31,
1996.
Revenue Recognition
Falcon recognizes revenue from operations on the basis of the number of
days worked at the contractual day rate.
Foreign Joint Venture
Falcon and an unrelated entity created a joint venture which engages in
drilling operations under contracts with a subsidiary of the Venezuelan
stated-owned oil company. In 1992, Falcon agreed to transfer two of its barge
rigs and certain related equipment into the foreign corporations in exchange for
$3 million in cash, two $1.5 million noninterest-bearing notes and stock
representing a 37.5% interest in the entity owning and operating the rigs.
Falcon used the cash received to repay $3 million of the debt outstanding on the
rigs and equipment. The Venezuelan joint venture borrowed $14.5 million from a
foreign bank which was utilized to refurbish the barge rigs. This bank loan is
secured by the barge rigs. Repayment of the venture's outstanding debt is
contingent upon the venture realizing positive cash flow from its contracts with
a subsidiary of the Venezuelan state-owned oil company. Falcon accounts for its
interests in the Venezuelan joint venture under the cost method as it does not
exercise significant influence over the venture. During the year ended December
31, 1994, Falcon received cash distributions of $279,000 which Falcon recorded
as a reduction of the investment in the joint venture. During the year ended
December 31, 1995, Falcon had received additional cash distributions of
$1,565,000 of which $600,000 were recorded by Falcon to reduce its investment in
the joint venture to zero and $965,000 are included in revenues in the
consolidated statement of operations for the year ended December 31, 1995.
Falcon received additional cash distributions of $1,195,000 during 1996 which
are included in revenues in the consolidated statement of operations for the
year ended December 31, 1996.
Net Income Per Common Share
Net income per share of common stock has been computed on the basis of the
weighted average number of common shares outstanding during the period and,
where dilutive, the effect of common stock contingently issuable, which arises
primarily from the exercise of stock options and warrants and the conversion of
certain subordinated notes and convertible preferred stock. The weighted average
number of common shares and common share equivalents outstanding during the
years ended December 31, 1994, 1995 and 1996 are 26,879,719, 29,593,096 and
36,237,638, respectively. Accrued dividends on the Series B redeemable preferred
stock as well as the accretion of the difference between the value of the Series
B redeemable preferred stock at the date of issue and the redemption value have
been deducted from net income for purposes of calculating net income applicable
to common stock. Fully diluted earnings per share are considered to be equal to
primary earnings per share in all periods presented because the effects of
potentially dilutive securities that are not common stock equivalents were
either antidilutive or immaterial.
Foreign Currency Translation
Falcon accounts for foreign currency translations in accordance with
Statement of Financial Accounting Standards No. 52 "Foreign Currency
Translation." The U.S. dollar is the functional currency for Falcon's foreign
operations. Foreign currency exchange gains and losses are included in other
income as incurred. Net foreign currency exchange gains amounted to $1.0 million
in 1995. There were no significant foreign currency exchange gains or losses in
1994 or 1996.
28
<PAGE> 31
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". The statement
sets forth guidelines regarding when to recognize an impairment of long-lived
assets, including goodwill, and how to measure such impairment. Adoption of this
statement during the current year did not have a significant effect on the
Company's financial statements.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). The statement establishes a fair value based method of
accounting for stock-based compensation plans. The Company adopted certain
disclosure requirements required by this statement as further discussed at Note
6.
Reclassification
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. ACQUISITIONS AND EXPANSION OF RIG FLEET
Business Combinations
In January 1994, the Company completed a series of acquisitions funded
through proceeds received from the 9 3/4% Note offering (see Note 5). These
included Falcon's acquisition of the equity interest of the FALRIG Corporation
for a purchase price of approximately $25 million. Previously in 1992, Falcon
had negotiated the purchase of four jackup rigs from the offshore drilling
division of Teledyne, Inc. for a cash purchase price of $4.1 million and
transferred these rights to the FALRIG Corporation. In January 1994, Falcon
completed the acquisition of the FALRIG Corporation and began consolidating the
operating results of the FALRIG Corporation as of January 24, 1994. Taladro
Associates (Taladro), a general partnership composed of three parties, two of
whom were officers of Falcon and two of whom were also directors of Falcon, who
each own approximately equal percentages of Taladro, held a 4.3 percent
contingent profit participation interest in the net proceeds of the sale of
stock of the FALRIG Corporation which resulted in payment of approximately
$583,000 to Taladro.
During the second quarter of 1994, Falcon acquired a 50% interest in Blake
Workover & Drilling Company (Blake Workover). Blake Workover acquired four barge
workover rigs and associated assets from Blake Drilling & Workover Co., Inc.
(Blake Drilling). The purchase price of the four rigs and associated assets
purchased from Blake Drilling was $5,750,000, of which $2,750,000 was paid in
cash and the remaining $3,000,000 was evidenced by a note from Blake Workover to
Blake Drilling. Falcon leased two workover barge rigs to Blake Workover pursuant
to a three-year zero cost bareboat charter in exchange for its 50% interest and
an undertaking from Blake Workover to refurbish these rigs. The acquisition of
the remaining 50% interest in Blake Workover and certain crewboats and tugboats
utilized in the business of Blake Workover was completed on August 15, 1995
through the issuance of 638,889 shares of Falcon's common stock and cash of $6.8
million, which included the retirement of debt outstanding of $2.3 million.
29
<PAGE> 32
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following presents the unaudited pro forma results of operations of
Falcon for the years ended December 31, 1994 and 1995, as if the above-described
acquisitions of the FALRIG Corporation, Blake Workover and certain crewboats and
tugboats used in the business of Blake Workover had occurred on January 1, 1994
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1995
---------- ----------
(UNAUDITED)
<S> <C> <C>
Pro forma operating revenues................................ $143,589 $177,505
Pro forma income before income taxes and minority
interest.................................................. 10,571 9,789
Pro forma net income applicable to common shares............ 5,757 5,496
Pro forma net income per common share....................... $ 0.20 $ 0.18
</TABLE>
The pro forma results presented above are not necessarily indicative of the
actual results that would have occurred had the acquisitions actually taken
place at the beginning of the periods presented. In addition, the pro forma
results are not intended to be a projection of future results of combined
operations.
Falcon has made numerous additions to its drilling fleet during 1994, 1995
and 1996 and has financed these acquisitions through issuances of debt and
equity securities as described in Notes 5 and 6.
Deepwater drillships
Prior to 1995, the Company's operations were focused primarily on
shallow-water drilling markets. Beginning in 1995, the Company began to target
the deepwater drilling market.
Falcon purchased the Peregrine I in September 1995 and has entered into a
contract with Petroleo Brasiliero S.A. (Petrobras) providing for the Peregrine I
to drill offshore Brazil for a five year period. In September 1996, Falcon
recorded a $2.5 million fee upon mobilization of the Peregrine I to Brazil,
which has been reflected as revenues during the year ended December 31, 1996.
The Peregrine I commenced operations in 1997, but as of March 1997 Falcon
continued to experience difficulties in getting the vessel fully operational.
Falcon purchased the Peregrine II in February 1996 and assumed a drilling
contract with Petrobras which expires in 1998. In May 1996, Falcon purchased the
Peregrine III and assumed a series of drilling contracts which management
estimates will utilize the Peregrine III through June 1999.
In December 1996, Falcon purchased a conventionally moored drillship, the
Falcon Duchess, for $5 million in cash and $15 million in shares of Company
common stock. Additionally in December 1996, Falcon leased a conventionally
moored drillship, the Falcon Ice, for a three year term.
In December 1996, Falcon purchased a substantially completed drillship hull
which will require substantial costs to complete as an operational drillship.
Management does not intend to undertake the completion of this hull until Falcon
has obtained a long-term commitment for the use of the completed drillship.
Acquisitions Subsequent to December 31, 1996
During the first two months of 1997, the Company acquired 35 tugs and 29
utility barges, for an aggregate purchase price of $23.4 million. These assets
are used primarily in connection with the Company's domestic barge drilling and
workover operations. In addition, in January 1997, the Company purchased for
$7.5 million an inactive oil/bulk/ore carrier. The Company is evaluating
conversion of this vessel to a dynamically positioned drillship.
30
<PAGE> 33
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SEGMENT, CONCENTRATION OF CREDIT RISKS AND MAJOR CUSTOMERS:
Falcon operates in one principal business segment, diversified contract
drilling and workover services. Operations are conducted in the U.S. Gulf of
Mexico and related coastal areas and in various foreign locations including
Venezuela, Brazil, Australia, and West Africa.
Since late 1994, Falcon has operated two barge drilling rigs and a workover
barge rig in Venezuela under contract with Maraven, S.A., a state-owned oil
company. These contracts have a five year term expiring in 1999.
Revenues, operating income and identifiable assets of the respective
operations are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues --
United States.................................... $131,280 $146,182 $248,415
Venezuela........................................ 4,923 31,323 36,068
Offshore Brazil.................................. -- -- 16,123
Other Non-U.S.................................... 2,300 -- 18,735
-------- -------- --------
Total.................................... $138,503 $177,505 $319,341
======== ======== ========
Operating income (loss) --
United States.................................... $ 20,643 $ 16,318 56,506
Venezuela........................................ 1,794 9,797 10,616
Offshore Brazil.................................. -- -- 3,445
Other Non-U.S.................................... (522) -- 2,968
-------- -------- --------
Total.................................... $ 21,915 $ 26,115 $ 73,535
======== ======== ========
Identifiable assets --
United States.................................... $175,267 $263,845 $341,301
Venezuela........................................ 48,879 77,178 106,415
Offshore Brazil.................................. -- -- 128,238
Other Non-U.S.................................... -- -- 76,088
-------- -------- --------
Total.................................... $224,146 $341,023 $652,042
======== ======== ========
</TABLE>
The market for Falcon's service is the oil and gas industry, and Falcon's
customers consist primarily of major oil and gas companies (including
government-owned companies) and turnkey operators. Falcon's credit risks
primarily consist of accounts receivable from such customers. Management
performs ongoing credit evaluations of its customers and provides allowances for
credit losses when necessary.
Major customers are those that individually account for more than 10% of
Falcon's total operating revenues. Applied Drilling Technology, Inc. accounted
for 11.2% of operating revenues for the year ended December 31, 1994. Maraven,
S.A. accounted for 11.3% of operating revenues for the year ended December 31,
1995 and Applied Drilling Technology, Inc. accounted for 12.4% of operating
revenues in 1996. No other customer accounted for more than 10% of revenues in
any such period.
4. INCOME TAXES:
Falcon follows Statement of Financial Accounting Standards No. 109 (SFAS
No. 109), "Accounting for Income Taxes." Under SFAS No. 109, the tax provision
is determined based upon the liability method in which deferred tax assets and
liabilities are recognized based on differences between the financial statement
and tax basis of assets using enacted tax rates.
31
<PAGE> 34
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 109 provides in part that a deferred tax asset shall be evaluated
for realization based on a more likely than not criteria using a valuation
allowance. No valuation allowance was required at December 31, 1995 and 1996.
The components of the net deferred tax liability are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Deferred tax liabilities --
Excess of book basis of equipment and property over tax
basis.................................................. $25,118 $45,557
Other..................................................... 313 530
------- -------
25,431 46,087
------- -------
Deferred tax assets --
Net operating loss carryforwards and other tax credit
carryforwards.......................................... 14,323 15,172
Accrued expenses not currently deductible................. 429 1,988
------- -------
Subtotal............................................. 14,752 17,160
------- -------
Net deferred tax liability........................... $10,679 $28,927
======= =======
</TABLE>
The components of the income tax provision are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------ ------ -------
<S> <C> <C> <C>
Federal --
Current............................................... $ -- $ -- $ --
Deferred.............................................. 2,413 1,056 15,236
State --
Current............................................... -- -- 139
Deferred.............................................. 63 686 1,631
Foreign --
Current............................................... 756 -- 688
Deferred.............................................. -- 1,739 1,381
------ ------ -------
$3,232 $3,481 $19,075
====== ====== =======
</TABLE>
Included in the deferred federal tax provisions are the following: excess
of tax depreciation expense over book depreciation expense, expenses accrued for
financial statement purposes which are not yet deductible for tax purposes, and
other benefits which have been reduced by the tax benefit of the U.S. net
operating loss carryforward created. In August 1995, Falcon acquired the
remaining 50% interest in Blake Workover and certain crewboats and tugboats
utilized in the business of Blake Workover (Note 2). The tax effect of the $3.9
million excess of net assets acquired for financial statement purposes over the
related tax basis was recorded as a deferred tax liability as of December 31,
1995.
32
<PAGE> 35
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of federal statutory and effective income tax rates for
each of the three years ended December 31, 1996, is shown below.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory rate.............................................. 35% 35% 35%
State income taxes, net of federal income tax benefit....... 1 6 2%
Foreign income taxes, net of federal income tax benefit..... 6 - -
-- -- --
Effective rate.............................................. 42% 41% 37%
== == ==
</TABLE>
As of December 31, 1995 and 1996, Falcon's net operating losses (NOLs) for
income tax purposes were $40,235,000 and $43,349,000, respectively (tax effect
$14,323,000, and $15,172,000 respectively). These tax NOLs expire from 2006
through 2010 if not utilized before such dates. At December 31, 1996, Falcon had
U.S. foreign tax credit carryforwards of $688,000.
5. LONG-TERM DEBT:
Falcon had the following debt outstanding as of December 31, 1995 and 1996
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
<S> <C> <C>
8 7/8% Senior Notes, due 2003............................... -- $120,000
9 3/4% Senior Notes, due 2001............................... $110,000 110,000
Floating Rate Senior Notes, bearing interest at LIBOR plus
3.5%, redeemable in varying amounts beginning in 1998..... 10,000 10,000
12 1/2% Subordinated Notes, due 2005........................ 50,000 50,000
Borrowings pursuant to revolving loan facilities............ 5,000 --
Secured promissory note payable to Grace Offshore Company,
bearing interest at 8.7%, secured by certain FALRIG
Partnership jackup rigs, principal payments of $1,667 due
March 31, 1997 and 1998................................... 5,000 3,333
Note payable to a bank, noninterest-bearing through August
16, 1994 and at LIBOR plus 1.5% through maturity at
December 31, 1999......................................... 1,969 689
Notes payable by affiliates, secured by certain rigs,
bearing interest at 7.0%, due in varying amounts
commencing July 1994 with final payment due June 30,
1999...................................................... 1,392 1,029
-------- --------
183,361 295,051
Less -- Amounts due within one year......................... (3,999) (2,746)
-------- --------
$179,362 $292,305
======== ========
</TABLE>
Pursuant to an offering in March 1996, Falcon issued $120 million principal
amount of 8 7/8% Senior Notes (the 8 7/8% Notes), resulting in net proceeds of
approximately $116 million to Falcon after deducting offering-related expenses.
The 8 7/8% Notes mature on March 15, 2003, and bear interest at a rate of
8 7/8%, payable semiannually on March 15 and September 15 of each year beginning
September 15, 1996. The 8 7/8% Notes are unsecured obligations of Falcon,
ranking pari passu in right of payment with all other senior indebtedness of
Falcon, and senior in right of payment to all subordinated indebtedness of
Falcon. The 8 7/8% Notes are not guaranteed by any of Falcon's subsidiaries, and
thus are structurally subordinated to the 9 3/4% Notes (defined below) and other
indebtedness of the subsidiaries. Further, they are effectively subordinated to
any secured indebtedness of Falcon to the extent of the collateral securing such
secured indebtedness.
33
<PAGE> 36
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to an offering in January 1994, Falcon issued $110 million
principal amount of 9 3/4% Senior Notes (the 9 3/4% Notes). The 9 3/4% Notes
mature on January 15, 2001, and bear interest at a rate of 9.75%, payable
semiannually on January 15 and July 15. Falcon used a portion of the proceeds to
finance a series of previously planned transactions, including the prepayment of
certain outstanding debts and the consummation of certain acquisitions.
On February 23, 1994, Falcon issued $10 million of Floating Rate Notes
which bear interest at LIBOR plus 3.5%. The principal amounts of the Floating
Rate Notes are due in payments of $1,000,000, $2,000,000 and $2,000,000 on the
fourth, fifth and sixth years following issuance, respectively, with the balance
due January 24, 2001.
The 9 3/4% Notes and the Floating Rate Notes are guaranteed by certain of
Falcon's Subsidiaries (see Note 11).
Pursuant to an offering in March 1995, Falcon issued $50 million principal
amount of Subordinated Notes (the Subordinated Notes), resulting in net proceeds
of approximately $48 million to Falcon after deducting offering-related expenses
of approximately $2 million. The Subordinated Notes mature on March 15, 2005,
and bear interest at a rate of 12.5%, payable semiannually on March 15 and
September 15.
The indentures pursuant to which the 8 7/8% Notes, 9 3/4% Notes, and the
Subordinated Notes were issued (i) provide that Falcon may redeem such
obligations at a premium at certain times prior to maturity, (ii) require Falcon
to offer to redeem such obligations at a premium if there is a change of control
of Falcon (as defined), and (iii) impose restrictions on certain actions by
Falcon, including payment of dividends, incurrence of debt, pledging of assets,
sale of assets, and investment.
On September 12, 1994, Falcon established a revolving credit facility with
commercial banks providing for borrowings of up to $25.0 million subject to
adequate levels of eligible accounts receivable, which amounts borrowed are
secured by Falcon's accounts receivable. Falcon had borrowings outstanding under
this credit facility of $5.0 million at December 31, 1995. This facility, as
amended, provided that amounts borrowed bore interest at floating rates based on
LIBOR plus 2 1/2% or 1% over the greater of the prime rate or the federal funds
rate plus 1/2%. In November 1996 this facility was replaced by the facilities
described in the following paragraph.
In November 1996, Falcon entered into agreements with its commercial bank
lenders to increase its bank credit facilities up to $65 million consisting of
(i) a $25 million revolving loan facility secured by accounts receivable,
maturing in November 1999, and (ii) a $40 million revolving loan facility
secured by certain drilling rigs and receivables, maturing in November 1998. At
December 31, 1996, there were no borrowings outstanding under either facility.
Both facilities require Falcon to meet certain tests related to its net worth,
interest coverage ratio, and current ratio, and place restrictions on dividends
and investments by Falcon. The $25 million facility provides for interest at
LIBOR plus 1% to 1 1/2% (depending on outstanding borrowings) or the greater of
prime or 1/2% over the federal funds rate. The $40 million facility provides
for interest at LIBOR plus 2% or the greater of prime plus 1/2% or the federal
funds rate plus 1%. Falcon was required to pay one-time fees to the banks in the
aggregate amount of $525,000 in order to implement the facilities, and pays a
commitment fee on each facility equal to 3/8% per annum of the unused portion of
the facility.
In February 1996, pursuant to another agreement, Falcon borrowed $20
million from one of the banks that provides Falcon's revolving credit facility.
The amounts borrowed bore interest at prime plus 1% and were payable on the
earlier of December 31, 1996 or upon completion of a capital market transaction,
as defined. In February 1996, Falcon paid fees of $300,000 in connection with
obtaining this loan. In March 1996, Falcon repaid the $20 million indebtedness
with proceeds from the issuance of the 8 7/8% Notes due 2003 described above.
34
<PAGE> 37
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The annual maturities of the debt outstanding at December 31, 1996 are
$2,746,000 in 1997, $3,084,000 in 1998, $2,221,000 in 1999, $2,000,000 in 2000,
$115,000,000 in 2001, and $170,000,000 thereafter.
Falcon estimates the fair value of its debt obligations to be $308,440,000
compared to a historical value of $295,051,000, both as of December 31, 1996.
6. STOCKHOLDERS' EQUITY:
COMMON STOCK
In 1994, the board of directors of Falcon approved (a) an amendment of
Falcon's certificate of incorporation increasing the authorized shares of
Falcon's common stock to 28,500,000 shares and (b) a stock split effected in the
form of a stock dividend of 299 shares of common stock for each outstanding
share of common stock of Falcon. Accordingly, share amounts presented for all
periods have been restated to reflect the stock dividend.
In June 1995, the board of directors of Falcon approved an amendment of
Falcon's certificate of incorporation (a) increasing the authorized shares of
Falcon's common stock to 100,000,000 shares and (b) increasing the authorized
shares of Falcon's preferred stock to 526,489 shares.
On July 28, 1995, Falcon, a participating stockholder and a group of
underwriters entered into an agreement resulting in the initial public sale by
Falcon of 4,250,000 shares of common stock and the sale of 750,000 shares of
common stock by the participating shareholder. The initial public offering
closed on August 2, 1995 and resulted in net proceeds to Falcon of $34.4 million
after deducting offering-related expenses of $3.9 million.
In September 1995, Falcon purchased a barge drilling rig for a purchase
price of $1,275,000 consisting of cash of $700,000 and 63,889 shares of Falcon's
Common Stock.
On November 15, 1995, Falcon, participating stockholders and a group of
underwriters entered into an agreement resulting in the public sale of 3,175,000
shares of common stock by Falcon and the sale of 2,000,000 shares of common
stock by selling shareholders. The public offering closed on November 21, 1995
and resulted in net proceeds to Falcon of $30.9 million after deducting
offering-related expenses of approximately $2.4 million.
On December 9, 1996, Falcon, participating stockholders and a group of
underwriters entered into an agreement resulting in the public sale of 3,212,500
shares of common stock by Falcon and the sale of 4,680,000 shares of common
stock by selling shareholders. The public offering closed on December 13, 1996
and resulted in net proceeds to Falcon of $108.5 million after deducting
offering-related expenses of approximately $5.5 million.
PREFERRED STOCK
Falcon has 526,489 shares of preferred stock, no par value, authorized. The
board of directors has the authority to issue the unissued shares of preferred
stock and to establish the designation and terms thereof. In January 1993,
Falcon issued to the S-C Interests, 25,989 shares of Series A convertible
preferred stock, 1,000 shares of Series B redeemable preferred stock, and a
shadow warrant to purchase up to 1,847,100 shares of common stock at an exercise
price of $.01 per share in full satisfaction of a $15 million advance and for
$6,993,843 in cash. Offering expenses of $314,000 and $672,000 related to the
Series A convertible preferred stock and Series B redeemable preferred stock,
respectively, were deducted from the proceeds of the issuance of the preferred
stock. Through 1993, Falcon had an agreement with another affiliate to pay an
investment services fee of three percent of capital placed by the affiliate;
$660,000 was paid in connection with the preferred stock sale and treated as
expenses of the offering.
35
<PAGE> 38
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Series A convertible preferred stock was converted into 7,796,700
shares of Falcon's common stock in connection with Falcon's initial public
offering on August 2, 1995.
The Series B redeemable preferred stock (a) was entitled to an annual cash
dividend of $700 per share from January 29, 1993, through December 31, 1995,
which was payable in one installment on December 31, 1995, (b) had a liquidation
preference equal to $7,000 per share plus all unpaid accrued dividends, (c) was
redeemable at the option of Falcon at any time for a redemption price of $7,000
per share plus all accrued and unpaid dividends and, if redeemed after December
31, 1995, the redemption price was to be increased by an amount equal to 2.5%
per quarter on the balance of any unpaid redemption price, (d) was redeemable at
the option of the holder at any time on or after December 31, 1995, at a
redemption price of $7,000 per share plus any accrued unpaid dividends, plus an
amount equal to 2.5% of any unpaid redemption price per quarter beginning
December 31, 1995, and (e) was secured by a junior mortgage on a portion of
Falcon's barge rig fleet. The difference between the redemption value of $7,000
and the value of the Series B redeemable preferred stock at the date of issue
was accreted by a ratable charge to retained earnings during the redemption
period until redeemed.
Falcon elected to redeem 500 shares of its Series B redeemable preferred
stock in January 1994 for $3.9 million, including accrued dividends of
approximately $351,000 as of the redemption date. Upon the redemption of the 500
shares of Series B redeemable preferred stock, the junior mortgage on a portion
of the barge rig fleet was released by the holder of the remaining 500 shares of
Falcon's Series B redeemable preferred stock. On December 27, 1995, Falcon
redeemed the remaining 500 outstanding shares of Series B redeemable preferred
stock for $4,520,000 including accrued dividends.
WARRANTS
In 1992, Falcon issued (a) 2,800 Class A warrants, each of which
represented the right to purchase 300 shares of Falcon's common stock for $3.33
per share, and (b) 2,600 Class B warrants, each of which represented the right
to purchase 600 shares of Falcon's common stock at an exercise price of $3.33
per share. The exercise price of the Class A and B warrants was adjusted to
$2.42 per share subsequent to their issuance. Two hundred Class A warrants were
exercised on July 31, 1993, while 1,200 Class A warrants expired on such date.
During 1995, 1,400 Class A warrants, and 2,600 Class B warrants, were exercised.
At December 31, 1995 and 1996, no Class A or Class B warrants were outstanding.
In connection with the sale of preferred stock to the S-C Interests in
January 1993, Falcon issued a shadow warrant exercisable for up to an aggregate
of 1,847,100 shares of Falcon's common stock at a purchase price of $.01 per
share of common stock. Such warrant is exercisable only to the extent that
certain other warrants, options and convertible securities of Falcon are
exercised or converted. The aggregate number of shares for which the shadow
warrant was exercisable by the S-C Interests was reduced to 1,567,100 shares
upon the expiration of 1,200 of the Class A warrants and the exercise of 200
Class A warrants on July 31, 1993, as discussed above. On March 31, 1994,
various convertible subordinated debtholders exercised options to convert
$605,000 in convertible subordinated debt for 212,700 shares of common stock and
holders of bonus warrants (issued in connection with the prepayment of
convertible subordinated debt) exercised such warrants. In connection therewith,
150,900 shares of common stock were issued under the shadow warrant.
Additionally, rights to acquire 94,692 shares of common stock pursuant to the
shadow warrant expired during 1994. As a result of the exercise of the Class A
and Class B warrants in 1995, 1,320,006 shares of common stock were issued
pursuant to the shadow warrant. The number of shares for which the shadow
warrant was exercisable at December 31, 1996 was 1,508.
Certain members of the Mullen Group, who owned approximately 50 percent of
the FALRIG Corporation (Note 2), held warrants to purchase an aggregate of
120,000 shares of common stock of Falcon at an exercise price of $3.33 per
share. During 1995, 60,000 warrants were exercised. The remaining options were
exercised in the fourth quarter of 1996.
36
<PAGE> 39
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the prepayment of certain convertible debt in January
1993, bonus warrants to acquire approximately 16,000 shares of common stock were
issued to an executive of Falcon, the owners of Taladro (Note 2), and a third
party. Bonus warrants to purchase approximately 13,800 shares of common stock
were exercised in March 1994 by the executive of Falcon and the owners of
Taladro. The third party's bonus warrants to purchase approximately 2,300 shares
of common stock remain outstanding at December 31, 1996 and expire on December
31, 1997 if not previously exercised.
STOCK OPTION PLANS
At December 31, 1996, Falcon had stock options outstanding under three
stock-based compensation plans, which are described below. Falcon applies
Accounting Principles Board Opinion 25 and related Interpretations in accounting
for these plans. Accordingly, no compensation cost has been recognized for its
option plans when the exercise price of the respective options was greater than
or equal to the fair market value of the stock at the date of the grant. Had
compensation cost for Falcon's 1995 Stock Option Plan been determined based on
the fair value at the grant dates for awards under this plan consistent with the
method outlined under SFAS No. 123, Falcon's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
------ -------
<S> <C> <C>
Net income applicable to common shares
As reported............................................... $4,681 $32,479
Pro forma................................................. 4,527 $31,348
Net income per common share
As reported............................................... $ .16 $ .90
Pro forma................................................. $ .15 $ .87
</TABLE>
The effects of applying SFAS No. 123 in the pro forma disclosure may not be
indicative of future amounts. SFAS No. 123 does not apply to options awarded
prior to 1995 and additional awards in future years may occur. The fair value of
each option grant under the pro forma presentation above was estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1995 and 1996: no expected
dividends; expected volatility of 56.4 percent, risk-free interest rate of 5.73
percent; and expected lives of ten years for the options.
Falcon adopted, effective January 1, 1992, a stock option plan (1992 Stock
Option Plan) pursuant to which an aggregate of 495,000 incentive stock options
or nonqualified stock options were granted to directors, officers and employees
of Falcon on November 10, 1992. These options vested immediately. The exercise
price of these stock options range from $3.33 to $3.70 per share, which was the
estimated fair market value of the stock at the date of grant. An aggregate of
37,400 and 258,100 of these options were exercised during 1995 and 1996
respectively leaving 199,500 options outstanding at December 31, 1996.
In 1994, the board of directors of Falcon authorized the grant of options
to purchase an aggregate of 285,000 shares to certain members of management of
Falcon (1994 Stock Option Plan). Such options entitle the option holder to
purchase one share of Falcon's common stock, vest in one-third increments over
three years, expire in January 2004, and have an exercise price of $10 per share
which was the estimated fair market value of the stock at the date of grant.
During 1996, 105,000 of these options were exercised leaving 180,000 options
outstanding at December 31, 1996.
On February 16, 1995, the board of directors adopted a third stock option
plan covering up to 500,000 shares of common stock (the 1995 Stock Option Plan),
and granted options under the plan to purchase an aggregate of 125,000 shares to
directors, officers and employees of Falcon. These options vest in one-third
increments over a three-year period beginning on the date of grant, expire in
2005 and have an exercise price
37
<PAGE> 40
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of $10 per share, which was the estimated fair market value of the stock at the
date of grant. In January 1996, an additional 140,000 options were granted under
the plan to officers of Falcon at an exercise price of $12.13 per share, which
was the estimated fair market value of the stock at the date of grant. These
options vest in one-third increments over a two-year period beginning on the
date of grant, and expire in 2006. In April 1996, an additional 75,000 options
were granted to an officer of Falcon at an exercise price of $19.44 per share,
which was $6.69 per share below the estimated fair market value of the stock at
the date of grant. These options vest over a five year period commencing April
1996, and expire in 2006. During 1996, 13,332 of the options granted under the
1995 Stock Option Plan were exercised leaving 326,668 options outstanding at
December 31, 1996.
In February 1997 Falcon granted 129,000 options under the 1995 Stock Option
Plan at an exercise price of $25 per share, which was $5.88 per share below the
estimated fair market value of the stock on the date of the grant. Of these
options, 25,000 were granted to a director and vested immediately, 30,000 were
granted to executive officers and vest ratably in the third, fourth, and fifth
years after the date of the grant, and 74,000 were granted to non-officer
employees and vest ratably in the third, fourth and fifth years following the
date of the grant.
For all options granted with an exercise price less than the fair market
value of the underlying shares on the date of the option grant, Falcon records
compensation expense during the vesting period for such options, based upon the
difference between the exercise price and the fair market value of the
underlying shares as of the date of grant.
7. COMMITMENTS AND CONTINGENCIES:
LEGAL PROCEEDINGS
Falcon is currently involved in various lawsuits and other contingencies
arising out of operations in the normal course of business. Most, but not all of
these claims involve personal injuries and are covered by the Company's
insurance, subject to a deductible. Falcon is also the subject of suits alleging
claims based on patent infringement and breach of contract, which claims are not
covered by insurance. In the opinion of management, uninsured losses, if any, in
excess of those accrued will not have a material adverse effect on Falcon's
consolidated financial position or results of operations.
SELF INSURANCE
Falcon is self-insured for the deductible portion of its insurance
coverage. In the opinion of management, adequate accruals have been made based
on known and estimated exposures up to the deductible portion of Falcon's
insurance coverages. Management believes that future claims and liabilities in
excess of the amounts accrued are fully insured.
EMPLOYMENT AGREEMENTS
Falcon has multiyear employment agreements with several of its officers.
The employment agreements with Falcon's officers provide for annual salaries and
discretionary bonuses to be determined by the board of directors.
401(k) PLAN AND MEDICAL PLAN
On October 1, 1993 Falcon adopted a contributory 401(k) savings plan for
its domestic employees. The plan provides that employees may contribute up to
16% of pretax earnings up to designated amounts and Falcon may elect to match
such contributions at its discretion. Falcon incurred $461,000, $522,000 and
$960,000 in such expenses in 1994, 1995 and 1996 respectively. On January 1,
1994, Falcon adopted an employee-funded medical, life and disability insurance
plan.
38
<PAGE> 41
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING LEASES
Falcon leases certain facilities and equipment under operating leases.
Falcon also enters into charters with drilling rig and vessel owners which may
have variable payment terms depending on whether the leased rig or vessel is
operating. Total lease expense on drilling rigs and vessels was $6,363,860,
$6,134,465 and $9,671,204 for the years ended December 31, 1994, 1995 and 1996,
respectively. Falcon incurred total rental expenses exclusive of leased rigs and
vessels of $2,078,856, $2,201,948, and $3,547,281 during the years ended
December 31, 1994, 1995, and 1996, respectively. Aggregate minimum future annual
rental commitments under unaffiliated noncancelable operating leases with lease
terms in excess of one year as of December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997........................................................ $10,062,128
1998........................................................ 10,410,946
1999........................................................ 9,416,728
2000........................................................ 1,078,404
2001........................................................ 223,404
</TABLE>
COMMITMENTS RELATING TO CERTAIN RIGS
Falcon has entered into an agreement to purchase three barge drilling rigs
for an approximate cost of $5.25 million. At December 31, 1996, Falcon had a
deposit of approximately $500,000 under this agreement which has been included
in other assets. Falcon has recently commenced a legal action to enforce its
rights under that contract. Management of Falcon believes the deposit on these
rigs is refundable should the delivery of these rigs not be accomplished.
In connection with the acquisition of certain barge drilling rig operations
in 1992, Falcon entered into contingent profits interest agreements with the
former rig owners and former mortgage holder. The periods for determination of
these payments began in 1993 and continue through 1997, or until payment of $5
million has been made.
In May 1996, Falcon completed the purchase of the Peregrine III (a
dynamically positioned drillship) (see Note 2). Management has committed to
spend an additional $7 million in 1997 on upgrades of the Peregrine III,
pursuant to agreements with the operators that will result in an increase in
dayrates under the existing drilling contracts for such vessel.
In December 1996, Falcon purchased a substantially completed drillship hull
for approximately $8.0 million. Management estimates that it will cost
approximately $120 million to complete the construction necessary for this hull
to become an operational drillship. Falcon currently has no construction
obligations relative to this hull. Management does not intend to undertake the
completion of this hull until Falcon has obtained a long-term commitment for the
use of the completed drillship and arranged for financing of the construction.
Pursuant to certain of Falcon's long term drilling contracts, the operator
may purchase three of Falcon's barge drilling rigs for specified prices which
decrease each year through 1999. Management of Falcon estimates that the option
price will be less than the carrying value for one of these rigs by
approximately $880,000 in 1998, and that the aggregate option price for the
three rigs will be below the aggregate carrying value for such rigs by
approximately $1.2 million and $3.5 million in 1998 and 1999, respectively.
Management does not expect the purchase option to be exercised and will continue
to evaluate the net book value of these rigs for possible future impairment.
Falcon has made certain commitments to its customers in the normal course
of business whereby Falcon has agreed to make enhancements and additions of
equipment to certain of its drilling rigs. Generally, Falcon's customers agree
to increase the day rate paid to the Company for making enhancements.
39
<PAGE> 42
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OIL AND GAS EXPLORATION JOINT VENTURE
Falcon from time to time enters into arrangements whereby it contracts to
provide a rig and related services in connection with the acquisition of a
working interest in a well. Generally, these arrangements are entered into only
where Falcon believes a standard day rate contract, without any investment
obligations as a working interest, would not be available to Falcon.
During 1994, a subsidiary of Falcon (Raptor) acquired an interest in a
joint venture engaged in the development of drilling prospects in the general
areas of Falcon's barge drilling operations and, in one instance, has
participated with several other companies in the funding of seismic activities
in south Louisiana. Falcon utilizes the full cost method of accounting for its
oil and gas activities. Included in other assets at December 31, 1995 and 1996
are $2.8 million and $1.7 million, respectively, of Falcon's expenditures for
its share of the funding of the exploratory efforts of the joint venture. In
June 1996, the joint venture distributed these properties to Raptor and the
other joint venturer, and Raptor sold a portion of the distributed properties
for $1.2 million cash and a promissory note of approximately $700,000. The
promissory note bears interest at two percent over prime, and is due June 1,
1999, or earlier based upon revenues generated by the properties. There is
currently no production from the properties sold. Falcon has no remaining
funding commitments to these properties as a result of the sale. During the year
ended December 31, 1994, approximately $873,000 was charged to operating expense
relating to certain wells which were discovered to be nonproducing wells. There
were no charges to operating expense from nonproducing wells during 1995 or
1996.
Future participation in the development of oil and gas prospects and
related activities will depend in large part upon the availability of cash flows
and cash balances in excess of Falcon's needs to fund its obligations and
further growth in its basic contract drilling business, as well as upon future
determinations by Falcon as to the attractiveness of such other activities.
LIQUIDITY
Liquidity of Falcon should be considered in light of the significant
fluctuations in demand experienced by drilling contractors as rapid changes in
oil and gas producers' expectations and budgets occur. These fluctuations can
rapidly impact Falcon's liquidity as supply and demand factors directly affect
utilization and day rates, which are the primary determinants of cash flow from
Falcon's operations.
Falcon believes that its available funds, together with cash generated from
operations and amounts that may be borrowed under the revolving credit agreement
will be sufficient to fund its capital expenditures, working capital and debt
service requirements for the remainder of 1997. Future cash flows are subject to
a number of uncertainties, particularly the condition of the oil and gas
industry and the related drilling activity in Falcon's markets. There can
therefore be no assurance that these resources will continue to be sufficient to
fund Falcon's cash requirements.
8. QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for the four quarters ended December
31, 1995 and 1996, is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
UNAUDITED THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues................... $41,217 $39,419 $47,977 $48,892 $56,134 $73,946 $90,885 $98,376
Operating costs...................... 31,313 31,735 34,213 37,602 38,145 47,634 55,532 57,444
Depreciation......................... 3,604 3,802 4,296 4,825 6,033 7,045 7,761 8,036
Income (loss) before income taxes and
minority interest.................. 2,118 (246) 5,217 2,738 1,715 9,414 17,512 22,913
Net income (loss) applicable to
common shares...................... 894 (639) 2,920 1,506 995 6,016 11,033 14,435
Net income (loss) per common share... $ .03 $ (.04) $ .10 $ .04 $ .03 $ .17 $ .31 $ .39
</TABLE>
40
<PAGE> 43
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. ADDITIONAL BALANCE SHEET AND STATEMENT OF OPERATIONS INFORMATION:
Other current assets include the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ ------
<S> <C> <C>
Insurance claim receivables................................. $ -- $4,506
Worker compensation insurance receivables................... 2,600 1,847
Prepaid insurance........................................... 1,125 879
Short-term investments...................................... 842 --
Other....................................................... 321 2,701
------ ------
$4,888 $9,933
====== ======
</TABLE>
Other assets include the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------- -------
<S> <C> <C>
Deferred financing costs.................................... $ 8,295 $13,230
Deposits on drillpipe, rigs, and equipment.................. 11,763 4,121
Deferred mobilization costs................................. 3,100 3,100
Oil and gas properties...................................... 2,821 1,652
Other....................................................... -- 773
------- -------
$25,979 $22,876
Less Accumulated Amortization............................... (2,468) (5,370)
------- -------
Other assets, net........................................... $23,511 $17,506
======= =======
</TABLE>
Accounts payable and accrued liabilities include the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------- -------
<S> <C> <C>
Accounts payable, trade..................................... $15,891 $23,465
Accrued interest............................................ 7,136 10,148
Accrued payroll............................................. 1,763 2,617
Accrued sales taxes......................................... 1,640 1,161
Accrued worker compensation claims.......................... 1,225 3,398
Other....................................................... 3,671 13,114
------- -------
$31,326 $53,903
======= =======
</TABLE>
Other income (expense) includes the following items (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Interest income............................................. $1,036 $1,118 $1,262
Gain on sale of assets...................................... 1,337 962 2,290
Other....................................................... (404) 770 1,263
------ ------ ------
$1,969 $2,850 $4,815
====== ====== ======
</TABLE>
41
<PAGE> 44
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED PARTY TRANSACTIONS:
The former owners of a company acquired by Falcon in 1992, who are also
officers of Falcon, lease crewboats, tugboats and supply barges and other
vessels to Falcon at a contracted bareboat rate of $100 per day for crewboats
and tugboats and $60 per day for other vessels, with Falcon responsible for
drydocking, painting and repairs. The former owners received revenues of
$829,000, $866,000, and $881,000 respectively, for the years ended December 31,
1994, 1995 and 1996.
A director and stockholder of Falcon was a partner through mid-1994 in a
law firm which provided legal services to Falcon and certain of its affiliated
entities. Fees paid by Falcon to this law firm were $501,000 in the year ended
December 31, 1994. The director became a partner in a new law firm during
mid-1994. Fees paid by Falcon to this new law firm were $282,000, $1,141,000 and
$555,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
A director of Falcon who performs financial consulting services for Falcon
from time to time and is also an officer of Raptor Exploration Company, Inc., a
wholly-owned subsidiary of Falcon, received $161,000 and $120,000 for such
services in the years ended December 31, 1994 and 1995 respectively. In
addition, during 1996, Raptor paid such officer $90,000 for services rendered in
connection with the sale of certain assets of Raptor.
During 1994, the Company exercised an option to acquire four barge drilling
rigs from an affiliate of Falcon for a price of $7 million, consisting of $6
million cash and $1 million in assumed debt. The assets and liabilities in this
acquisition were recorded at the seller's historical net book value. The
purchase price in excess of the seller's historical cost of $1.4 million was
recorded as a reduction in Falcon's accumulated earnings.
In June 1994, Falcon entered into an agreement with Eilert-Olsen
Investments, Inc. (Eilert-Olsen), to buy the equity interest of Eilert-Olsen for
a nominal purchase price. In June of 1994, Eilert-Olsen acquired three barge
drilling rigs for a cost of approximately $2.8 million consisting of cash of
approximately $900,000 and the assumption of debt of approximately $1.9 million
secured by the three barge drilling rigs. Falcon advanced $900,000 to
Eilert-Olsen in June of 1994 and has subsequently advanced approximately
$265,000, $803,000 and $453,000 to pay principal and interest due on this debt
for the years ended December 31, 1994, 1995 and 1996, respectively. Due to
Falcon's affiliation with Eilert-Olsen, the financial statements of Eilert-Olsen
and the option to purchase Eilert-Olsen from inception have been consolidated
with the financial statements of Falcon and, accordingly, the accounts and
transactions between Falcon and Eilert-Olsen have been eliminated in
consolidation.
Through 1995, Falcon paid a quarterly fee to a privately held company
controlled by a stockholder, for financial advisory services. The fee is tied
proportionately to the aggregate total of the stockholder's equity investment in
Falcon. Falcon paid $247,000 and $126,000 for such services for the years ended
December 31, 1994 and 1995, respectively.
In 1995 and 1996, Falcon paid $478,000 and $852,925, respectively, to
Bantam Services, Inc. under a contract pursuant to which Bantam is to supply, at
cost, groceries and supplies to be used on certain of Falcon's rigs. Bantam is
entitled under the contract to bill third parties for meals and lodging supplied
to their personnel on such rigs. In the absence of such contract, Falcon would
be entitled to bill the third parties for the food and lodging provided. Bantam
is owned by an officer of Falcon Workover, a wholly-owned subsidiary of Falcon.
11. SUPPLEMENTAL GUARANTOR INFORMATION:
Falcon's obligations under the 9 3/4% Notes and Floating Rates Notes are
fully and unconditionally guaranteed by Falcon and each of Falcon's directly
held subsidiaries and certain of Falcon's indirectly held
42
<PAGE> 45
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subsidiaries on a joint and several basis. The indenture and note purchase
agreement under which the 9 3/4% Notes and Floating Rates Notes were issued
provides for acquired subsidiaries subsequent to the issuance of the 9 3/4%
Notes and Floating Rates Notes to be designated as guarantors of the 9 3/4%
Notes and Floating Rates Notes.
The indentures pursuant to which the 9 3/4% Notes, the Floating Rate Notes,
the 8 7/8% Notes and the Subordinated Notes were issued provide that 12
specified barge rigs are to be nonrecourse rigs whereby Falcon has the option to
transfer such nonrecourse barge rigs to nonguarantor subsidiaries at any time;
provided, however, that Falcon may, at its option and at any time, designate up
to two of its barge rigs in substitution for any two of the designated
nonrecourse barge rigs. In addition, up to two of Falcon's jackup rigs may be
designated nonrecourse rigs provided certain financial tests are met.
During December 1994, Falcon transferred three nonrecourse barge rigs to a
newly formed nonguarantor subsidiary, Falcon Drilling de Venezuela, Inc. During
March 1995, Falcon Drilling de Venezuela, Inc., was merged with a guarantor
subsidiary of Falcon in connection with the issuance of the Subordinated Notes,
and the three barge rigs previously designated as nonrecourse rigs ceased being
nonrecourse rigs. The following condensed consolidating financial statements are
presented for purposes of complying with the reporting requirements of the
parent company and the subsidiaries which are guarantors under the 9 3/4% Notes
and Floating Rate Notes. Falcon believes that separate financial statements and
other disclosures of the guarantors are not material.
43
<PAGE> 46
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET--DECEMBER 31, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
FALCON DRILLING GUARANTOR NONGUARANTOR
COMPANY, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............. $ 82,559 $ 2,491 $ -- $ -- $ 85,050
Accounts receivable, net............... 27,510 44,081 -- -- 71,591
Other current assets................... 130 9,803 -- -- 9,933
-------- -------- ------ --------- --------
Total current assets........... 110,199 56,375 -- -- 166,574
EQUIPMENT AND PROPERTY, net.............. 9,503 455,951 2,508 -- 467,962
OTHER ASSETS, net........................ 0 17,506 -- -- 17,506
INTERCOMPANY AND INVESTMENT IN
SUBSIDIARIES........................... 463,932 -- -- (463,932) 0
-------- -------- ------ --------- --------
Total assets................... $583,634 $529,832 $2,508 $(463,932) $652,042
======== ======== ====== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities......................... $ 19,196 $ 35,120 $ -- $ -- $ 54,316
Debt due within one year............... 689 1,667 390 -- 2,746
-------- -------- ------ --------- --------
Total current liabilities......... 19,885 36,787 390 -- 57,062
LONG-TERM DEBT, net...................... 290,000 1,667 638 -- 292,305
DEFERRED INCOME TAXES.................... -- 28,927 -- -- 28,927
STOCKHOLDERS' EQUITY:
Partnership capital.................... -- 56,672 -- (56,672) --
Common stock........................... 393 -- -- -- 393
Preferred stock, Series A.............. -- -- -- -- --
Additional paid-in capital............. 238,565 341,807 1,954 (343,761) 238,565
Accumulated earnings (deficit)......... 34,790 63,973 (474) (63,499) 34,790
-------- -------- ------ --------- --------
Total stockholders' equity..... 273,748 462,452 1,480 (463,932) 273,748
-------- -------- ------ --------- --------
Total liabilities and
stockholders' equity......... $583,633 $529,833 $2,508 $(463,932) $652,042
======== ======== ====== ========= ========
</TABLE>
44
<PAGE> 47
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET--DECEMBER 31, 1995
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
FALCON DRILLING GUARANTOR NONGUARANTOR
COMPANY, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ 141 $ 8,875 $ -- $ -- $ 9,016
Accounts receivable, net.............. 11,953 26,047 -- -- 38,000
Other current assets.................. 2,524 2,364 -- -- 4,888
-------- -------- ------ --------- --------
Total current assets.......... 14,618 37,286 -- -- 51,904
EQUIPMENT AND PROPERTY, net............. 18,598 244,313 2,697 -- 265,608
OTHER ASSETS, net....................... 137 23,374 -- 23,511
INTERCOMPANY AND INVESTMENT IN
SUBSIDIARIES.......................... 268,118 -- -- (268,118) --
-------- -------- ------ --------- --------
Total assets.................. $301,471 $304,973 $2,697 $(268,118) $341,023
======== ======== ====== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities........................ $ 8,985 $ 22,482 $ -- $ -- $ 31,467
Debt due within one year.............. 1,969 1,666 364 -- 3,999
-------- -------- ------ --------- --------
Total current liabilities..... 10,954 24,148 364 -- 35,466
LONG-TERM DEBT, net..................... 175,000 3,334 1,028 -- 179,362
DEFERRED INCOME TAXES................... 10,679 10,679
STOCKHOLDERS' EQUITY:
Partnership capital................... -- 56,672 -- (56,672) --
Common stock.......................... 352 -- -- -- 352
Additional paid-in capital............ 112,854 191,921 1,603 (193,525) 112,853
Accumulated earnings (deficit)........ 2,311 18,219 (298) (17,921) 2,311
-------- -------- ------ --------- --------
Total stockholders' equity.... 115,517 266,812 1,305 (268,118) 115,516
-------- -------- ------ --------- --------
Total liabilities and
stockholders' equity........ $301,471 $304,973 $2,697 $(268,118) $341,023
======== ======== ====== ========= ========
</TABLE>
45
<PAGE> 48
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
FALCON DRILLING GUARANTOR NONGUARANTOR
COMPANY, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES.................. $ 12,533 $306,808 $ -- $ -- $319,341
COSTS AND EXPENSES:
Operating costs................... 8,406 190,349 -- -- 198,755
General and administrative........ 542 17,634 -- -- 18,176
Depreciation...................... 759 27,927 189 -- 28,875
-------- -------- ----- -------- --------
OPERATING INCOME.................... 2,826 70,898 (189) -- 73,535
OTHER (INCOME) EXPENSE:
Interest expense.................. 23,472 331 91 -- 23,894
Other (income) expense, net....... 145 (2,058) -- -- (1,913)
Equity in income of
subsidiaries................... (45,578) -- -- 45,578 --
-------- -------- ----- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES... 24,787 72,625 (280) (45,578) 51,554
INCOME TAX PROVISION (BENEFIT)...... (7,692) 26,871 (104) -- 19,075
-------- -------- ----- -------- --------
NET INCOME (LOSS)................... $ 32,479 $ 45,754 $(176) $(45,578) $ 32,479
======== ======== ===== ======== ========
</TABLE>
46
<PAGE> 49
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
FALCON DRILLING GUARANTOR NONGUARANTOR
COMPANY, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES................... $ 11,726 $165,779 $ -- $ -- $177,505
COSTS AND EXPENSES:
Operating costs.................... 8,495 112,497 -- -- 120,992
General and administrative
expenses........................ 471 13,400 -- -- 13,871
Depreciation....................... 837 15,548 142 -- 16,527
-------- -------- ----- -------- --------
OPERATING INCOME..................... 1,923 24,334 (142) -- 26,115
OTHER (INCOME) EXPENSE:
Interest expense................... 17,103 8,191 110 (7,383) 18,021
Other (income) expense, net........ (612) (8,504) -- 7,383 (1,733)
Equity in income of subsidiaries... (14,446) -- -- 14,446 --
-------- -------- ----- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST.................. (122) 24,647 (252) (14,446) 9,827
INCOME TAX PROVISION (BENEFIT)....... (6,468) 10,052 (103) -- 3,481
-------- -------- ----- -------- --------
INCOME (LOSS) BEFORE MINORITY
INTEREST........................... 6,346 14,595 (149) (14,446) 6,346
MINORITY INTEREST.................... 1,291 -- -- -- 1,291
-------- -------- ----- -------- --------
NET INCOME (LOSS).................... $ 5,055 $ 14,595 $(149) $(14,446) $ 5,055
======== ======== ===== ======== ========
</TABLE>
47
<PAGE> 50
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
FALCON DRILLING GUARANTOR NONGUARANTOR
COMPANY, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES.................. $65,968 $68,553 $3,982 $ -- $138,503
COSTS AND EXPENSES:
Operating costs................... 47,712 44,215 3,329 -- 95,256
General and administrative
expenses....................... 10,853 1,027 7 -- 11,887
Depreciation................... 3,704 5,371 370 -- 9,445
------- ------- ------ ------- --------
OPERATING INCOME.................... 3,699 17,940 276 -- 21,915
OTHER (INCOME) EXPENSE:
Interest expense.................. 11,377 735 50 (116) 12,046
Other (income) expense, net....... (2,083) 688 -- 116 (1,279)
Equity in income of
subsidiaries................... (9,711) -- -- 9,711 --
------- ------- ------ ------- --------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST............. 4,116 16,517 226 (9,711) 11,148
INCOME TAX PROVISION (BENEFIT)...... (3,800) 6,937 95 -- 3,232
------- ------- ------ ------- --------
INCOME (LOSS) BEFORE MINORITY
INTEREST.......................... 7,916 9,580 131 (9,711) 7,916
MINORITY INTEREST................... 3,486 -- -- -- 3,486
------- ------- ------ ------- --------
NET INCOME (LOSS)................... $ 4,430 $ 9,580 $ 131 $(9,711) $ 4,430
======= ======= ====== ======= ========
</TABLE>
48
<PAGE> 51
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
FALCON DRILLING GUARANTOR NONGUARANTOR
COMPANY, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ 32,479 $ 45,754 $(176) $(45,578) $ 32,479
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities --
Equity in unconsolidated
subsidiaries........................ (45,578) -- -- 45,578 --
Depreciation and amortization......... 3,685 27,903 189 -- 31,777
Realized gain on the sale of assets... -- (2,290) -- -- (2,290)
Provision for deferred income tax..... -- 18,248 -- -- 18,248
Changes in current assets and
liabilities and intercompany
balances............................ (72,524) 57,011 351 -- (15,162)
-------- --------- ----- -------- ---------
Net cash provided by (used in)
operating activities........... (81,938) 146,626 364 -- 65,052
-------- --------- ----- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and property... (62,594) (154,551) -- -- (217,145)
Refunds on drillpipe, rigs and
equipment, net of deposits.......... 6,505 -- -- -- 6,505
Proceeds from sale of equipment and
property............................ -- 3,208 -- -- 3,208
-------- --------- ----- -------- ---------
Net cash used in investing
activities..................... (56,089) (151,343) -- -- (207,432)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt...................... 187,000 -- -- -- 187,000
Issuance of common stock, net......... 110,753 -- -- -- 110,753
Payments of outstanding debt.......... (73,279) (1,667) (364) -- (75,310)
Debt issuance costs................... (4,029) -- -- -- (4,029)
-------- --------- ----- -------- ---------
Net cash provided by (used in)
financing activities........... 220,445 (1,667) (364) -- 218,414
-------- --------- ----- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 82,418 (6,384) -- -- 76,034
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 141 8,875 -- -- 9,016
-------- --------- ----- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ $ 82,559 $ 2,491 $ -- $ -- $ 85,050
======== ========= ===== ======== =========
</TABLE>
49
<PAGE> 52
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
FALCON DRILLING GUARANTOR NONGUARANTOR
COMPANY, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................... $ 5,055 $ 14,595 $(149) $(14,446) $ 5,055
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities --
Equity in unconsolidated
subsidiaries......................... (14,446) -- -- 14,446 --
Depreciation and amortization.......... 1,075 17,450 142 -- 18,667
Realized gain on the sale of assets.... -- (962) -- -- (962)
Minority interest in earnings of
subsidiary........................... 1,291 -- -- -- 1,291
Provision for deferred income taxes.... -- 3,481 -- -- 3,481
Foreign currency translation gain...... (857) (166) -- -- (1,023)
Changes in current assets and current
liabilities and intercompany
balances............................. (88,637) 85,339 346 -- (2,952)
-------- -------- ----- -------- ---------
Net cash provided by (used in)
operating activities.......... (96,519) 119,737 339 -- 23,557
-------- -------- ----- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and property.... (5,939) (98,199) -- -- (104,138)
Deposits on drillpipe, rigs and
equipment............................ (11,155) -- -- -- (11,155)
Distribution for minority owner's
interest in Blake Workover........... -- (1,804) -- -- (1,804)
Proceeds from sale of equipment and
property............................. -- 3,201 -- -- 3,201
-------- -------- ----- -------- ---------
Net cash used in investing
activities.................... (17,094) (96,802) -- -- (113,896)
-------- -------- ----- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt....................... 50,000 -- -- -- 50,000
Payments of outstanding debt........... -- (18,732) (339) -- (19,071)
Borrowings pursuant to revolving credit
facility............................. 28,000 -- -- -- 28,000
Payments of amounts borrowed pursuant
to revolving credit facility......... (28,000) -- -- -- (28,000)
Issuance of common stock............... 70,423 -- -- -- 70,423
Debt issuance costs.................... (2,125) -- -- -- (2,125)
Redemption of preferred stock.......... (3,500) -- -- -- (3,500)
Dividends on preferred stock........... (1,019) -- -- -- (1,019)
-------- -------- ----- -------- ---------
Net cash provided by (used in)
financing activities.......... 113,779 (18,732) (339) -- 94,708
-------- -------- ----- -------- ---------
EFFECT OF EXCHANGE RATES ON CASH......... (25) (196) -- -- (221)
NET INCREASE IN CASH AND CASH
EQUIVALENTS............................ 141 4,007 -- -- 4,148
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD................................. -- 4,868 -- -- 4,868
-------- -------- ----- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................. $ 141 $ 8,875 $ -- $ -- $ 9,016
======== ======== ===== ======== =========
</TABLE>
50
<PAGE> 53
FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
FALCON DRILLING GUARANTOR NONGUARANTOR
COMPANY, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 4,430 $ 9,580 $ 131 $ (9,711) $ 4,430
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities --
Equity in unconsolidated
subsidiaries......................... (9,711) -- -- 9,711 --
Depreciation and amortization.......... 4,394 5,371 370 -- 10,135
Realized gain on the sale of assets.... (1,097) (240) -- -- (1,337)
Minority interest in earnings of
subsidiary........................... 3,486 -- -- -- 3,486
Provision for deferred income taxes.... -- 1,643 -- 1,643
Changes in current assets and current
liabilities and intercompany
balances............................. 12,247 (11,783) (190) -- 274
-------- -------- ----- -------- ---------
Net cash provided by operating
activities.................... 13,749 4,571 311 -- 18,631
-------- -------- ----- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment................. (45,955) (4,313) (80) -- (50,348)
Purchase of FALRIG Corporation......... (25,389) -- -- -- (25,389)
Purchase of FALRIG USA................. (28,015) -- -- -- (28,015)
Proceeds from sale of equipment........ 1,098 1,452 -- -- 2,550
-------- -------- ----- -------- ---------
Net cash used in investing
activities.................... (98,261) (2,861) (80) -- (101,202)
-------- -------- ----- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt....................... 120,000 -- -- -- 120,000
Payments of outstanding debt........... (34,225) (832) (231) -- (35,288)
Borrowings pursuant to revolving credit
facility............................. 5,000 5,000
Debt issuance costs.................... (5,130) -- -- -- (5,130)
Retirement of preferred stock.......... (3,500) -- -- -- (3,500)
Dividends on preferred stock........... (351) -- -- -- (351)
-------- -------- ----- -------- ---------
Net cash provided by (used in)
financing activities.......... 81,794 (832) (231) -- 80,731
-------- -------- ----- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
AND CASH EQUIVALENTS................... (2,718) 878 -- -- (1,840)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR................................... 2,718 3,990 -- -- 6,708
-------- -------- ----- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................... $ -- $ 4,868 $ -- $ -- $ 4,868
======== ======== ===== ======== =========
</TABLE>
51
<PAGE> 54
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not Applicable.
PART III
Certain information required by Part III is omitted from this Report in
that the Registrant will file its definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on May 29, 1997 pursuant to Regulation 14A of
the Securities Exchange Act of 1934 (the "Proxy Statement") not later than 120
days after the end of the fiscal year covered by this Report, and certain
information included in the Proxy Statement is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven A. Webster...................... 45 Chairman of the Board and Chief Executive
Officer
Bernie W. Stewart...................... 52 Chief Operating Officer
Robert H. Reeves, Jr................... 60 Executive Vice President
Robert F. Fulton....................... 45 Executive Vice President
Michael E. Blake....................... 38 President of the Falcon Workover Company, Inc.
Rodney W. Meisetschlaeger.............. 43 Vice President -- Offshore Operations
Steven R. Meheen....................... 40 Vice President -- Deepwater Operations
Lloyd M. Pellegrin..................... 49 Vice President -- Administration
Don P. Rodney.......................... 49 Vice President -- Finance
Leighton E. Moss....................... 46 Vice President and General Counsel
Purnendu Chatterjee.................... 46 Director(1)
Douglas A.P. Hamilton.................. 50 Director(2)
Kenneth H. Hannan, Jr.................. 55 Director(2)
James R. Latimer, III.................. 51 Director
Michael E. Porter...................... 49 Director
William R. Ziegler..................... 54 Director(1)
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Mr. Webster, a director and the Chairman, Chief Executive Officer and
Treasurer of the Company since its organization in 1991, is a founder and
original investor in the Company and its predecessors, which commenced operation
in 1988. In addition to his administrative duties, Mr. Webster has been
responsible for developing the Company's strategic plan, raising capital and
implementing its acquisition program. He serves as a director of DI Industries,
Inc.(a land drilling contractor), a director of Crown Resources Corporation (a
mining company), and as a trust manager of Camden Property Trust (a real estate
investment trust). Mr. Webster is also general partner of Equipment Asset
Recovery Fund (an investment fund).
Mr. Stewart joined Falcon in April 1996 as Chief Operating Officer. From
1993 until joining Falcon, Mr. Stewart was Chief Operating officer for Hornbeck
Offshore Services, Inc., an offshore supply boat operator, where he was
responsible for overall supervision of that company's operations. From 1986
until 1993, he was President of Western Oceanics, Inc., an offshore drilling
contractor.
Mr. Robert H. Reeves, Jr., Executive Vice President of the Company since
January 1993, is responsible for managing the Company's domestic barge rig
business. Mr. Reeves joined Two R Drilling Company, Inc. in 1961 and served as
its President from 1974 until joining the Company in December 1992.
52
<PAGE> 55
Mr. Fulton, Executive Vice President of the Company since January 1, 1995,
is the Company's chief financial officer, responsible for overseeing accounting,
financial and general administrative matters. From 1991 until joining the
Company in 1995, Mr. Fulton served as an executive officer of Chiles Offshore
Corporation (recently merged with Noble Drilling Corporation to form Noble
Offshore Corporation), most recently as Senior Vice President and Chief
Financial Officer.
Mr. Blake, President of Falcon Workover Company, Inc. since January 1996,
was president of the joint venture that had operated the Company's workover
business since its formation in April 1994 until December 31, 1996. Prior to
that time, he was president of Blake Drilling and Workover Company and certain
predecessor companies from 1986, and has been employed by companies engaged in
shallow-water barge drilling operations since 1981.
Mr. Meisetschlaeger, Vice President -- Offshore Operations of the Company
since 1993, is responsible for managing the Company's domestic offshore
operations and Venezuelan operations. He served in a similar capacity for the
Huthnance Drilling Division of W.R. Grace & Co. from 1981 until joining the
Company 1993.
Mr. Meheen, Vice President -- Deepwater Operations of the Company since
January 1995, is responsible for developing and operation of the Company's
deepwater business. Mr. Meheen has been employed in offshore operations since
1976 for Santa Fe Drilling, Maretech Pacific Ltd. and as a consultant with Mobil
Oil.
Mr. Pellegrin, Vice President -- Administration of the Company since
November 1992, has primary responsibility for administrative matters, personnel
safety and risk management. He held a similar position with Atlantic Pacific
Marine Company, where he worked from 1977 until joining the Company in 1992.
Mr. Rodney, Vice President -- Finance of the Company since 1993, has
overall responsibility for the accounting and control functions for both the
offshore and barge divisions. He worked for Atlantic Pacific Marine Company from
1977 through 1992, serving as controller for his last nine years.
Mr. Moss, Vice President and General Counsel of the Company, joined the
Company on January 1, 1996, and is primarily responsible for management of the
legal affairs of the Company. From October 1995 until joining the Company, Mr.
Moss was a member of the law firm of Gardere Wynne Sewell & Riggs, L.L.P. For
more than five years prior to October 1995, Mr. Moss was a member of the law
firm of Sewell & Riggs, P.C.
Dr. Chatterjee, a director of the Company since 1993, is an investor in
public and private companies and has been associated with the George Soros
organization for approximately nine years. A corporation controlled by Dr.
Chatterjee is the general partner of a limited partnership that constitutes the
Company's largest stockholder group. In January 1993, Dr. Chatterjee, without
admitting or denying the charges, resolved an action brought by the Commission
alleging that he had disclosed material non-public information by paying a fine
and consenting to an injunction that requires, among other things, observance of
applicable securities laws and regulations.
Mr. Hamilton, a director of the Company since 1992, is a private investor
who is one of the Company's original investors. He has experience in executive
management in various businesses and has been an investor in oil and gas
ventures since 1983.
Mr. Hannan, a director of the Company since 1991, is President of Colonial
Navigation, a New York based shipping company that is affiliated with the
shipping interests of Francis and Marios Stafilopatis. Entities owned by
Stafilopatis family were early investors in the Company.
Mr. Latimer, a director of the Company since 1993, is an independent oil
and gas operator and investor based in Dallas. He has experience managing a
large institutional portfolio of oil and gas properties and as a management
consultant. Mr. Latimer is also the President of Raptor Exploration Company,
Inc., a wholly owned subsidiary of the Company through which the Company
participates in oil and gas exploration and production activities.
Dr. Porter, a director since January 1, 1997, is the C. Roland Christensen
Professor of Business Administration at the Harvard Business School, a position
he has held for more than the past five years. He is
53
<PAGE> 56
also a director of Alpha-Beta Technology, Inc., Parametric Technology
Corporation and ThermoQuest Corporation.
Mr. Ziegler, a director of the Company since 1991, is a partner of the law
firm of Parson & Brown and was a partner in the law firm of Whitman Breed Abbott
& Morgan and a predecessor firm until May 1994. Both firms have acted as counsel
to the Company. He is also a director of DI Industries, Inc. (a land drilling
contractor).
The officers of the Company are elected by the Board of Directors and serve
until removed by the Board or until their death or resignation. Certain officers
have employment contracts with the Company. A description of such employments
contracts will be contained in the Company's Proxy Statement which will be filed
with the Securities and Exchange Commission within 120 days after the fiscal
year covered by this Report, and is incorporated herein by reference.
All of the directors of the Company except for Mr. Porter were initially
elected pursuant to a stockholders agreement entered into by four major
stockholder groups. The provisions of this agreement relating to the election of
directors terminated in August, 1995 upon the initial public offering of the
Company's Common Stock. Mr. Latimer and Mr. Ziegler were re-elected at the
annual stockholders meeting in May 1996, after the expiration of these
provisions. Certificate of Incorporation and Bylaws provide that the Board is
divided into three classes of directors and that the directors are elected for
staggered three-year terms. The terms of Mr. Hannan and Dr. Porter expire at the
annual meeting of stockholders in 1997, and it is anticipated that they will be
nominated and will stand for re-election. The terms of Mr. Webster, Dr.
Chatterjee and Mr. Hamilton expire in 1998, and the terms of Mr. Latimer and Mr.
Ziegler expire in 1999.
Certain information required by Item 10 will be contained in the Company's
Proxy Statement which will be filed with the Securities and Exchange Commission
within 120 days after the fiscal year covered by this Report, and is
incorporated herein by reference. In this regard, specific reference is made to
the headings "Employment Agreements", "Transactions with Related Parties", and
"Section 16(a) Reporting Delinquencies" under the "Executive Compensation"
section of the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the Proxy Statement. In this regard, specific reference is made to the
sections entitled "Election of Directors" and "Executive Compensation" in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 will be contained in the Company's
Proxy Statement which will be filed with the Securities and Exchange Commission
within 120 days after the fiscal year covered by this Report, and is
incorporated herein by reference. In this regard, specific reference is made to
the section entitled "Security Ownership of Certain Beneficial Owners and
Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 will be contained in the Company's
Proxy Statement which will be filed with the Securities and Exchange Commission
within 120 days after the fiscal year covered by this Report, and is
incorporated herein by reference. In this regard, specific reference is made to
the headings entitled "Transactions with Related Parties" and "Family
Relationships" under the "Executive Compensation" section of the Proxy
Statement.
54
<PAGE> 57
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Report:
(1) See Index to Financial Statements set forth at Item 8.
(2) Financial Statement Schedules: None
(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 -- Certificate of Incorporation of the Company(1)
3.2. -- By-Laws of the Company(1)
4.1 -- Indenture dated as of January 15, 1994, between the
Company and Texas Commerce Bank National Association,
including a form of Note(2)
4.1(a) -- Supplemental Indenture dated as of June 3, 1994, pursuant
to which Falcon Workover Company, Inc., became a
Guarantor(3)
4.1(b) -- Supplemental Indenture dated as of June 28, 1994,
pursuant to which Raptor Exploration Company, Inc. and
FALRIG Offshore (USA), L.P., and FALRIG Offshore Partners
became Guarantors(3)
4.1(c) -- Supplemental Indenture dated as of December 30, 1994,
pursuant to which Falcon Inland, Inc., Falcon Services
Company, Inc. and FALRIG de Venezuela, Inc. became
Guarantors(4)
4.3 -- Floating Rate Senior Note Purchase Agreement, dated as of
February 23, 1994, by and between the Company and
Crescent/Mach I partners, L.P., including a form of
Note(5)
4.3(a) -- Joinder Agreement dated as of June 3, 1994, pursuant to
which Falcon Workover Company, Inc. became a Guarantor(5)
4.3(b) -- Joinder Agreement dated as of June 28, 1994, pursuant to
which Raptor Exploration Company, Inc., FALRIG Offshore
(USA), L.P., and FALRIG Offshore partners became
Guarantors(5)
4.3(c) -- Joinder Agreement dated as of December 30, 1994, pursuant
to which Falcon Inland, Inc., Falcon Services Company,
Inc. and FALRIG de Venezuela, Inc. became Guarantors(5).
4.3(d) -- Joinder Agreement dated as of March 1, 1996, pursuant to
which Falcon Atlantic, Ltd., Falcon Drilling do Brasil,
Ltda., Falcon Drilling de Venezuela, Inc. and
Perforaciones FALRIG de Venezuela, C.A. became
Guarantors(9)
4.4 -- Indenture dated as of March 15, 1995, between the Company
and Texas Commerce Bank National Association, including a
form of Note(6)
4.5 -- Registration Rights Agreement dated as of March 23, 1995,
by and among the Company and Donaldson, Lufkin & Jenrette
Securities Corporation and Salomon Brothers Inc.(6)
4.6 -- Indenture dated as of March 1, 1996, between the Company
and Bank One, Texas, N. A., including a form of Note(7)
</TABLE>
55
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
4.7 -- Registration Rights Agreement dated as of March 7, 1996,
by and among the Company and Donaldson, Lufkin & Jenrette
Securities Corporation and Salomon Brothers Inc.(7)
The Company hereby agrees to furnish to the Commission
upon its request any instrument defining the rights of
holders of long-term debt of the Company and its
consolidated subsidiaries and for any of its
unconsolidated subsidiaries for which financial statements
are required to be filed with respect to long-term debt
not being registered which does not exceed 10% of the
total assets of the Company and its subsidiaries on a
consolidated basis.
9 -- Voting Trust Agreement dated as of November 12, 1991,
between Lydia Richardson and Linda Webster as common
stockholders and Steven A. Webster as voting trustee(2)
9.1(a) -- Amendment to Voting Trust Agreement dated as of November
1, 1995(9)
9.2 -- Voting Trust Agreement dated as of November 21, 1989,
between Lydia Richardson and Linda Webster as common
stockholders and Steven A. Webster as voting trustee(1)
9.3 -- Voting Trust Agreement dated as of May 30, 1990, between
Lydia Richardson and Linda Webster as common stockholders
and Steven A. Webster as voting trustee(1)
10.1 -- Second Amended Stockholders' Agreement dated as of
January 29, 1993, by and among the stockholders
thereto(2)
10.2 -- Registration Rights Agreement dated as of January 29,
1993, as amended, by and among S-C Rig Investments, L.P.
and the Company(2)
10.3 -- Shadow Warrant of the Company dated January 29, 1993,
issued to S-C Rig Investments, L.P., together with Notice
of Exercise Event Occurrence dated as of July 31, 1993,
Form of Exercise dated as of July 31, 1993, Form of
Notice of Exercise Form dated as of March 31, 1994 and
Form of Exercise dated as of March 31, 1994(2)
10.4 -- 1992 Stock Option Plan of the Company(2)
10.5 -- Lease Agreement dated as of January 29, 1993, between the
Company and Oren and Estelle Meaux Amy(3)
10.6 -- 1994 Stock Option Plan of the Company(4)
10.7 -- Employment Agreement dated January 30, 1995 between the
Company and Steven A. Webster(1)
10.8 -- Credit Agreement dated as of September 12, 1994, by and
among the Company and certain of its affiliates, as
borrowers, and Banque Paribas and Arab Banking
Corporation (B.S.C.), as co-agents(4)
10.9(a) -- First Amendment, dated as of September 28, 1994, to
Credit Agreement(4)
10.9(b) -- Second Amendment, dated as of January 31, 1995, to Credit
Agreement(4)
10.9(c) -- Third Amendment, dated as of March 22, 1995, to Credit
Agreement(6)
10.9(d) -- Fourth Amendment, dated as of January 24, 1996, to Credit
Agreement(9)
10.9(e) -- Fifth Amendment, dated as of March 4, 1996, to Credit
Agreement(9)
10.10 -- Uncommitted Acquisition Credit Agreement dated as of
January 24, 1996, between the Company and Banque
Paribas(9)
10.10(a) -- First Amendment, dated as of March 4, 1996, to
Uncommitted Acquisition Credit Agreement(9)
</TABLE>
56
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.11 -- 1995 Stock Option Plan of the Company(4)
10.12 -- Purchase Agreement dated as of March 16, 1995, by and
between the Company and Donaldson, Lufkin & Jenrette
Securities Corporation, including a form of Registration
Rights Agreement(4)
10.13 -- Agreement of Sale, dated July 14, 1995, among the
Company, Rowan Companies, Inc., and Rowan International,
Inc., relating to the purchase of three barge drilling
rigs by the Company(5)
10.14 -- Bank Earn-Out Agreement, dated as of December 23, 1992,
by and between the Company and Whitney National Bank(5)
10.15 -- Senior Executive Incentive Compensation Agreement, dated
as of December 24, 1992, by and among the Company, Robert
H. Reeves, Jr., and Charles E. Reeves(5)
10.16 -- Drilling Rig Purchase Agreement dated August 14, 1995, by
and among Sonat Offshore Ventures Inc. and Sonat Offshore
Drilling Inc. (collectively, "Sonat") as sellers and the
Company as buyer, as amended by Sales Agreement Amendment
dated September 21, 1995 among Sonat, the Company and
FALRIG Offshore, Inc., a wholly-owned subsidiary of the
Company(8)
10.17 -- Agreement dated December 8, 1995, between UME Drilling
Co., Ltd. and Falcon Drilling Company, Inc.(9)
10.18 -- Memorandum of Agreement dated February 7, 1996, among
Pelerin Shipping, Ltd., Internationale de Travaux et de
Materiel SARL and the Company(9)
10.19 -- Management Agreement dated February 7, 1996, between
Foramer S.A. and the Company(9)
10.20 -- Purchase Agreement dated March 4, 1996, by and between
Salomon Brothers Inc., and Donaldson, Lufkin & Jenrette
Securities Corporation, as the initial purchasers, and
the Company(9)
10.21 -- Registration Rights Agreement dated as of October 20,
1995, by and among the Company and the holders and former
holders of Class B Warrants of the Company and agreed to
by S-C Rig Investments, L.P.(9)
10.22 -- Agreement and Plan of Merger dated August 15, 1995, by
and among the Company, Sanderling Drilling and Blake
Holding Co., Inc.(9)
10.23 -- Registration Rights Agreement dated August 15, 1995,
between the Company and Blake Holding Co., Inc.(9)
10.24 -- Credit Agreement dated as of November 12, 1996, among the
Company, Banque Paribas and Arab Banking Corporation
(B.S.C.) relating to a $25 million facility.
10.25 -- Credit Agreement dated as of November 12, 1996, among the
Company, Banque Paribas and Arab Banking Corporation
(B.S.C.) relating to a $40 million facility.
10.26 -- Registration Rights Agreement dated December 10, 1996,
between the Company and KS Deepsea Drillships.
</TABLE>
57
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.27 -- Lease and Agreement dated January 1, 1997, between W&H
Ventures, L.L.C. and Double Eagle Marine, Inc.
10.28 -- Bareboat Charter Agreement dated December 10, 1996
between the Company and Hyde Offshore Limited Partnership
21 -- Subsidiaries of the Company
23 -- Consent of Arthur Andersen LLP
27 -- Financial Data Schedule. This schedule is being submitted
as an exhibit only in electronic format, and shall not be
deemed filed for purposes of Section 11 of the Securities
Act, Section 18 of the Securities Exchange Act of 1934,
or Section 323 of the Trust Indenture Act of 1939.
</TABLE>
- ---------------
(1) Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement on Form S-1 filed on July 6, 1995 (Registration No. 33-84582).
(2) Incorporated by reference to the Company's Registration Statement on Form
S-4 filed on April 29, 1994 (Registration No. 33-78369).
(3) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-4 filed on June 30, 1994 (Registration No. 33-78360).
(4) Incorporated by reference to the Company's Annual Report on form 10-K for
the year ended December 31, 1994.
(5) Incorporated by reference to Amendment No. 3 to the Company's Registration
Statement of Form S-1 filed on July 19, 1995 (Registration No. 33-84582).
(6) Incorporated by reference to the Company's Registration Statement on Form
S-4 filed on March 24, 1995 (Registration No. 33-90582).
(7) Incorporated by reference to the Company's Registration Statement on Form
S-4 filed on March 8, 1996 (Registration No. 333-2114).
(8) Incorporated by reference to the Company's Current Report on Form 8-K dated
September 21, 1995.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed during the fourth quarter of 1996.
58
<PAGE> 61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 28, 1997 Falcon Drilling Company, Inc.
(Registrant)
By: /s/ STEVEN A. WEBSTER
----------------------------------
Steven A. Webster
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on March 28, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ STEVEN A. WEBSTER Chairman, Director, and Chief
- ----------------------------------------------------- Executive Officer (Principal
Steven A. Webster Executive Officer)
/s/ ROBERT F. FULTON Executive Vice President
- ----------------------------------------------------- (Principal Financial Officer
Robert F. Fulton and Principal Accounting
Officer)
Director
- -----------------------------------------------------
Purnendu Chatterjee
/s/ DOUGLAS A.P. HAMILTON Director
- -----------------------------------------------------
Douglas A.P. Hamilton
Director
- -----------------------------------------------------
Kenneth H. Hannan, Jr.
/s/ JAMES R. LATIMER, III Director
- -----------------------------------------------------
James R. Latimer, III
Director
- -----------------------------------------------------
Michael E. Porter
/s/ WILLIAM R. ZIEGLER Director
- -----------------------------------------------------
William R. Ziegler
</TABLE>
59
<PAGE> 62
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 -- Certificate of Incorporation of the Company(1)
3.2. -- By-Laws of the Company(1)
4.1 -- Indenture dated as of January 15, 1994, between the
Company and Texas Commerce Bank National Association,
including a form of Note(2)
4.1(a) -- Supplemental Indenture dated as of June 3, 1994, pursuant
to which Falcon Workover Company, Inc., became a
Guarantor(3)
4.1(b) -- Supplemental Indenture dated as of June 28, 1994,
pursuant to which Raptor Exploration Company, Inc. and
FALRIG Offshore (USA), L.P., and FALRIG Offshore Partners
became Guarantors(3)
4.1(c) -- Supplemental Indenture dated as of December 30, 1994,
pursuant to which Falcon Inland, Inc., Falcon Services
Company, Inc. and FALRIG de Venezuela, Inc. became
Guarantors(4)
4.3 -- Floating Rate Senior Note Purchase Agreement, dated as of
February 23, 1994, by and between the Company and
Crescent/Mach I partners, L.P., including a form of
Note(5)
4.3(a) -- Joinder Agreement dated as of June 3, 1994, pursuant to
which Falcon Workover Company, Inc. became a Guarantor(5)
4.3(b) -- Joinder Agreement dated as of June 28, 1994, pursuant to
which Raptor Exploration Company, Inc., FALRIG Offshore
(USA), L.P., and FALRIG Offshore partners became
Guarantors(5)
4.3(c) -- Joinder Agreement dated as of December 30, 1994, pursuant
to which Falcon Inland, Inc., Falcon Services Company,
Inc. and FALRIG de Venezuela, Inc. became Guarantors(5).
4.3(d) -- Joinder Agreement dated as of March 1, 1996, pursuant to
which Falcon Atlanctic, Ltd., Falcon Drilling do Brasil,
Ltda., Falcon Drilling de Venezuela, Inc. and
Perforaciones FALRIG de Venezuela, C.A. became
Guarantors(9)
4.4 -- Indenture dated as of March 15, 1995, between the Company
and Texas Commerce Bank National Association, including a
form of Note(6)
4.5 -- Registration Rights Agreement dated as of March 23, 1995,
by and among the Company and Donaldson, Lufkin & Jenrette
Securities Corporation and Salomon Brothers Inc.(6)
4.6 -- Indenture dated as of March 1, 1996, between the Company
and Bank One, Texas, N. A., including a form of Note(7)
4.7 -- Registration Rights Agreement dated as of March 7, 1996,
by and among the Company and Donaldson, Lufkin & Jenrette
Securities Corporation and Salomon Brothers Inc.(7)
The Company hereby agrees to furnish to the Commission
upon its request any instrument defining the rights of
holders of long-term debt of the Company and its
consolidated subsidiaries and for any of its
unconsolidated subsidiaries for which financial statements
are required to be filed with respect to long-term debt
not being registered which does not exceed 10% of the
total assets of the Company and its subsidiaries on a
onsolidated basis.
9 -- Voting Trust Agreement dated as of November 12, 1991,
between Lydia Richardson and Linda Webster as common
stockholders and Steven A. Webster as voting trustee(2)
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
9.1(a) -- Amendment to Voting Trust Agreement dated as of November
1, 1995(9)
9.2 -- Voting Trust Agreement dated as of November 21, 1989,
between Lydia Richardson and Linda Webster as common
stockholders and Steven A. Webster as voting trustee(1)
9.3 -- Voting Trust Agreement dated as of May 30, 1990, between
Lydia Richardson and Linda Webster as common stockholders
and Steven A. Webster as voting trustee(1)
10.1 -- Second Amended Stockholders' Agreement dated as of
January 29, 1993, by and among the stockholders
thereto(2)
10.2 -- Registration Rights Agreement dated as of January 29,
1993, as amended, by and among S-C Rig Investments, L.P.
and the Company(2)
10.3 -- Shadow Warrant of the Company dated January 29, 1993,
issued to S-C Rig Investments, L.P., together with Notice
of Exercise Event Occurrence dated as of July 31, 1993,
Form of Exercise dated as of July 31, 1993, Form of
Notice of Exercise Form dated as of March 31, 1994 and
Form of Exercise dated as of March 31, 1994(2)
10.4 -- 1992 Stock Option Plan of the Company(2)
10.5 -- Lease Agreement dated as of January 29, 1993, between the
Company and Oren and Estelle Meaux Amy(3)
10.6 -- 1994 Stock Option Plan of the Company(4)
10.7 -- Employment Agreement dated January 30, 1995 between the
Company and Steven A. Webster(1)
10.8 -- Credit Agreement dated as of September 12, 1994, by and
among the Company and certain of its affiliates, as
borrowers, and Banque Paribas and Arab Banking
Corporation (B.S.C.), as co-agents(4)
10.9(a) -- First Amendment, dated as of September 28, 1994, to
Credit Agreement(4)
10.9(b) -- Second Amendment, dated as of January 31, 1995, to Credit
Agreement(4)
10.9(c) -- Third Amendment, dated as of March 22, 1995, to Credit
Agreement(6)
10.9(d) -- Fourth Amendment, dated as of January 24, 1996, to Credit
Agreement(9)
10.9(e) -- Fifth Amendment, dated as of March 4, 1996, to Credit
Agreement(9)
10.10 -- Uncommitted Acquisition Credit Agreement dated as of
January 24, 1996, between the Company and Banque
Paribas(9)
10.10(a) -- First Amendment, dated as of March 4, 1996, to
Uncommitted Acquisition Credit Agreement(9)
10.11 -- 1995 Stock Option Plan of the Company(4)
10.12 -- Purchase Agreement dated as of March 16, 1995, by and
between the Company and Donaldson, Lufkin & Jenrette
Securities Corporation, including a form of Registration
Rights Agreement(4)
10.13 -- Agreement of Sale, dated July 14, 1995, among the
Company, Rowan Companies, Inc., and Rowan International,
Inc., relating to the purchase of three barge drilling
rigs by the Company(5)
10.14 -- Bank Earn-Out Agreement, dated as of December 23, 1992,
by and between the Company and Whitney National Bank(5)
10.15 -- Senior Executive Incentive Compensation Agreement, dated
as of December 24, 1992, by and among the Company, Robert
H. Reeves, Jr., and Charles E. Reeves(5)
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.16 -- Drilling Rig Purchase Agreement dated August 14, 1995, by
and among Sonat Offshore Ventures Inc. and Sonat Offshore
Drilling Inc. (collectively, "Sonat") as sellers and the
Company as buyer, as amended by Sales Agreement Amendment
dated September 21, 1995 among Sonat, the Company and
FALRIG Offshore, Inc., a wholly-owned subsidiary of the
Company(8)
10.17 -- Agreement dated December 8, 1995, between UME Drilling
Co., Ltd. and Falcon Drilling Company, Inc.(9)
10.18 -- Memorandum of Agreement dated February 7, 1996, among
Pelerin Shipping, Ltd., Internationale de Travaux et de
Materiel SARL and the Company(9)
10.19 -- Management Agreement dated February 7, 1996, between
Foramer S.A. and the Company(9)
10.20 -- Purchase Agreement dated March 4, 1996, by and between
Salomon Brothers Inc., and Donaldson, Lufkin & Jenrette
Securities Corporation, as the initial purchasers, and
the Company(9)
10.21 -- Registration Rights Agreement dated as of October 20,
1995, by and among the Company and the holders and former
holders of Class B Warrants of the Company and agreed to
by S-C Rig Investments, L.P.(9)
10.22 -- Agreement and Plan of Merger dated August 15, 1995, by
and among the Company, Sanderling Drilling and Blake
Holding Co., Inc.(9)
10.23 -- Registration Rights Agreement dated August 15, 1995,
between the Company and Blake Holding Co., Inc.(9)
10.24 -- Credit Agreement dated as of November 12, 1996, among the
Company, Banque Paribas and Arab Banking Corporation
(B.S.C.) relating to a $25 million facility.
10.25 -- Credit Agreement dated as of November 12, 1996, among the
Company, Banque Paribas and Arab Banking Corporation
(B.S.C.) relating to a $40 million facility.
10.26 -- Registration Rights Agreement dated December 10, 1996,
between the Company and KS Deepsea Drillships.
10.27 -- Lease and Agreement dated January 1, 1997, between W&H
Venturers, L.L.C. and Double Eagle Marine, Inc.
10.28 -- Bareboat Charter Agreement dated December 10, 1996
between the Company and Hyde Offshore Limited Partnership
21 -- Subsidiaries of the Company
23 -- Consent of Arthur Andersen LLP
27 -- Financial Data Schedule. This schedule is being submitted
as an exhibit only in electronic format, and shall not be
deemed filed for purposes of Section 11 of the Securities
Act, Section 18 of the Securities Exchange Act of 1934,
or Section 323 of the Trust Indenture Act of 1939.
</TABLE>
- ---------------
(1) Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement on Form S-1 filed on July 6, 1995 (Registration No. 33-84582).
(2) Incorporated by reference to the Company's Registration Statement on Form
S-4 filed on April 29, 1994 (Registration No. 33-78369).
(3) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-4 filed on June 30, 1994 (Registration No. 33-78360).
(4) Incorporated by reference to the Company's Annual Report on form 10-K for
the year ended December 31, 1994.
<PAGE> 65
(5) Incorporated by reference to Amendment No. 3 to the Company's Registration
Statement of Form S-1 filed on July 19, 1995 (Registration No. 33-84582).
(6) Incorporated by reference to the Company's Registration Statement on Form
S-4 filed on March 24, 1995 (Registration No. 33-90582).
(7) Incorporated by reference to the Company's Registration Statement on Form
S-4 filed on March 8, 1996 (Registration No. 333-2114).
(8) Incorporated by reference to the Company's Current Report on Form 8-K dated
September 21, 1995.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
<PAGE> 1
EXHIBIT 10.24
================================================================================
CREDIT AGREEMENT
dated as of November 12, 1996
$25,000,000 REVOLVING CREDIT FACILITY
FALCON DRILLING COMPANY, INC.
FALCON DRILLING DE VENEZUELA, INC.
FALCON DRILLING HOLDINGS, L.P.
FALCON DRILLING MANAGEMENT, INC.
FALCON INLAND, INC.
FALCON OFFSHORE, INC.
FALCON SERVICES COMPANY, INC.
FALCON WORKOVER COMPANY, INC.
FALRIG OFFSHORE, INC.
FALRIG OFFSHORE PARTNERS
FALRIG OFFSHORE (USA), L.P.
KESTREL OFFSHORE, INC.
and
RAPTOR EXPLORATION CO., INC.
as BORROWERS
FALCON ATLANTIC LTD.,
FALCON DRILLING DO BRASIL, LTDA.
and
PERFORACIONES FALRIG DE VENEZUELA C.A.
as Guarantors
BANQUE PARIBAS
as Agent and a Lender
ARAB BANKING CORPORATION (B.S.C.)
as Co-Agent and a Lender
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Other Definitional Provisions . . . . . . . . . . . . . 29
Section 1.3 Accounting Terms and Determinations . . . . . . . . . . 30
Section 1.4 Financial Covenants and Reporting . . . . . . . . . . . 30
ARTICLE 2 - Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 2.1 Commitments. . . . . . . . . . . . . . . . . . . . . . 30
Section 2.2 Notes . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.3 Repayment of Loans . . . . . . . . . . . . . . . . . . 31
Section 2.4 Interest . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.5 Borrowing Procedure . . . . . . . . . . . . . . . . . . 32
Section 2.6 Optional Prepayments, Conversions and
Continuations of Loans . . . . . . . . . . . . . . . . 32
Section 2.7 Mandatory Prepayments . . . . . . . . . . . . . . . . . 32
Section 2.8 Minimum Amounts. . . . . . . . . . . . . . . . . . . . 33
Section 2.9 Certain Notices. . . . . . . . . . . . . . . . . . . . 33
Section 2.10 Use of Proceeds . . . . . . . . . . . . . . . . . . . . 33
Section 2.11 Commitment Fee and Other Fees . . . . . . . . . . . . . 34
Section 2.12 Computations. . . . . . . . . . . . . . . . . . . . . . 34
Section 2.13 Termination or Reduction of Commitments . . . . . . . . 34
Section 2.14 Letters of Credit . . . . . . . . . . . . . . . . . . . 34
ARTICLE 3 - Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.1 Method of Payment . . . . . . . . . . . . . . . . . . . 37
Section 3.2 Pro Rata Treatment . . . . . . . . . . . . . . . . . . 38
Section 3.3 Sharing of Payments, Etc . . . . . . . . . . . . . . . 38
Section 3.4 Non-Receipt of Funds by the Agent . . . . . . . . . . . 38
Section 3.5 Withholding Taxes . . . . . . . . . . . . . . . . . . . 39
Section 3.6 Withholding Tax Exemption . . . . . . . . . . . . . . . 40
ARTICLE 4 - Yield Protection and Illegality . . . . . . . . . . . . . . . . . 40
Section 4.1 Additional Costs . . . . . . . . . . . . . . . . . . . 40
Section 4.2 Limitation on Types of Loans . . . . . . . . . . . . . 42
Section 4.3 Illegality . . . . . . . . . . . . . . . . . . . . . . 42
Section 4.4 Treatment of Affected Loans . . . . . . . . . . . . . . 42
Section 4.5 Compensation . . . . . . . . . . . . . . . . . . . . . 43
Section 4.6 Capital Adequacy . . . . . . . . . . . . . . . . . . . 43
Section 4.7 Additional Interest on Eurodollar Loans . . . . . . . . 44
ARTICLE 5 - Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 5.1 Collateral . . . . . . . . . . . . . . . . . . . . . . 44
Section 5.2 New Borrowers . . . . . . . . . . . . . . . . . . . . . 44
Section 5.3 Setoff . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 6 - Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . 45
Section 6.1 Initial Extension of Credit . . . . . . . . . . . . . . 45
Section 6.2 All Extensions of Credit . . . . . . . . . . . . . . . 48
ARTICLE 7 - Representations and Warranties . . . . . . . . . . . . . . . . . 49
Section 7.1 Corporate Existence . . . . . . . . . . . . . . . . . . 49
Section 7.2 Financial Statements . . . . . . . . . . . . . . . . . 50
Section 7.3 Entity Action; No Breach . . . . . . . . . . . . . . . 50
Section 7.4 Operation of Business . . . . . . . . . . . . . . . . . 50
Section 7.5 Intellectual Property . . . . . . . . . . . . . . . . . 50
Section 7.6 Litigation and Judgments . . . . . . . . . . . . . . . 51
Section 7.7 Rights in Properties; Liens . . . . . . . . . . . . . . 51
Section 7.8 Enforceability . . . . . . . . . . . . . . . . . . . . 51
Section 7.9 Approvals . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7.10 Debt . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.12 Margin Securities . . . . . . . . . . . . . . . . . . . 52
Section 7.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.14 Disclosure . . . . . . . . . . . . . . . . . . . . . . 53
Section 7.15 Capitalization . . . . . . . . . . . . . . . . . . . . 53
Section 7.16 Agreements . . . . . . . . . . . . . . . . . . . . . . 54
----------
Section 7.17 Compliance with Laws . . . . . . . . . . . . . . . . . 54
Section 7.18 Investment Company Act . . . . . . . . . . . . . . . . 54
Section 7.19 Public Utility Holding Company Act . . . . . . . . . . 54
Section 7.20 Environmental Matters . . . . . . . . . . . . . . . . . 54
Section 7.21 Labor Disputes and Acts of God . . . . . . . . . . . . 55
Section 7.22 Material Contracts . . . . . . . . . . . . . . . . . . 56
Section 7.23 Outstanding Securities . . . . . . . . . . . . . . . . 56
Section 7.24 Priority of Payment. . . . . . . . . . . . . . . . . . 56
Section 7.25 Solvency . . . . . . . . . . . . . . . . . . . . . . . 56
Section 7.26 Employee Matters . . . . . . . . . . . . . . . . . . . 56
Section 7.27 Insurance . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE 8 - Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . 57
Section 8.1 Reporting Requirements . . . . . . . . . . . . . . . . 57
Section 8.2 Maintenance of Existence; Conduct of Business . . . . . 60
Section 8.3 Maintenance of Properties . . . . . . . . . . . . . . . 60
Section 8.4 Taxes and Claims . . . . . . . . . . . . . . . . . . . 60
Section 8.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . 60
Section 8.6 Inspection Rights . . . . . . . . . . . . . . . . . . . 61
Section 8.7 Keeping Books and Records . . . . . . . . . . . . . . . 61
Section 8.8 Compliance with Laws . . . . . . . . . . . . . . . . . 61
Section 8.9 Compliance with Agreements . . . . . . . . . . . . . . 62
Section 8.10 Further Assurances . . . . . . . . . . . . . . . . . . 62
Section 8.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 8.12 Concentration Account . . . . . . . . . . . . . . . . . 62
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 8.13 No Consolidation in Bankruptcy . . . . . . . . . . . . 62
ARTICLE 9 - Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . 63
Section 9.1 Debt . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 9.2 Limitation on Liens . . . . . . . . . . . . . . . . . . 64
Section 9.3 Mergers, Etc . . . . . . . . . . . . . . . . . . . . . 64
Section 9.4 Restricted Payments . . . . . . . . . . . . . . . . . . 65
Section 9.5 Investments. . . . . . . . . . . . . . . . . . . . . . 66
Section 9.6 Limitation on Issuance of Capital Stock . . . . . . . . 67
Section 9.7 Transactions With Affiliates . . . . . . . . . . . . . 67
Section 9.8 Disposition of Property . . . . . . . . . . . . . . . . 68
Section 9.9 Sale and Leaseback . . . . . . . . . . . . . . . . . . 69
Section 9.10 Lines of Business . . . . . . . . . . . . . . . . . . . 69
Section 9.11 Environmental Protection . . . . . . . . . . . . . . . 69
Section 9.12 Intercompany Transactions . . . . . . . . . . . . . . . 69
Section 9.13 Consulting and Management Fees . . . . . . . . . . . . 69
Section 9.14 Modification of Other Agreements . . . . . . . . . . . 70
Section 9.15 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . 70
ARTICLE 10 - Financial Covenants . . . . . . . . . . . . . . . . . . . . . . 70
Section 10.1 Consolidated Current Ratio . . . . . . . . . . . . . . 71
Section 10.2 Consolidated Tangible Net Worth . . . . . . . . . . . . 71
Section 10.3 Consolidated Interest Coverage Ratio . . . . . . . . . 71
ARTICLE 11 - Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 11.1 Events of Default . . . . . . . . . . . . . . . . . . . 71
Section 11.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . 74
Section 11.3 Cash Collateral . . . . . . . . . . . . . . . . . . . . 75
Section 11.4 Performance by the Agent . . . . . . . . . . . . . . . 75
ARTICLE 12 - The Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 12.1 Appointment, Powers and Immunities . . . . . . . . . . 75
Section 12.2 Rights of Agent as a Bank . . . . . . . . . . . . . . . 76
Section 12.3 Defaults . . . . . . . . . . . . . . . . . . . . . . . 76
Section 12.4 Indemnification . . . . . . . . . . . . . . . . . . . . 77
Section 12.5 Independent Credit Decisions . . . . . . . . . . . . . 77
Section 12.6 Several Commitments . . . . . . . . . . . . . . . . . . 78
Section 12.7 Successor Agent . . . . . . . . . . . . . . . . . . . . 78
ARTICLE 13 - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 13.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . 79
Section 13.2 Indemnification . . . . . . . . . . . . . . . . . . . . 79
Section 13.3 Limitation of Liability . . . . . . . . . . . . . . . . 80
Section 13.4 No Duty . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 13.5 No Fiduciary Relationship . . . . . . . . . . . . . . . 80
Section 13.6 Equitable Relief . . . . . . . . . . . . . . . . . . . 81
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Section 13.7 No Waiver; Cumulative Remedies . . . . . . . . . . . . 81
Section 13.8 Successors and Assigns . . . . . . . . . . . . . . . . 81
Section 13.9 Survival . . . . . . . . . . . . . . . . . . . . . . . 84
Section 13.10 Entire Agreement . . . . . . . . . . . . . . . . . . . 84
Section 13.11 Amendments. . . . . . . . . . . . . . . . . . . . . . . 84
Section 13.12 Maximum Interest Rate . . . . . . . . . . . . . . . . . 85
Section 13.13 Notices . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 13.14 Governing Law; Submission to Jurisdiction;
Service of Process . . . . . . . . . . . . . . . . . . 86
Section 13.15 Counterparts . . . . . . . . . . . . . . . . . . . . . 86
Section 13.16 Severability . . . . . . . . . . . . . . . . . . . . . 86
Section 13.17 Headings . . . . . . . . . . . . . . . . . . . . . . . 87
Section 13.18 Construction . . . . . . . . . . . . . . . . . . . . . 87
Section 13.19 Independence of Covenants . . . . . . . . . . . . . . . 87
Section 13.20 Confidentiality . . . . . . . . . . . . . . . . . . . . 87
Section 13.21 Waiver of Jury Trial . . . . . . . . . . . . . . . . . 87
Section 13.22 Approvals and Consent. . . . . . . . . . . . . . . . . 87
Section 13.23 Agent for Services of Process . . . . . . . . . . . . . 88
Section 13.24 Joint and Several Obligations . . . . . . . . . . . . . 88
Section 13.25 Co-Agent . . . . . . . . . . . . . . . . . . . . . . . 88
</TABLE>
iv
<PAGE> 6
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Section
- ------- ---------------------- -------
<S> <C> <C>
"A" Form of Assignment and Acceptance 1.1
"B" Form of Borrowing Base Report 1.1
"C" Form of Note 1.1
"D" Form of Notice of Borrowings, Conversions,
Continuations or Prepayments 2.9
</TABLE>
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
Schedule Description of Schedule
- -------- -----------------------
<S> <C>
1.1(a) Permitted Liens
1.1(b) Certain Receivables
7.6 Litigation
7.7 Drilling Rigs
7.10 Existing Debt
7.11 Taxes
7.13 Plans
7.15(b) Capitalization of Subsidiaries
7.15(c) Options, etc.
7.22 Material Contracts and Defaults
7.26 Employee Matters
7.27 Insurance
9.5 Investments
9.7 Certain Transactions with Affiliates
9.12 Intercompany Transactions
</TABLE>
v
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of November 12, 1996, is among FALCON
DRILLING COMPANY, INC., a Delaware corporation ("Falcon Drilling"), FALCON
DRILLING DE VENEZUELA, INC., a Delaware corporation ("Falcon Venezuela"),FALCON
DRILLING HOLDINGS, L.P., a Delaware limited partnership ("Falcon Holdings"),
FALCON DRILLING MANAGEMENT, INC., a Delaware corporation ("Falcon Management"),
FALCON INLAND, INC., a Delaware corporation ("Falcon Inland"), FALCON OFFSHORE,
INC., a Delaware corporation ("Falcon Offshore"), FALCON SERVICES COMPANY,
INC., a Delaware corporation ("Falcon Services"), FALCON WORKOVER COMPANY,
INC., a Delaware corporation ("Falcon Workover"), FALRIG OFFSHORE, INC., a
Delaware corporation ("FALRIG Offshore"), FALRIG OFFSHORE PARTNERS, a Texas
general partnership ("FALRIG Offshore GP"), FALRIG OFFSHORE (USA), L.P., a
Delaware limited partnership ("FALRIG Offshore LP"), KESTREL OFFSHORE, INC. a
Delaware corporation ("Kestrel"), RAPTOR EXPLORATION CO., INC., a Delaware
corporation ("Raptor") (each of Falcon Drilling, Falcon Venezuela, Falcon
Holdings, Falcon Management, Falcon Inland, Falcon Offshore, Falcon Services,
Falcon Workover, FALRIG Offshore, FALRIG Offshore GP, FALRIG Offshore LP,
Kestrel, and Raptor, and each New Borrower, is sometimes hereinafter
individually referred to as a "BORROWER" and all of such Persons are sometimes
hereinafter collectively referred to as the "BORROWERS"), FALCON ATLANTIC LTD.,
a Cayman Islands company ("Falcon Atlantic"), FALCON DRILLING DO BRASIL, LTDA.,
a Brazilian limited liability company ("Falcon Brasil"), PERFORACIONES FALRIG
DE VENEZUELA C.A., a Venezuelan company ("FALRIG Venezuela") (each of Falcon
Atlantic, Falcon Brasil and FALRIG Venezuela is sometimes hereinafter referred
to individually as a "Guarantor" and all of such Persons are sometimes
hereinafter collectively referred to as the "Guarantors"), BANQUE PARIBAS, a
bank organized under the laws of France acting through its Houston Agency, ARAB
BANKING CORPORATION (B.S.C.), a banking corporation organized under the laws of
Bahrain, each of the other banks or lending institutions which is or which may
from time to time become a party hereto or any permitted successor or assignee
thereof (each of Banque Paribas, Arab Banking Corporation (B.S.C.), and such
other banks or lending institutions is sometimes hereinafter individually
referred to as a "Bank" and all of such Persons are sometimes hereinafter
collectively referred to as the "Banks"), BANQUE PARIBAS, as agent for itself
and the other Banks (in such capacity, together with its successors in such
capacity, the "Agent") and ARAB BANKING CORPORATION (B.S.C.), as Co-Agent for
itself and the other Banks (in such capacity, together with its successors and
assigns in such capacity, the "Co-Agent").
RECITALS:
The BORROWERS desire that the Lenders extend a revolving credit facility
to the BORROWERS to provide working capital financing for, and other funds for
the general corporate purposes of, the BORROWERS, which revolving credit
facility shall be guaranteed by the Guarantors.
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto hereby agree as follows:
<PAGE> 8
ARTICLE 1
Definitions
Section 1.1 Definitions. As used in this Agreement, the following
terms have the following meanings:
"ABR" means the sum of (a) the greater of the Prime Rate or the Federal
Funds Rate, plus (b) one-half of one percent per annum.
"ABR Loans" means Loans that bear interest at rates based upon the ABR.
"Acquisition Loans" means the "Loans" as such term is defined in the
Acquisition Loans Credit Agreement.
"Acquisition Loans Agent" means the "Agent" as such term is defined in
the Acquisition Loans Credit Agreement.
"Acquisition Loans Banks" means the "Banks" as such term is defined in
the Acquisition Loans Credit Agreement.
"Acquisition Loans Credit Agreement" means that certain Credit Agreement
dated as of November 12, 1996, among Falcon Drilling, the banks named therein,
Banque Paribas, as agent for such banks, and Arab Banking Corporation (B.S.),
as co-agent for such banks.
"Acquisition Loans Documents" means the "Loan Documents" as such term is
defined in the Acquisition Loans Credit Agreement.
"Acquisition Loans Maturity Date" means the "Maturity Date" as such term
is defined in the Acquisition Loans Credit Agreement.
"Acquisition Loans Obligations" means the "Obligations" as such term is
defined in the Acquisition Loans Credit Agreement.
"Additional Costs" means as specified in Section 4.1(a).
"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/16 of 1%) determined by the Agent to be equal to (a) the
Eurodollar Rate for such Eurodollar Loan for such Interest Period, divided by
(b) the remainder of one minus the Reserve Requirement for such Eurodollar Loan
for such Interest Period.
"Affiliate" means, as to any Person, any other Person (a) that directly
or indirectly, through one or more intermediaries, controls or is controlled
by, or is under common control with, such Person; (b) that directly or
indirectly beneficially owns or holds ten percent or more of any class of
voting stock of such Person; or (c) ten percent or more of the voting stock of
which is directly or indirectly beneficially owned or held by the Person in
question. The term "control" means the possession, directly or indirectly, of
the power to direct or cause direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise. Notwithstanding the foregoing, (i) in no event shall the Agent or
any Bank be deemed an Affiliate of any BORROWER or any of its Subsidiaries and
(ii) for purposes of (A) clauses (m), (q) and (u) of the definition of the term
"Eligible Receivables", but subject
2
<PAGE> 9
to the proviso below, (B) the definition of the term "Net Proceeds" and (C)
Sections 7.6 and 8.1(f), the Chatterjee Group shall not be deemed to be an
Affiliate of Falcon Drilling or any of its Subsidiaries if (but only if) the
Chatterjee Group (1) directly and indirectly beneficially owns and holds no
more than 50% of the voting stock of Falcon Drilling and (2) does not directly
or indirectly control the election of a majority of the directors of Falcon
Drilling or any of its Subsidiaries; provided, however, that, for purposes of
clause (m) of the definition of the term "Eligible Receivables", the Chatterjee
Group shall be deemed to be an Affiliate of Falcon Drilling and its
Subsidiaries to the extent that, but for this proviso, the Eligible Receivables
as to which the Chatterjee Group is account debtor would exceed $1,000,000.
"Agent" means as specified in the initial paragraph of this Agreement.
"Agreement" means this Credit Agreement and any and all amendments,
modifications, supplements, renewals, extension or restatements hereof.
"Applicable Lending Office" means for each Bank and each Type of Loan,
the Lending Office of such Bank (or of an Affiliate of such Bank) designated
for such Type of Loan below its name on the signature pages hereof (or, with
respect to a Bank that becomes a party to this Agreement pursuant to an
assignment made in accordance with Section 13.8, in the Assignment and
Acceptance executed by it) or such other office of such Bank (or of an
Affiliate of such Bank) as such Bank may from time to time specify to the
BORROWERS and the Agent as the office by which its Loans of such Type are to be
made and maintained.
"Applicable Margin" means (a) 0.00% per annum with respect to ABR Loans
and (b) the Applicable Eurodollar Loan Margin with respect to Eurodollar Loans;
provided, however, that in the event that Falcon Drilling consummates Equity
Issuances of its common stock subsequent to the Closing Date as to which the
aggregate Net Proceeds received by Falcon Drilling is greater than or equal to
$75,000,000, then the Applicable Eurodollar Loan Margin at all times thereafter
shall be 0.50% less than the percentage that is otherwise then applicable. For
purposes hereof, the "Applicable Eurodollar Loan Margin" means, at any date of
determination, the percentage per annum set forth in the table below that
corresponds to the ratio of (A) the Outstanding Credit as of such date to (B)
the aggregate amount of the Commitments in effect as of such date:
<TABLE>
<CAPTION>
Ratio of Outstanding Applicable
Credit to Aggregate Commitments Eurodollar Loan Margin
------------------------------- ----------------------
<S> <C>
Less than 0.40 to 1.00 1.50%
Less than 0.60 to 1.00 but
greater than or equal to 0.40 to 1.00 1.75%
Greater than or equal to 0.60 to 1.00 2.00%
</TABLE>
"Asset Disposition" means the disposition (other than sales of Inventory
in the ordinary course of business consistent with past practices, the grant of
a Permitted Lien as security or the transfer of a Non-Recourse Rig) of any or
all of the Property of any BORROWER or any of its Subsidiaries, whether by
sale, conveyance, lease, transfer, assignment, condemnation or otherwise, but
excluding (a) the issuance of Capital Stock and (b) any involuntary disposition
resulting from casualty damage to Property.
3
<PAGE> 10
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Bank and its Assignee and accepted by the Agent pursuant to Section
13.8(e), in substantially the form of Exhibit A hereto.
"Assignee" means as specified in Section 13.8(b).
"Assigning Bank" means as specified in Section 13.8(b).
"Bank" and "Banks" means as specified in the initial paragraph of this
Agreement.
"Bank Parties" means the Agent, the Co-Agent (at any time a Co-Agent has
been designated by Banque Paribas), the Banks, the Required Banks and/or any
Bank.
"Bankruptcy Code" means as specified in Section 11.1(e).
"Basle Accord" means the proposals for risk-based capital framework
described by the Basle Committee on Banking Regulations and Supervisory
Practices in its paper entitled "International Convergence of Capital
Measurement and Capital Standards" dated July 1988, as amended, supplemented
and otherwise modified and in effect from time to time, or any replacement
thereof.
"BORROWER" and "BORROWERS" means as specified in the initial paragraph
of this Agreement.
"Borrower Member" means each of the BORROWERS and each of the
Subsidiaries of any BORROWER.
"Borrowing Base" means, at any date of determination, an amount equal to
the remainder of the sum of (a) 80% of Eligible Receivables plus (b) 100% of
the remaining balance of any cash previously deposited by the BORROWERS, other
than the Non-Material Borrowers and the Guarantors, into the Borrowing Base
Accounts pursuant to the Security and Assignment Agreements in which the Agent
holds a perfected, first priority Lien or assignment, subject to no other
Liens; provided, however, that, for purposes of clause (a) preceding, the
percentage of Eligible Receivables referred to therein shall be 90% in lieu of
80% if and to the extent that the account debtor of such Receivables is an
issuer of "investment grade" (as such term is defined in the last sentence of
the definition of "Eligible Receivables" herein) publicly traded debt
securities or preferred stock.
"Borrowing Base Account" means an account maintained by any BORROWER,
other than a Non-Material Borrower or a Guarantor, with the Agent or some other
Bank selected by such BORROWERS and reasonably acceptable to the Agent into
which there shall be deposited only cash deposits to be included in the
Borrowing Base and assigned and pledged to the Agent for the benefit of the
Banks pursuant to the Security and Assignment Agreement executed by such
BORROWER (if such Borrowing Base Account is identified to the Agent as of the
Closing Date) or pursuant to a security and assignment agreement (or any
amendment to the applicable Security and Assignment Agreement) in form and
substance satisfactory to the Agent (if such Borrowing Base Account is later
identified).
"Borrowing Base Report" means a report in substantially the form of
Exhibit B attached hereto and completed and certified by a Responsible Officer
of Falcon Drilling.
4
<PAGE> 11
"Business Day" means (a) any day on which commercial banks are not
authorized or required to close in Houston, Texas, or New York, New York, and
(b) with respect to all borrowings, payments, Conversions, Continuations,
Interest Periods and notices in connection with Eurodollar Loans, any day which
is a Business Day described in clause (a) above and which is also a day on
which dealings in Dollar deposits are carried out in the London interbank
market.
"Capital Expenditures" means, for any period, expenditures (including
the aggregate amount of Capital Lease Obligations incurred during such period)
made by Falcon Drilling or any of its Subsidiaries to acquire or construct
fixed assets, plant or equipment (including renewals, improvements or
replacements) during such period and which, in accordance with GAAP, are
classified as capital expenditures.
"Capital Lease Obligations" means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal Property, which obligations
are classified as a capital lease on a balance sheet of such Person under GAAP.
For purposes of this Agreement, the amount of such Capital Lease Obligations
shall be the capitalized amount thereof, determined in accordance with GAAP.
"Capital Stock" means corporate stock, partnership interests and any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock or partnership interests issued by any entity
(whether a corporation, a partnership or another entity) and any rights,
warrants or options to acquire an equity interest in such entity.
"Cash Proceeds" means, with respect to any Asset Disposition by any
Person, the aggregate consideration received for such Asset Disposition by such
Person in the form of cash or cash equivalents (including any amounts of
insurance or other proceeds received in connection with an Asset Disposition),
including payments in respect of deferred payment obligations when received in
the form of cash or cash equivalents (except to the extent that such
obligations are financed or sold with recourse to such Person or any subsidiary
thereof). For the purposes of this definition, "cash or cash equivalents"
shall be deemed to include, for a period not to exceed 12 months from the
related Asset Disposition, noncash consideration received with respect to an
Asset Disposition to the extent that such noncash consideration consists of (i)
publicly traded debt securities of a Person, which securities are rated as
"BBB-" or higher by Standard and Poor's Corporation ("S&P") and "Baa3" or
higher by Moody's Investors Service, Inc. ("Moody's"), or (ii) other
indebtedness of a Person if (A) the lowest rated long-term, unsecured debt
obligation issued by such Person is rated "BBB-" or higher by S&P and "Baa3" or
higher by Moody's or (B) in the case of other indebtedness, the payment of such
other indebtedness is secured by an irrevocable letter of credit issued by a
commercial bank having capital and surplus in excess of $100,000,000 and long
term unsecured debt obligations rated at least "A-" by S&P and "A3" by Moody's.
"Change of Control" means the existence or occurrence of any of the
following: (a) a determination by Falcon Drilling or the Agent that any Person
or group (as defined in Section 13(d)(3) or 14(d)(2) of the Exchange Act) other
than the Chatterjee Group has become the direct or indirect beneficial owner
(as defined in Rule 13d-3 under the Exchange Act) of more than 40% of the
Voting Stock of Falcon Drilling; (b) any BORROWER is merged with or into or
consolidated with another corporation, and immediately after giving effect to
the merger or consolidation, less than 50% of the
5
<PAGE> 12
outstanding voting securities entitled to vote generally in the election of
directors or persons who serve similar functions of the surviving or resulting
entity are then beneficially owned (within the meaning of Rule 13d-3 under the
Exchange Act) in the aggregate by (i) the stockholders of Falcon Drilling
immediately prior to such merger or consolidation, or (ii) if a record date has
been set to determine the stockholders of such BORROWER entitled to vote on
such merger or consolidation, the stockholders of Falcon Drilling as of such
record date; (c) any BORROWER, either individually or in connection with one or
more Subsidiaries, sells, conveys, transfers or leases, or the Subsidiaries
sell, convey, transfer or lease, all or substantially all of the assets of
Falcon Drilling and its Subsidiaries, taken as a whole (either in one
transaction or a series of related transactions), including Capital Stock of
the Subsidiaries of Falcon Drilling, to any Person (other than a Wholly Owned
Subsidiary of Falcon Drilling); (d) the liquidation or dissolution of any
BORROWER unless such BORROWER is not Falcon Drilling and, in conjunction with
such liquidation or dissolution, all Properties and assets of such BORROWER
become owned by one or more of the remaining BORROWERS; or (e) the first day on
which a majority of the individuals who constitute the Board of Directors of
Falcon Drilling are not Continuing Directors.
"Chatterjee Group" means Purnendu Chatterjee and George Soros and any
Person, other than any BORROWER or any Subsidiary of a Borrower, a majority of
the Capital Stock of which is beneficially owned, directly or indirectly, by
such individual(s), either individually or collectively.
"Closing Date" means the date of this Agreement as set forth on the
first page hereof.
"Co-Agent" means as specified in the initial paragraph of this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
"Collateral" means all Property of any nature whatsoever upon which a
Lien is purported to be created by any Loan Document, including, without
limitation, the Receivables of the BORROWERS and the Borrowing Base Accounts
and all products and proceeds thereof.
"Commitment" means, as to any Bank, the obligation of such Bank to make
Loans and incur or participate in Letter of Credit Liabilities hereunder in an
aggregate principal amount at any one time outstanding up to but not exceeding
the amount set forth opposite the name of such Bank on the signature pages
hereto under the heading "Commitment" or, if such Bank is a party to an
Assignment and Acceptance, the amount set forth in the most recent Assignment
and Acceptance of such Bank, as the same may be reduced or terminated pursuant
to Section 2.13 or 11.2.
"Commitment Percentage" means, as to any Bank, the percentage equivalent
of a fraction the numerator of which is the amount of the outstanding
Commitment of such Bank (or, if such Commitment has terminated or expired, the
outstanding principal amount of its Loans and Letter of Credit Liabilities) and
the denominator of which is the aggregate amount of the outstanding Commitments
of all of the Banks (or, if such Commitments have terminated or expired, the
aggregate outstanding principal amount of all Loans and Letter of Credit
Liabilities).
"Concentration Account" means a concentration deposit account or
accounts (as the BORROWERS may desire) into which all proceeds of Collateral
shall be deposited, which account is maintained by the
6
<PAGE> 13
BORROWERS (other than the Non-Material Borrowers and the Guarantors) with a
bank (or banks) selected by such BORROWERS and reasonably acceptable to the
Agent.
"Concentration Account Agreement" means an agreement among the
BORROWERS, the Agent and a depository bank selected by the BORROWERS and
reasonably acceptable to the Agent in form and substance satisfactory to the
Agent, dated the Closing Date and relating to the Concentration Account, any
and all amendments, modifications, supplements, renewals, extensions, or
restatements thereof.
"Consolidated Current Assets" means, at any particular time, all amounts
which, in conformity with GAAP, would be included as current assets on a
consolidated balance sheet of the BORROWERS (i.e., exclusive of any
consolidated Subsidiaries of Falcon Drilling which are not BORROWERS).
"Consolidated Current Liabilities" means, at any particular time, all
amounts which, in conformity with GAAP, would be included as current
liabilities on a consolidated balance sheet of the BORROWERS (i.e., exclusive
of any consolidated Subsidiaries of Falcon Drilling which are not BORROWERS)
and the current portion of Consolidated Funded Debt, exclusive of, in
connection with any calculation of Consolidated Current Liabilities during the
12-month period immediately preceding the Maturity Date or the Acquisition
Loans Maturity Date, the outstanding principal amount of the Loans or the
outstanding principal amount of the Acquisition Loans, respectively.
"Consolidated Current Ratio" means, at any particular time, the ratio of
Consolidated Current Assets to Consolidated Current Liabilities.
"Consolidated Funded Debt" means, at any particular time, (a) all Debt
of the BORROWERS (i.e., exclusive of any consolidated Subsidiaries of Falcon
Drilling which are not BORROWERS) which matures by its terms, or is renewable
at the option of any BORROWER to a date, more than one year after the original
creation of such Debt, (b) all other Debt which would be classified as "funded
indebtedness" or "long-term indebtedness" on a consolidated balance sheet of
the BORROWERS (i.e., exclusive of any consolidated Subsidiaries of Falcon
Drilling which are not BORROWERS) as of such date in accordance with GAAP, and
(c) all obligations of the BORROWERS (i.e., exclusive of any consolidated
Subsidiaries of Falcon Drilling which are not BORROWERS) for borrowed money.
"Consolidated Interest Coverage Ratio" means, for any period, the ratio
of (a) EBITDA of the BORROWERS (i.e., exclusive of any consolidated
Subsidiaries of Falcon Drilling which are not BORROWERS) for such period to (b)
Consolidated Interest Expense for such period.
"Consolidated Interest Expense" means, for any period, (a) all interest
on Debt of the Borrowers (i.e., exclusive of any consolidated Subsidiaries of
Falcon Drilling which are not BORROWERS) accrued during such period, including
the interest portion of payments under Capital Lease Obligations, and (b) all
other amounts which would be classified as interest expense on a consolidated
statement of income of the BORROWERS (i.e., exclusive of any consolidated
Subsidiaries of Falcon Drilling which are not Borrowers) for such period in
accordance with GAAP.
"Consolidated Net Income" means, for any period, the net income (or
loss) of the BORROWERS (i.e., exclusive of any consolidated Subsidiaries of
Falcon Drilling which are not BORROWERS) for such period, determined on a
consolidated basis in accordance with GAAP.
7
<PAGE> 14
"Consolidated Net Worth" means, at any particular time, the sum of all
amounts which, in conformity with GAAP, would be included as stockholders'
equity on a consolidated balance sheet of the BORROWERS (i.e., exclusive of any
consolidated Subsidiaries of Falcon Drilling which are not BORROWERS).
"Consolidated Tangible Net Worth" means, at any particular time, the
remainder of (a) Consolidated Net Worth minus (b) the aggregate book value of
Intangible Assets shown on a consolidated balance sheet of the BORROWERS (i.e.,
exclusive of any consolidated Subsidiaries of Falcon Drilling which are not
BORROWERS).
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 2.6 of a Eurodollar Loan as a Eurodollar Loan
from one Interest Period to the next Interest Period.
"Continuing Director" means an individual who (a) is a member of the
Board of Directors of Falcon Drilling and (b) either (i) was a member of the
Board of Directors of Falcon Drilling as of the Closing Date or (ii) whose
nomination for election or election to the Board of Directors of Falcon
Drilling was approved by a vote of at least 66 2/3% of the directors then still
in office who were either directors as of the Closing Date or whose election or
nomination for election was previously so approved.
"Contract Rate" means as specified in Section 13.12(a).
"Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 2.6 or Article 4 of one Type of Loan into the other Type of
Loan.
"Currency Hedge Agreement" means any foreign currency exchange
agreement, option or future contract or other similar agreement designed to
protect against or manage a Person's exposure to fluctuations in foreign
currency exchange rates.
"Current Date" means a date occurring no more than 30 days prior to the
Closing Date or such earlier date which is reasonably acceptable to the Agent.
"Debt" means as to any Person at any time (without duplication): (a) any
indebtedness, liability or obligation of such Person, contingent or otherwise,
for borrowed money; (b) any indebtedness, liability or obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments; (c)
any indebtedness, liability or obligation of such Person for all or any part of
the purchase price of Property or services or for the cost of Property
constructed or of improvements thereto (including any indebtedness, liability
or obligation under or in connection with any letter of credit related
thereto), other than accounts payable included in current liabilities incurred
in respect of Property and services purchased in the ordinary course of
business; (d) any indebtedness, liability or obligation of such Person upon
which interest charges are customarily paid (other than accounts payable
incurred in the ordinary course of business); (e) any indebtedness, liability
or obligation of such Person under conditional sale or other title retention
agreements relating to purchased Property; (f) any indebtedness, liability or
obligation of such Person issued or assumed as the deferred purchase price of
Property (other than accounts payable incurred in the ordinary course of
business); (g) any Capital Lease Obligation or any obligation pursuant to any
sale and lease-back transaction of such Person; (h) any indebtedness, liability
or
8
<PAGE> 15
obligation of any other Person secured by (or for which the obligee thereof has
an existing right, contingent or otherwise, to be secured by) any Lien on
Property owned or acquired, whether or not any indebtedness, liability or
obligation secured thereby has been assumed, by such Person; (i) any
indebtedness, liability or obligation of such Person in respect of any letter
of credit supporting any indebtedness, liability or obligation of any other
Person; (j) the maximum fixed repurchase price of any Redeemable Stock of such
Person or, if such Person is a Subsidiary, any preferred stock of such Person,
exclusive of any Redeemable Stock or Subsidiary preferred stock issued by a
BORROWER and owned by another BORROWER; (k) any obligation of such Person under
or with respect to any Interest Rate Protection Agreement or Currency Hedge
Agreement; and (l) any indebtedness, liability or obligation which is in
economic effect a guarantee, regardless of its characterization, with respect
to any Debt of another Person, to the extent guaranteed. For purposes of the
preceding sentence, the maximum fixed repurchase price of any Redeemable Stock
or Subsidiary preferred stock that does not have a fixed repurchase price shall
be calculated in accordance with the terms of such Redeemable Stock or
Subsidiary preferred stock as if such Redeemable Stock or Subsidiary preferred
stock were repurchased on any date on which Debt shall be required to be
determined pursuant to the this Agreement; provided, however, that if such
Redeemable Stock or Subsidiary preferred stock is not then permitted to be
repurchased, the repurchase price shall be the book value of such Redeemable
Stock or Subsidiary preferred stock. The amount of Debt of any Person at any
date shall be (i) the outstanding book value at such date of all indebtedness,
liabilities and obligations as described above and (ii) the maximum liability
of all contingent indebtedness, liabilities and obligations at such date.
"Debtor Relief Law" means any applicable liquidation, conservatorship,
receivership, bankruptcy, moratorium, rearrangement, insolvency, reorganization
or similar law for the relief of debtors from time to time in effect and
generally affecting the rights of creditors.
"Default" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an Event of
Default.
"Default Rate" means, in respect of any principal of any Loan, any
Reimbursement Obligation or any other amount payable by any BORROWER under this
Agreement or any other Loan Document which is not paid when due (whether at
stated maturity, by acceleration or otherwise), a rate per annum during the
period commencing on the due date until such amount is paid in full equal to
the sum of two percent plus the Prime Rate as in effect from time to time plus
the Applicable Margin for ABR Loans; provided, however, that if such amount in
default is principal of a Eurodollar Loan and the due date is a day other than
the last day of an Interest Period therefor, the "Default Rate" for such
principal shall be, for the period from and including the due date and to but
excluding the last day of the Interest Period therefor, two percent plus the
interest rate for such Eurodollar Loan for such Interest Period as provided in
Section 2.4(a) hereof, and, thereafter, the rate provided for above in this
definition.
"Dollars" and "$" mean lawful money of the United States.
"Drilling Rigs" means all drilling rigs or vessels owned by any of the
Borrowers or Guarantors on the Closing Date.
"EBITDA" means, for any period, without duplication, the sum of the
following for the BORROWERS (i.e., exclusive of any consolidated Subsidiary of
Falcon Drilling which is not a BORROWER) for such period determined on a
consolidated basis in accordance with GAAP: (a) Consolidated Net Income, plus
(b) Consolidated Interest Expense, plus (c) income and franchise taxes to the
extent deducted in determining Consolidated Net Income, plus (d) depreciation
and amortization expense and other non-cash
9
<PAGE> 16
items to the extent deducted in determining Consolidated Net Income, minus (e)
non-cash income to the extent included in determining Consolidated Net Income.
"Eligible Assignee" means any (i) a commercial bank or finance company
organized under the laws of the United States, or any State thereof or the
District of Columbia, and having total assets in excess of $1,000,000,000; (ii)
a savings and loan association or savings bank organized under the laws of the
United States, or any State thereof or the District of Columbia, and having a
net worth of at least $100,000,000, calculated in accordance with generally
accepted accounting principles; (iii) any Affiliate of any Bank; (iv) a
commercial bank organized under the laws of any other country which is a member
of the OECD, or a political subdivision of any such country, and having total
assets in excess of $1,000,000,000, provided that such bank is acting through a
branch or agency located in the country in which it is organized or another
country which is also a member of the OECD; (v) the central bank of any country
which is a member of the OECD; or (vi) if, but only if, any Event of Default
has occurred and is continuing, any other bank, insurance company, commercial
finance company or other financial institution approved by the Agent, such
approval not to be unreasonably withheld.
"Eligible Receivables" means, at any date of determination, without
duplication, the aggregate of each Receivable of any BORROWER, other than a
Non-Material Borrower or a Guarantor, created in the ordinary course of
business which satisfies each of the following conditions:
(a) Such Receivable complies with all applicable Governmental
Requirements, including, without limitation, usury laws, the Federal
Truth in Lending Act and Regulation Z of the Board of Governors of the
Federal Reserve System;
(b) Such Receivable is payable not more than 45 days after the
original date of issuance of the invoice therefor;
(c) Such Receivable has not been outstanding for more than 60
days after the date on which such Receivable was due;
(d) Such Receivable was created in connection with (i) the
sale of Inventory by such BORROWER in the ordinary course of business
and such sale has been fully consummated and such Inventory has been
shipped and delivered and received by the account debtor or (ii) the
performance of services by such BORROWER in the ordinary course of
business and such services have been completed and accepted by the
account debtors;
(e) Such Receivable represents a legal, valid and binding
payment obligation of the account debtor enforceable in accordance with
its terms and arising from an enforceable contract, the performance of
which contract, insofar as it relates to such Receivable, has been
completed by such applicable BORROWER;
(f) Such Receivable does not arise from the sale of any
Inventory on a bill and hold, guaranteed sale, sale or return, sale on
approval, consignment or any other repurchase or return basis;
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<PAGE> 17
(g) Such applicable BORROWER has good and indefeasible title
to such Receivable, the Agent holds a perfected, first priority Lien on
such Receivable pursuant to the Security Documents, and such Receivable
is not subject to any Liens except Permitted Liens specified in clause
(b) or (d) of the definition of the term "Permitted Liens";
(h) Such Receivable does not arise out of a contract with, or
an order from, an account debtor that, by its terms (other than terms
which are invalid under applicable law), prohibits or makes void or
unenforceable the grant of a security interest to the Agent in and to
such Receivable;
(i) The amount or portion of such Receivable included in
Eligible Receivables is not subject to any setoff, counterclaim,
defense, dispute, recoupment or adjustment;
(j) The account debtor with respect to such Receivable is not
insolvent or the subject of any bankruptcy or insolvency proceeding and
has not made an assignment for the benefit of creditors, suspended
normal business operations, dissolved, liquidated, terminated its
existence, ceased to pay its debts as they become due or suffered a
receiver or trustee to be appointed for any of its assets or affairs;
(k) Such Receivable is not evidenced by chattel paper or
instruments unless the Agent has a perfected first priority Lien on such
chattel paper or instrument;
(l) The account debtor has not returned or refused to retain,
or otherwise notified such applicable BORROWER of any dispute
concerning, or claimed nonconformity of, any of the services relating to
such Receivable;
(m) Such Receivable is not owed by an Affiliate or Subsidiary
of any BORROWER;
(n) Such Receivable is payable in Dollars by the account
debtor;
(o) Such Receivable does not arise out of, and is not related
to or connected with, the performance of services by one or more rigs or
other equipment (i) owned by a Non-Recourse Subsidiary or (ii) not owned
or leased by such a BORROWER;
(p) The account debtor (or its ultimate parent with respect to
account debtors of Falcon Venezuela) with respect to such Receivable is
not domiciled in or organized under the laws of, and does not have its
chief executive offices in, any country other than the United States or
a country of the OECD, unless such Receivable is fully secured by a
letter of credit issued or confirmed by a bank acceptable to the Agent
and which has capital and surplus exceeding $100,000,000 and such letter
of credit contains terms and conditions reasonably acceptable to the
Agent;
(q) Such Receivable is not owed by an account debtor and/or
any Affiliate of such account debtor as to which more than (i) with
respect to an account debtor that is an issuer of investment grade
publicly traded debt securities or preferred stock, 35% or (ii) with
respect to an account debtor that is not an issuer of investment grade
publicly traded debt securities or preferred stock, 25%, of the
aggregate balances then outstanding on Receivables owed by such account
11
<PAGE> 18
debtor and/or its Affiliates to any such BORROWER are more than 75 days
past due from the dates of their original invoices;
(r) The account debtor with respect to such Receivable is not
the United States or any department, agency or instrumentality thereof,
unless, with respect to the Lien on such Receivable in favor of the
Agent, to the extent applicable, the Federal Assignment of Claims Act of
1940, as amended, shall have been complied with;
(s) The account debtor with respect to such Receivable is not
located in Indiana, New Jersey, Minnesota, West Virginia or any other
state denying creditors access to its courts in the absence of a Notice
of Business Activities Report or other similar filing, unless (i) such
applicable BORROWER has either qualified as a foreign corporation
authorized to transact business in such state or has filed a Notice of
Business Activities Report or similar appropriate filing with the
applicable state agency for the then-current year or (ii) such
Receivable was generated from a location of such account debtor that is
not within any such state and, as a result, the laws of any such state
are not applicable to such Receivable or the collection thereof;
(t) Such Receivable is to be paid by the account debtor
directly to the Concentration Account;
(u) Such Receivable is not owed by an account debtor as to
which the aggregate of all Receivables owing by such account debtor,
when added to the aggregate of all Receivables owing by all Affiliates
of such account debtor, exceeds (i) with respect to any two account
debtors only, 20% each, (ii) with respect to an account debtor that is
an issuer of "investment grade" publicly traded debt securities or
preferred stock, 30%, or (iii) with respect to any other account debtor,
ten percent, of the aggregate of all Eligible Receivables at such date,
provided that the amount of Receivables owed by such account debtor that
do not, when added to the aggregate of all Receivables owing by all
Affiliates of such account debtor, exceed the percentages listed above
of the aggregate of all Eligible Receivables at such date shall not be
excluded pursuant to this clause (u);
(v) With respect to Receivables of Falcon Venezuela, the
account debtor (or its ultimate parent) with respect to such Receivables
is an issuer of investment grade publicly traded debt securities or
preferred stock; and
(w) Such Receivable has not been rejected in whole or in part
by the Agent or the Co-Agent, in the exercise of its reasonable
discretion, as involving unacceptable credit risk.
The amount of the Eligible Receivables owed by an account debtor to such
a BORROWER shall be net of, and shall be reduced by (if and to the extent not
already so reduced by virtue of the preceding clauses of this definition), the
amount of all contra accounts, reserves, credits, rebates and other
indebtedness, liabilities or obligations owed by such Borrower and its Wholly-
Owned Subsidiaries to such account debtor (except to the extent that such
contra accounts, reserves, credits, rebates and other indebtedness, liabilities
or obligations could not be setoff against or otherwise reduce the amount
payable with respect to any of the Eligible Receivables). For purposes of this
definition, the term "investment grade" shall mean a rating
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<PAGE> 19
by Standard & Poor's Corporation of "BBB-" or higher or a rating by Moody's
Investors Service, Inc. of "Baa3" or higher.
"Environmental Law" means any federal, state, local or foreign law,
statute, code or ordinance, principle of common law, rule or regulation, as
well as any Permit, order, decree, judgment or injunction issued, promulgated,
approved or entered thereunder, relating to pollution or the protection,
cleanup or restoration of the environment or natural resources, or to the
public health or safety, or otherwise governing the generation, use, handling,
collection, treatment, storage, transportation, recovery, recycling, renewal,
discharge or disposal of Hazardous Materials, including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601 et seq., the Superfund Amendment and
Reauthorization Act of 1986, 99-499, 100 Stat. 1613, the Resource Conservation
and Recovery Act of 1976, 42 U. S. C. Section 6901 et seq., the Occupational
Safety and Health Act, 29 U S.C. Section 651 et seq., the Clean Air Act, 42
U.S.C. Section 7401 et seq., the Clean Water Act, 33 U.S.C. Section 1251 et
seq., the Emergency Planning and Community Right to Know Act, 15 U.S.C.,
Section 651 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. Sections 300F et seq., and the Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq., and any state or local counterparts.
"Environmental Liabilities" means, as to any Person, all indebtedness,
liabilities, obligations, responsibilities, Remedial Actions, losses, damages,
punitive damages, consequential damages, treble damages, costs and expenses
(including, without limitation, all reasonable fees, disbursements and expenses
of counsel, expert and consulting fees and costs of investigation and
feasibility studies), fines, penalties, sanctions and interest incurred as a
result of any claim or demand, by any Person, whether based in contract, tort,
implied or express warranty, strict liability or criminal or civil statute,
including any Environmental Law, Permit, order or agreement with any
Governmental Authority or other Person, arising from environmental, health or
safety conditions or the Release or threatened Release of a Hazardous Material
into the environment.
"Equity Issuance" means any issuance by Falcon Drilling or any of its
Subsidiaries of any Capital Stock of Falcon Drilling or any of its
Subsidiaries, respectively.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of a group of entities, organizations or employers of which a Loan Party
is also a member and which is treated as a single employer within the meaning
of Sections 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loan" means any Loan that bears interest at a rate based
upon the Eurodollar Rate or the Adjusted Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/16 of 1%) quoted by the Reference Bank at approximately 11:00 a.m. London
time (or as soon thereafter as practicable) two Business Days prior to the
first day of such Interest Period for the offering by the Reference Bank to
leading banks in the London interbank market of Dollar deposits in immediately
available funds having a term comparable to such Interest Period and in an
amount comparable to the principal amount of the Eurodollar Loan made by the
13
<PAGE> 20
Reference Bank to which such Interest Period relates. If the Reference Bank is
not participating in any Eurodollar Loans during any Interest Period therefor
(pursuant to Section 4.4 or for any other reason), the Eurodollar Rate and the
Adjusted Eurodollar Rate for such Loans for such Interest Period shall be
determined by reference to the amount of the Loans which the Reference Bank
would have made had it been participating in such Loans.
"Event of Default" has the meaning specified in Section 11.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Falcon Atlantic" means as specified in the initial paragraph of this
Agreement.
"Falcon Brazil" means as specified in the initial paragraph of this
Agreement.
"Falcon Drilling" means as specified in the initial paragraph of this
Agreement.
"Falcon Holdings" means as specified in the initial paragraph of this
Agreement.
"Falcon Inland" means as specified in the initial paragraph of this
Agreement.
"Falcon Management" means as specified in the initial paragraph of this
Agreement.
"Falcon Offshore" means as specified in the initial paragraph of this
Agreement.
"Falcon Services" means as specified in the initial paragraph of this
Agreement.
"Falcon Venezuela" means as specified in the initial paragraph of this
Agreement.
"Falcon Workover" means as specified in the initial paragraph of this
Agreement.
"FALRIG Offshore" means as specified in the initial paragraph of this
Agreement.
"FALRIG Offshore GP" means as specified in the initial paragraph of this
Agreement.
"FALRIG Offshore LP" means as specified in the initial paragraph of this
Agreement.
"FALRIG Venezuela" means as specified in the initial paragraph of this
Agreement.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/16 of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (a) if the day for which such rate is to be
determined is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (b) if such rate is not so
published on such next succeeding Business
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<PAGE> 21
Day, the Federal Funds Rate for any day shall be the average rate which would
be charged to the Reference Bank on such day on such transactions as determined
by the Agent.
"Funding Date" means the earlier to occur of the date of the making of
the initial Loan or the date of the issuance of the initial Letter of Credit.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board and/or their respective successors
and which are applicable in the circumstances as of the date in question.
Accounting principles are applied on a "consistent basis" when the accounting
principles applied in a current period are comparable in all material respects
to those accounting principles applied in a preceding period.
"Governmental Authority" means any nation or government, any state or
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government.
"Governmental Requirement" means any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, Permit,
certificate, license, authorization or other directive or requirement of any
federal, state, county, municipal, parish, provincial or other Governmental
Authority or any department, commission, board, court, agency or any other
instrumentality of any of them.
"Guarantee" by any Person means any indebtedness, liability or
obligation, contingent or otherwise, of such Person directly or indirectly
guaranteeing any Debt or other indebtedness, liability or obligation of any
other Person and, without limiting the generality of the foregoing, any
indebtedness, liability or obligation, direct or indirect, contingent or
otherwise, of such Person (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Debt or other indebtedness, liability or
obligation (whether arising by virtue of partnership arrangements, by agreement
to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, to maintain financial statement conditions or otherwise) or (b)
entered into for the purpose of assuring in any other manner the obligee of
such Debt or other indebtedness, liability or obligation of the payment thereof
or to protect the obligee against loss in respect thereof (in whole or in
part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The amount of any Guarantee shall
be deemed to be an amount equal to the stated or determinable amount of the
primary indebtedness, liability or obligation in respect of which such
Guarantee is made or, if not stated or determinable, the maximum anticipated
indebtedness, liability or obligation in respect thereof (assuming such Person
is required to perform thereunder).
"Guarantor" means Falcon Atlantic, Falcon Brasil, FALRIG Venezuela and
each other Person who is or becomes a party to any agreement, document or
instrument that Guarantees or secures payment or performance of the Obligations
or any part thereof.
"Hazardous Material" means any substance, product, waste, pollutant,
chemical, contaminant, insecticide, pesticide, constituent or material which is
or becomes listed, regulated or addressed under any Environmental Law,
including, without limitation, asbestos, petroleum, underground storage tanks
(whether empty or containing any substance) and polychlorinated biphenyls.
15
<PAGE> 22
"Holder" means a Person in whose name a note evidencing Senior Debt is
registered.
"Indenture" means that certain Indenture by and among Falcon Drilling,
certain of its Subsidiaries and Texas Commerce Bank National Association, as
Trustee, dated as of January 15, 1994, relating to the Senior Fixed Rate Notes,
and any and all amendments, modifications, supplements, renewals, extensions or
restatements thereof.
"Intangible Assets" of any Person means those assets of such Person
which are (a) deferred assets, other than prepaid insurance and prepaid taxes,
(b) patents, copyrights, trademarks, tradenames, franchises, goodwill,
experimental expenses and other similar assets which would be classified as
intangible assets on a balance sheet of such Person prepared in accordance with
GAAP, and (c) unamortized debt discount and expense.
"Intellectual Property" means any United States or foreign patents,
patent applications, trademarks, trade names, service marks, brand names, logos
and other trade designations (including unregistered names and marks),
trademark and service mark registrations and applications, copyrights and
copyright registrations and applications, inventions, invention disclosures,
protected formulae, formulations, processes, methods, trade secrets, computer
software, computer programs, source codes, manufacturing research and similar
technical information, engineering know-how, customer and supplier information,
assembly and test data drawings or royalty rights.
"Intercreditor Agreement" means the Intercreditor Agreement in form and
substance satisfactory to the Banks and the Acquisition Loans Banks with
respect to the relative priorities of Liens securing the Obligations and the
Acquisition Loans Obligations.
"Interest Period" means, with respect to any Eurodollar Loan, each
period commencing on the date such Loan is made or Converted from an ABR Loan
or (if continued) the last day of the next preceding Interest Period with
respect to such Loan, and ending on the numerically corresponding day in the
first, second, third or sixth calendar month thereafter, as the BORROWERS may
select as provided in Section 2.9 hereof, except that each such Interest Period
which commences on the last Business Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Business Day of the appropriate
subsequent calendar month. Notwithstanding the foregoing: (a) each Interest
Period which would otherwise end on a day which is not a Business Day shall end
on the next succeeding Business Day (or, if such succeeding Business Day falls
in the next succeeding calendar month, on the next preceding Business Day); (b)
any Interest Period which would otherwise extend beyond the Maturity Date shall
end on the Maturity Date; (c) no more than five Interest Periods for Eurodollar
Loans shall be in effect at the same time; and (d) no Interest Period shall
have a duration of less than one month and, if the Interest Period for any
Eurodollar Loans would otherwise be a shorter period, such Loans shall not be
available hereunder.
"Interest Rate Protection Agreements" means, with respect to any Person,
an interest rate swap, cap or collar agreement or similar arrangement between
such Person providing for the transfer or mitigation of interest rate risks
either generally or under specified contingencies.
"Investments" means as specified in Section 9.5.
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<PAGE> 23
"Issue Date" shall have the meaning specified in the Indenture.
"Issuing Bank" means Banque Paribas or (if Banque Paribas does not wish
to be the issuer of a particular Letter of Credit and another Bank agrees to be
such issuer) such other Bank as Falcon Drilling may designate from time to time
which agrees to be the issuer of such Letter of Credit.
"Kestrel" means as specified in the initial paragraph of this Agreement.
"Letter of Credit" means any standby letter of credit issued by the
Issuing Bank for the account of the BORROWERS pursuant to this Agreement.
"Letter of Credit Liabilities" means, at any time, the aggregate face
amount of all outstanding Letters of Credit and all unreimbursed drawings under
Letters of Credit.
"Lien" means any lien, mortgage, security interest, tax lien, financing
statement, pledge, charge, hypothecation or other encumbrance of any kind or
nature whatsoever (including, without limitation, any conditional sale or title
retention agreement), whether arising by contract, operation of law or
otherwise.
"Loan Documents" means this Agreement, the Notes, the Security
Documents, the Term Sheet, the Letters of Credit, any Currency Hedge Agreement
or Interest Rate Protection Agreement between any BORROWER and any Bank that is
expressly approved by the Agent and expressly determined by the Agent (at any
time) to be a Loan Document, and all other agreements, documents and
instruments executed and/or delivered pursuant to or in connection with any of
the foregoing, and any and all amendments, modifications, supplements,
renewals, extensions or restatements thereof.
"Loan Party" means each of the BORROWERS and Guarantors and any other
Person (if any) who is or becomes a party to any agreement, document or
instrument that Guarantees or secures payment or performance of the Obligations
or any part thereof.
"Loans" means as specified in Section 2.1(a).
"Material Adverse Effect" means any material adverse effect, or the
occurrence of any event or the existence of any condition that could reasonably
be expected to have a material adverse effect, on (a) the business or financial
condition of (i) the BORROWERS, taken as a whole, (ii) Falcon Drilling and its
Subsidiaries, taken as a whole, or (iii) Falcon Drilling on an individual
basis, (b) the ability of Falcon Drilling or the BORROWERS to pay and perform
the Obligations when due, or (c) the validity or enforceability of any of the
Loan Documents, any Lien created or purported to be created by any of the Loan
Documents or the rights and remedies of the Agent or the Banks under any of
the Loan Documents.
"Material Contracts" means, as to Falcon Drilling or any of its
Subsidiaries, any material contract as such term is used or defined in item
601(b)(10) of Regulation S-K promulgated by the Securities and Exchange
Commission (or in any successor regulation).
"Material Subsidiary" means any Subsidiary of Falcon Drilling that
engages in any material operations or that contributes or has contributed,
during any fiscal quarter, 1.00% or more of the aggregate gross revenue of
Falcon Drilling and its consolidated Subsidiaries on a consolidated basis.
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<PAGE> 24
"Maturity Date" means November 12, 1999.
"Maximum Rate" means, with respect to any Bank, the maximum non-usurious
interest rate (or, if the context so requires, the amount calculated at such
rate), if any, that at any time or from time to time may be contracted for,
taken, reserved, charged or received with respect to the Loans or on other
amounts, if any, payable to such Bank pursuant to this Agreement or any other
Loan Document, under laws applicable to such Bank which are presently in
effect, or, to the extent allowed by law, under such applicable laws which may
hereafter be in effect and which allow a higher maximum non-usurious interest
rate than applicable laws now allow. The Maximum Rate shall be calculated in a
manner that takes into account any and all fees, payments and other charges in
respect of the Loan Documents that constitute interest under applicable law.
Each change in any interest rate provided for herein based upon the Maximum
Rate resulting from a change in the Maximum Rate shall take effect without
notice to the BORROWERS at the time of such change in the Maximum Rate. For
purposes of determining the Maximum Rate under Texas law, the applicable rate
ceiling shall be the indicated rate ceiling described in, and computed in
accordance with, Article 5069-1.04, Vernon's Texas Civil Statutes or any
successor or replacement statute; provided, however, that, to the extent
permitted by applicable law, the Agent shall have the right to change the
applicable rate ceiling from time to time in accordance with applicable law.
"Multiemployer Plan" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by or are required
from any Loan Party or any ERISA Affiliate since 1974 and which is covered by
Title IV of ERISA.
"Net Proceeds" means, with respect to any Asset Disposition, (a) the
gross amount of cash received by Falcon Drilling or any of its Subsidiaries
from any Asset Disposition, minus (b) the amount, if any, of all taxes paid or
payable by Falcon Drilling or any of its Subsidiaries directly resulting from
such Asset Disposition (including the amount, if any, estimated by Falcon
Drilling in good faith at the time of such Asset Disposition for taxes payable
by Falcon Drilling or any of its Subsidiaries on or measured by net income or
gain resulting from such Asset Disposition), minus (c) the out-of-pocket costs
and expenses incurred by Falcon Drilling or such Subsidiary in connection with
such Asset Disposition (including brokerage fees paid to a Person other than an
Affiliate of Falcon Drilling) excluding any fees or expenses paid to an
Affiliate of Falcon Drilling, minus (d) amounts applied to the repayment of
indebtedness (other than the Obligations) secured by a Permitted Lien on the
Property subject to the Asset Disposition. "Net Proceeds" with respect to any
Asset Disposition shall also include proceeds (after deducting any amounts
specified in clauses (b), (c) and (d) of the preceding sentence) of insurance
with respect to any actual or constructive loss of Property, an agreed or
compromised loss of Property or the taking of any Property under the power of
eminent domain and condemnation awards and awards in lieu of condemnation for
the taking of Property under the power of eminent domain. "Net Proceeds"
means, with respect to any Equity Issuance, (i) the gross amount of cash or
other consideration received from such Equity Issuance minus (ii) the out-of-
pocket costs and expenses incurred by the issuer in connection with such Equity
Issuance (including underwriting fees paid to a Person other than an Affiliate
of Falcon Drilling) excluding any fees or expenses paid to an Affiliate of
Falcon Drilling. For purposes of determining the Applicable Margin, "Net
Proceeds" shall mean, with respect to an Equity Issuance of Falcon Drilling
common stock in full or partial consideration for the acquisition by a BORROWER
of any Property, an amount equal to the product of (A) the closing price per
share of Falcon Drilling common stock on the date of such issuance (as reported
by the Wall Street Journal) multiplied by (B) the number of shares so issued;
provided, however,
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that (1) such Equity Issuance may not be to an Affiliate of Falcon Drilling and
(2) the aggregate "Net Proceeds" of all such Equity Issuances that may be
considered in determining the Applicable Margin shall not exceed $25,000,000.
"New Borrower" means any Subsidiary of Falcon Drilling which becomes a
co-maker of the Obligations in accordance with Section 5.2.
"Non-Material Borrower" means any of Falcon Holdings, Falcon Management,
Kestrel or Raptor prior to the time that such BORROWER is or becomes a Material
Subsidiary.
"Non-Recourse Debt" means Debt or that portion of Debt (a) as to which
neither Falcon Drilling nor any of its Subsidiaries (other than an Non-Recourse
Subsidiary) (i) provides credit support pursuant to any guaranty, undertaking,
agreement, document or instrument that would constitute Debt, (ii) is directly
or indirectly liable, or (iii) constitutes the lender, and (b) no default with
respect to which (including any rights that the holders thereof may have to
take enforcement action against an Non-Recourse Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Debt of Falcon Drilling
or any of its Subsidiaries (other than an Non-Recourse Subsidiary) to declare a
default on such other Debt or cause the payment thereof to be accelerated or
payable prior to its stated maturity.
"Non-Recourse Rig" means as defined in the Indenture.
"Non-Recourse Subsidiary" means a Subsidiary of Falcon Drilling (i)
established for the purpose of acquiring or investing in one or more of the
Non-Recourse Rigs, (ii) substantially all of the assets of which consist of one
or more of the Non-Recourse Rigs, (iii) at least 67% of the equity interest in
all the Capital Stock of which is owned directly, or indirectly through one or
more Wholly-Owned Subsidiaries, by Falcon Drilling and, in the case of a Non-
Recourse Subsidiary that has a board of directors or similar governing body, a
majority of the members of which board of directors or similar governing body
are nominees of Falcon Drilling or such Wholly-Owned Subsidiaries, and (iv)
which shall have been designated as a Non-Recourse Subsidiary by a resolution
of the Board of Directors of Falcon Drilling. Falcon Drilling may redesignate
any Non-Recourse Subsidiary to be a Subsidiary other than a Non-Recourse
Subsidiary by a resolution of the Board of Directors of Falcon Drilling if,
after giving effect to such redesignation, Falcon Drilling could incur $1.00 of
additional Debt pursuant to Section 4.16 of the Indenture (such redesignation
being deemed an incurrence of Debt (other than Non-Recourse Debt)). Any Non-
Recourse Subsidiary shall become a Subsidiary other than a Non-Recourse
Subsidiary upon the repayment, renewal, extension, refinancing, refunding or
repurchase of the Non-Recourse Debt of such Non-Recourse Subsidiary (other than
Permitted Non-Recourse Subsidiary Refinancing Indebtedness, as such term is
defined in the Indenture). Any indebtedness incurred to effect such renewal,
extension, refinancing, refunding or repurchase shall be deemed to be incurred
on the date of such renewal, extension, refinancing, refunding or repurchase.
"Notes" means the promissory notes of the BORROWERS evidencing the Loans
in the form of Exhibit C hereto, and any and all amendments, modifications,
supplements, renewals, extensions or restatements thereof and all substitutions
therefor (including promissory notes issued by the BORROWERS pursuant to
Section 13.8).
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"Note Purchase Agreement" means that certain agreement by and among
Falcon Drilling, certain of its Subsidiaries and Crescent/Mach I Partners,
L.P., dated as of February 23, 1994, relating to the Senior Floating Rate
Notes, and any and all amendments, modifications, supplements, renewals,
extensions or restatements thereof.
"OECD" means the Organization for Economic Cooperation and Development.
"Obligations" means (a) any and all indebtedness, liabilities and
obligations of the BORROWERS and the other Loan Parties, and/or any of them, to
the Agent, the Issuing Bank and/or the Banks, and/or any of them, evidenced by
and/or arising pursuant to any of the Loan Documents, now existing or hereafter
arising, whether direct, indirect, related, unrelated, fixed, contingent,
liquidated, unliquidated, joint, several or joint and several, including,
without limitation, (i) the obligations of the BORROWERS to repay the Loans and
the Reimbursement Obligations, to pay interest on the Loans and the
Reimbursement Obligations (including, without limitation, interest accruing
after any, if any, implementation of or filing under any Debtor Relief Law) and
to pay all fees, indemnities, costs and expenses (including attorneys' fees)
provided for in the Loan Documents, and (ii) the indebtedness constituting the
Loans, the Reimbursement Obligations and such fees, indemnities, costs and
expenses, and (b) the indebtedness, liabilities and obligations of any BORROWER
under any and all Interest Rate Protection Agreements and Currency Hedge
Agreements that it may enter into with any Bank that are expressly approved by
the Agent and expressly determined by the Agent (at any time) to be Loan
Documents.
"Operating Lease" means, with respect to any Person, any lease, rental
or other agreement for the use by that Person of any Property which is not a
Capital Lease Obligation.
"Outstanding Credit" means, at any particular time, the sum of (a) the
outstanding principal amount of the Loans, plus (b) the Letter of Credit
Liabilities.
"Payor" means as specified in Section 3.4.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"Pension Plan" means an employee pension benefit plan as defined in
Section 3(2) of ERISA (including a Multiemployer Plan) which is subject to the
funding requirements under Section 302 or 4212 of ERISA or Section 412 of the
Code, in whole or in part, and which is established or maintained or
contributed to currently or at any time within the six years immediately
preceding the Closing Date or, in the case of a Multiemployer Plan, at any time
since September 2, 1974, by any BORROWER or any ERISA Affiliate for employees
of any BORROWER or any ERISA Affiliate.
"Peril" means as specified in Section 8.5.
"Permits" means all permits, certificates, approvals, orders, licenses
and other authorizations.
"Permitted Capital Expenditures" means as specified in Section 10.6.
"Permitted Liens" means:
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(a) Liens disclosed on Schedule 1.1(a) hereto;
(b) (i) Liens in favor of the Agent for the benefit of itself
and the Banks securing payment and performance of the Obligations
pursuant to the Loan Documents and (ii) Liens for the benefit of the
Acquisition Loans Agent and the Acquisition Loans Banks securing the
payment and performance of the Acquisition Loans Obligations pursuant to
the Acquisition Loans Documents;
(c) Encumbrances consisting of easements, zoning restrictions
or other restrictions on the use of real Property or imperfections to
title that (i) do not (individually or in the aggregate) materially
affect the value of the Property encumbered thereby or materially impair
the ability of Falcon Drilling or its Subsidiaries to use such Property
in their respective businesses, and none of which is violated in any
material respect by existing or proposed structures or land use and (ii)
were entered into in the ordinary course of business and could not have
a Material Adverse Effect;
(d) Liens for taxes, assessments or other governmental charges
that are not delinquent or which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing
the forfeiture or sale of the Property subject to such Liens, and for
which adequate reserves have been established;
(e) Liens of mechanics, materialmen, warehousemen, carriers,
landlords, suppliers or vendors imposed by law or arising by operation
of law, or Liens for master's or crew's wages imposed by law or arising
by operation of law, or other similar statutory or maritime Liens,
securing obligations that are not yet due and are incurred in the
ordinary course of business or which are being contested in good faith
by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the Property subject to such Liens,
and for which adequate reserves have been established;
(f) Liens resulting from good faith deposits to secure payment
of workmen's compensation or other social security programs or to secure
the performance of tenders, statutory obligations, surety and appeal
bonds, bids, contracts (other than for payment of Debt), or leases, all
in the ordinary course of business;
(g) Liens to secure Debt incurred for the purpose of financing
all or a part of the purchase price or construction cost of Property
(including the cost of upgrading refurbishing rigs or drillships)
acquired or constructed after the Closing Date; provided that (i) the
principal amount of Debt secured by such Liens shall not exceed 66 2/3%
of the lesser of cost or fair market value of the assets or Property so
acquired or constructed and (ii) such Liens shall not encumber any other
assets or Property of any BORROWER and shall attach to such Property
within 120 days of the construction or acquisition of such assets or
Property;
(h) Easements, rights-of-way, restrictions and other Liens and
imperfections to title that are approved by the Agent;
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(i) Liens on Property of a Person existing at the time such
Person is merged or consolidated with or into Falcon Drilling or any of
its Subsidiaries pursuant to a transaction permitted by this Agreement
(and not incurred as a result of, or in anticipation of, such
transaction), provided that such Lien relates solely to such Property;
(j) Liens on Property acquired after the Closing Date and
existing at the time of the acquisition thereof (and not incurred as a
result of, or in anticipation of, such transaction), provided that such
Lien relates solely to such Property;
(k) Liens securing Capital Lease Obligations not to exceed
$30,000,000 in aggregate principal amount (as to all BORROWERS and their
Subsidiaries) at any time outstanding;
(l) any charter or lease of equipment entered into in the
ordinary course of business for full and fair consideration;
(m) leases or subleases of real property to other Persons in
the ordinary course of business for full and fair consideration;
(n) Liens on the Capital Stock of a Non-Recourse Subsidiary
securing loans made to such Non-Recourse Subsidiary;
(o) Liens on Property other than Collateral securing Debt in
an aggregate principal amount not to exceed $20,000,000 at any time
outstanding;
(p) Liens securing that Debt permitted by Section 9.1 hereof;
and
(q) Any extension, renewal or replacement of any of the
foregoing, provided that Liens permitted hereunder shall not be extended
or spread to cover any additional indebtedness or Property;
provided, however, that (i) none of the Permitted Liens (except those in favor
of the Agent) may attach or relate to the Capital Stock of or any other
ownership interest in any BORROWER or any Subsidiary (other than a Non-Recourse
Subsidiary) of any BORROWER, (ii) none of the Permitted Liens, except the
Permitted Liens referred to in clause (b) preceding, may attach or relate to
any of the Collateral, and accordingly, without limiting the generality of the
foregoing, none of the Permitted Liens referred to in clause (a) preceding may
have priority equal or prior to the Liens in favor of the Agent as security for
the Obligations, and (iii) none of the Permitted Liens referred to in subclause
(ii) of clause (b) preceding may have priority equal or prior to the Liens in
favor of the Agent as security for the Obligations except such Permitted Liens
referred to in such subclause (ii) which attach or relate to the Receivables of
Falcon Drilling.
"Permitted Refinancing Debt" means Debt of any BORROWER or any of its
Subsidiaries incurred in exchange for, or the net proceeds of which are used to
renew, extend, refinance, refund or repurchase, outstanding Debt of such Person
which outstanding Debt was incurred in accordance with, or is otherwise
permitted by, the terms of this Agreement; provided that (a) if the Debt being
renewed, extended, refinanced, refunded or repurchased is pari passu with or
subordinated in right of payment to the
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Obligations or any part thereof, then such new Debt shall be pari passu with or
subordinated in right of payment to, as the case may be, the Obligations (or
the applicable part thereof) at least to the same extent as the Debt being
renewed, extended, refinanced, refunded or repurchased, (b) such new Debt is
scheduled to mature later than the Debt being renewed, extended, refinanced,
refunded or repurchased, (c) such new Debt has an Average Life (as such term is
defined in the Indenture) at the time such Debt is incurred that is greater
than the Average Life of the Debt being renewed, extended, refinanced, refunded
or repurchased, and (d) such new Debt is in an aggregate principal amount (or,
if such Debt is issued at a price less than the principal amount thereof, the
aggregate amount of gross proceeds therefrom is) not in excess of the aggregate
principal amount then outstanding of the Debt being renewed, extended,
refinanced, refunded or repurchased (or if the Debt being renewed, extended,
refinanced, refunded or repurchased was issued at a price less than the
principal amount thereof, then not in excess of the amount of liability in
respect thereof determined in accordance with GAAP).
"Person" means any individual, corporation, trust, association, company,
partnership, joint venture, Governmental Authority or other entity.
"Plan" means any employee benefit plan as defined in Section 3(3) of
ERISA established or maintained or contributed to by any Loan Party or any
ERISA Affiliate, including any Pension Plan.
"Prime Rate" means, at any time, the rate of interest per annum then
most recently established by Citibank, N.A. as its highest commercial prime
rate, which rate may not be the lowest rate of interest charged by Citibank,
N.A. to its commercial borrowers. Each change in any interest rate provided
for herein based upon the Prime Rate resulting from a change in the Prime Rate
shall take effect without notice to the BORROWERS at the time of such change in
the Prime Rate.
"Principal Office" means the principal office of the Agent, presently
located at 1200 Smith Street, Suite 3100, Houston, Texas 77002.
"Prior Credit Agreements" means (a) that certain Credit Agreement dated
as of September 12, 1994, among Falcon Drilling, Falcon Offshore, Turnstone
Drilling, FALRIG Offshore and Perforaciones FALRIG de Venezuela, C.A. and
Banque Paribas, individually and as agent, as amended, and (b) that certain
Uncommitted Acquisition Credit Agreement dated as of January 24, 1996, between
Falcon Drilling and Banque Paribas, individually and as agent.
"Prior Obligations" means the "Obligations" as such term is defined in
each of the Prior Credit Agreements.
"Proforma Interest Coverage Ratio" means, as of the date of the
transaction giving rise to the need to calculate such ratio (the "Transaction
Date"), the ratio of (a) the aggregate EBITDA for the four fiscal quarters
preceding the Transaction Date to (b) the aggregate Consolidated Interest
Expense that is anticipated to accrue during the fiscal quarter in which the
Transaction Date occurs and the three fiscal quarters immediately subsequent
thereto (based upon the proforma amount and maturity of, and interest payments
in respect of, Debt expected by the BORROWERS to be outstanding on the
Transaction Date and reasonably anticipated by the BORROWERS to be outstanding
from time to time during such period). In determining such ratio, (i) interest
rates in effect on the Transaction Date shall remain in effect throughout the
relevant period, except that if a BORROWER is a party to any Interest Rate
Protection
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Agreements that would have the effect of changing the interest rate on the Debt
of such Person proposed to be incurred during a period (or portion thereof),
such resulting rate shall be used for the period or portion thereof, (ii) any
Consolidated Interest Expense of the BORROWERS with respect to Debt incurred or
retired by the BORROWERS (excluding Non-Recourse Debt) during the fiscal
quarter in which the Transaction Date occurs shall be calculated as if such
Debt was so incurred or retired on the first day of the fiscal quarter in which
the Transaction Date occurs, (iii) if the transaction giving rise to the need
to calculate the Proforma Interest Coverage Ratio would have the effect of
increasing or decreasing EBITDA in the future and if such increase or decrease
is readily quantifiable and is directly attributable to such transaction,
EBITDA shall be calculated on a proforma basis as if such transaction had
occurred on the first day of the four fiscal quarters preceding the fiscal
quarter in which the Transaction Date occurs, and (iv) if any BORROWER shall
have sold any material portion of its assets during such period, EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if positive), or
increased by an amount equal to the EBITDA (if negative), directly attributable
to the assets which were sold for such period calculated on a proforma basis as
if such asset sale and any related retirement of Debt had occurred on the first
day of such quarter.
"Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Code.
"Property" means property of all kinds, real, personal or mixed,
tangible or intangible (including, without limitation, all rights relating
thereto), whether owned or acquired on or after the Closing Date.
"Quarterly Date" means the last day of each March, June, September and
December of each year, the first of which shall be the first such day after the
Closing Date.
"Raptor" means as specified in the initial paragraph of this Agreement.
"Receivables" means, as at any date of determination thereof, all
accounts (as such term is defined in the UCC) of the BORROWERS (i.e., exclusive
of any consolidated Subsidiary of Falcon Drilling which is not a BORROWER) and
includes, without limitation, the unpaid portion of the obligation, as stated
on the respective invoice, or, if there is no invoice, other writing, of a
customer of a BORROWER in respect of services rendered or inventory sold and
shipped by such Person; provided, however, that certain of such obligations
owed to certain Subsidiaries of Falcon Drilling as are specifically identified
on Schedule 1.1(b), which obligations secure the existing Debt identified on
such schedule, shall not be deemed to be Receivables for purposes of this
definition.
"Redeemable Stock" means, with respect to any Person, any equity
security that, by its terms or otherwise, is required to be redeemed, purchased
or paid by the issuer thereof, or is redeemable, transferable or payable at the
option of the holder thereof, at any time prior to January 15, 2002, or is
exchangeable into Debt of such Person or any of its Subsidiaries.
"Reference Bank" means Banque Paribas.
"Register" means as specified in Section 13.8(d).
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"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time to
time.
"Regulatory Change" means, with respect to any Bank, any change after
the Closing Date in United States federal, state or foreign laws or regulations
(including Regulation D) or the adoption or making after such date of any
interpretations, directives or requests applying to a class of banks including
such Bank of or under any United States federal or state, or any foreign, laws
or regulations (whether or not having the force of law) by any Governmental
Authority charged with the interpretation or administration thereof.
"Reimbursement Obligation" means the obligation of the BORROWERS to
reimburse the Issuing Bank for any drawing under a Letter of Credit.
"Release" means, as to any Person, any release, spill, emission,
leaking, pumping, injection, deposit, disposal, disbursement, leaching or
migration of Hazardous Materials into the indoor or outdoor environment or into
or out of Property owned by such Person, including, without limitation, the
movement of Hazardous Materials through or in the air, soil, surface water or
ground water.
"Remedial Action" means all actions required to (a) cleanup, remove,
respond to, treat or otherwise address Hazardous Materials in the indoor or
outdoor environment, (b) prevent the Release or threat of Release or minimize
the further Release of Hazardous Materials so that they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, (c) perform studies and investigations on the extent and
nature of any actual or suspected contamination, the remedy or remedies to be
used or health effects or risks of such contamination, or (d) perform post-
remedial monitoring, care or remedy of a contaminated site.
"Required Banks" means, at any date of determination, Banks having in
the aggregate at least 75% (in Dollar amount) of the aggregate amount of the
outstanding Commitments (or, if such Commitments have terminated or expired,
the aggregate outstanding principal amount of the Loans and the aggregate
Letter of Credit Liabilities).
"Required Payment" means as specified in Section 3.4.
"Replacement Asset" means a Property or asset that, as determined by the
Board of Directors of Falcon Drilling as evidenced by a resolution of its Board
of Directors, is used or is useful in a business related, ancillary or
complementary to the business of Falcon Drilling and its Subsidiaries on the
Closing Date.
"Reportable Event" means any of the events set forth in Section 4043 of
ERISA.
"Reserve Requirement" means, for any Eurodollar Loan of any Bank for any
Interest Period therefor, the maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under any regulations of the Board of Governors of
the Federal Reserve System (or any successor) by such Bank for deposits
exceeding $1,000,000,000 against "Eurocurrency Liabilities" as such term is
used in Regulation D. Without limiting the effect of the foregoing, the
Reserve Requirement shall reflect any other reserves required to be maintained
by such
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<PAGE> 32
member banks by reason of any Regulatory Change against (a) any category of
liabilities which includes deposits by reference to which the Eurodollar Rate
or the Adjusted Eurodollar Rate is to be determined, or (b) any category of
extensions of credit or other assets which include Eurodollar Loans.
"Responsible Officer" means, as to any Loan Party, the chief financial
officer, vice president of finance, chief operating officer or chief executive
officer of such Person.
"Restricted Payment" means (a) any dividend or other distribution
(whether in cash, Property or obligations), direct or indirect, on account of
(or the setting apart of money for a sinking or other analogous fund for) any
shares of any class of Capital Stock of Falcon Drilling or any of its
Subsidiaries now or hereafter outstanding, except a dividend payable solely in
shares of that class of stock to the holders of that class; (b) any redemption,
conversion, exchange, retirement, sinking fund or similar payment, purchase or
other acquisition for value, direct or indirect, of any shares of any class of
Capital Stock of Falcon Drilling or any of its Subsidiaries now or hereafter
outstanding; (c) any payment or prepayment of principal of, premium, if any, or
interest on, or any redemption, conversion, exchange, purchase, retirement or
defeasance of, or payment with respect to, any Subordinated Debt or any Senior
Debt; (d) any loan, advance or payment (pursuant to a tax sharing agreement or
otherwise) to any shareholder of Falcon Drilling or any of its Subsidiaries;
and (e) any payment made to retire, or to obtain the surrender of, any
outstanding warrants, options or other rights to acquire shares of any class of
Capital Stock of Falcon Drilling or any of its Subsidiaries now or hereafter
outstanding.
"Security and Assignment Agreements" means the Security and Assignment
Agreements in form and substance satisfactory to the Agent, dated the Closing
Date or thereafter and executed by the BORROWERS (one for each BORROWER), other
than the Non-Material Borrowers and the Guarantors, in favor of the Agent for
the benefit of the Agent and the Banks, and any additional security agreement
or similar agreement executed by any Loan Party in connection with the Loan
Documents, and any and all amendments, modifications, supplements, renewals,
extensions or restatements thereof.
"Security Documents" means the Security and Assignment Agreements and
the Concentration Account Agreement and as they may be amended, modified,
supplemented, renewed, extended or restated from time to time, and any and all
other agreements, deeds of trust, mortgages, chattel mortgages, security
agreements, pledges, guaranties, assignments of proceeds, assignments of
income, assignments of contract rights, assignments of partnership interests,
assignments of royalty interests, assignments of performance or other
collateral assignments, completion or surety bonds, standby agreements,
subordination agreements, undertakings and other agreements, documents,
instruments and financing statements now or hereafter executed and delivered by
any Loan Party in connection with or as security for, or as a Guarantee of, the
payment or performance of the Obligations or any part thereof.
"Senior Debt" means the Debt of Falcon Drilling under the Senior Debt
Documents.
"Senior Debt Documents" means the Senior Notes, the Indenture, the
Series 1996 Indenture, the Note Purchase Agreement, the Subsidiary Senior Note
Guaranties, all agreements, documents and instruments now or hereafter executed
by Falcon Drilling or any of its Subsidiaries and/or delivered to the trustee
pursuant to the Indenture or to any Holder pursuant to the Indenture, the
Series 1996 Indenture, the Note Purchase Agreement or otherwise, and any and
all amendments, modifications, supplements, renewals, extensions or
restatements thereof.
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"Senior Fixed Rate Notes" means the 9 3/4% Series B Notes due 2001, if
any, issued by Falcon Drilling, and any and all amendments, modifications,
supplements, renewals, extensions or restatements of such Senior Fixed Rate
Notes.
"Senior Floating Rate Notes" means the Senior Floating Rate Notes due
January 15, 2001, issued by Falcon Drilling pursuant to the Note Purchase
Agreement or otherwise, and any and all amendments, modifications, supplements,
renewals, extensions or restatements of such Senior Floating Rate Notes.
"Senior Note Guarantors" means Falcon Offshore, Falcon Drilling
Management, Inc., Falcon Rig Management Company, Inc., Falcon Rig (Liberia),
Ltd., Falcon Drilling Holdings, L.P., Turnstone Drilling, FALRIG Offshore,
Kestrel Offshore, Inc., Falcon Workover Company, Inc., Raptor Exploration
Company, Inc., FALRIG Offshore (USA), L.P. and FALRIG Offshore Partners and any
other Subsidiary of Falcon Drilling which Guarantees Falcon Drilling's
obligations with respect to any Senior Note pursuant to the terms of the
Indenture, the Note Purchase Agreement or otherwise.
"Senior Notes" means, collectively, the Senior Fixed Rate Notes, the
Senior Floating Rate Notes and the Series 1996 Notes.
"Senior Subordinated Debt" means the Debt of Falcon Drilling under the
Senior Subordinated Debt Documents.
"Senior Subordinated Debt Documents" means the Senior Subordinated
Notes, the Senior Subordinated Notes Indenture, all agreements, documents and
instruments now or hereafter executed by Falcon Drilling or any of its
Subsidiaries and/or delivered to the Trustee pursuant to the Senior
Subordinated Notes Indenture or to any Senior Subordinated Notes Holder
pursuant to the Senior Subordinated Notes Indenture or otherwise, and any and
all amendments, modifications, supplements, renewals, extensions or
restatements thereof.
"Senior Subordinated Notes" means those certain 12 1/2% Series B Senior
Subordinated Notes due 2005 in the aggregate principal amount of $50,000,000
issued pursuant to the terms of the Senior Subordinated Notes Indenture.
"Senior Subordinated Notes Indenture" means that certain Indenture by
and between Falcon Drilling, as Issuer and Texas Commerce Bank National
Association, as Trustee, dated as of March 15, 1995, relating to the Senior
Subordinated Notes.
"Senior Subordinated Notes Holder" means a Person in whose name a Senior
Subordinated Note is registered.
"Series B Notes" means the 9 3/4% Series B Notes due 2001, if any,
issued by Falcon Drilling pursuant to the Indenture or otherwise.
"Series 1996 Indenture" means the Indenture dated as of March 1, 1996,
between Falcon Drilling and Bank One, Texas, N.A., pursuant to which the Series
1996 Notes have been issued.
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<PAGE> 34
"Series 1996 Notes" means the 8 7/8% Series B Noes due 2003 issued by
Falcon Drilling pursuant to the Series 1996 Indenture, and any and all
amendments, modifications, supplements, renewals, extensions or restatements
thereof.
"Solvent" means, with respect to any Person as of the date of any
determination, that on such date (a) the fair value of the Property of such
Person (both at fair valuation and at present fair saleable value) is greater
than the total liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (d) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (e) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's Property would constitute
unreasonably small capital after giving due consideration to current and
anticipated future capital requirements and current and anticipated future
business conduct and the prevailing practice in the industry in which such
Person is engaged. In computing the amount of contingent liabilities at any
time, such liabilities shall be computed at the amount which in light of the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"Subordinated Debt" means any Debt of any BORROWER or any of its
Subsidiaries which is, by its terms, subordinated in any manner (as to payment
or collection) to any other Debt of any such Person and includes, without
limitation, the Senior Subordinated Debt.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which at least a majority of the outstanding
shares of stock, partnership interests or other ownership interests having by
the terms thereof ordinary voting power to elect a majority of the board of
directors (or Persons performing similar functions) of such corporation,
partnership or entity (irrespective of whether or not at the time, in the case
of a corporation, stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any contingency)
is at the time directly or indirectly owned or controlled by such Person or one
or more of its Subsidiaries or by such Person and one or more of its
Subsidiaries.
"Subsidiary Senior Note Guaranties" means the obligations of the Senior
Note Guarantors under the Indenture and the Note Purchase Agreement pursuant to
which the Senior Note Guarantors guarantee payment of the Senior Fixed Rate
Notes and the Senior Floating Rates.
"Term Sheet" means that certain letter agreement dated September 26,
1996, containing a "Summary of Terms" as executed by Banque Paribas and agreed
to and accepted by Falcon Drilling as of September 26, 1996.
"Turnstone Drilling" means Turnstone Drilling Company, Inc., a Delaware
corporation.
"Type" means any type of Loan (i.e., an ABR Loan or an Eurodollar Loan).
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<PAGE> 35
"UCC" means the Uniform Commercial Code as in effect in the State of New
York, Texas, Louisiana or any other jurisdiction, as may be applicable to or in
connection with any Lien on any Property created pursuant to any Security
Document.
"UCP" means as specified in Section 2.14(b).
"United States" means the United States of America.
"Voting Stock" means, with respect to any Person, securities of any
class or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or at the times that such class of Capital Stock has
voting power by reason of the happening of any contingency) to vote in the
election of members of the board of directors or comparable body of such
Person.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
Subsidiary of such Person all of whose outstanding Capital Stock (other than
directors' qualifying shares, if any) shall at the time be owned by such Person
and/or one or more of its Wholly-Owned Subsidiaries.
Section 1.2 Other Definitional Provisions. All definitions contained
in this Agreement are equally applicable to the singular and plural forms of
the terms defined. The words "hereof", "herein", and "hereunder" and words of
similar import referring to this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement. Unless otherwise
specified, all Article and Section references pertain to this Agreement. Terms
used herein that are defined in the UCC, unless otherwise defined herein, shall
have the meanings specified in the UCC.
Section 1.3 Accounting Terms and Determinations.
(a) All accounting terms not specifically defined herein shall
be construed in accordance with GAAP consistent with such accounting
principles applied in the preparation of the audited financial
statements referred to in Section 7.2(a). All financial information
delivered to the Agent pursuant to Section 8.1 shall be prepared in
accordance with GAAP applied on a basis consistent with such accounting
principles applied in the preparation of the audited financial
statements referred to in Section 7.2(a) or in accordance with Section
8.7.
(b) Falcon Drilling shall deliver to the Agent and the Banks
at the same time as the delivery of any annual, quarterly or monthly
financial statement under Section 8.1 (i) a description in reasonable
detail of any material variation between the application of GAAP
employed in the preparation of the next preceding annual, quarterly or
monthly financial statements as to which no objection has been made in
accordance with the last sentence of subsection (a) above, and (ii)
reasonable estimates of the difference between such statements arising
as a consequence thereof.
(c) To enable the ready and consistent determination of
compliance with the covenants set forth in this Agreement (including
Article 10 hereof), Falcon Drilling will not change the last day of its
fiscal year from December 31, or the last days of the first three fiscal
quarters in each of its fiscal years from that existing on the Closing
Date.
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<PAGE> 36
Section 1.4 Financial Covenants and Reporting. The financial
covenants contained in Article 10 shall be calculated on a consolidated basis
for the BORROWERS (i.e., exclusive of any consolidated Subsidiary of Falcon
Drilling which is not a BORROWER) notwithstanding anything to the contrary
contained in this Agreement.
ARTICLE 2
Loans
Section 2.1 Commitments.
(a) Revolving Credit Loans. Subject to the terms and
conditions of this Agreement, each Bank severally agrees to make one or
more loans (the "Loans") to the BORROWERS from time to time from and
including the Closing Date to but excluding the Maturity Date up to but
not exceeding the amount of such Bank's Commitment as then in effect;
provided, however, that the Outstanding Credit shall not at any time
exceed the lesser of the Borrowing Base or the Commitments. Subject to
the foregoing limitations and the other terms and conditions of this
Agreement, the BORROWERS may borrow, repay and reborrow the Loans
hereunder.
(b) Continuation and Conversion of Loans. Subject to the
terms and conditions of this Agreement, the Borrowers may borrow the
Loans as ABR Loans or Eurodollar Loans and, until the applicable
Maturity Date, the BORROWERS may Continue Eurodollar Loans or Convert
Loans of one Type into Loans of the other Type.
(c) Lending Offices. Loans of each Type made by each Bank
shall be made and maintained at such Bank's Applicable Lending Office
for Loans of such Type.
(d) Rationale for Co-Obligors. The Banks and the BORROWERS
acknowledge and agree that the Banks are willing to make the Loans to,
and issue the Letters of Credit for the account of, any BORROWER only if
the other BORROWERS are liable for payment thereof and reimbursement
therefor, respectively. Accordingly, and in order to avoid the
necessity of the issuance of a separate Note or Letter of Credit for
each BORROWER the payment of or reimbursement for which would be
guaranteed by each of the other BORROWERS, each of the BORROWERS desires
to be a co-borrower of, and jointly and severally liable for, payment of
the Loans and reimbursement for the Letters of Credit. None of the
BORROWERS is a co-borrower with respect to any Loan or is executing any
Note as a co-maker thereof, or is the co-account party with respect to
any Letter of Credit, as a condition to or otherwise in connection with
any Loan to or any Letter of Credit issued for the account of such
BORROWER, other than a Loan or Letter of Credit the proceeds of which
are used by such BORROWER
Section 2.2 Notes. The Loans made by each Bank shall be evidenced by
a single promissory note jointly and severally made by the BORROWERS in
substantially the form of Exhibit C hereto, dated the Closing Date, payable to
the order of such Bank in a principal amount equal to its Commitment as
originally in effect and otherwise duly completed. Each Bank is hereby
authorized by the BORROWERS to endorse on the schedule (or a continuation
thereof) attached to the Note of such Bank, to the extent applicable, the date,
amount and Type of and the Interest Period for each Loan made by such Bank to
the BORROWERS hereunder and the amount of each payment or prepayment of
principal of such Loan received
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<PAGE> 37
by such Bank, provided that any failure by such Bank to make any such
endorsement shall not affect the obligations of the BORROWERS under such Note
or this Agreement in respect of such Loan.
Section 2.3 Repayment of Loans. The BORROWERS shall pay to the Agent
for the account of each Bank the outstanding principal of the Loans (and the
outstanding principal of the Loans shall be due and payable) on the Maturity
Date.
Section 2.4 Interest.
(a) Interest Rate. The BORROWERS shall pay to the Agent for
the account of each Bank interest on the unpaid principal amount of each
Loan made by such Bank for the period commencing on the date of such
Loan to but excluding the date such Loan shall be paid in full, at the
following rates per annum:
(i) during the periods such Loan is an ABR Loan, the
ABR Rate plus the Applicable Margin; and
(ii) during the periods such Loan is a Eurodollar Loan,
the Eurodollar Rate plus the Applicable Margin.
(b) Payment Dates. Accrued interest on the Loans shall be due
and payable as follows:
(i) in the case of ABR Loans, on each Quarterly Date;
(ii) in the case of each Eurodollar Loan, on the last
day of the Interest Period with respect thereto and, in the case
of an Interest Period greater than three months, at three-month
intervals after the first day of such Interest Period;
(iii) upon the payment or prepayment of any Loan or the
Conversion of any Loan to a Loan of the other Type (but only on
the principal amount so paid, prepaid, or Converted); and
(iv) on the Maturity Date.
(c) Default Interest. Notwithstanding the foregoing, the
BORROWERS will pay to the Agent for the account of each Bank interest at
the applicable Default Rate on any principal of any Loan made by such
Bank, any Reimbursement Obligation and (to the fullest extent permitted
by law) on any other amount payable by any BORROWER (including, without
limitation, an amount required to be prepaid pursuant to Section 2.7,
but excluding unmatured interest) under this Agreement or any other Loan
Document to or for the account of such Bank, which is not paid in full
when due (whether at stated maturity, by acceleration or otherwise), for
the period from and including the due date thereof to but excluding the
date the same is paid in full. Interest payable at the Default Rate
shall be payable from time to time on demand.
Section 2.5 Borrowing Procedure. The BORROWERS shall give the Agent
notice of each borrowing hereunder in accordance with Section 2.9. Not later
than 11:00 a.m. (Houston, Texas time)
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<PAGE> 38
on the date specified for each borrowing hereunder, each Bank will make
available the amount of the Loan to be made by it on such date to the Agent, at
the Principal Office, in immediately available funds, for the account of the
BORROWERS. The amount so received by the Agent shall, subject to the terms and
conditions of this Agreement, be made available to the BORROWERS by wire
transfer of immediately available funds to the Borrowing Base Account (or to
another account of the BORROWERS specified by them which is acceptable to the
Agent) no later than 1:00 p.m.
Section 2.6 Optional Prepayments, Conversions and Continuations of
Loans. Subject to Section 2.7, the BORROWERS shall have the right from time to
time to prepay the Loans, or to Convert all or part of a Loan of one Type into
a Loan of another Type or to Continue Eurodollar Loans; provided that: (a) the
BORROWERS shall give the Agent notice of each such prepayment, Conversion or
Continuation as provided in Section 2.9, (b) Eurodollar Loans may only be
Converted on the last day of the Interest Period, (c) except for Conversions of
Eurodollar Loans into ABR Loans, no Conversions or Continuations shall be made
while a Default has occurred and is continuing, and (d) no prepayment of any of
the principal of the Loans may be made by the BORROWERS at any time any
Acquisition Loans or Letters of Credit are outstanding under the Acquisition
Loans Credit Agreement.
Section 2.7 Mandatory Prepayments. If at anytime the Outstanding
Credit exceeds an amount equal to the lesser of the Borrowing Base or the
Commitments at such time, within seven days after the occurrence thereof the
Borrowers shall pay to the Agent the amount of such excess as a prepayment of
the Loans.
Section 2.8 Minimum Amounts. Except for Conversions and prepayments
pursuant to Section 2.7 and Article 4, each borrowing, each Conversion and each
prepayment of principal of the Loans shall be in an amount at least equal to
$250,000 or an integral multiple thereof (borrowings, prepayments or
Conversions of or into Loans of different Types or, in the case of Eurodollar
Loans, having different Interest Periods at the same time hereunder shall be
deemed separate borrowings, prepayments and Conversions for purposes of the
foregoing, one for each Type, or Interest Period), provided, that no minimum
prepayment amount shall exist with respect to the Loans.
Section 2.9 Certain Notices. Notices by the BORROWERS to the Agent of
terminations or reductions of Commitments, of borrowings, Conversions,
Continuations and prepayments of Loans and of the duration of Interest Periods
shall be irrevocable and shall be effective only if received by the Agent not
later than 11:00 a.m. (Houston, Texas, time) on the Business Day prior to the
date of the relevant termination, reduction, borrowing, Conversion,
Continuation or prepayment or the first day of such Interest Period specified
below:
<TABLE>
<CAPTION>
Number of Business
Notice Days Prior
------ ----------
<S> <C>
Termination or reductions of Commitments 3
Borrowing of Loans which are ABR Loans 1
Borrowing of Loans which are Eurodollar Loans 3
Conversions or Continuations of Loans 3
Prepayments of Revolving Credit Loans 1
</TABLE>
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<PAGE> 39
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or prepayment shall specify the Loans to be borrowed,
Converted, Continued or prepaid and the amount (subject to Section 2.8 hereof)
and Type of the Loans to be borrowed, Converted, Continued or prepaid (and, in
the case of a Conversion, the Type of Loans to result from such Conversion) and
the date of borrowing, Conversion, Continuation or prepayment (which shall be a
Business Day). Notices of borrowings, Conversions, Continuations or
prepayments shall be in the form of Exhibit D hereto, appropriately completed
as applicable. Each such notice of the duration of an Interest Period shall
specify the Loans to which such Interest Period is to relate. The Agent shall
promptly notify the Banks of the contents of each such notice. In the event
the BORROWERS fail to select the Type of Loan, or the duration of any Interest
Period for any Eurodollar Loan, within the time period and otherwise as
provided in this Section 2.9, such Loan (if outstanding as an Eurodollar Loan)
will be automatically Converted into an ABR Loan on the last day of the
preceding Interest Period for such Loan or (if outstanding as an ABR Loan) will
remain as, or (if not then outstanding) will be made as, an ABR Loan. The
BORROWERS may not borrow any Eurodollar Loans, Convert any Loans into
Eurodollar Loans or Continue any Loans as Eurodollar Loans if the interest rate
for such Eurodollar Loans would exceed the Maximum Rate.
Section 2.10 Use of Proceeds. The proceeds of the Loans shall be used
by the BORROWERS for working capital and general corporate purposes. None of
the proceeds of any Loan will be used to acquire any security in any
transaction that is subject to Section 13 or 14 of the Securities Exchange Act
of 1934, as amended.
Section 2.11 Commitment Fee and Other Fees. The BORROWERS agree to pay
to the Agent for the account of each Bank a commitment fee on the daily average
unused amount of such Bank's Commitment for the period from and including the
Closing Date to and including the Maturity Date, at the rate of 0.375% per
annum based on a 365 day year and the actual number of days elapsed. Accrued
commitment fees shall be payable in arrears on each Quarterly Date beginning on
December 31, 1996, and on the Maturity Date. Furthermore, the BORROWERS agree
to pay to the Agent the additional fees specified in the Term Sheet.
Section 2.12 Computations. Interest payable by the BORROWERS hereunder
and under the other Loan Documents on all Eurodollar Loans shall be computed on
the basis of a year of 360 days and the actual number of days elapsed
(including the first day but excluding the last day) occurring in the period
for which payable unless in the case of interest such calculation would result
in a usurious rate, in which case interest shall be calculated on the basis of
a year of 365 or 366 days, as the case may be. Interest payable by the
BORROWERS hereunder and under the other Loan Documents on ABR Loans and all
fees payable hereunder and under the Loan Documents shall be computed on the
basis of a year of 365 or 366 days, as the case may be.
Section 2.13 Termination or Reduction of Commitments. The BORROWERS
shall have the right to terminate or reduce in part the unused portion of the
Commitments at any time and from time to time, provided that: (a) the
BORROWERS shall give notice of each such termination or reduction as provided
in
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<PAGE> 40
Section 2.9; and (b) each partial reduction shall be in an aggregate amount at
least equal to $500,000. The Commitments may not be reinstated after they have
been terminated or reduced.
Section 2.14 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, the
BORROWERS may utilize the Commitments by requesting that the Issuing
Bank issue Letters of Credit; provided, that the aggregate amount of
outstanding Letter of Credit Liabilities shall not at any time exceed
$10,000,000. Upon the date of issue of each Letter of Credit, the
Issuing Bank shall be deemed, without further action by any party
hereto, to have sold to each Bank, and each Bank shall be deemed,
without further action by any party hereto, to have purchased from the
Issuing Bank, a participation to the extent of such Bank's Commitment
Percentage in such Letter of Credit.
(b) The BORROWERS shall give the Issuing Bank (with a copy to
the Agent) at least five Business Days irrevocable prior notice
(effective upon receipt) specifying the date of each Letter of Credit
and the nature of the transactions to be supported thereby. Upon
receipt of such notice the Issuing Bank shall promptly notify each Bank
of the contents thereof and of such Bank's Commitment Percentage of the
amount of the proposed Letter of Credit. Each Letter of Credit shall
have an expiration date that does not exceed one year from the date of
issuance and that does not extend beyond the Maturity Date, shall be
payable in Dollars, shall support a transaction entered into in
connection with and reasonably related to BORROWERS' existing business,
shall be satisfactory in form and substance to the Issuing Bank and
shall be issued pursuant to such agreements, documents and instruments
(including a letter of credit application and reimbursement agreement)
as the Issuing Bank may reasonably require, none of which shall be
inconsistent with this Section 2.14; provided, however, that Letters of
Credit having an aggregate face amount not to exceed $2,500,000 at any
time outstanding may have expiration dates that extend beyond one year
from the date of issuance (but not to extend beyond the Maturity Date)
with the prior written consent of the Agent, which consent shall not be
unreasonably withheld. Each Letter of Credit shall (i) provide for the
payment of drafts presented for, on or thereunder by the beneficiary, in
accordance with the terms thereof, when such drafts are accompanied by
the documents described in the Letter of Credit, if any, and (ii) to the
extent not inconsistent with the terms hereof or any applicable letter
of credit application, be subject to the Uniform Customs and Practice
for Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500 (together with any subsequent revision
thereof approved by a Congress of the International Chamber of Commerce
and adhered to by the Issuing Bank, the "UCP"), and shall, as to matters
not governed by the UCP, be governed by, and construed and interpreted
in accordance with, the laws of the State of New York.
(c) The BORROWERS agree to pay to the Agent for the account of
each Bank, in arrears on each Quarterly Date following the Closing Date
(beginning on December 31, 1996) and on the Maturity Date, if such
Letter of Credit was outstanding at any time during any portion of the
quarterly period (or, with respect to the December 31, 1996 Quarterly
Date, the period from Closing Date through such Quarterly Date)
immediately preceding such Quarterly Date or the Maturity Date, a
nonrefundable letter of credit fee with respect to each Letter of Credit
issued in an amount equal to (i) the rate per annum equal to the
Applicable Margin for Eurodollar Loans in effect on the date of issuance
of such Letter of Credit (with respect to the fee due on the first
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<PAGE> 41
Quarterly Date after issuance) or on the first day of the applicable
quarterly or other period beginning after the quarter during which the
issuance of such Letter of Credit occurred (with respect to the fee due
on each subsequent Quarterly Date or on the Maturity Date) minus 0.25%,
multiplied by (ii) the daily average face amount of the Letter of Credit
in effect during the applicable period. The Agent agrees to pay to each
Bank, promptly after receiving any payment of letter of credit fees
referred to above in this Section 2.14(c), such Bank's Commitment
Percentage of such fees. The BORROWERS agree to pay to the Issuing Bank
for its own account, in arrears on each Quarterly Date following the
Closing Date (beginning on December 31, 1996) and on the Maturity Date,
if such Letter of Credit was outstanding at any time during any portion
of the quarterly period (or, with respect to the December 31, 1996
Quarterly Date, the period from the Closing Date through such Quarterly
Date) immediately preceding such Quarterly Date or the Maturity Date, a
nonrefundable letter of credit fee with respect to each Letter of Credit
issued by the Issuing Bank hereunder in an amount equal to the greater
of (A) (1) 0.25% per annum multiplied by (2) the daily average face
amount of the Letter of Credit in effect during such period, or (B)
$300.00. In addition to the foregoing fees, the BORROWERS shall pay or
reimburse the Issuing Bank for such normal and customary costs and
expenses, including, without limitation, administrative, issuance,
amendment, payment and negotiation charges, as are incurred or charged
by the Issuing Bank in issuing, effecting payment under, amending, or
otherwise administering any Letter of Credit.
(d) Upon receipt from the beneficiary of any Letter of Credit
of any demand for payment or other drawing under such Letter of Credit,
the Issuing Bank shall promptly notify the BORROWERS and each Bank as to
the amount to be paid as a result of such demand or drawing and the
payment date. If at any time the Issuing Bank shall make a payment to a
beneficiary of a Letter of Credit pursuant to a drawing under such
Letter of Credit, each Bank will pay to the Issuing Bank, immediately
upon the Issuing Bank's demand at any time commencing after such payment
until reimbursement therefor in full by the BORROWERS, an amount equal
to such Bank's Commitment Percentage of such payment, together with
interest on such amount for each day from the date of such payment to
the date of payment by such Bank of such amount at a rate of interest
per annum equal to the Federal Funds Rate.
(e) The BORROWERS shall be irrevocably and unconditionally
obligated, without presentment, demand, protest or other formalities of
any kind, to reimburse the Issuing Bank for any amounts paid by the
Issuing Bank upon any drawing under any Letter of Credit on or before
the second Business Day after such drawing. The Issuing Bank will pay
to each such Bank such Bank's Commitment Percentage of all amounts
received from or on behalf of the BORROWERS for application in payment,
in whole or in part, of the Reimbursement Obligation in respect of any
Letter of Credit, but only to the extent such Bank has made payment to
the Issuing Bank in respect of such Letter of Credit pursuant to Section
2.14(d). Outstanding Reimbursement Obligations shall bear interest (i)
at the rate then applicable to ABR Loans to and including the fifth day
after such Reimbursement Obligations become outstanding and (ii) at the
Default Rate thereafter, and such interest shall be payable on demand.
(f) The Reimbursement Obligations of the BORROWERS under this
Agreement and the other Loan Documents shall be absolute, unconditional
and irrevocable, and shall be performed
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<PAGE> 42
strictly in accordance with the terms of this Agreement and the other
Loan Documents under all circumstances whatsoever, including, without
limitation, the following circumstances:
(i) Any lack of validity or enforceability of any
Letter of Credit or any other Loan Document;
(ii) Any amendment or waiver of or any consent to
departure from any Loan Document;
(iii) The existence of any claim, setoff, counterclaim,
defense or other right which any Loan Party or other Person may
have at any time against any beneficiary of any Letter of Credit,
the Agent, the Issuing Bank, the Banks or any other Person,
whether in connection with this Agreement or any other Loan
Document or any unrelated transaction;
(iv) Any statement, draft or other document presented
under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect whatsoever;
(v) Payment by the Issuing Bank under any Letter of
Credit against presentation of a draft or other document that
does not comply with the terms of such Letter of Credit,
provided, that such payment shall not have constituted gross
negligence or willful misconduct of the Issuing Bank; and
(vi) Any other circumstance whatsoever, whether or not
similar to any of the foregoing, provided that such other
circumstance or event shall not have been the result of the gross
negligence or willful misconduct of the Issuing Bank.
(g) The BORROWERS assume all risks of the acts or omissions of any
beneficiary of any Letter of Credit with respect to its use of such Letter of
Credit. Neither the Agent, the Issuing Bank, the Banks nor any of their
respective officers or directors shall have any responsibility or liability to
the BORROWERS or any other Person for: (i) the failure of any draft to bear any
reference or adequate reference to any Letter of Credit, or the failure of any
documents to accompany any draft at negotiation, or the failure of any Person
to surrender or to take up any Letter of Credit or to send documents apart from
drafts as required by the terms of any Letter of Credit, or the failure of any
Person to note the amount of any instrument on any Letter of Credit; (ii)
errors, omissions, interruptions or delays in transmission or delivery of any
messages; (iii) the validity, sufficiency or genuineness of any draft or other
document, or any endorsement(s) thereon, even if any such draft, document or
endorsement should in fact prove to be in any and all respects invalid,
insufficient, fraudulent or forged or any statement therein is untrue or
inaccurate in any respect; (iv) the payment by the Issuing Bank to the
beneficiary of any Letter of Credit against presentation of any draft or other
document that does not comply with the terms of the Letter of Credit; or (v)
any other circumstance whatsoever in making or failing to make any payment
under a Letter of Credit; provided, however, that, notwithstanding the
foregoing, the BORROWERS shall have a claim against the Issuing Bank, and the
Issuing Bank shall be liable to the BORROWERS, to the extent of any direct, but
not indirect or consequential, damages suffered by the BORROWERS which the
BORROWERS prove in a final nonappealable judgment were caused by (A) the
Issuing Bank's willful misconduct or gross negligence in determining whether
documents presented under any Letter of Credit complied with the terms thereof
or (B) the Issuing Bank's willful failure to pay under any Letter of Credit
after presentation to it of
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<PAGE> 43
documents strictly complying with the terms and conditions of such Letter of
Credit. The Issuing Bank may accept documents that appear on their face to be
in order, without responsibility for further investigation, regardless of any
notice or information to the contrary.
ARTICLE 3
Payments
Section 3.1 Method of Payment. All payments of principal, interest
and other amounts to be made by any Borrower under this Agreement and the other
Loan Documents shall be made to the Agent at the Principal Office for the
account of each Bank's Applicable Lending Office in Dollars and in immediately
available funds, without setoff, deduction or counterclaim, not later than
11:00 a.m. (Houston, Texas time) on the date on which such payment shall become
due (each such payment made after such time on such due date to be deemed to
have been made on the next succeeding Business Day). Such BORROWER shall, at
the time of making each such payment, specify to the Agent the sums payable by
such BORROWER under this Agreement and the other Loan Documents to which such
payment is to be applied (and in the event that such BORROWER fails to so
specify, or if an Event of Default has occurred and is continuing, the Agent
may apply such payment to the Obligations in such order and manner as the Agent
may elect, subject to Section 3.2). Upon the occurrence and during the
continuation of an Event of Default, all proceeds of any Collateral, and all
funds from time to time on deposit in the Concentration Account, may be applied
by the Agent to the Obligations in such order and manner as the Agent may
elect, subject to Section 3.2. Each payment received by the Agent under this
Agreement or any other Loan Document for the account of a Bank shall be paid
promptly to such Bank, in immediately available funds, for the account of such
Bank's Applicable Lending Office. Whenever any payment under this Agreement or
any other Loan Document shall be stated to be due on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of the
payment of interest and commitment fee, as the case may be.
Section 3.2 Pro Rata Treatment. Except to the extent otherwise
provided herein: (a) each Loan shall be made by the Banks under Section 2.1,
each payment of commitment fees under Section 2.11 shall be made for the
account of the Banks and each termination or reduction of the Commitments under
Section 2.13 shall be applied to the Commitments of the Banks on a pro rata
basis; (b) the making, Conversion and Continuation of Loans of a particular
Type (other than Conversions provided for by Section 4.4) shall be made pro
rata among the Banks holding Loans of such Type in accordance with their
respective Commitment Percentages; (c) each payment and prepayment by the
BORROWERS of principal of or interest on Loans of a particular Type shall be
made to the Agent for the account of the Banks holding Loans of such Type pro
rata in accordance with the respective unpaid principal amounts of such Loans
held by such Banks; (d) Interest Periods for Eurodollar Loans shall be
allocated among the Banks holding Eurodollar Loans pro rata according to the
respective principal amounts held by such Banks; and (e) the Banks (other than
the Issuing Bank) shall purchase participations in the Letters of Credit pro
rata in accordance with their respective Commitment Percentages.
Section 3.3 Sharing of Payments, Etc. If a Bank shall obtain payment
of any principal of or interest on any of the Obligations due to such Bank
hereunder through the exercise of any right of setoff, banker's lien,
counterclaim or similar right, or otherwise, it shall promptly purchase from
the other Banks participations in the Obligations held by the other Banks in
such amounts and make such adjustments from
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time to time as shall be equitable to the end that all the Banks shall share
pro rata in accordance with the unpaid principal and interest on the
Obligations then due to each of them. To such end, all of the Banks shall make
appropriate adjustments among themselves (by the resale of participations sold
or otherwise) if all or any portion of such excess payment is thereafter
rescinded or must otherwise be restored. The BORROWERS agree, to the fullest
extent they may effectively do so under applicable law, that any Bank so
purchasing a participation in the Obligations by the other Banks may exercise
all rights of setoff, banker's lien, counterclaim or similar rights with
respect to such participation as fully as if such Bank were a direct holder of
Obligations in the amount of such participation. Nothing contained herein
shall require any Bank to exercise any such right or shall affect the right of
any Bank to exercise, and retain the benefits of exercising, any such right
with respect to any other indebtedness or obligation of any BORROWER.
Section 3.4 Non-Receipt of Funds by the Agent. Unless the Agent shall
have been notified by a Bank or the applicable BORROWER (the "Payor") prior to
the date on which such Bank is to make payment to the Agent of the proceeds of
a Loan to be made by it hereunder or such BORROWER is to make a payment to the
Agent for the account of one or more of the Banks, as the case may be (such
payment being herein called the "Required Payment"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
Payment to the Agent, the Agent may assume that the Required Payment has been
made and may, in reliance upon such assumption (but shall not be required to),
make the amount thereof available to the intended recipient on such date and,
if the Payor has not in fact made the Required Payment to the Agent, the
recipient of such payment shall, on demand, pay to the Agent the amount made
available to it together with interest thereon in respect of the period
commencing on the date such amount was so made available by the Agent until the
date the Agent recovers such amount at a rate per annum equal to the Federal
Funds Rate for such period.
Section 3.5 Withholding Taxes. (a) All payments by the BORROWERS (or
any BORROWER) of principal of and interest on the Loans and the Letter of
Credit Liabilities and of all fees and other amounts payable under the Loan
Documents shall be made free and clear of, and without deduction by reason of,
any present or future taxes, duties, imposts, assessments or other charges
levied or imposed by any Governmental Authority (other than taxes on the
overall net income or gross receipts of the Agent or any Bank). If any such
taxes, duties, imposts, assessments or other charges are so levied or imposed,
the BORROWERS will (i) make additional payments in such amounts so that every
net payment of principal of and interest on the Loans and the Letter of Credit
Liabilities and of all other amounts payable by it under the Loan Documents,
after withholding or deduction for or on account of any such present or future
taxes, duties, imposts, assessments or other charges (including, without
limitation, any tax imposed on or measured by net income or gross receipts of
the Agent or a Bank attributable to payments made to or on behalf of the Agent
or a Bank pursuant to this Section 3.5 and any penalties or interest
attributable to such payments), will not be less than the amount provided for
herein or therein absent such withholding or deduction (provided that the
BORROWERS shall have no obligation to pay such additional amounts to the Agent
or any Bank to the extent that such taxes, duties, imposts, assessments or
other charges are levied or imposed by reason of the failure of the Agent or
such Bank to comply with the provisions of Section 3.6), (ii) make such
withholding or deduction, and (ii) remit the full amount deducted or withheld
to the relevant Governmental Authority in accordance with applicable law.
Without limiting the generality of the foregoing, the BORROWERS will, upon
written request of any Bank, reimburse each such Bank for the amount of (A)
such taxes, levies, duties, imports, assessments or other charges so levied or
imposed by any Governmental Authority and paid by such Bank as a result of
payments made by the BORROWERS under or with respect to the Loans and Letter of
Credit Liabilities other than such taxes, levies, duties, imports,
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assessments and other charges previously withheld or deducted by the BORROWERS
which have previously resulted in the payment of the required additional amount
to such Bank, and (B) such taxes, levies, duties, assessments and other charges
so levied or imposed with respect to any Bank reimbursement under the foregoing
clause (A), so that the net amount received by such Bank (net of payments made
under or with respect to the Loans and the Letter of Credit Liabilities) after
such reimbursement will not be less than the net amount such Bank would have
received if such taxes, levies, duties, assessments and other charges on such
reimbursement had not been levied or imposed. The BORROWERS shall furnish
promptly to the Agent for distribution to each affected Bank, as the case may
be, upon request of such Bank, official receipts evidencing any such
withholding or reduction.
(b) The Borrowers will indemnify the Agent and each Bank (without
duplication) against, and reimburse the Agent and each Bank for, all present
and future taxes, duties, imposts, assessments or other charges (including
interest and penalties) levied or collected (whether or not legally or
correctly imposed, assessed, levied or collected), excluding, however, any
taxes imposed on the overall net income or gross receipts of the Agent or such
Bank, on or in respect of this Agreement, any of the Loan Documents or the
Obligations or any portion thereof (the "reimbursable taxes"). Any such
indemnification shall be on an after-tax basis, taking into account any such
reimbursable taxes imposed on the amounts paid as indemnity.
(c) Without prejudice to the survival of any other term or provision
of this Agreement, the obligations of the BORROWERS under this Section 3.5
shall survive the payment of the Loans, the Letter of Credit Liabilities and
the other Obligations and termination of the Commitments
Section 3.6 Withholding Tax Exemption. Each Bank that is originally a
party to this Agreement as of the Closing Date and that is not incorporated
under the laws of the United States or a state thereof agrees that it will
deliver to the BORROWERS and the Agent two duly completed copies of United
States Internal Revenue Service Form 1001, 4224 or W-8, as appropriate,
certifying in any case that such Bank is entitled to receive payments from the
BORROWERS under any Loan Document without deduction or withholding of any
United States federal income taxes. Each other Bank that is not incorporated
under the laws of the United States or a state thereof and which is eligible to
deliver a Form 1001, 4224 or W-8, as applicable, undertakes to deliver to the
BORROWERS and the Agent two duly completed copies of such form promptly upon
its becoming a Bank under this Agreement. Each Bank which initially so
delivers a Form 1001, 4224 or W-8 pursuant to this Section 3.6 further
undertakes to deliver to the BORROWERS and the Agent two additional copies of
such form (or a successor form) on or before the date such form expires or
becomes obsolete or after the occurrence of any event requiring a change in the
most recent form so delivered by it, and such amendments thereto or extensions
or renewals thereof as may be reasonably requested by the BORROWERS or the
Agent, in each case certifying that such Bank is entitled to receive payments
from the BORROWERS under any Loan Document without deduction or withholding of
any United States federal income taxes, unless an event (including without
limitation any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent such Bank from duly completing
and delivering any such form with respect to it and such Bank advises the
BORROWERS and the Agent that it is not capable of receiving such payments
without any deduction or withholding of United States federal income tax.
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ARTICLE 4
Yield Protection and Illegality
Section 4.1 Additional Costs.
(a) The BORROWERS shall pay directly to each Bank from time to
time, promptly upon the request of such Bank, the reasonable costs
incurred by such Bank which such Bank determines are attributable to its
making or maintaining of any Eurodollar Loans hereunder or its
obligation to make any of such Loans hereunder, or any reduction in any
amount receivable by such Bank hereunder in respect of any such Loans or
such obligation (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which:
(i) changes the basis of taxation of any amounts
payable to such Bank under this Agreement or its Notes in respect
of any of such Loans (other than taxes imposed on the overall net
income or gross receipts of such Bank or its Applicable Lending
Office for any of such Loans by the jurisdiction in which such
Bank has its principal office or such Applicable Lending Office);
(ii) imposes or modifies any reserve, special deposit,
minimum capital, capital ratio or similar requirement relating to
any extensions of credit or other assets of, or any deposits with
or other liabilities or commitments of, such Bank (including any
of such Loans or any deposits referred to in the definition of
"Eurodollar Rate" in Section 1.1 hereof, but excluding the
Reserve Requirement to the extent it is included in the
calculation of the Adjusted Eurodollar Rate); or
(iii) imposes any other condition affecting this
Agreement or the Notes or any of such extensions of credit or
liabilities or commitments.
Each Bank will notify the BORROWERS (with a copy to the Agent) of any
event occurring after the Closing Date which will entitle such Bank to
compensation pursuant to this Section 4.1(a) as promptly as practicable
after it obtains knowledge thereof and determines to request such
compensation, and (if so requested by the BORROWERS) will designate a
different Applicable Lending Office for the Eurodollar Loans of such
Bank if such designation will avoid the need for, or reduce the amount
of, such compensation and will not, in the sole opinion of such Bank,
violate any law, rule or regulation or be in any way disadvantageous to
such Bank, provided that such Bank shall have no obligation to so
designate an Applicable Lending Office located in the United States.
Each Bank will furnish the BORROWERS with a certificate setting forth
the basis and the amount of each request of such Bank for compensation
under this Section 4.1(a). If any Bank requests compensation from the
BORROWERS under this Section 4.1(a), the BORROWERS may, by notice to
such Bank (with a copy to the Agent), suspend the obligation of such
Bank to make or Continue making, or Convert ABR Loans into, Eurodollar
Loans until the Regulatory Change giving rise to such request ceases to
be in effect (in which case the provisions of Section 4.4 hereof shall
be applicable).
(b) Without limiting the effect of the foregoing provisions of
this Section 4.1, in the event that, by reason of any Regulatory Change,
any Bank either (i) incurs Additional Costs based
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on or measured by the excess above a specified level of the amount of a
category of deposits or other liabilities of such Bank which includes
deposits by reference to which the interest rate on Eurodollar Loans is
determined as provided in this Agreement or a category of extensions of
credit or other assets of such Bank which includes Eurodollar Loans or
(ii) becomes subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if such Bank so elects by
notice to the BORROWERS (with a copy to the Agent), the obligation of
such Bank to make or Continue making, or Convert ABR Loans into,
Eurodollar Loans hereunder shall be suspended until such Regulatory
Change ceases to be in effect (in which case the provisions of Section
4.4 hereof shall be applicable).
(c) Determinations and allocations by any Bank for purposes of
this Section 4.1 of the effect of any Regulatory Change on its costs of
maintaining its obligation to make Loans or of making or maintaining
Loans or on amounts receivable by it in respect of Loans, and of the
additional amounts required to compensate such Bank in respect of any
Additional Costs, shall be conclusive in the absence of manifest error,
provided that such determinations and allocations are made on a
reasonable basis.
Section 4.2 Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if with respect to any Eurodollar Loans for any
Interest Period therefor:
(a) The Agent determines (which determination shall be
conclusive absent manifest error) that quotations of interest rates for
the relevant deposits referred to in the definition of "Eurodollar Rate"
in Section 1.1 hereof are not being provided in the relative amounts or
for the relative maturities for purposes of determining the rate of
interest for such Loans as provided in this Agreement; or
(b) Required Banks determine (which determination shall be
conclusive absent manifest error) and notify the Agent that the relevant
rates of interest referred to in the definition of "Eurodollar Rate" or
"Adjusted Eurodollar Rate" in Section 1.1 hereof on the basis of which
the rate of interest for such Loans for such Interest Period is to be
determined do not accurately reflect the cost to the Banks of making or
maintaining such Loans for such Interest Period;
then the Agent shall give the BORROWERS prompt notice thereof and, so long as
such condition remains in effect, the Banks shall be under no obligation to
make Eurodollar Loans or to Convert ABR Loans into Eurodollar Loans and the
BORROWERS shall, on the last day(s) of the then current Interest Period(s) for
the outstanding Eurodollar Loans, either prepay such Loans or Convert such
Loans into ABR Loans in accordance with the terms of this Agreement.
Section 4.3 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to (a) honor its obligation to make Eurodollar Loans hereunder
or (b) maintain Eurodollar Loans hereunder, then such Bank shall promptly
notify the BORROWERS (with a copy to the Agent) thereof and such Bank's
obligation to make or maintain Eurodollar Loans and to Convert ABR Loans into
Eurodollar Loans hereunder shall be suspended until such time as such Bank may
again make and maintain Eurodollar Loans (in which case the provisions of
Section 4.4 hereof shall be applicable).
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Section 4.4 Treatment of Affected Loans. If the obligation of any
Bank to make or Continue, or to Convert ABR Loans into, Eurodollar Loans is
suspended pursuant to Section 4.1 or 4.3 hereof, such Bank's Eurodollar Loans
shall be automatically Converted into ABR Loans on the last day(s) of the then
current Interest Period(s) for the Eurodollar Loans (or, in the case of a
Conversion required by Section 4.1(b) or 4.3 hereof, on such earlier date as
such Bank may specify to the BORROWERS with a copy to the Agent) and, unless
and until such Bank gives notice as provided below that the circumstances
specified in Section 4.1 or 4.3 hereof which gave rise to such Conversion no
longer exist:
(a) To the extent that such Bank's Eurodollar Loans have been
so Converted, all payments and prepayments of principal which would
otherwise be applied to such Bank's Eurodollar Loans shall be applied
instead to its ABR Loans; and
(b) All Loans which would otherwise be made or Continued by
such Bank as Eurodollar Loans shall be made as or Converted into ABR
Loans and all Loans of such Bank which would otherwise be Converted into
Eurodollar Loans shall be Converted instead into (or shall remain as)
ABR Loans.
If such Bank gives notice to the BORROWERS (with a copy to the Agent) that the
circumstances specified in Section 4.1 or 4.3 hereof which gave rise to the
Conversion of such Bank's Eurodollar Loans pursuant to this Section 4.4 no
longer exist (which such Bank agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans are outstanding, such Bank's
ABR Loans shall be automatically Converted, on the first day(s) of the next
succeeding Interest Period(s) for such outstanding Eurodollar Loans, to the
extent necessary so that, after giving effect thereto, all Loans held by the
Banks holding Eurodollar Loans and by such Bank are held pro rata (as to
principal amounts, Types and Interest Periods) in accordance with their
respective Commitments.
Section 4.5 Compensation. The BORROWERS shall pay to the Agent for
the account of each Bank, promptly upon the request of such Bank through the
Agent, such amount or amounts as shall be sufficient (in the reasonable opinion
of such Bank) to compensate it for any loss, cost or expense incurred by it as
a result of:
(a) Any payment, prepayment or Conversion of a Eurodollar Loan
for any reason (including, without limitation, the acceleration of the
outstanding Loans pursuant to Section 11.2) on a date other than the
last day of an Interest Period for such Loan; or
(b) Any failure by the BORROWERS for any reason (including,
without limitation, the failure of any conditions precedent specified in
Article 6 to be satisfied) to borrow, Convert or prepay a Eurodollar
Loan on the date for such borrowing, Conversion, or prepayment specified
in the relevant notice of borrowing, prepayment, or Conversion under
this Agreement.
Section 4.6 Capital Adequacy. If, after the Closing Date, any Bank
shall have determined that the adoption or implementation of any applicable
law, rule or regulation regarding capital adequacy (including, without
limitation, any law, rule or regulation implementing the Basle Accord), or any
change therein, or any change in the interpretation or administration thereof
by any central bank or other Governmental Authority charged with the
interpretation or administration thereof, or compliance by such Bank (or its
parent) with any guideline, request or directive regarding capital adequacy
(whether or not
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having the force of law) of any central bank or other Governmental Authority
(including, without limitation, any guideline or other requirement implementing
the Basle Accord), has or would have the effect of reducing the rate of return
on such Bank's (or its parent's) capital as a consequence of its obligations
hereunder or the transactions contemplated hereby to a level below that which
such Bank (or its parent) could have achieved but for such adoption,
implementation, change or compliance (taking into consideration such Bank's
policies with respect to capital adequacy) by an amount deemed by such Bank to
be material, then from time to time, within ten Business Days after demand by
such Bank (with a copy to the Agent), the BORROWERS shall pay to such Bank such
additional amount or amounts as will compensate such Bank (or its parent) for
such reduction. A certificate of such Bank claiming compensation under this
Section 4.6 and setting forth the additional amount or amounts to be paid to it
hereunder shall be conclusive absent manifest error, provided that the
determination thereof is made on a reasonable basis. In determining such
amount or amounts, such Bank may use any reasonable averaging and attribution
methods.
Section 4.7 Additional Interest on Eurodollar Loans. The BORROWERS
shall pay, directly to each Bank from time to time, additional interest on the
unpaid principal amount of each Eurodollar Loan held by such Bank, from the
date of the making of such Eurodollar Loan until such principal amount is paid
in full, at an interest rate per annum determined by such Bank in good faith
equal to the positive remainder (if any) of (a) the Adjusted Eurodollar Rate
applicable to such Eurodollar Loan minus (b) the Eurodollar Rate applicable to
such Eurodollar Loan. Each payment of additional interest pursuant to this
Section 4.7 shall be payable by the BORROWERS on each date upon which interest
is payable on such Eurodollar Loan pursuant to Section 2.4(b); provided,
however, that the BORROWERS shall not be obligated to make any such payment of
additional interest until the first Business Day after the date when the
BORROWERS have been informed (i) that such Bank is subject to a Reserve
Requirement and (ii) of the amount of such Reserve Requirement (after which
time the BORROWERS shall be obligated to make all such payments of additional
interest, including, without limitation, such payments of additional interest
that otherwise would have been payable by the BORROWERS on or prior to such
time had the BORROWERS been earlier informed).
ARTICLE 5
Security
Section 5.1 Collateral. To secure the full and complete payment and
performance of the Obligations, each of the BORROWERS, other than the Non-
Material Borrowers and the Guarantors, will grant to the Agent, for the ratable
benefit of itself and the Banks, a perfected, first priority Lien or
assignment, as appropriate, on all of its right, title and interest in and to
the following Property, whether now owned or hereafter acquired, pursuant to
the Security Documents:
(a) all Receivables of such BORROWERS and all products and
proceeds thereof; and
(b) the Borrowing Base Account (including, without limitation,
any cash from time to time deposited or held in such account), and all
products and proceeds thereof.
Section 5.2 New Borrowers. If, after the Closing Date, any (a)
BORROWER or any Subsidiary of a BORROWER acquires or creates a Subsidiary which
is not a BORROWER or (b) any Non-Material Borrower is or becomes a Material
Subsidiary, then the BORROWERS shall:
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(i) cause each such Subsidiary referred to in clause
(a) or clause (b) preceding to guaranty the payment and performance of
the entirety of Obligations by executing and delivering to the Agent a
guaranty in form and substance satisfactory to the Agent (or, if the
Agent so desires, cause each such Subsidiary to become a co-maker of the
Obligations by executing and delivering such agreements, documents and
instruments as the Agent may request); and
(ii) cause each such Subsidiary referred to in clause
(a) or clause (b) preceding to execute and deliver to the Agent a
Security and Assignment Agreement and such other Security Documents
(including, without limitation, financing statements) as the Agent may
reasonably request to grant the Agent for the ratable benefit of itself
and the Banks a perfected, first priority Lien or assignment, as
appropriate, on all Receivables of such Subsidiary and the Borrowing
Base Account of such Subsidiary (if any) and all products and proceeds
thereof, which Receivables and Borrowing Base Account shall not be
subject to any Liens except Permitted Liens specified in clause (b) or
(d) of the definition of the term "Permitted Liens".
Section 5.3 Setoff. If an Event of Default shall have occurred and be
continuing, each Bank is hereby authorized at any time and from time to time,
without notice to any BORROWER (any such notice being hereby expressly waived
by each BORROWER), to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Bank to or for the credit or the account
of such BORROWER against any and all of the Obligations of such Borrower now or
hereafter existing under this Agreement, any of such Bank's Notes or any other
Loan Document, irrespective of whether or not the Agent or such Bank shall have
made any demand under this Agreement or any of such Bank's Note or such other
Loan Document and although such Obligations may be unmatured. Each Bank agrees
promptly to notify the applicable BORROWER (with a copy to the Agent) after any
such setoff and application, provided that the failure to give such notice
shall not affect the validity of such setoff and application. The rights and
remedies of each Bank hereunder are in addition to other rights and remedies
(including, without limitation, other rights of setoff) which such Bank may
have.
ARTICLE 6
Conditions Precedent
Section 6.1 Initial Extension of Credit. The obligation of each Bank
to make its initial Loan and the obligation of the Issuing Bank to issue the
initial Letter of Credit are subject to the condition precedent that the Agent
shall have received, on or before the Funding Date, all of the following, each
dated (unless otherwise indicated or otherwise agreed by the Agent) as of the
Closing Date, in form and substance satisfactory to the Agent and, in the case
of actions to be taken, evidence that the following required actions have been
taken to the satisfaction of the Agent:
(a) Resolutions. Resolutions of the Board of Directors of
each Loan Party certified by its Secretary or an Assistant Secretary
which authorize the execution, delivery and performance by such Loan
Party of the Loan Documents to which it is or is to be a party;
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(b) Incumbency Certificate. A certificate of incumbency
certified by the Secretary or an Assistant Secretary of each Loan Party
certifying the name of each officer of such Loan Party (i) who is
authorized to sign the Loan Documents to which such Loan Party is or is
to be a party (including any certificates contemplated therein),
together with specimen signatures of each such officer, and (ii) who
will, until replaced by other officers duly authorized for that purpose,
act as its representative for the purposes of signing documents and
giving notices and other communications in connection with the Loan
Documents and the transactions contemplated thereby;
(c) Articles or Certificates of Incorporation. The articles
or certificates of incorporation of each Loan Party certified by the
Secretary of State of the state of incorporation of such Loan Party and
dated as of a Current Date;
(d) Bylaws. The bylaws of each Loan Party certified by the
Secretary or an Assistant Secretary of such Loan Party;
(e) Governmental Certificates. Certificates of appropriate
officials as to the existence and good standing of each Loan Party in
their respective jurisdictions of incorporation and any and all
jurisdictions where such Loan Party is qualified to do business as a
foreign corporation, each such certificate to be dated as of a Current
Date;
(f) Notes. The Notes duly completed and executed by the
BORROWERS;
(g) Security and Assignment Agreements. A Security and
Assignment Agreement executed by each of the BORROWERS;
(h) Insurance Policies. Certificates of insurance with
respect to all insurance policies required by this Agreement and the
other Loan Documents, all in form and substance satisfactory to the
Agent;
(i) Financing Statements. UCC-1 financing statements and all
other requisite filing documents executed by the Loan Parties necessary
to perfect the Liens created pursuant to the Security Documents;
(j) Lien Releases. Duly executed releases or assignments of
Liens and UCC-3 financing statements in recordable form, as may be
necessary to reflect that the Liens created by the Security Documents
are perfected, first priority Liens;
(k) UCC Searches. UCC searches in the names of each of the
BORROWERS (and all corporate names under which any of them have done
business within the last five years) in each jurisdiction where each
such Person maintains an office or has Property, showing no financing
statements or other Lien instruments of record except for Permitted
Liens;
(l) Solvency Certificate. A certificate executed by a
Responsible Officer of each of the BORROWERS (with respect to the
BORROWERS) and its Subsidiaries (with respect to such
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Subsidiaries) to the effect that, before and after giving effect to the
Loans, each of the BORROWERS and its Subsidiaries will be Solvent, both
on a consolidated and consolidating basis;
(m) Other Consents. Copies of all material consents necessary
for the execution, delivery and performance by each of the Loan Parties
of the Loan Documents to which it is a party, including, without
limitation, any consents or waivers in connection with the grant of a
security interest pursuant to the Security Documents, which consents
shall be certified by a Responsible Officer of the BORROWERS as true and
correct copies of such consents as of the Closing Date;
(n) Permits. Copies of all material Permits of Falcon
Drilling or any of its Subsidiaries and all material permits relating to
any of the Properties owned or leased by any of them (except for
certificates of class of the American Shipping Bureau and certificates
of documentation or inspection of the United States Coast Guard and
except to the extent that the Agent may inform the BORROWERS that copies
of certain of such Permits shall not be required to be delivered); and
evidence satisfactory to the Agent that Falcon Drilling and its
Subsidiaries have taken appropriate action to ensure that Falcon
Drilling and its Subsidiaries are able to conduct their businesses with
the use of such Permits in full force and effect;
(o) Payment of Fees and Expenses. The BORROWERS shall have
paid all fees due on the Closing Date as specified in the Term Sheet and
all fees and expenses of or incurred by the Agent and its counsel to the
extent billed as of the Closing Date and payable pursuant to this
Agreement;
(p) Regulatory Approvals. Evidence satisfactory to the Agent
that all filings, consents, or approvals with or of Governmental
Authorities necessary to consummate the transactions contemplated by the
Loan Documents, if any, have been obtained;
(q) Compliance with Laws. On the Closing Date, each Person
that is a party to this Agreement or any of the other Loan Documents
shall have complied with all Governmental Requirements necessary to
consummate the transactions contemplated by this Agreement and the other
Loan Documents;
(r) No Prohibitions. No Governmental Requirement shall
prohibit the consummation of the transactions contemplated by this
Agreement or any other Loan Document, and no order, judgment or decree
of any Governmental Authority or arbitrator shall, and no litigation or
other proceeding shall be pending or threatened which would, enjoin,
prohibit, restrain or otherwise adversely affect the consummation of the
transactions contemplated by this Agreement or the other Loan Documents
or otherwise have a Material Adverse Effect;
(s) Material Adverse Change. No material adverse change shall
have occurred with respect to the financial condition, business,
operations, capitalization or liabilities of Falcon Drilling, or of
Falcon Drilling and its Subsidiaries taken as a whole, since June 30,
1996;
(t) Wiring Instructions. A letter of direction from the
BORROWERS to the Agent with respect to the disbursement of the proceeds
of the Loans on the Funding Date;
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(u) Bank Accounts. The BORROWERS, other than the Non-Material
Borrowers and the Guarantors, shall have established the Concentration
Account into which all proceeds (except for any cash deposited into the
Borrowing Base Account pursuant to the Security Documents) of the
Collateral shall be directed, which account shall be governed by the
Concentration Account Agreement;
(v) Financial Statements. Copies of each of the financial
statements referred to in Section 7.2, including, without limitation,
the most recent audited financial statements of Falcon Drilling and its
Subsidiaries;
(w) Opinion of Counsel. A favorable opinion of each of New
York, Delaware (with respect to the Loan Parties incorporated or
organized under Delaware law) and foreign counsel acceptable to the
Agent (with respect to the Loan Parties incorporated or organized under
foreign law) counsel for the Loan Parties reasonably acceptable to the
Agent, each in form and substance (and covering such matters as are)
satisfactory to the Agent;
(x) Notice of Borrowing or Issuance of Letter of Credit. A
notice of borrowing in accordance with Section 2.9 (with respect to a
Loan) or a notice of request for the issuance of a Letter of Credit in
accordance with Section 2.14 (with respect to a Letter of Credit);
(y) Borrowing Base Report. A Borrowing Base Report dated as
of October 21, 1996, or as of another recent date acceptable to the
Agent which evidences that, after giving effect to the Loans and/or
Letters of Credit requested to be made and/or issued, respectively, on
the Funding Date, the Outstanding Credit shall not exceed an amount
equal to the lesser of the Borrowing Base or the Commitments at such
time;
(z) Intercreditor Agreement. The Intercreditor Agreement
shall have been executed by the Banks and the Acquisition Loans Banks;
and
(aa) Repayment of Prior Obligations and Release of Prior Liens.
The Prior Obligations shall have been paid in full and all Liens
securing the Prior Obligations shall have been released.
The BORROWERS shall deliver, or cause to be delivered, to the Agent
sufficient counterparts of each document to be received by the Agent under this
Section 6.1 to permit the Agent to distribute a copy of such document to the
Banks.
Section 6.2 All Extensions of Credit. The obligation of each Bank to
make any Loan (including the initial Loan) and the obligation of the Issuing
Bank to issue any Letter of Credit (including the initial Letter of Credit) are
subject to the following additional conditions precedent:
(a) No Default. No Default shall have occurred and be
continuing, or would result from such Loan or Letter of Credit;
(b) Representations and Warranties. All of the
representations and warranties of the BORROWERS and the other Loan
Parties contained in Article 7 hereof and in the other Loan
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Documents (a) shall be true and correct when made and (b) shall be
deemed to be repeated on and as of the date of such Loan or Letter of
Credit and shall be true and correct in all respects on and as of such
date, except in the case of representations and warranties which
expressly and specifically relate only to an earlier date;
(c) Additional Documentation. The Agent shall have received
all notices and other agreements, documents and instruments as may be
required under this Agreement as a condition to such Loan or Letter of
Credit in compliance with this Agreement (including, without limitation,
the notice required under Section 2.9 with respect to a Loan and the
notice required under Section 2.14 with respect to a Letter of Credit)
and such additional approvals, opinions, agreements, documents and
instruments as the Agent may reasonably request;
(d) Borrowing Base. After giving effect to the Loans and/or
Letters of Credit requested to be made and/or issued, respectively, the
Outstanding Credit shall not exceed an amount equal to the lesser of the
Borrowing Base or the Commitments at such time; and
(e) No Material Adverse Effect. Both before and after giving
effect to the Loans and/or Letters of Credit requested to be made and/or
issued, respectively, no Material Adverse Effect shall have occurred and
shall be continuing.
Each notice of borrowing or request for the issuance of a Letter of Credit by
the BORROWERS hereunder shall constitute a representation and warranty by the
BORROWERS that the conditions precedent set forth in this Section 6.2 (other
than the Agent's receipt of any additional documentation that it may, at its
option, request pursuant to Section 6.2(c) preceding) have been satisfied (both
as of the date of such notice and, unless the BORROWERS otherwise notifies the
Agent prior to the date of such borrowing or Letter of Credit, as of the date
of such borrowing or Letter of Credit).
ARTICLE 7
Representations and Warranties
The BORROWERS and the Guarantors jointly and severally represent and
warrant to the Agent and the Banks that the following statements are true,
correct and complete:
Section 7.1 Corporate Existence. Each Loan Party (a) is a corporation
or other entity (as specified in the initial paragraph of this Agreement) duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, (b) has all requisite entity
power and authority to own its Properties and carry on its business as now
being or as proposed to be conducted, and (c) is qualified to do business in
all jurisdictions in which the nature of its business makes such qualification
necessary and where failure to so qualify would have a Material Adverse Effect.
Each Loan Party has the corporate power and authority and legal right to
execute, deliver and perform its obligations under the Loan Documents to which
it is or may become a party. The chief executive office and principal place of
business of each of the Loan Parties, other than the Guarantors whose chief
executive offices and principal places of business are located in their
respective jurisdictions of incorporation or organization, is located in either
the State of Texas or the State of Louisiana, as specified in the Security and
Assignment Agreement executed by such BORROWER (if applicable).
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Section 7.2 Financial Statements. The BORROWERS have delivered to the
Agent and the Banks the Form 10-K of Falcon Drilling for the fiscal year ended
December 31, 1995, and the Forms 10-Q of Falcon Drilling for the fiscal
quarters ended March 31, 1996, and June 30, 1996, which contain audited (with
respect to the Form 10-K ) and unaudited (with respect to the Forms 10-Q)
consolidated (and certain audited and unaudited consolidating) balance sheets
and statements of operations and statements of cash flow of Falcon Drilling and
its consolidated Subsidiaries (including, without limitation, each of the
BORROWERS) as of or for (as applicable) the fiscal year or fiscal quarter (as
applicable) ended December 31, 1995, March 31, 1996, and June 30, 1996. To the
BORROWERS' knowledge, such financial statements are true and correct, have been
prepared in accordance with GAAP and fairly and accurately present, on a
consolidated and consolidating (where applicable) basis, the financial
condition of Falcon Drilling and its consolidated Subsidiaries as of the
respective dates indicated therein and the results of operations for the
respective periods indicated therein. There has been no material adverse
change in the business, condition (financial or otherwise), operations or
Properties of Falcon Drilling, or of Falcon Drilling and its consolidated
Subsidiaries taken as a whole, since the effective date of the financial
statements referred to in this Section 7.2(a).
Section 7.3 Entity Action; No Breach. The execution, delivery and
performance by each Loan Party of the Loan Documents to which it is or may
become a party and compliance with the terms and provisions hereof and thereof
have been duly authorized by all requisite corporate action on the part of the
Loan Parties and do not and will not (a) violate or conflict with, or result in
a breach of, or require any consent under (i) the articles or certificates of
incorporation or bylaws of any Loan Party or the partnership agreement or
certificate of limited partnership or other constitutional document of any Loan
Party, (ii) any Governmental Requirement or any order, writ, injunction or
decree of any Governmental Authority or arbitrator, or (iii) any material
agreement, document or instrument to which any Loan Party is a party or by
which any Loan Party or any of its Property is bound or subject, or (b)
constitute a default under any such material agreement, document or instrument,
or result in the creation or imposition of any Lien (except under the Security
Documents as provided in Article 5) upon any of the revenues or Property of any
Loan Party.
Section 7.4 Operation of Business. The Loan Parties possess all
Permits, franchises, licenses and authorizations necessary to conduct their
respective businesses substantially as now conducted and as presently proposed
to be conducted except where the failure to so possess would not cause a
Material Adverse Effect. None of such Persons is in material violation of any
such Permits, franchises, licenses or authorizations required to be possessed
pursuant to this Section 7.4.
Section 7.5 Intellectual Property. The Loan Parties own or possess
(or will be licensed or have the full right to use) all Intellectual Property
which is necessary for the operation of their respective businesses as
presently conducted and as proposed to be conducted, without any known conflict
with the rights of others. The consummation of the transactions contemplated
by this Agreement and the other Loan Documents will not materially alter or
impair, individually or in the aggregate, any of such rights of such Persons.
No product of the Loan Parties infringes upon any Intellectual Property owned
by any other Person, and no claim or litigation is pending or, to the knowledge
of any BORROWER, threatened against any Loan Party or any such Person
contesting its right to use any product or material which could have a Material
Adverse Effect. There is no violation by any Loan Party of any right of such
Loan Party with respect to any material Intellectual Property owned or used by
such Loan Party.
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Section 7.6 Litigation and Judgments. Each material action, suit,
investigation or proceeding before or by any Governmental Authority or
arbitrator pending or, to the knowledge of any BORROWER, threatened against or
affecting any Loan Party as of the date of this Agreement is disclosed on
Schedule 7.6 hereto or in the Form 10-K of Falcon Drilling for the fiscal year
ended December 31, 1995, or in the Form 10-Q of Falcon Drilling for the fiscal
quarter ended March 31, 1996, or June 30, 1996 except for suits for personal
injury, death or property damage which are adequately covered by insurance
(subject to any deductibles, all of which deductibles are customary for the
industry in which the BORROWERS are engaged). None of such actions, suits,
investigations or proceedings (a) could be reasonably expected to be adversely
determined or (b) if and to the extent the same could be reasonably expected to
be adversely determined, could be reasonably expected to have a Material
Adverse Effect. On the date of this Agreement, there are no outstanding
judgments against any Loan Party or any of their Subsidiaries or Affiliates.
No Loan Party has received any opinion or memorandum or legal advice from legal
counsel to the effect that it is exposed to any liability or disadvantage that
could have a Material Adverse Effect.
Section 7.7 Rights in Properties; Liens. Except as expressly stated
to the contrary on Schedule 1.1(a), each of the Loan Parties has good and
indefeasible title to, or valid leasehold interests in, its Properties and
assets, real and personal, including the Properties, assets and leasehold
interests reflected in the financial statements described in Section 7.2(a),
and none of the Properties or leasehold interests of any Loan Party or any of
its Subsidiaries is subject to any Lien, except Permitted Liens. Each of the
Eligible Receivables will be derived or generated from Properties or assets
owned or leased by a Borrower. As of the Closing Date, each of the Drilling
Rigs is owned, of record and beneficially, by one or more of the BORROWERS as
specified on Schedule 7.7.
Section 7.8 Enforceability. The Loan Documents have been duly and
validly executed and delivered by each of the Loan Parties that is a party
thereto and constitute the legal, valid and binding obligations of the Loan
Parties, enforceable against the Loan Parties in accordance with their
respective terms, except as limited by bankruptcy, insolvency or other laws of
general application relating to the enforcement of creditors' rights and
general principles of equity.
Section 7.9 Approvals. No authorization, approval or consent of, and
no filing or registration with or notice to, any Governmental Authority or
third party is or will be necessary for the execution, delivery or performance
by any Loan Party of any of the Loan Documents to which it is a party or for
the validity or enforceability thereof, except for such consents, approvals and
filings as have been validly obtained or made and are in full force and effect.
None of the Loan Parties has failed to obtain any material governmental
consent, approval, license, Permit, franchise or other governmental
authorization necessary for the ownership of any of its Properties or the
conduct of its business.
Section 7.10 Debt. As of the Closing Date and after giving effect to
the payment of the Prior Obligations (as required by Section 6.1(aa)), Falcon
Drilling and its consolidated Subsidiaries have no Debt except for (a) the
Obligations and the Acquisition Loans Obligations, (b) the Debt disclosed in
the financial statements including in the Form 10-Q of Falcon Drilling for the
fiscal quarter ended June 30, 1996, and (c) the Debt disclosed with respect to
such Person on Schedule 7.10 hereto.
Section 7.11 Taxes. The Loan Parties have filed all tax returns
(federal, state and local) required to be filed, including all income,
franchise, employment, Property and sales tax returns, and have
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paid all of their respective liabilities for taxes, assessments, governmental
charges and other levies that are due and payable. None of the BORROWERS is
aware of any pending investigation by any taxing authority of any Loan Party or
any of its Subsidiaries or of any pending but unassessed tax liability of any
Loan Party or any of its Subsidiaries. No tax Liens have been filed and,
except as disclosed on Schedule 7.11, no claims are being asserted against any
Loan Party or any of its Subsidiaries with respect to any taxes. Except as
disclosed on Schedule 7.11 hereto, as of the Closing Date, none of the United
States income tax returns of the Loan Parties and any of their respective
Subsidiaries are under audit. The charges, accruals and reserves on the books
of the Loan Parties in respect of taxes or other governmental charges are in
accordance with GAAP.
Section 7.12 Margin Securities. None of the Loan Parties or any of
their respective Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulations G, T, U,
or X of the Board of Governors of the Federal Reserve System), and no part of
the proceeds of any Loan will be used to purchase or carry any margin stock or
to extend credit to others for the purpose of purchasing or carrying margin
stock.
Section 7.13 ERISA.
(a) Each Plan of each Loan Party and of each Borrower Member
is in compliance in all material respects with all applicable provisions
of ERISA and the Code. Neither a Reportable Event nor a Prohibited
Transaction has occurred within the last 60 months with respect to any
Plan of any Loan Party or any Borrower Member. No notice of intent to
terminate a Pension Plan of any Loan Party or any Borrower Member has
been filed, nor has any Pension Plan been terminated. No circumstances
exist which constitute grounds entitling the PBGC to institute
proceedings to terminate, or appoint a trustee to administer, a Pension
Plan of any Loan Party or any Borrower Member, nor has the PBGC
instituted any such proceedings. Neither any of the Loan Parties nor
any Borrower Member has completely or partially withdrawn from a
Multiemployer Plan. Each Loan Party and each Borrower Member has met
its minimum funding requirements under ERISA and the Code with respect
to all of its Plans subject to such requirements, and, as of the Closing
Date except as specified on Schedule 7.13, the present value of all
vested benefits under each funded Plan (exclusive of any Multiemployer
Plan) does not exceed the fair market value of all such Plan assets
allocable to such benefits, as determined on the most recent valuation
date of such Plan and in accordance with ERISA. Neither any of the Loan
Parties nor any Borrower Member has incurred any liability to the PBGC
under ERISA. No litigation is pending or threatened concerning or
involving any Plan of any Loan Party or any Borrower Member. There are
no unfunded or unreserved liabilities relating to any Plan of any Loan
Party or any Borrower Member that could, individually or in the
aggregate, have a Material Adverse Effect if such Loan Party or Borrower
Member were required to fund or reserve such liability in full. As of
the Closing Date, no funding waivers have been requested or granted
under Section 412 of the Code with respect to any Plan of any Loan Party
or Borrower Member. As of the Closing Date, no unfunded or unreserved
liability for benefits under any Plan or Plans of any Loan Party or any
Borrower Member (exclusive of any Multiemployer Plans) exceeds
$1,000,000 with respect to any such Plan or $3,000,000 with respect to
all such Plans in the aggregate.
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(b) No ERISA Affiliate has incurred any liability to the PBGC
or has withdrawn from a Multiemployer Plan. Neither any BORROWER nor any
ERISA Affiliate has received a demand letter from the PBGC (i) for the
payment of minimum funding contributions under Section 302 of ERISA
which exceed $1,000,000 with respect to any Pension Plan or $3,000,000
with respect to all Pension Plans in the aggregate or (ii) for the
payment of employer liabilities under Section 4062, 4063 or 4064 of
ERISA which exceeds $1,000,000 with respect to any Pension Plan or
$3,000,000 with respect to all Pension Plans in the aggregate. The PBGC
has not filed or perfected any Lien under Section 302(f)(1) or 4068(a)
of ERISA against any BORROWER or any ERISA Affiliate. Neither BORROWER
nor any ERISA Affiliate has received a notice of complete or partial
withdrawal from a Multiemployer Plan in which the amount of the
liability asserted exceeds $1,000,000 with respect to any Multiemployer
Plan or $3,000,000 with respect to all Multiemployer Plans in the
aggregate.
Section 7.14 Disclosure. No written statement, information, report,
representation or warranty made by any Loan Party in any Loan Document, or
furnished to the Agent or any Bank by any Loan Party in connection with the
Loan Documents, or made in connection with any transaction contemplated hereby
or thereby, contains (as of the date when made) any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading. There is no fact known to any
BORROWER which has had a Material Adverse Effect, and there is no fact known to
any BORROWER which might in the future have a Material Adverse Effect, except
as may have been disclosed in writing to the Agent and the Banks.
Section 7.15 Capitalization.
(a) As of June 30, 1996, the capitalization of Falcon Drilling
and its consolidated Subsidiaries was as set forth in the Form 10-Q of
Falcon Drilling for the fiscal quarter ended June 30, 1996.
(b) On and as of the Closing Date, Falcon Drilling directly or
indirectly owns (legally and beneficially) all of the issued and
outstanding Capital Stock of each BORROWER other than Falcon Drilling.
On and as of the Closing Date, none of the Subsidiaries of Falcon
Drilling has authorized or issued any Redeemable Stock. Falcon Drilling
and its Subsidiaries (including, without limitation, the BORROWERS) are
members of an affiliated and integrated group of entities and are
engaged in related businesses and supporting lines of business and each
Subsidiary of Falcon Drilling (including, without limitation, each
BORROWER other than Falcon Drilling) will receive a direct and indirect
material benefit from the Loans and Letters of Credit and the other
transactions evidenced by and contemplated in this Agreement and the
other Loan Documents. Each of the BORROWERS will receive reasonably
equivalent value in exchange for the Note and Collateral being provided
by it as evidence and security for the payment and performance,
respectively, of the Obligations.
(c) All of the outstanding common stock of the BORROWERS and
their Subsidiaries has been validly issued, is fully paid and is
nonassessable. Since June 30, 1996, no Borrower other than Falcon
Drilling, has issued any subscriptions, options, warrants, calls or
rights (including preemptive rights) to acquire, or securities or
instruments convertible into, Capital Stock of the BORROWERS.
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Section 7.16 Agreements. None of the Loan Parties is a party to any
indenture, loan, credit agreement, stock purchase agreement, lease or other
agreement, document or instrument, or subject to any charter, corporate,
partnership or similar restriction, that could reasonably be expected to have a
Material Adverse Effect. Except as disclosed on Schedule 7.22, none of the
Loan Parties is in default in any respect in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
agreement, document or instrument binding on it or its Properties, except for
instances of noncompliance that, individually or in the aggregate, could not
have a Material Adverse Effect.
Section 7.17 Compliance with Laws. None of the Loan Parties is in
violation of any Governmental Requirement, except for instances of non-
compliance that, individually or in the aggregate, could not have a Material
Adverse Effect.
Section 7.18 Investment Company Act. None of the Loan Parties is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
Section 7.19 Public Utility Holding Company Act. None of the Loan
Parties is a "holding company" or a "subsidiary company" of a "holding company"
or an "affiliate" of a "holding company" or a "public utility" within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 7.20 Environmental Matters.
(a) Except for instances of noncompliance with or exceptions
to any of the following representations and warranties that could not
have, individually or in the aggregate, a Material Adverse Effect:
(i) The Loan Parties and all of their respective
Properties and operations are in full compliance with all
Environmental Laws. None of the BORROWERS is aware of, and no
BORROWER has received written notice of, any past, present or
future conditions, events, activities, practices or incidents
which may interfere with or prevent the compliance or continued
compliance by any Loan Party with all Environmental Laws;
(ii) The Loan Parties have obtained all Permits that are
required under applicable Environmental Laws, and all such
Permits are in good standing and all such Persons are in
compliance with all of the terms and conditions thereof;
(iii) No Hazardous Materials exist on, about or within or
have been (to any BORROWER's knowledge) or are being used,
generated, stored, transported, disposed of on or Released from
any of the Properties of the Loan Parties except in compliance
with applicable Environmental Laws. The use which the Loan
Parties make and intend to make of their respective Properties
will not result in the use, generation, storage, transportation,
accumulation, disposal or Release of any Hazardous Material on,
in or from any of their Properties except in compliance with
applicable Environmental Laws;
(iv) Neither the Loan Parties nor any of their
respective Subsidiaries currently or previously owned or leased
Properties or operations is subject to any outstanding or, to the
best of any BORROWER's knowledge, threatened order from or
agreement with any
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Governmental Authority or other Person or subject to any judicial
or administrative proceeding with respect to (A) any failure to
comply with Environmental Laws, (B) any Remedial Action, or (C)
any Environmental Liabilities;
(v) There are no conditions or circumstances associated
with the currently or previously owned or leased Properties or
operations of the Loan Parties that could reasonably be expected
to give rise to any Environmental Liabilities or claims resulting
in any Environmental Liabilities. None of the Loan Parties is
subject to, or has received written notice of any claim from any
Person alleging that any of the Loan Parties is or will be
subject to, any Environmental Liabilities;
(vi) None of the Properties of the Loan Parties is a
treatment facility (except for the recycling of Hazardous
Materials generated onsite and the treatment of liquid wastes
subject to the Clean Water Act), storage facility (except for
temporary storage of Hazardous Materials generated onsite prior
to their disposal offsite) or disposal facility requiring a
permit under the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 et seq., regulations thereunder or any
comparable provision of state law. The Loan Parties and their
Subsidiaries are compliance with all applicable financial
responsibility requirements of all Environmental Laws; and
(vii) None of the Loan Parties has failed to file any
notice required under applicable Environmental Law reporting a
Release.
(b) No Lien arising under any Environmental Law that could
have, individually or in the aggregate, a Material Adverse Effect has
attached to any Property or revenues of any Loan Party.
Section 7.21 Labor Disputes and Acts of God. Neither the business nor
the Properties of any Loan Party are affected by any fire, explosion, accident,
strike, lockout or other labor dispute, drought, storm, hail, earthquake,
embargo, act of God or of the public enemy, or other casualty (whether or not
covered by insurance), that is having or could have a Material Adverse Effect.
Section 7.22 Material Contracts. Except as may be disclosed on
Schedule 7.22, (a) all of the Material Contracts of each Loan Party are in full
force and effect, (b) there are no defaults under any Material Contracts
(which, individually or in the aggregate, could reasonably be expected to have
a Material Adverse Effect), and (c) to the best of each BORROWER's knowledge
after due inquiry, no other Person that is a party thereto is in default under
any of the Material Contracts. None of the Material Contracts, and no other
agreement, document or instrument to which any Loan Party is a party or by
which any Loan Party or any of its Property is based or subject, prohibits the
transactions contemplated under the Loan Documents.
Section 7.23 Outstanding Securities. As of the Closing Date, all
outstanding securities (as defined in the Securities Act of 1933, as amended,
or any successor thereto, and the rules and regulations of the Securities and
Exchange Commission thereunder) of the Loan Parties have been offered, issued,
sold and delivered in compliance with all applicable Governmental Requirements.
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Section 7.24 Priority of Payment. The Debt evidenced by the Notes and
all other Obligations of the BORROWERS to the Agent and the Banks under the
Loan Documents (a) constitutes "Permitted Indebtedness" (as such term is
defined in the Indenture and the Note Purchase Agreement) of the BORROWERS, (b)
is pari passu in right of payment with the Senior Debt, except that the Debt
and the other Obligations are secured by the Collateral while the Senior Debt
is wholly unsecured (subject to the contractual right of the holders of the
Senior Fixed Rate Notes to obtain security in the future under certain
circumstances as provided in Section 4.10 of the Indenture), and (c) shall in
no event be subordinate in any respect (including, without limitation, right of
payment) to any other Debt of Falcon Drilling or any of its Subsidiaries,
exclusive of the effect of any Permitted Liens.
Section 7.25 Solvency. Each of the Borrowers and each of its
consolidated Subsidiaries, other than the Non-Material Borrowers and the
Guarantors as to which no representation or warranty is made, as a separate
entity and on a consolidated basis, is Solvent, both before and after giving
effect to the Loans and the other transactions contemplated by the Loan
Documents.
Section 7.26 Employee Matters. Except as set forth on Schedule 7.26,
as of the Closing Date (a) none of the Loan Parties nor any of their respective
Subsidiaries, nor any of their respective employees, is subject to any
collective bargaining agreement, and (b) no petition for certification or union
election is pending with respect to the employees of any Loan Party or any of
their respective Subsidiaries, and no union or collection bargaining unit has
sought such certification or recognition with respect to the employees of any
of the Loan Parties or any of their respective Subsidiaries. There are no
strikes, slowdowns, work stoppages or controversies pending or, to the best
knowledge of each BORROWER after due inquiry, threatened against, any of the
Loan Parties or any of their respective Subsidiaries or their respective
employees which could have, either individually or in the aggregate, a Material
Adverse Effect.
Section 7.27 Insurance. Borrowers have furnished to the Agent a true
and complete summary of all insurance that will be in effect as of the Closing
Date for the BORROWERS. No notice of cancellation has been received for such
insurance and the BORROWERS and their Subsidiaries are in substantial
compliance with all of the terms and conditions of the policies providing such
insurance.
ARTICLE 8
Affirmative Covenants
The BORROWERS jointly and severally covenant and agree that, as long as
the Obligations or any part thereof are outstanding or any Bank has any
Commitment hereunder or any Letter of Credit remains outstanding, the BORROWERS
will perform and observe, or cause to be performed and observed, the following
covenants:
Section 8.1 Reporting Requirements. The BORROWERS and the Guarantors
will furnish to the Agent and each Bank:
(a) Annual Financial Statements. As soon as available, and in
any event within 90 days after the end of each fiscal year of Falcon
Drilling, beginning with the fiscal year ending December 31, 1996, (i) a
copy of the annual audit report of Falcon Drilling and its consolidated
Subsidiaries as of the end of and for such fiscal year then ended
containing, on a consolidated basis
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and with unaudited consolidating schedules attached, balance sheets and
statements of income, retained earnings and cash flow, in each case
setting forth in comparative form the figures for the preceding fiscal
year, all in reasonable detail and audited by Arthur Andersen & Co. or
other independent certified public accountants of recognized national
standing, to the effect that such report has been prepared in accordance
with GAAP and (ii) a letter from such independent certified public
accountants to the Agent (A) stating that nothing has come to its
attention during its auditing procedures which indicates that a Default
has occurred and is continuing or, if in its opinion a Default has
occurred and is continuing, stating the nature thereof, and (B)
confirming the calculations set forth in the officer's certificate
delivered simultaneously therewith;
(b) Quarterly Financial Statements. As soon as available, and
in any event within 45 days after the end of each of the quarters of
each fiscal year of Falcon Drilling, beginning with the fiscal quarter
ending September 30, 1996, a copy of an unaudited financial report of
Falcon Drilling and its consolidated Subsidiaries as of the end of such
fiscal quarter and for the portion of the fiscal year then ended
containing, on a consolidated basis, balance sheets and statements of
income, retained earnings and cash flow, in each case setting forth in
comparative form the figures for the corresponding period of the
preceding fiscal year all in reasonable detail certified by a
Responsible Officer of the BORROWERS to have been prepared in accordance
with GAAP and to fairly and accurately present (subject to year-end
audit adjustments) the financial condition and results of operation of
Falcon Drilling and its consolidated Subsidiaries, on a consolidated and
consolidating basis, at the date and for the periods indicated therein;
(c) Monthly Financial Statements. As soon as available, a
copy of any monthly financial report or statement of Falcon Drilling or
any of its Subsidiaries as may be prepared by or for the directors of
any such Person;
(d) Certificate of No Default. Concurrently with the delivery
of each of the financial statements referred to in Sections 8.1(a) or
8.1(b), a certificate of a Responsible Officer of the BORROWERS (i)
stating that, to the best of such officer's knowledge, no Default has
occurred and is continuing or, if a Default has occurred and is
continuing, stating the nature thereof and the action that is proposed
to be taken with respect thereto, and (ii) showing in reasonable detail
the calculations demonstrating compliance with Article 10;
(e) Borrowing Base Reports and Agings. As soon as available
and in any event within 25 days after the end of each month, and, in any
event from time to time upon the request of the Agent, (i) a Borrowing
Base Report duly completed and prepared as of the end of such month, and
(ii) an aged trial balance of all then-existing Receivables;
(f) Rig Reports. As soon as available, a copy of any periodic
report(s) of Falcon Drilling or any of its Subsidiaries as may be
prepared by or for the directors of any such Person pertaining to the
status of any rig(s) (e.g., the location of, the operator of, the
contract terms with respect to and the average day rate or utilization
of any rig) owned and/or operated by any such Person or any Affiliate of
any such Person;
(g) Budget; Projections. As soon as available, a copy of any
budget or projections of Falcon Drilling or any of its Subsidiaries as
may be prepared by or for the directors of any such
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Person and, in any event with 30 days after the end of each fiscal year,
a copy of a budget and projections of Falcon Drilling and its
consolidated Subsidiaries for the then current fiscal year, which budget
and projections shall including consolidating schedules containing
information exclusively as to the BORROWERS;
(h) Management Letters. Promptly upon receipt thereof, a copy
of any management letter or written report submitted to any Loan Party
by independent certified public accountants with respect to the
business, condition (financial or otherwise), operations, prospects or
Properties of such Loan Party;
(i) Notice of Litigation. Promptly after the commencement
thereof, notice of all actions, suits and proceedings before any
Governmental Authority or arbitrator affecting any Loan Party which, if
determined adversely to such Loan Party, could have a Material Adverse
Effect;
(j) Notice of Default. As soon as possible and in any event
immediately upon any Borrower's knowledge of the occurrence of any
Default, a written notice setting forth the details of such Default and
the action that such BORROWER has taken and proposes to take with
respect thereto;
(k) ERISA Reports. Promptly after the filing or receipt
thereof, copies of all reports, including annual reports, and notices
which any Loan Party or any Borrower Member files with or receives from
the PBGC or the U.S. Department of Labor under ERISA; as soon as
possible and in any event within five days after any such Person knows
or has reason to know that any Pension Plan is insolvent, or that any
Reportable Event or Prohibited Transaction has occurred with respect to
any Plan or Multiemployer Plan, or that the PBGC, any Loan Party or any
Borrower Member has instituted or will institute proceedings under ERISA
to terminate or withdraw from or reorganize any Pension Plan, a
certificate of a Responsible Officer of the BORROWERS setting forth the
details as to such insolvency, withdrawal, Reportable Event, Prohibited
Transaction or termination and the action that the BORROWERS propose to
take with respect thereto; and promptly after the receipt thereof, a
copy of each demand letter or notice which would have been described in
Section 7.13(b) if it had been received on or prior to the Closing Date.
(l) Reports to Other Creditors. Promptly after the furnishing
thereof, a copy of any statement or report furnished by any Loan Party
to any other party pursuant to the terms of any indenture, loan, stock
purchase or credit or similar agreement relating to any Consolidated
Funded Debt and not otherwise required to be furnished to the Agent and
the Banks pursuant to any other clause of this Section 8.1;
(m) Notice of Material Adverse Effect. Within five Business
Days after any BORROWER becomes aware thereof, written notice of any
matter that could reasonably be expected to have a Material Adverse
Effect;
(n) Proxy Statements, Etc. As soon as available, one copy of
each financial statement, report, notice or proxy statement sent by any
Loan Party to its stockholders generally and one copy of each regular,
periodic or special report, registration statement or prospectus filed
by any Loan Party with any securities exchange or the Securities and
Exchange Commission or any successor
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agency, and of all press releases and other statements made by any of
the Loan Parties to the public containing material developments in its
business;
(o) Notices regarding Subsidiaries and Transfers of Drilling
Rigs. (i) Concurrently with the delivery of each of the financial
statements referred to in Sections 8.1(a) and 8.1(b), notice of the
creation or acquisition of any Subsidiary by any BORROWER after the
Closing Date and subsequent to the last delivery of such information,
(ii) promptly upon the occurrence thereof, notice of any sale, transfer
or other disposition of any Drilling Rig by any BORROWER and information
concerning the identity of the Drilling Rig affected thereby, the
identity of the transferee thereof and the date of such sale, transfer
or other disposition, (iii) promptly upon the occurrence thereof, notice
of the creation or acquisition of any Material Subsidiary of any
BORROWER, or of the existence of any Material Subsidiary of the
BORROWER, after the Closing Date and subsequent to the last delivery of
such information; and (iv) promptly upon the occurrence thereof, notice
of any Non-Material Borrower being or becoming a Material Subsidiary
(p) Insurance. Within 60 days prior to the end of each fiscal
year of Falcon Drilling, a report in form and substance reasonably
satisfactory to the Agent summarizing all material insurance coverage
maintained by the BORROWERS and their Subsidiaries as of the date of
such report and all material insurance coverage planned to be maintained
by such Persons in the subsequent fiscal year;
(q) Environmental Assessments and Notices. Promptly after the
receipt thereof, a copy of each environmental assessment (including any
analysis relating thereto) involving an amount in excess of $50,000
prepared with respect to any real Property of any Loan Party and each
notice sent by any Governmental Authority relating to any failure or
alleged failure of a material nature to comply with any Environmental
Law or any liability with respect thereto;
(r) Collateral Audit Report. Within 90 days following the end
of each fiscal year of Falcon Drilling, and within 90 days following any
request therefor by the Agent, a collateral audit report, prepared by
Arthur Andersen & Co. or other independent certified public accountants
of recognized standing acceptable to the Agent, with respect to the
Eligible Receivables and the calculation of the Borrowing Base then in
effect;
(s) Notices relating to the Senior Debt. Promptly after the
delivery or receipt thereof by any BORROWER, a copy of each notice,
demand or other written information given or received by any BORROWER
under or in connection with any of the Senior Debt (including, without
limitation, any notice of a default or of any redemption, purchase or
repayment); and
(t) General Information. Promptly, such other information
concerning the Loan Parties and their respective Subsidiaries, the
creditworthiness of the Loan Parties and their respective Subsidiaries
and/or the Collateral as the Agent or any Bank may from time to time
reasonably request.
Section 8.2 Maintenance of Existence; Conduct of Business. Each of
the BORROWERS will, and will cause each of its Subsidiaries (other than Non-
Recourse Subsidiaries) to, preserve and maintain its corporate or partnership
(as applicable) existence (except as permitted by Section 9.3) and all of its
material leases, privileges, licenses, Permits, franchises, qualifications and
rights that are necessary in the
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ordinary conduct of its business; provided, however, that a BORROWER may merge
with another BORROWER in accordance with Section 9.3 and a BORROWER other than
Falcon Drilling may dissolve in accordance with Section 9.3. Each of the
BORROWERS will, and will cause each of its Subsidiaries to, conduct its
business in an orderly and efficient manner in accordance with good business
practices.
Section 8.3 Maintenance of Properties. Each of the BORROWERS will,
and will cause each of its Subsidiaries to, maintain, keep and preserve all of
its Properties necessary in the proper conduct of its business in good repair,
working order and condition (ordinary wear and tear excepted) and make all
necessary repairs, renewals, replacements, betterments and improvements
thereof; provided, however, that nothing in this Section 8.3 shall prevent any
BORROWER or any of its Subsidiaries from discontinuing the operation or
maintenance of any of its Properties if such discontinuance is, in the judgment
of such BORROWER, desirable in the conduct of its business or the business of
any Subsidiary.
Section 8.4 Taxes and Claims. Each of the BORROWERS will, and will
cause each of its Subsidiaries to, pay or discharge at or before maturity or
before becoming delinquent (a) all taxes, levies, assessments and governmental
charges imposed on it or its income or profits or any of its Property, and (b)
all lawful claims for labor, material and supplies which, if unpaid, might
become a Lien upon any of its Property; provided, however, that neither any
BORROWER nor any of its Subsidiaries shall be required to pay or discharge any
tax, levy, assessment or governmental charge or claim for labor, material or
supplies whose amount, applicability or validity is being contested in good
faith by appropriate proceedings being diligently pursued and for which
adequate reserves have been established under GAAP.
Section 8.5 Insurance. Each of the BORROWERS will, and will cause
each of its Subsidiaries to, keep insured by financially sound and reputable
insurers all Property of a character usually insured by responsible
corporations engaged in the same or a similar business similarly situated
against loss or damage of the kinds and in the amounts customarily insured
against by such entities and carry such other insurance as is usually carried
by such entities. Such insurance shall be written by financially responsible
companies selected by such BORROWER which are reasonably acceptable to the
Required Banks. Each policy of insurance shall provide that it will not be
canceled, amended or reduced except after not less than ten days' prior written
notice to the Agent. Each of the BORROWERS will advise the Agent promptly of
any policy cancellation, reduction or amendment.
Section 8.6 Inspection Rights. Each of the BORROWERS will, and will
cause each of its Subsidiaries to, permit representatives and agents of the
Agent and each Bank, during normal business hours and upon reasonable notice to
such BORROWER, to examine, copy and make extracts from its books and records,
to visit and inspect its rigs and other Properties and to discuss its business,
operations and financial condition with its officers and independent certified
public accountants (provided that Agent and Bank shall provide BORROWERS
reasonable opportunity to participate in any such discussions between or among
(a) Agent and Banks and (b) the independent certified public accountants of
BORROWERS and their Subsidiaries). Each of the BORROWERS shall authorize each
of its Subsidiaries to authorize their accountants in writing (with a copy to
the Agent) to comply with this Section 8.6. The Agent or its representatives
may (at the Borrowers' expense after the occurrence of a Default or at any
other time during which, due to the occurrence or possible occurrence of some
event or circumstance, or the existence or possible existence of some
condition, reasonable cause for such verification exists) conduct field exams
to verify the Borrowing Base and at such other times as the Agent may
reasonably request.
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Section 8.7 Keeping Books and Records. Each of BORROWERS will, and
will cause each of its Subsidiaries to, maintain appropriate books of record
and account in accordance with GAAP consistently applied in which true, full
and correct entries will be made of all their respective dealings and business
affairs. If any changes in accounting principles from those used in the
preparation of the financial statements referenced in Section 8.1 are hereafter
required or permitted by GAAP and are adopted by Falcon Drilling or any of its
Subsidiaries with the concurrence of its independent certified public
accountants and such changes in GAAP result in a change in the method of
calculation or the interpretation of any of the financial covenants, standards
or terms found in Section 8.1 or Article 10 or any other provision of this
Agreement, the BORROWERS and the Required Banks agree to amend any such
affected terms and provisions so as to reflect such changes in GAAP with the
result that the criteria for evaluating the BORROWERS' or such Subsidiaries'
financial condition shall be the same after such changes in GAAP as if such
changes in GAAP had not been made; provided, that until any necessary
amendments have been made, the certificate required to be delivered under
Section 8.1(d) hereof demonstrating compliance with Article 10 shall include
calculations setting forth the adjustments from the relevant items as shown in
the current financial statements based on the changes to GAAP to the
corresponding items based on GAAP as used in the financial statements
referenced in Section 7.2(a), in order to demonstrate how such financial
covenant compliance was derived from the current financial statements.
Section 8.8 Compliance with Laws. Each of BORROWERS will, and will
cause each of its Subsidiaries to, comply with all applicable Governmental
Requirements, except for instances of noncompliance that could not have,
individually or in the aggregate, a Material Adverse Effect.
Section 8.9 Compliance with Agreements. Each of BORROWERS will, and
will cause each of its Subsidiaries to, comply in all material respects with
all agreements, contracts and instruments binding on it or affecting its
Properties or business. Each of BORROWERS will comply with all terms and
provisions of the Senior Debt Documents and Senior Subordinated Debt Documents
which are intended to benefit the holders of any "Permitted Indebtedness" and
the Agent and the Banks as beneficiaries of "Permitted Liens" (as such terms
are defined in the Indenture and the Note Purchase Agreement, respectively),
including, without limitation, the terms and provisions of Sections 4.16 and
4.10 of the Indenture and Sections 8.13 and 8.07 of the Note Purchase
Agreement.
Section 8.10 Further Assurances. Each of the BORROWERS will, and will
cause each of its Subsidiaries to, execute and deliver such further agreements,
documents and instruments and take such further action as may be requested by
the Agent to carry out the provisions and purposes of this Agreement and the
other Loan Documents, to evidence the Obligations and to create, preserve,
maintain and perfect the Liens of the Agent for the benefit of itself and the
Banks in the Collateral.
Section 8.11 ERISA. Each of the BORROWERS will, and will cause each of
the Borrower Members to, comply with all minimum funding requirements and all
other material requirements of ERISA, if applicable, so as not to give rise to
any liability thereunder.
Section 8.12 Concentration Account. Each of BORROWERS, other than the
Non-Material Borrowers and the Guarantors, will deposit, or cause to be
deposited, into the Concentration Account all proceeds of all its Receivables,
which proceeds shall be subject to the Concentration Account Agreement. Such
BORROWERS shall maintain in effect, at all times during the term of this
Agreement, the Concentration Account Agreement (or a similar agreement in form
and substance satisfactory to the Agent with a depository bank or banks
satisfactory to the Agent). With respect to all Receivables of Falcon
Venezuela
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which constitute Eligible Receivables, Falcon Venezuela shall send a written
notice to the applicable account debtors, in form and substance reasonably
satisfactory to the Agent, which shall direct such account debtors to make all
payments with respect thereto directly into the Concentration Account or into
another account located in the United States which may be approved by the Agent
in its discretion from time to time.
Section 8.13 No Consolidation in Bankruptcy. Each of the Borrowers
will, and will cause each of its Subsidiaries to, (a) maintain corporate or
partnership (as applicable) records and books of account separate from those of
any other BORROWER, Subsidiary or Affiliate, (b) not commingle its funds or
assets with those of any other Borrower, Subsidiary or Affiliate, except that
the Borrowers, other than the Non-Material Borrowers and the Guarantors, may
(if they desire to do so) commingle proceeds of Receivables in the
Concentration Account, and (c) except for consents or meetings to approve the
transactions contemplated by this Agreement and the Acquisition Loans Credit
Agreement, provide that its board of directors or, with respect to any
partnership, analogous managing body will hold all appropriate meetings which
will not be jointly held with any other BORROWER, Subsidiary or Affiliate. The
BORROWERS will ensure that the Concentration Account contains only proceeds of
Collateral and, e.g., does not include any monies of a Non-Material Borrower or
a Guarantor in which the Agent, for the benefit of itself and the Banks, does
not have a perfected, first priority security interest.
Section 8.14 Dissolution of FALRIG Venezuela Falcon Drilling will
cause FALRIG Venezuela to be dissolved and its assets, if any, distributed to
Falcon Drilling within ninety (90) days after the Closing Date.
ARTICLE 9
Negative Covenants
The BORROWERS and the Guarantors jointly and severally covenant and
agree that, as long as the Obligations or any part thereof are outstanding or
any Bank has any Commitment hereunder or any Letter of Credit remains
outstanding, the BORROWERS and the Guarantors will perform and observe, or
cause to be performed and observed, the following covenants:
Section 9.1 Debt. Each of the Borrowers will not, and will not permit
any of its Subsidiaries (other than Non-Recourse Subsidiaries) to, incur,
create, assume or permit to exist any Debt, except:
(a) Debt of the BORROWERS and its Subsidiaries to the Banks
pursuant to the Loan Documents and Debt of Falcon Drilling to the
Acquisition Loans Banks pursuant to the Acquisition Loans Documents;
(b) Existing Debt identified in the Form 10-Q of Falcon
Drilling for the quarter ended June 30, 1996, and renewals, extensions
or refinancings of any of such Debt referred to in this Section 9.1(b)
which do not increase the outstanding principal amount of such Debt and
the terms and provisions of which are not materially more onerous than
the terms and conditions of such Debt on the Closing Date;
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(c) Purchase money Debt secured by purchase money Liens, which
Debt and Liens are permitted under and meet all of the requirements of
clause (g) of the definition of Permitted Liens;
(d) (i) Intercompany Debt between the BORROWERS incurred in
the ordinary course of business or consistent with prudent business
practices; provided, however, that any and all of the Debt permitted
pursuant to this Section 9.1(d) shall be unsecured, and, if evidenced by
instruments, shall be evidenced by instruments satisfactory to the Agent
which will be pledged to the Agent for the benefit of the Banks pursuant
to a security agreement in form and substance satisfactory to the Agent
(except if and to the extent that such a pledge would give the holders
of the Senior Notes the contract right to also obtain the benefit of
such a pledge);
(e) Debt under Currency Hedge Agreements and Interest Rate
Protection Agreements, provided that (i) each counterparty shall be
rated in one of the two highest rating categories of Standard and Poor's
Corporation or Moody's Investors Service, Inc. and (ii) the aggregate
notional amount (as to all BORROWERS and their Subsidiaries, other than
Non-Recourse Subsidiaries) of all Currency Hedge Agreements and Interest
Rate Protection Agreements to which any BORROWER or any of its
Subsidiaries is a party shall not exceed $10,000,000 at any time
outstanding;
(f) Debt of any BORROWER or any of its Subsidiaries incurred
in the ordinary course of business in respect of performance bonds,
surety bonds and appeal bonds in an aggregate principal amount (as to
all BORROWERS and their Subsidiaries) not to exceed $5,000,000 at any
time outstanding;
(g) Debt of a Person who becomes a Subsidiary of Falcon
Drilling pursuant to a transaction permitted by this Agreement occurring
after the Closing Date, which Debt was outstanding prior to the date on
which such Subsidiary was acquired (other than Debt incurred as a result
of, or in anticipation of, such transaction);
(h) Permitted Refinancing Debt; and
(i) Debt the incurrence of which, after giving proforma effect
to such incurrence, would not result in the Proforma Interest Coverage
Ratio exceeding 2.50 to 1.00;
provided, however, that, other than loans by a Subsidiary of Borrower to
Borrower or any other Subsidiary of Borrower, no Debt described in clause (c),
(d), (g), (h) or (i) preceding may be incurred if a Default exists at the time
of such incurrence or would result therefrom. For purposes of clause (d) of
this Section 9.1, the term "Borrower" shall include the Guarantors to the
extent necessary so that the requirements of Section 4.12 of the Indenture and
Section 8.09 of the Note Purchase Agreement are not violated by the Borrower
and the Guarantors.
Section 9.2 Limitation on Liens. Each of the BORROWERS will not, and
will not permit any of its Subsidiaries (other than Non-Recourse Subsidiaries)
to, incur, create, assume or permit to exist any Lien upon any of its Property
or revenues, whether now owned or hereafter acquired, except Permitted Liens.
Each of the BORROWERS will not, and will not permit any of its Subsidiaries to,
incur, create, assume
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or permit to exist any Lien upon any Capital Stock, whether now outstanding or
hereafter issued, of any Subsidiary of Falcon Drilling (other than a Non-
Recourse Subsidiary).
Section 9.3 Mergers, Etc. Each of the BORROWERS will not, and will
not permit any of its Subsidiaries to, become a party to a merger or
consolidation, or wind-up, dissolve or liquidate itself; provided, that, so
long as no Default exists at such time or would result therefrom (a) any of the
Subsidiaries of Falcon Drilling, other than any of the BORROWERS, may merge or
consolidate with any of the other Subsidiaries of Falcon Drilling, other than
any of the BORROWERS, so long as a Wholly-Owned Subsidiary of Falcon Drilling
other than a Non-Recourse Subsidiary is the surviving entity, (b) any of the
Subsidiaries of a BORROWER may merge with such BORROWER so long as such
BORROWER is the surviving entity, (c) any of the BORROWERS other than Falcon
Drilling may merge with Falcon Drilling so long as Falcon Drilling is the
surviving entity, (d) any BORROWER other than Falcon Drilling may merge with
any BORROWER other than Falcon Drilling so long as the surviving entity is a
corporation organized under the laws of a state of the United States, and (e)
any BORROWER other than Falcon Drilling or any Subsidiary may dissolve or
liquidate pursuant to a transaction in which all of its Properties and assets
are transferred, expressly subject to the Liens existing in favor of the Agent
for the benefit of itself and the Banks, to Falcon Drilling or the BORROWER
that is the parent entity of such dissolving or liquidating BORROWER or
Subsidiary, provided, however, that such transferee BORROWER may not be a Non-
Material Borrower or a Guarantor. Each of the BORROWERS will not, and will not
permit any of its Subsidiaries to, purchase or acquire all or a substantial
part of the business, assets or Properties of any Person if such purchase or
acquisition (i) could reasonably be expected to cause or result in the
occurrence of a Default or (ii) could reasonably be expected to have a material
adverse effect upon the financial position or performance of such BORROWER.
Section 9.4 Restricted Payments. Each of the BORROWERS will not, and
will not permit any of its Subsidiaries (other than Non-Recourse Subsidiaries)
to, make any Restricted Payments, except:
(a) Any BORROWER other than Falcon Drilling and any Subsidiary
of a BORROWER may make Restricted Payments to any BORROWER;
(b) Payroll advances in the ordinary course of business not to
exceed an aggregate amount of $1,000,000 at any one time;
(c) Other advances and loans to officers, employees or
shareholders of any BORROWER or any of its Subsidiaries, so long as the
aggregate principal amount (as to all BORROWERS and their Subsidiaries)
of any such advances and loans does not exceed $500,000 at any time
outstanding;
(d) Payments of accrued interest and expenses with respect to
the Senior Debt and the Senior Subordinated Debt when due in accordance
with the Senior Debt Documents and the Senior Subordinated Debt
Documents, respectively, and regularly scheduled payments of principal
and accrued interest with respect to the Senior Floating Rate Notes and
Senior Subordinated Debt when due in accordance with the terms of the
Senior Floating Rate Notes and Senior Subordinated Debt Documents,
respectively;
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(e) Repayment of Debt permitted pursuant to Section 9.1, which
repayment occurs pursuant to a refinancing transaction in which the
resulting Debt constitutes Permitted Refinancing Debt;
(f) Restricted Payments not exceeding $2,000,000 in aggregate
amount (as to all BORROWERS and Subsidiaries) during any fiscal year;
(g) Restricted Payments made to redeem any preferred stock or
Redeemable Stock issued after the Closing Date at a price not exceeding
the issue price thereof;
(h) Payment of dividends on any preferred stock issued after
the Closing Date; and
(i) Investments permitted pursuant to Section 9.5;
provided, however, that no such Restricted Payments otherwise permitted
pursuant to this Section 9.4 may be made to any Person other than a BORROWER if
a Default exists at the time of such Restricted Payment or would result
therefrom or may be made if an Event of Default exists at the time of such
Restricted Payment or would result therefrom. For purposes of clause (a) of
this Section 9.4, the term "Borrower" shall include the Guarantors to the
extent necessary so that the requirements of Section 4.12 of the Indenture and
Section 8.09 of the Note Purchase Agreement are not violated by the Borrower
and the Guarantors.
Section 9.5 Investments. Each of the BORROWERS will not, and will not
permit any of its Subsidiaries (other than Non-Recourse Subsidiaries) to, make
or permit to remain outstanding any advance, loan, extension of credit or
capital contribution to or investment in any Person, or purchase or own any
stock, bonds, notes, debentures or other securities of any Person, or be or
become a joint venturer with or partner of any Person (all such transactions
being herein called "Investments"), except:
(a) Investments in obligations or securities received in
settlement of debts (created in the ordinary course of business) owing
to such BORROWER or any of its Subsidiaries;
(b) Investments existing as of the Closing Date identified on
Schedule 9.5 hereto;
(c) Investments in securities issued or guaranteed by the
United States or any agency thereof with maturities of four years or
less from the date of acquisition;
(d) Investments in certificates of deposit and eurodollar time
deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits, in each case with any Bank or with
any domestic commercial bank having capital and surplus in excess of
$100,000,000;
(e) Investments in repurchase obligations with a term of not
more than seven days for securities of the types described in clause (c)
above with any Bank or with any domestic commercial bank having capital
and surplus in excess of $100,000,000;
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(f) Investments in commercial paper of a domestic issuer rated
A-1 or better or P-1 or better by Standard & Poor's Corporation or
Moody's Investors Services, Inc., respectively, maturing not more than
six months from the date of acquisition;
(g) Investments in shares of money market mutual or similar
funds having assets in excess of $100,000,000;
(h) Investments in a BORROWER;
(i) Advances and loans to officers and employees of a BORROWER
or any of its Subsidiaries, so long as the aggregate principal amount
(as to all BORROWERS and their Subsidiaries) of such advances and loans
does not exceed $1,000,000 at any time outstanding;
(j) Investments represented by that portion of the proceeds
from Asset Dispositions permitted pursuant to Section 9.8, which
proceeds are either not Cash Proceeds or are deemed to be Cash Proceeds
pursuant to the second sentence of the definition of "Cash Proceeds";
(k) The contribution of the Non-Recourse Rigs to the Non-
Recourse Subsidiaries;
(l) Debt permitted pursuant to Section 9.3 and Restricted
Payments permitted pursuant to Section 9.4; and
(m) Other Investments in an aggregate amount (as to all
BORROWERS and their Subsidiaries) not to exceed the sum of the following
at any time outstanding: (i) $15,000,000, plus (ii) 50% of the aggregate
net cash proceeds received by Falcon Drilling after the Closing Date
from the issuance or sale of shares of Capital Stock to any Person other
than a Subsidiary of Falcon Drilling, minus (iii) the aggregate amount
paid by the BORROWERS and their Subsidiaries after the Closing Date in
redemption of preferred stock or Redeemable Stock.
provided, however, that no Investments may be made by Falcon Drilling pursuant
to clause (h) preceding or by any BORROWER pursuant to clauses (i), (j), (k),
(l) or (m) preceding if a Default exists at the time of such Investment or
would result therefrom. For purposes of clause (h) of this Section 9.5, the
term "Borrower" shall include the Guarantors to the extent necessary so that
the requirements of Section 4.12 of the Indenture and Section 8.09 of the Note
Purchase Agreement are not violated by the Borrower and the Guarantors.
Section 9.6 Limitation on Issuance of Capital Stock. Each of the
BORROWERS will not, and will not permit any of its Subsidiaries to, at any time
on or after the Closing Date issue, sell, assign or otherwise dispose of (a)
any of its Capital Stock, (b) any securities exchangeable for or convertible
into or carrying any rights to acquire any of its Capital Stock or (c) any
option, warrant or other right to acquire any of its Capital Stock; provided,
however, that, if and to the extent not otherwise prohibited by this Agreement
or the other Loan Documents (i) Falcon Drilling may issue additional shares of
its Capital Stock or such securities, options, warrants or other rights, other
than Redeemable Stock, for full and fair consideration, (ii) subject to Section
9.5, any Subsidiary of Falcon Drilling may issue additional shares of its
Capital Stock, or such securities, options, warrants or other rights to Falcon
Drilling or another Subsidiary of Falcon Drilling (iii) any Non-Recourse
Subsidiary of a BORROWER may issue, sell, assign or
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otherwise dispose of shares of its Capital Stock or such securities, options,
warrants or other rights to any Person for full and fair consideration, (iv)
the BORROWERS may issue stock in accordance with the terms of options and
warrants that were outstanding on June 30, 1996, and (v) the BORROWERS may
grant compensatory stock options in the ordinary course of business consistent
with past practices and issue shares upon the exercise of such options. For
purposes of clause (c)(ii) of this Section 9.6, the term "Borrower" shall
include the Guarantors to the extent necessary so that the requirements of
Section 4.12 of the Indenture and Section 8.09 of the Note Purchase Agreement
are not violated by the Borrower and the Guarantors.
Section 9.7 Transactions With Affiliates. Except for (a) the payment
of salaries in the ordinary course of business consistent with prudent business
practices, (b) the furnishing of employment benefits in the ordinary course of
business consistent with prudent business practices, (c) the transactions
permitted by Section 9.13, and (d) the transactions specified in Schedule 9.7,
each of the BORROWERS will not, and will not permit any of its Subsidiaries to,
enter into any transaction, including, without limitation, the purchase, sale
or exchange of Property or the rendering of any service, with any Affiliate of
such BORROWER or such Subsidiary, except in the ordinary course of and pursuant
to the reasonable requirements of such BORROWER's or such Subsidiary's business
and upon fair and reasonable terms no less favorable to such BORROWER or such
Subsidiary than would be obtained in a comparable arms-length transaction with
a Person not an Affiliate of such BORROWER or such Subsidiary.
Section 9.8 Disposition of Property. Each of the Borrowers will not,
and will not permit any of its Subsidiaries (other than Non-Recourse
Subsidiaries) to, enter into an Asset Disposition, directly or indirectly,
except:
(a) Asset Dispositions pursuant to which (i) such BORROWER or
its Subsidiary, as the case may be, receives consideration at the time
of such disposition at least equal to the fair market value of such
Property, except in the case of (A) a Bargain Purchase Contract (as such
term is defined in the Indenture) entered into in the ordinary course of
business, (B) a transfer of a drilling rig or rigs and related equipment
between Borrowers if no Default exists at the time of such transfer or
would result therefrom, or (C) an Asset Disposition resulting from the
requisition of title to, seizure or forfeiture of any Property or assets
or any actual or constructive total loss or an agreed or compromised
total loss; (ii) at least 75% of such consideration consists of Cash
Proceeds (or the assumption of Debt of such BORROWER or such Subsidiary
relating to the Capital Stock or Property that was the subject of such
disposition and the release of such BORROWER or such Subsidiary from
such indebtedness); and (iii) after giving effect to such disposition,
the total noncash consideration from all dispositions held by Falcon
Drilling and its Subsidiaries, including noncash consideration described
in the second sentence of the definition of "Cash Proceeds" which is not
converted into cash within 12 months after the related dispositions,
then outstanding is not greater than $25,000,000;
(b) the sale of drill-string components, inventory (other than
drilling rigs) and obsolete and worn-out equipment in the ordinary
course of business;
(c) any drilling contract, charter (bareboat or otherwise) or
other lease of property entered into by any BORROWER or any Subsidiary
(including, without limitation, bareboat charters by any BORROWER to any
Subsidiary other than any Non-Recourse Subsidiary) in the ordinary
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course of business; provided, however, that (i) any such contract,
charter or other lease affecting any drilling rig securing the
Acquisition Loans Obligations shall be for full and fair consideration
payable to Falcon Drilling, shall be in form and substance satisfactory
to the Agent and shall expressly include terms and provisions in form
and substance satisfactory to the Agent to the effect that the parties
thereto acknowledge the existing Lien on such drilling rig securing the
Acquisition Loans Obligations and agree that such Lien securing such
obligations is prior to, and will not in any way be affected by, such
contract, charter or other lease and (ii) none of the BORROWERS nor any
Subsidiary shall enter into any such contract, charter or lease with a
Non-Recourse Subsidiary.
(d) a Restricted Payment permitted under Section 9.4 or any
Investment permitted under Section 9.5;
(e) the transfer of the Non-Recourse Rigs to one or more Non-
Recourse Subsidiaries;
(f) the conveyance, transfer or other disposition of rigs
pursuant to which such rigs are exchanged for rigs of a like kind, i.e.
barge rigs may be exchanged for barge rigs and jackup rigs may be
exchanged for jackup rigs, having an equivalent value; and
(g) issuances or dispositions of Capital Stock permitted under
Section 9.6.
Section 9.9 Sale and Leaseback. Except for transactions in the
ordinary course of business involving real or personal Property having an
aggregate fair market value of $30,000,000 or less and providing for annual
lease payments in an annual aggregate amount not to exceed $3,000,000, each of
the BORROWERS will not, and will not permit any of its Subsidiaries (other than
Non-Recourse Subsidiaries) to, enter into any arrangement with any Person
pursuant to which it leases from such Person real or personal Property that has
been or is to be sold or transferred, directly or indirectly, by it to such
Person.
Section 9.10 Lines of Business. Each of the BORROWERS will not, and
will not permit any of its Subsidiaries to, engage in any line or lines of
business activity other than the businesses in which they are engaged on the
Closing Date and lines of business reasonably related thereto.
Section 9.11 Environmental Protection. Each of the BORROWERS will not,
and will not permit any of its Subsidiaries to, (a) use (or permit any tenant
to use) any of its Properties for the handling, processing, storage,
transportation or disposal of any Hazardous Material except in compliance with
applicable Environmental Laws, (b) generate any Hazardous Material except in
compliance with applicable Environmental Laws, (c) conduct any activity that is
likely to cause a Release or threatened Release of any Hazardous Material in
violation of any Environmental Law, or (d) otherwise conduct any activity or
use any of its Properties in any manner that violates or is likely to violate
any Environmental Law or create any Environmental Liabilities for which any
BORROWER or any of its Subsidiaries would be responsible, except for
circumstances or events described in clauses (a) through (d) preceding that
could not have, individually or in the aggregate, a Material Adverse Effect.
Section 9.12 Intercompany Transactions. Except as may be expressly
permitted or required by the Loan Documents or except as may be expressly
permitted or required by the Senior Debt Documents
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or the Senior Subordinated Debt Documents as summarized on Schedule 9.12, each
of the BORROWERS will not, and will not permit any of its Subsidiaries to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary (other
than a Non-Recourse Subsidiary) to (a) pay dividends or make any other
distribution to such BORROWER or any of its Subsidiaries (other than Non-
Recourse Subsidiaries) in respect of such Subsidiary's Capital Stock or with
respect to any other interest or participation in, or measured by, its profits,
(b) pay any Debt owed to such BORROWER or any of its Subsidiaries (other than
Non-Recourse Subsidiaries), (c) make any loan or advance to such BORROWER or
any of its Subsidiaries (other than Non-Recourse Subsidiaries), or (d) sell,
lease or transfer any of its Property to such BORROWER or any of its
Subsidiaries (other Non-Recourse Subsidiaries). Nothing contained in this
Section 9.12 shall be deemed to constitute an encumbrance or restriction
prohibited by Section 4.12 of the Indenture or Section 8.09 of the Note
Purchase Agreement.
Section 9.13 Consulting and Management Fees. Other than reasonable
consulting fees paid to Affiliates of Falcon Drilling on an arm's-length basis
for specific services rendered not to exceed $750,000 in the aggregate during
any calendar year, each of the BORROWERS will not, and will not permit any of
its Subsidiaries to, pay any management, consulting or similar fees (excluding
directors' fees and legal fees) to any Affiliate of such BORROWER or to any
director, officer or employee of such BORROWER or any Affiliate of such
Borrower.
Section 9.14 Modification of Other Agreements. Each of the BORROWERS
will not, and will not permit any of its Subsidiaries to, consent to or
implement any termination, amendment, modification, supplement or waiver of (a)
the Senior Debt Documents, (b) the Senior Subordinated Debt Documents, (c) the
certificate of incorporation or bylaws or partnership agreement or certificate
of limited partnership or analogous constitutional documents of such BORROWER
or any of its Subsidiaries if the same could have a Material Adverse Effect, or
(d) any other Material Contract to which it is a party or any Permit which it
possesses if the same could have a Material Adverse Effect. Without limiting
the generality of and in addition to the foregoing, each of the BORROWERS will
not consent to or implement any termination, amendment, modification,
supplement or waiver of the Senior Debt Documents or Senor Subordinated Debt
Documents (i) to increase the principal amount of any Senior Debt or Senor
Subordinated Debt, (ii) to shorten the maturity of, or any date for the payment
of any principal of or interest on, any Senior Debt or Senior Subordinated
Debt, (iii) to increase the rate of interest on or with respect to any Senior
Debt or Senior Subordinated Debt, (iv) to otherwise amend or modify the payment
or subordination terms of any Senior Debt or Senior Subordinated Debt, (v) to
increase any cost, fee or expense payable by such BORROWER or any its
Subsidiaries, (vi) to provide any Collateral or security for payment or
collection of any Senior Debt or Senior Subordinated Debt without the written
consent of Required Banks, or (vii) in any other respect that could be
materially adverse to Falcon Drilling or any other BORROWER or to Falcon
Drilling and its Subsidiaries taken as a whole.
Section 9.15 ERISA. Each of the BORROWERS will not:
(a) allow, or take (or permit any Borrower Member to take) any
action which would cause, any unfunded or unreserved liability for
benefits under any Plan (exclusive of any Multiemployer Plan) to exist
or to be created that exceeds $4,000,000 with respect to any such Plan
or $8,000,000 with respect to all such Plans in the aggregate; or
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(b) with respect to any Multiemployer Plan, allow, or take (or
permit any ERISA Affiliate to take) any action which would cause, any
unfunded or unreserved liability for benefits under any Multiemployer
Plan to exist or to be created, either individually as to any such Plan
or in the aggregate as to all such Plans, that could, upon any partial
or complete withdrawal from or termination of any such Multiemployer
Plan or Plans, have a Material Adverse Effect.
ARTICLE 10
Financial Covenants
The BORROWERS and the Guarantors jointly and severally covenant and
agree that, as long as the Obligations or any part thereof are outstanding or
any Bank has any Commitment hereunder or any Letter of Credit remains
outstanding, the BORROWERS and the Guarantors will perform and observe the
following covenants:
Section 10.1 Consolidated Current Ratio. Falcon Drilling will at all
times maintain a Consolidated Current Ratio of not less than 1.00 to 1.00.
Section 10.2 Consolidated Tangible Net Worth. Falcon Drilling will at
all times maintain Consolidated Tangible Net Worth in an amount not less than
the sum of (a) $95,000,000, plus (b) 50% of cumulative Consolidated Net Income
during any fiscal quarter ending after the Closing Date if, but only if, such
Consolidated Net Income during such fiscal quarter is positive, plus (c) 75% of
all Net Proceeds of each Equity Issuance after the Closing Date.
Section 10.3 Consolidated Interest Coverage Ratio. The BORROWERS will
not permit the Consolidated Interest Coverage Ratio, calculated as of the end
of each fiscal quarter of Falcon Drilling commencing with the fiscal quarter
ending September 30, 1996, for the four fiscal quarters of Falcon Drilling then
most recently ended, to be less than 2.50 to 1.00.
ARTICLE 11
Default
Section 11.1 Events of Default. Each of the following shall be deemed
an "Event of Default":
(a) The BORROWERS or any other Loan Party (i) shall fail to
pay, repay or prepay when due any amount of principal owing to the Agent
or any Bank pursuant to this Agreement or any other Loan Document, (ii)
shall fail to pay within one day of the date when due any amount of
accrued interest owing to the Agent or any Bank pursuant to this
Agreement or any other Loan Document, or (iii) or shall fail to pay
within five days of the date when due any fee or other amount or other
Obligation (other than principal or interest) owing to the Agent or any
Bank pursuant to this Agreement or any other Loan Document.
(b) Any representation or warranty made or deemed made by any
BORROWER or any Loan Party in any Loan Document or in any certificate,
report, notice or financial statement
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furnished at any time in connection with this Agreement or any other
Loan Document shall be false, misleading or erroneous in any material
respect when made or deemed to have been made.
(c) Any BORROWER or any Loan Party shall fail to perform,
observe or comply with any other covenant, agreement or term contained
in this Agreement or any other Loan Document (other than covenants to
pay the Obligations) and such failure is not remedied or waived within
15 days after the Agent or any Bank shall have notified the BORROWERS of
such failure or, if a different grace period is expressly made
applicable in such other Loan Documents, within such applicable grace
period.
(d) Any of the Loan Parties shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts
become due.
(e) Any Loan Party shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee, examiner, liquidator or the like of itself or of all or any
substantial part of its Property, (ii) make a general assignment for the
benefit of its creditors, (iii) commence a voluntary case under the
United States Bankruptcy Code (as now or hereafter in effect, the
"Bankruptcy Code"), (iv) institute any proceeding or file a petition
seeking to take advantage of any other Debtor Relief Law, (v) fail to
controvert in a timely and appropriate manner, or acquiesce in writing
to, any petition filed against it in an involuntary case under the
Bankruptcy Code, or (vi) take any corporate or other action for the
purpose of effecting any of the foregoing.
(f) A proceeding or case shall be commenced, without the
application, approval or consent of any of the Loan Parties in any court
of competent jurisdiction, seeking (i) its reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition or
readjustment of its debts, (ii) the appointment of a receiver,
custodian, trustee, examiner, liquidator or the like of any of the Loan
Parties or of all or any substantial part of its Property, or (iii)
similar relief in respect of any of the Loan Parties under any Debtor
Relief Law, and such proceeding or case shall continue undismissed, or
an order, judgment or decree approving or ordering any of the foregoing
shall be entered and continue unstayed and in effect, for a period of 60
or more days; or an order for relief against any of the Loan Parties
shall be entered in an involuntary case under the Bankruptcy Code.
(g) Any of the Loan Parties shall fail to discharge (or fail
to have continually stayed until subsequently discharged) within a
period of 30 days after the commencement thereof any attachment,
sequestration, forfeiture or similar proceeding or proceedings involving
an aggregate amount in excess of $3,000,000 against any of its
Properties.
(h) A final judgment or judgments for the payment of money in
excess of $5,000,000 in the aggregate shall be rendered by a court or
courts against the Loan Parties or any of them on claims not covered by
insurance or as to which the insurance carrier has denied responsibility
and the same shall not be discharged, or a stay of execution thereof
shall not be procured, within 30 days from the date of entry thereof and
the Loan Parties shall not, within said period of 30 days, or such
longer period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during
such appeal.
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(i) Any of the Loan Parties shall fail to pay when due
(including any applicable grace period) any principal of or interest on
any Debt or Debts (other than the Obligations or any Non-Recourse Debt)
having a principal amount of at least $3,000,000 individually, or
$5,000,000 in the aggregate, or the maturity of any such Debt or Debts
shall have been accelerated, or any such Debt or Debts shall have been
required to be prepaid prior to the stated maturity thereof.
(j) Any event shall have occurred (and shall not have been
waived or otherwise cured) that permits any holder or holders of such
Debt or any Person acting on behalf of such holder or holders to
accelerate the maturity of such Debt or require prepayment of such Debt.
(k) Any event shall have occurred (and shall not have been
waived or otherwise cured) that, with the giving of notice or lapse of
time or both, would permit any holder or holders of such Debt or any
Person acting on behalf of such holder or holders to accelerate the
maturity of such Debt or require the prepayment of such Debt, and such
default shall have continued for a period of 30 days after a Responsible
Officer of Falcon Drilling obtains actual knowledge of such default.
(l) This Agreement or any other Loan Document shall cease to
be in full force and effect or shall be declared null and void or the
validity or enforceability thereof shall be contested or challenged by
any Loan Party or any of its shareholders, or any Loan Party shall deny
that it has any further liability or obligation under any of the Loan
Documents, or any Lien created by the Loan Documents shall for any
reason cease to be a valid, first priority perfected Lien (except for
Permitted Liens) upon any of the Collateral purported to be covered
thereby.
(m) Any of the following events shall occur or exist with
respect to any Loan Party or any ERISA Affiliate: (i) any Prohibited
Transaction involving any Plan; (ii) any Reportable Event with respect
to any Pension Plan; (iii) the filing under Section 4041 of ERISA of a
notice of intent to terminate any Pension Plan or the termination of any
Pension Plan; (iv) any event or circumstance that might constitute
grounds entitling the PBGC to institute proceedings under Section 4042
of ERISA for the termination of, or for the appointment of a trustee to
administer, any Pension Plan, or the institution by the PBGC of any such
proceedings; (v) any "accumulated funding deficiency" (as defined in
Section 406 of ERISA or Section 412 of the Code), whether or not waived,
shall exist with respect to any Plan; or (vi) complete or partial
withdrawal under Section 4201 or 4204 of ERISA from a Plan or the
reorganization, insolvency, or termination of any Pension Plan; and in
each case above, such event or condition, together with all other events
or conditions, if any, have subjected or could in the reasonable opinion
of the Agent subject any Loan Party or any ERISA Affiliate to any tax,
penalty or other liability to a Plan, a Multiemployer Plan, the PBGC or
otherwise (or any combination thereof) which in the aggregate exceed or
could reasonably be expected to exceed $3,000,000.
(n) The occurrence of a Change of Control;
(o) If, at any time, the Senior Debt shall (i) cease to be
either pari passu with, or subordinate in right of payment to, the Notes
or the Obligations, (ii) become superior in right of payment to the
Notes or the Obligations, or (iii) otherwise have a right to any payment
or any security superior to that of the Notes or the Obligations; or if,
at any time, the Senior
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Subordinated Debt shall (A) cease to be subordinate in right of payment
to the Notes or the Obligations, (B) become equal or superior in right
of payment to the Notes or the Obligations, or (C) otherwise have a
right to payment or any security equal or superior to that of the Notes
or the Obligations;
(p) The occurrence of (i) a "Default" (as such term is used or
defined in any of the Senior Debt Documents or the Senior Subordinated
Debt Documents) under any of the Senior Debt Documents or the Senior
Subordinated Debt Documents, unless (A) within 30 days after a
Responsible Officer of Falcon Drilling obtains or should have obtained
actual knowledge of such Default, such Default has been waived, cured or
consented to in accordance with such documents, (B) the maturity of the
Loans has not been accelerated, and (C) such waiver or consent is not
made in connection with any amendment or modification of any such
documents in violation of Section 9.14 hereof or in violation of any of
the Senior Debt Documents or the Senior Subordinated Debt Documents or
in connection with any payment to the holders of any Senior Debt or any
Senior Subordinated Debt, (ii) an "Event of Default" (as such term is
used or defined in any of the Senior Debt Documents or Senior
Subordinated Debt Documents) under any of the Senior Debt Documents or
Senior Subordinated Debt Documents, or (iii) any acceleration of the
maturity of any Senior Debt or Senior Subordinated Debt.
(q) If, at any time, (i) Falcon Drilling or any of its
Subsidiaries shall make, or shall be required to make, any redemption,
purchase or prepayment (whether optional or mandatory) with respect to
any of the Senior Debt or Senior Subordinated Debt, (ii) any event or
circumstance shall occur which gives any party to the Senior Debt
Documents or Senior Subordinated Debt Documents or any holder of any
Senior Debt or Senior Subordinated Debt the right to request or require
Falcon Drilling or any of its Subsidiaries, as the case may be, to
redeem, purchase or prepay the Senior Debt or Senor Subordinated Debt,
as the case may be (including, without limitation (A) the making of, or
the obligation of Falcon Drilling or any of its Subsidiaries to make, an
Asset Sale Offer (as such term is defined in the Indenture) or a Senior
Notes Assets Sale Offer (as such term is defined in the Note Purchase
Agreement) or (B) the occurrence of a Change of Control (as such term is
defined in the Indenture or the Note Purchase Agreement), or (iii)
Falcon Drilling or any of its Subsidiaries shall initiate or give (A)
any election or notice relating to any redemption, purchase or
prepayment (whether optional or mandatory) of any of the Senior Debt or
Senior Subordinated Debt or (B) any election or notice relating to any
defeasance of the Senior Debt or Senior Subordinated Debt.
Section 11.2 Remedies. If any Event of Default shall occur and be
continuing, the Agent may and, if directed by the Required Banks, the Agent
shall do any one or more of the following:
(a) Acceleration. Declare all outstanding principal of and
accrued and unpaid interest on the Loans and the other Obligations and
all other amounts payable by any BORROWER or other Loan Party under the
Loan Documents immediately due and payable, and the same shall thereupon
become immediately due and payable, without notice, demand, presentment,
notice of dishonor, notice of acceleration, notice of intent to
accelerate, protest or other formalities of any kind, all of which are
hereby expressly waived by the BORROWERS and Guarantors;
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(b) Termination of Commitments. Terminate the Commitments
(including, without limitation, the obligation of the Issuing Bank to
issue Letters of Credit) without notice to the BORROWERS or any other
Loan Party;
(c) Judgment. Reduce any claim to judgment;
(d) Foreclosure. Foreclose or otherwise enforce any Lien
granted to the Agent for the benefit of itself and the Banks to secure
payment and performance of the Obligations in accordance with the terms
of the Loan Documents; or
(e) Rights. Exercise any and all rights and remedies afforded
by the laws of the State of Texas or any other jurisdiction, by any of
the Loan Documents, by equity or otherwise against any or all of the
Loan Parties or any other Person;
provided, however, that upon the occurrence of an Event of Default under
Section 11.1(e) or Section 11.1(f), the Commitments of all of the Banks
(including, without limitation, the obligation of the Issuing Bank to issue
Letters of Credit) shall immediately and automatically terminate, and the
outstanding principal of and accrued and unpaid interest on the Loans and the
other Obligations and all other amounts payable by any BORROWER or other Loan
Party under the Loan Documents shall thereupon become immediately and
automatically due and payable without notice, demand, presentment, notice of
dishonor, notice of acceleration, notice of intent to accelerate, protest or
other formalities of any kind, all of which are hereby expressly waived by the
BORROWERS and the Guarantors.
Section 11.3 Cash Collateral. If (a) an Event of Default shall have
occurred and be continuing or (b) any Letter of Credit shall, for whatever
reason, remain outstanding after all Loans and Reimbursement Obligations have
been paid in full and all Commitments have expired or terminated, then the
BORROWERS shall, if requested by the Agent or the Required Banks, pledge to the
Agent as security for the Obligations, pursuant to a security agreement or
assignment in form and substance satisfactory to the Agent, an amount in
immediately available funds (in excess of any funds already pledged or assigned
by the BORROWERS to the Agent as of the date of the occurrence of such Event of
Default) equal to the then outstanding Letter of Credit Liabilities, such funds
to be held in a cash collateral account satisfactory to the Agent without any
right of withdrawal by the BORROWERS.
Section 11.4 Performance by the Agent. If any BORROWER shall fail to
perform any covenant or agreement in accordance with the terms of the Loan
Documents, the Agent may, at the direction of the Required Banks, perform or
attempt to perform such covenant or agreement on behalf of such BORROWER. In
such event, the BORROWERS shall, at the request of the Agent, promptly pay any
amount expended by the Agent or the Banks in connection with such performance
or attempted performance to the Agent at the Principal Office, together with
interest thereon at the applicable Default Rate from and including the date of
such expenditure to but excluding the date such expenditure is paid in full.
Notwithstanding the foregoing, it is expressly agreed that neither the Agent
nor any Bank shall have any liability or responsibility for the performance of
any obligation of any BORROWER under this Agreement or any of the other Loan
Documents.
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ARTICLE 12
The Agent
Section 12.1 Appointment, Powers and Immunities. Each Bank hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under the other Loan Documents with such powers as are specifically delegated
to the Agent by the terms of this Agreement and the other Loan Documents,
together with such other powers as are reasonably incidental thereto. Neither
the Agent, the Co-Agent, nor any of their respective Affiliates, officers,
directors, employees, attorneys or agents shall be liable for any action taken
or omitted to be taken by any of them hereunder or otherwise in connection with
this Agreement or any of the other Loan Documents except for its or their own
gross negligence or willful misconduct or the wrongful failure of the Agent or
Co-Agent, in their capacities as a Bank, to fund their own respective
Commitment pursuant to the terms of this Agreement. Without limiting the
generality of the preceding sentence, the Agent (a) may treat the payee of any
Note as the holder thereof until the Agent receives written notice of the
assignment or transfer thereof signed by such payee and in form satisfactory to
the Agent; (b) shall have no duties or responsibilities except those expressly
set forth in this Agreement and the other Loan Documents, and shall not by
reason of this Agreement or any other Loan Document be a trustee or fiduciary
for any Bank; (c) shall not be required to initiate any litigation or
collection proceedings hereunder or under any other Loan Document except to the
extent requested by the Required Banks; (d) shall not be responsible to the
Banks for any recitals, statements, representations or warranties contained in
this Agreement or any other Loan Document, or any certificate or other document
referred to or provided for in, or received by any of them under, this
Agreement or any other Loan Document, or for the value, validity,
effectiveness, enforceability or sufficiency of this Agreement or any other
Loan Document or any other document referred to or provided for herein or
therein or for any failure by any Person to perform any of its obligations
hereunder or thereunder; (e) may consult with legal counsel (including counsel
for the BORROWERS or any other Loan Party), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; and (f) shall incur no liability under or in
respect of any Loan Document by acting upon any notice, consent, certificate or
other instrument or writing reasonably believed by it to be genuine and signed
or sent by the proper party or parties. As to any matters not expressly
provided for by this Agreement, the Agent shall in all cases be fully protected
in acting, or in refraining from acting, hereunder in accordance with
instructions signed by the Required Banks, and such instructions of the
Required Banks and any action taken or failure to act pursuant thereto shall be
binding on all of the Banks; provided, however, that the Agent shall not be
required to take any action which exposes the Agent to liability or which is
contrary to this Agreement or any other Loan Document or applicable law.
Section 12.2 Rights of Agent as a Bank. With respect to its
Commitment, the Loan made by it and the Note issued to it, Banque Paribas (and
any successor acting as Agent) in its capacity as a Bank hereunder shall have
the same rights and powers hereunder as any other Bank and may exercise the
same as though it were not acting as the Agent, and the term "Bank" or "Banks"
shall, unless the context otherwise indicates, include the Agent in its
individual capacity. The Agent and its Affiliates may (without having to
account therefor to any Bank) accept deposits from, lend money to, act as
trustee under indentures of, provide merchant banking services to and generally
engage in any kind of banking, trust or other business with the Loan Parties or
any of their Affiliates, and any other Person who may do business with or own
securities of the Loan Parties or any of their Affiliates, all as if it were
not acting as the Agent and without any duty to account therefor to the Banks.
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Section 12.3 Defaults. The Agent shall not be deemed to have knowledge
or notice of the occurrence of a Default (other than the non-payment of
principal of or interest on the Loans or of commitment fees) unless the Agent
has received notice from a Bank or the BORROWERS specifying such Default and
stating that such notice is a "Notice of Default". In the event that the Agent
receives such a notice of the occurrence of a Default, the Agent shall give
prompt notice thereof to the Banks (and shall give each Bank prompt notice of
each such non-payment). The Agent shall (subject to Section 12.1) take such
action with respect to such Default as shall be directed by the Required Banks,
provided that unless and until the Agent shall have received such directions,
the Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default as it shall seem advisable and
in the best interest of the Banks.
SECTION 12.4 INDEMNIFICATION. THE BANKS HEREBY AGREE TO INDEMNIFY THE
AGENT AND THE CO-AGENT FROM AND HOLD THE AGENT AND THE CO-AGENT HARMLESS
AGAINST (TO THE EXTENT NOT PROMPTLY REIMBURSED UNDER SECTIONS 13.1 AND 13.2,
BUT WITHOUT LIMITING THE OBLIGATIONS OF THE BORROWERS AND GUARANTORS UNDER
SECTIONS 13.1 AND 13.2), RATABLY IN ACCORDANCE WITH THEIR RESPECTIVE COMMITMENT
PERCENTAGES, ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS'
FEES) AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED
ON, INCURRED BY, OR ASSERTED AGAINST THE AGENT OR THE CO-AGENT IN ANY WAY
RELATING TO OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR
OMITTED TO BE TAKEN BY THE AGENT OR THE CO-AGENT UNDER OR IN RESPECT OF ANY OF
THE LOAN DOCUMENTS; PROVIDED, FURTHER, THAT NO BANK SHALL BE LIABLE FOR ANY
PORTION OF THE FOREGOING TO THE EXTENT CAUSED BY THE AGENT'S OR THE CO-AGENT'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING,
IT IS THE EXPRESS INTENTION OF THE BANKS THAT THE AGENT AND THE CO-AGENT SHALL
BE INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES) AND
DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE AGENT OR THE CO-AGENT
(EXCEPT TO THE EXTENT THE SAME ARE CAUSED BY THE AGENT'S OR THE CO-AGENT'S [AS
APPLICABLE] OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT). WITHOUT LIMITING ANY
OTHER PROVISION OF THIS SECTION 12.4, EACH BANK AGREES TO REIMBURSE THE AGENT
AND THE CO-AGENT PROMPTLY UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON THE
BASIS OF THE COMMITMENTS) OF ANY AND ALL OUT-OF-POCKET EXPENSES (INCLUDING
ATTORNEYS' FEES) INCURRED BY THE AGENT OR THE CO-AGENT IN CONNECTION WITH THE
PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT OR
ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF,
OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN
DOCUMENTS, TO THE EXTENT THAT THE AGENT OR THE CO-AGENT, AS
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APPLICABLE, IS NOT PROMPTLY REIMBURSED FOR SUCH EXPENSES BY THE BORROWERS.
Section 12.5 Independent Credit Decisions. Each Bank agrees that it
has independently and without reliance on the Agent or any other Bank, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of the BORROWERS and Guarantors and decision to enter into
this Agreement and that it will, independently and without reliance upon the
Agent or any other Bank, and based upon such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement or any of the
other Loan Documents. The Agent shall not be required to keep itself informed
as to the performance or observance by any Loan Party of this Agreement or any
other Loan Document or to inspect the Properties or books of any Loan Party.
Except for notices, reports and other documents and information expressly
required to be furnished to the Banks by the Agent hereunder or under the other
Loan Documents, the Agent shall not have any duty or responsibility to provide
any Bank with any credit or other financial information concerning the affairs,
financial condition or business of any Loan Party (or any of their Affiliates)
which may come into the possession of the Agent or any of its Affiliates.
Section 12.6 Several Commitments. The Commitments and other
obligations of the Banks under this Agreement are several. The default by any
Bank in making a Loan in accordance with its Commitment shall not relieve the
other Banks of their obligations under this Agreement. In the event of any
default by any Bank in making any Loan, each nondefaulting Bank shall be
obligated to make its Loan but shall not be obligated to advance the amount
which the defaulting Bank was required to advance hereunder. In no event shall
any Bank be required to advance an amount or amounts with respect to any of the
Loans which would in the aggregate exceed such Bank's Commitment with respect
to such Loans. No Bank shall be responsible for any act or omission of any
other Bank. Notwithstanding anything to the contrary contained in this
Agreement or any of the other Loan Documents, any Bank that fails to make
available to the Agent its pro rata share of any Loan or to purchase its pro
rata share of any Letter of Credit as, when and to the full extent required by
the provisions of this Agreement, shall be deemed delinquent (a "Non-Funding
Bank") and shall be deemed a Non-Funding Bank until such time as such
delinquency is satisfied. A Non-Funding Bank shall be deemed to have assigned
any and all payments due to it from the Loan Parties, whether on account of
outstanding Loans, the Letter of Credit, interest, fees or otherwise, to the
remaining non-delinquent Banks for application to, and reduction of, their
respective pro rata shares of all outstanding Loans, Letters of Credit, fees
and/or otherwise. As among the Banks, a Non-Funding Bank shall be deemed to
have satisfied in full a delinquency when and if, as a result of application of
the assigned payments to all outstanding Loans, etc. of the non-delinquent
Banks, the Banks' respective pro rata shares of all outstanding Loans and
Letters of Credit have returned to those in effect immediately prior to such
delinquency and without giving effect to the nonpayment causing such
delinquency.
Section 12.7 Successor Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving notice thereof to the Banks and the Borrowers. Upon any such
resignation, the Required Banks will have the right, after notice to and
consultation with Falcon Drilling if (but only if) no Default has then occurred
and is continuing, to appoint another Bank as a successor Agent. If no
successor Agent shall have been so appointed by the Required Banks and shall
have accepted such appointment within 30 days after the retiring Agent's giving
of notice of resignation, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a commercial bank organized under the
laws of the United States or any state thereof and
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having combined capital and surplus of at least $100,000,000. Upon the
acceptance of its appointment as successor Agent, such successor Agent shall
thereupon succeed to and become vested with all rights, powers, privileges,
immunities and duties of the resigning Agent, and the resigning Agent shall be
discharged from its duties and obligations under this Agreement and the other
Loan Documents. After any Agent's resignation as Agent, the provisions of this
Article 12 shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was the Agent.
ARTICLE 13
Miscellaneous
Section 13.1 Expenses. Whether or not the transactions contemplated
hereby are consummated, the BORROWERS and Guarantors hereby agree, on demand,
to pay or reimburse the Agent and each of the Banks for paying (as the Agent
may request): (a) all reasonable out-of-pocket costs and expenses of the Agent
in connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Loan Documents and any and all (actual or proposed)
amendments, modifications, renewals, extensions and supplements thereof and
thereto, and the syndication of the Loans, including, without limitation, the
reasonable fees and expenses of legal counsel for the Agent, (b) all reasonable
out-of-pocket costs and expenses of the Agent and the Banks in connection with
any Default and the enforcement of this Agreement or any other Loan Document,
including, without limitation, the reasonable fees and expenses of legal
counsel for the Agent and the Banks, (c) all transfer, stamp, documentary or
other similar taxes, assessments or charges levied by any Governmental
Authority in respect of this Agreement or any of the other Loan Documents, (d)
all costs, expenses, assessments and other charges incurred in connection with
any filing, registration, recording or perfection of any Lien contemplated by
this Agreement or any other Loan Document, and (e) all reasonable out-of-
pocket costs and expenses incurred by the Agent in connection with due
diligence, computer services, copying, appraisals, environmental audits,
collateral audits, field exams, insurance, consultants and search reports.
SECTION 13.2 INDEMNIFICATION. THE BORROWERS AND GUARANTORS SHALL
INDEMNIFY THE AGENT, THE CO-AGENT AND EACH BANK AND EACH AFFILIATE THEREOF AND
THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND AGENTS FROM, AND
HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS,
DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING
REASONABLE ATTORNEYS' AND CONSULTANTS' FEES) TO WHICH ANY OF THEM MAY BECOME
SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (A) THE
NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION OR ENFORCEMENT OF
ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN
DOCUMENTS, (C) ANY BREACH BY ANY LOAN PARTY OF ANY REPRESENTATION, WARRANTY,
COVENANT OR OTHER AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE USE
OR PROPOSED USE OF ANY LOAN OR LETTER OF CREDIT, (E) ANY AND ALL TAXES, LEVIES,
DEDUCTIONS AND CHARGES IMPOSED ON THE AGENT, THE ISSUING BANK OR ANY BANK
(OTHER THAN TAXES IMPOSED ON THE OVERALL NET INCOME OR GROSS RECEIPTS OF THE
AGENT, THE CO-AGENT, THE ISSUING BANK OR ANY OTHER BANK) IN RESPECT OF ANY
LETTER OF CREDIT, (F) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL,
REMOVAL OR
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CLEANUP OF ANY HAZARDOUS MATERIAL OR THE EXISTENCE OF ANY UNDERGROUND STORAGE
TANK LOCATED ON, ABOUT, WITHIN OR AFFECTING ANY OF THE PROPERTIES OF ANY LOAN
PARTY, OR OTHERWISE ATTRIBUTABLE TO ANY LOAN PARTY IN CONNECTION WITH ANY OTHER
SITE, OR (G) ANY INVESTIGATION, LITIGATION OR OTHER PROCEEDING, INCLUDING,
WITHOUT LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION OR OTHER
PROCEEDING RELATING TO ANY OF THE FOREGOING; BUT EXCLUDING ANY OF THE FOREGOING
TO THE EXTENT DIRECTLY CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
THE PERSON TO BE INDEMNIFIED. WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT
OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES
HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION 13.2 SHALL BE
INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES,
CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES
(INCLUDING REASONABLE ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE
SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON. WITHOUT PREJUDICE TO THE
SURVIVAL OF ANY OTHER TERM OR PROVISION OF THIS AGREEMENT, THE OBLIGATIONS OF
THE BORROWERS AND GUARANTORS UNDER THIS SECTION 13.2 SHALL SURVIVE THE
REPAYMENT OF THE LOANS AND LETTER OF CREDIT LIABILITIES AND OTHER OBLIGATIONS
AND TERMINATION OF THE COMMITMENTS.
Section 13.3 Limitation of Liability. None of the Agent, the Co-Agent,
any Bank or any Affiliate, officer, director, employee, attorney or agent
thereof shall be liable to any BORROWER or any other Loan Party for any error
of judgment or act done in good faith, or be otherwise liable or responsible
under any circumstances whatsoever (including such Person's negligence), except
for such Person's gross negligence or willful misconduct. None of the Agent,
the Co-Agent, any Bank, or any Affiliate, officer, director, employee, attorney
or agent thereof shall have any liability with respect to, and the BORROWERS
and Guarantors hereby waive, release and agree not to sue any of them upon, any
claim for any special, indirect, incidental or consequential damages suffered
or incurred by any BORROWER or any other Loan Party in connection with, arising
out of, or in any way related to, this Agreement or any of the other Loan
Documents, or any of the transactions contemplated by this Agreement or any of
the other Loan Documents. The Borrowers and Guarantors hereby waive, release
and agree not to sue the Agent, the Co-Agent or any Bank or any of their
respective Affiliates, officers, directors, employees, attorneys or agents for
exemplary or punitive damages in respect of any claim in connection with,
arising out of, or in any way related to, this Agreement or any of the other
Loan Documents, or any of the transactions contemplated by this Agreement or
any of the other Loan Documents.
Section 13.4 No Duty. All attorneys, accountants, appraisers and other
professional Persons and consultants retained by the Agent, the Co-Agent and
the Banks shall have the right to act exclusively in the interest of the Agent,
the Co-Agent and the Banks and shall have no duty of disclosure, duty of
loyalty, duty of care or other duty or obligation of any type or nature
whatsoever to the BORROWERS, any of the Borrowers' shareholders, any other Loan
Party or any other Person.
Section 13.5 No Fiduciary Relationship. The relationship between each
BORROWER and each other Loan Party and each Bank is solely that of debtor and
creditor, and neither the Agent, the Co-Agent nor any Bank has any fiduciary or
other special relationship with any BORROWER or any other Loan Party,
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and no term or condition of any of the Loan Documents shall be construed so as
to deem the relationship between any BORROWER and any other Loan Party and any
Bank, or any other Loan Party and any Bank, to be other than that of debtor and
creditor. No joint venture or partnership is created by this Agreement among
the Banks or between any BORROWER or any other Loan Party and any Bank.
Section 13.6 Equitable Relief. The BORROWERS and Guarantors recognize
that in the event the BORROWERS or Guarantors fail to pay, perform, observe or
discharge any or all of the Obligations, any remedy at law may prove to be
inadequate relief to the Agent and the Banks. The BORROWERS and Guarantors
therefore agree that the Agent and the Banks, if the Agent or the Banks so
request, shall be entitled to temporary and permanent injunctive relief in any
such case without the necessity of proving actual damages.
Section 13.7 No Waiver; Cumulative Remedies. No failure on the part of
the Agent or any Bank to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege under this Agreement or
any other Loan Document shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, power or privilege under this Agreement or
any other Loan Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
provided for in this Agreement and the other Loan Documents are cumulative and
not exclusive of any rights and remedies provided by law.
Section 13.8 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns. The BORROWERS and Guarantors may not assign or transfer any of
their rights or obligations hereunder without the prior written consent
of the Agent and the Banks. Any Bank may sell participations to one or
more banks or other institutions in or to all or a portion of its rights
and obligations under this Agreement and the other Loan Documents
(including, without limitation, all or a portion of its Commitment and
the Loan owing to it); provided, however, that (i) such Bank's
obligations under this Agreement and the other Loan Documents
(including, without limitation, its Commitment) shall remain unchanged,
(ii) such Bank shall remain solely responsible to the BORROWERS for the
performance of such obligations, (iii) such Bank shall remain the holder
of its Note for all purposes of this Agreement, (iv) the BORROWERS and
Guarantors shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations under this Agreement
and the other Loan Documents, and (v) such Bank shall not sell a
participation that conveys to the participant the right to vote or give
or withhold consents under this Agreement or any other Loan Document,
other than the right to vote upon or consent to (A) any increase of such
Bank's Commitment, (B) any reduction of the principal amount of, or
interest to be paid on, the Loan of such Bank, (C) any reduction of any
commitment fee or other amount payable to such Bank under any Loan
Document, (D) any postponement of any date for the payment of any amount
payable in respect of the Loan of such Bank, (E) any release of a
material portion of the Collateral from the Liens created by the
Security Documents and not otherwise expressly authorized by the Loan
Documents, and (F) any release of any Loan Party from liability under
the Loan Documents. Each holder of a participation interest in this
Agreement shall be entitled to the benefits of the provisions of Section
3.5, 4.6, 4.7 and 13.2 of this Agreement as if and to the same extent as
if it were a Bank hereunder.
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(b) The BORROWERS and the Banks agree that any Bank (the
"Assigning Bank") may at any time assign to one or more Eligible
Assignees all, or a proportionate part of all, of its rights and
obligations under this Agreement and the other Loan Documents
(including, without limitation, its Commitment, Loans and Letter of
Credit Liabilities) (each an "Assignee"); provided, however, that (i)
each such assignment shall be of a consistent, and not a varying,
percentage of all of the Assigning Bank's rights and obligations under
this Agreement and the other Loan Documents, (ii) except in the case of
an assignment of all of a Bank's rights and obligations under this
Agreement and the other Loan Documents, the amount of the Commitment,
Loans and Letter of Credit Liabilities of the Assigning Bank being
assigned pursuant to each assignment (determined as of the date of the
Assignment Acceptance with respect to such assignment) shall in no event
be less than an amount equal to $5,000,000, and (iii) the parties to
each such assignment shall execute and deliver to the Agent for its
acceptance and recording in the Register (as defined below), an
Assignment and Acceptance, together with the Notes subject to such
assignment, and a processing and recordation fee of $2,500. Upon such
execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, which
effective date shall be at least five Business Days after the execution
thereof, or, if so specified in such Assignment and Acceptance, the date
of acceptance thereof by the Agent, (A) the Assignee thereunder shall be
a party hereto as a "Bank" and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations of a Bank
hereunder and under the Loan Documents and (B) the Assigning Bank
thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this
Agreement and the other Loan Documents (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of a
Bank's rights and obligations under the Loan Documents, such Bank shall
cease to be a party thereto). Notwithstanding anything to the contrary
contained herein, each Assigning Bank shall, concurrently with each
assignment to an Assignee referred to in this Section 13.8(b), also
assign to such Assignee an identical interest in such Assigning Bank's
Acquisition Loans and commitments thereunder. (For example, if an
Assigning Bank assigns 50% of its Commitment or its Obligations to an
Assignee, such Assigning Bank shall also, concurrently therewith, assign
50% of its commitment relating to the Acquisition Loans or its
Acquisition Loans Obligations, respectively, to such Assignee.)
(c) By executing and delivering an Assignment and Acceptance,
the Assigning Bank thereunder and the Assignee thereunder confirm to and
agree with each other and the other parties hereto as follows: (i) other
than as provided in such Assignment and Acceptance, such Assigning Bank
makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with the Loan Documents or the execution, legality, validity
and enforceability, genuineness, sufficiency or value of the Loan
Documents or any other instrument or document furnished pursuant
thereto; (ii) such Assigning Bank makes no representation or warranty
and assumes no responsibility with respect to the financial condition of
any Loan Party or the performance or observance by any Loan Party of its
obligations under the Loan Documents; (iii) such Assignee confirms that
it has received a copy of the other Loan Documents, together with copies
of the financial statements referred to in Section 7.2 and such other
documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and
Acceptance; (iv) such Assignee
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will, independently and without reliance upon the Agent or such
Assigning Bank and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement and the other Loan
Documents; (v) such Assignee confirms that it is an Eligible Assignee;
(vi) such Assignee appoints and authorizes the Agent to take such action
as agent on its behalf and exercise such powers under the Loan Documents
as are delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; and (vii) such Assignee
agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Loan Documents are required to be
performed by it as a Bank.
(d) The Agent shall maintain at its Principal Office a copy of
each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Banks and
the Commitments of, and principal amount of the Loans owing to, each
Bank from time to time (the "Register"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error,
and the BORROWERS, the Agent and the Banks may treat each Person whose
name is recorded in the Register as a Bank hereunder for all purposes
under the Loan Documents. The Register shall be available for
inspection by the BORROWERS or any Bank at any reasonable time and from
time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed
by an Assigning Bank and Assignee representing that it is an Eligible
Assignee, together with the Note subject to such assignment, the Agent
shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit A hereto, (i) accept such Assignment
and Acceptance, (ii) record the information contained therein in the
Register, and (iii) give prompt written notice thereof to the BORROWERS.
Within five Business Days after its receipt of such notice the
BORROWERS, at their expense, shall execute and deliver to the Agent in
exchange for each surrendered Note a new Note in an amount equal to the
Commitment assumed by it (or, if the Commitments have terminated or
expired, the Loans assigned to it) pursuant to such Assignment and
Acceptance and, if the Assigning Bank has retained any Loan or Letter of
Credit Liability, the Commitment retained by it (or, if the Commitments
have terminated or expired, the Loans retained by it) (each such
promissory note shall constitute a "Note" for purposes of the Loan
Documents). Such new Notes shall be dated the effective date of such
Assignment and Acceptance and shall otherwise be in substantially the
form of Exhibit C hereto.
(f) Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this
Section 13.8, disclose to the Assignee or participant, or proposed
Assignee or participant, any information relating to any BORROWER or any
Subsidiary or Affiliate of any BORROWER furnished to such Bank by or on
behalf of any BORROWEr or any Subsidiary or Affiliate of any BORROWEr;
provided that each such actual or proposed Assignee or participant shall
agree to be bound by the provisions of Section 13.20.
(g) Any Bank may assign and pledge all or part of the Note
held by it to any Federal Reserve Bank or the United States Treasury as
collateral security pursuant to Regulation A of the Board of Governors
of the Federal Reserve System and any operating circular issued by such
Federal Reserve System and/or Federal Reserve Bank; provided, that any
payment made by the BORROWERS for the benefit of such assigning and/or
pledging Bank in accordance with the terms
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of the Loan Documents shall satisfy the BORROWERS' obligations under the
Loan Documents in respect thereof to the extent of such payment. No
such assignment and/or pledge shall release the assigning and/or
pledging Bank from its obligations hereunder.
Section 13.9 Survival. All representations and warranties made or
deemed made in this Agreement or any other Loan Document or in any document,
statement or certificate furnished in connection with this Agreement shall
survive the execution and delivery of this Agreement and the other Loan
Documents and the making of the Loans and the issuance of the Letters of
Credit, and no investigation by the Agent or any Bank or any closing shall
affect the representations and warranties or the right of the Agent or any Bank
to rely upon them. Without prejudice to the survival of any other obligation
of the BORROWERS or Guarantors hereunder, the obligations of the Borrowers and
Guarantors under Article 4 and Sections 13.1 and 13.2 shall survive repayment
of the Notes and termination of the Commitments.
SECTION 13.10 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES, AND THE
OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT
AMONG THE PARTIES HERETO AND (EXCEPT AS PROVIDED IN THIS SECTION 13.10 WITH
RESPECT TO THE TERM SHEET) SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE
PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES
HERETO. Notwithstanding the foregoing, the Term Sheet shall continue in full
force and effect as it relates to fees as provided in Section 2.11.
Section 13.11 Amendments. No amendment or waiver of any provision of
this Agreement, the Notes or any other Loan Document to which any BORROWER or
other Loan Party is a party, nor any consent to any departure by any BORROWER
or other Loan Party therefrom, shall in any event be effective unless the same
shall be agreed or consented to by the Required Banks and the BORROWERS, or
other Loan Party as appropriate, in writing, and each such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, that no amendment, waiver or consent shall, unless
in writing and signed by all of the Banks and the BORROWERS, do any of the
following: (a) increase the Commitments of the Banks or subject the Banks to
any additional obligations; (b) reduce the principal of, or interest on, the
Notes or any fees or other amounts payable hereunder; (c) postpone any date
fixed for any payment of principal of, or interest on, the Notes or any fees or
other amounts payable hereunder; (d) waive any of the conditions precedent
specified in Article 6; (e) change the Commitment Percentages or the aggregate
unpaid principal amount of the Notes or the percentage of the Banks which shall
be required for the Banks or any of them to take any action under this
Agreement; (f) change any provision contained in Section 9.14 or this Section
13.11 or modify the definition of "Borrowing Base", "Eligible Receivables" or
"Required Banks" contained in Section 1.1; or (g) release any Collateral from
any of the Liens created by the Security Documents; and provided further,
however, that no amendment, waiver or consent relating to Sections 12.1, 12.2,
12.3, 12.4 or 12.5 shall require the agreement of any Loan Party.
Notwithstanding anything to the contrary contained in this Section 13.11, no
amendment, waiver or consent shall be made with respect to Article 12 hereof
without the prior written consent of the Agent.
82
<PAGE> 89
Section 13.12 Maximum Interest Rate.
(a) No interest rate specified in this Agreement or any other
Loan Document shall at any time exceed the Maximum Rate. If at any time
the interest rate (the "Contract Rate") for any Obligation shall exceed
the Maximum Rate, thereby causing the interest accruing on such
Obligation to be limited to the Maximum Rate, then any subsequent
reduction in the Contract Rate for such Obligation shall not reduce the
rate of interest on such Obligation below the Maximum Rate until the
aggregate amount of interest accrued on such Obligation equals the
aggregate amount of interest which would have accrued on such Obligation
if the Contract Rate for such Obligation had at all times been in
effect.
(b) Notwithstanding anything to the contrary contained in this
Agreement or the other Loan Documents, none of the terms and provisions
of this Agreement or the other Loan Documents shall ever be construed to
create a contract or obligation to pay interest at a rate in excess of
the Maximum Rate; and neither the Agent nor any Bank shall ever charge,
receive, take, collect, reserve or apply, as interest on the
Obligations, any amount in excess of the Maximum Rate. The parties
hereto agree that any interest, charge, fee, expense or other obligation
provided for in this Agreement or in the other Loan Documents which
constitutes interest under applicable law shall be, ipso facto and under
any and all circumstances, limited or reduced to an amount equal to the
lesser of (i) the amount of such interest, charge, fee, expense or other
obligation that would be payable in the absence of this Section
13.12(b), or (ii) an amount, which when added to all other interest
payable under this Agreement and the other Loan Documents, equals the
Maximum Rate. If, notwithstanding the foregoing, the Agent or any Bank
ever contracts for, charges, receives, takes, collects, reserves or
applies as interest any amount in excess of the Maximum Rate, such
amount which would be deemed excessive interest shall be deemed a
partial payment or prepayment of principal of the Obligations and
treated hereunder as such; and if the Obligations, or applicable
portions thereof, are paid in full, any remaining excess shall promptly
be paid to the BORROWERS (or other appropriate Person). In determining
whether the interest paid or payable, under any specific contingency,
exceeds the Maximum Rate, the BORROWERS, the Agent and the Banks shall,
to the maximum extent permitted by applicable law, (A) characterize any
nonprincipal payment as an expense, fee or premium rather than as
interest, (B) exclude voluntary prepayments and the effects thereof, and
(C) amortize, prorate, allocate and spread in equal or unequal parts the
total amount of interest throughout the entire contemplated term of the
Obligations, or applicable portions thereof, so that the interest rate
does not exceed the Maximum Rate at any time during the term of the
Obligations; provided that, if the unpaid principal balance is paid and
performed in full prior to the end of the full contemplated term
thereof, and if the interest received for the actual period of existence
thereof exceeds the Maximum Rate, the Agent and/or the Banks, as
appropriate, shall refund to the BORROWERS (or other appropriate Person)
the amount of such excess and, in such event, the Agent and the Banks
shall not be subject to any penalties provided by any laws for
contracting for, charging, receiving, taking, collecting, reserving or
applying interest in excess of the Maximum Rate.
(c) Pursuant to Article 15.10(b) of Chapter 15, Subtitle 79,
Revised Civil Statutes of Texas 1925, as amended, the BORROWERS agree
that such Chapter 15 (which regulates certain revolving credit loan
accounts and revolving tri-party accounts) shall not govern or in any
manner apply to the Obligations.
83
<PAGE> 90
Section 13.13 Notices. All notices and other communications provided
for in this Agreement and the other Loan Documents to which any BORROWER is a
party shall be given or made by telecopy or in writing and telecopied, mailed
by certified mail return receipt requested, or delivered to the intended
recipient at the "Address for Notices" specified below its name on the
signature pages hereof (or, with respect to a Bank that becomes a party to this
Agreement pursuant to an assignment made in accordance with Section 13.8, in
the Assignment and Acceptance executed by it); or, as to any party, at such
other address as shall be designated by such party in a notice to each other
party given in accordance with this Section 13.13. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have
been duly given when transmitted by telecopy or personally delivered or, in the
case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid; provided, however, that notices to the Agent shall be deemed given
when received by the Agent.
SECTION 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF
PROCESS. EXCEPT AS MAY BE EXPRESSLY STATED TO THE CONTRARY IN CERTAIN LOAN
DOCUMENTS, THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS
AND APPLICABLE LAWS OF THE UNITED STATES. EACH OF THE BORROWERS AND GUARANTORS
HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF EACH OF (A) ANY UNITED
STATES DISTRICT COURT OF NEW YORK, (B) THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF TEXAS, (C) ANY NEW YORK STATE COURT SITTING IN NEW YORK,
NEW YORK, AND (D) ANY TEXAS STATE COURT SITTING IN HOUSTON, TEXAS, FOR THE
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT,
ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
EACH OF THE BORROWERS AND GUARANTORS IRREVOCABLY CONSENTS TO THE SERVICE OF ANY
AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF
SUCH PROCESS TO SUCH BORROWER OR GUARANTOR AT ITS ADDRESS SET FORTH UNDERNEATH
ITS SIGNATURE HERETO. EACH OF THE BORROWERS AND GUARANTORS IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORM.
Section 13.15 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 13.16 Severability. Any provision of this Agreement held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be invalid or illegal.
Section 13.17 Headings. The headings, captions and arrangements used in
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
84
<PAGE> 91
Section 13.18 Construction. Each of the BORROWERS, the Guarantors, the
Agent, and the Banks acknowledges that it has had the benefit of legal counsel
of its own choice and has been afforded an opportunity to review this Agreement
and the other Loan Documents with its legal counsel and that this Agreement and
the other Loan Documents shall be construed as if jointly drafted by the
parties hereto.
Section 13.19 Independence of Covenants. All covenants hereunder shall
be given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or such condition
exists.
Section 13.20 Confidentiality. Each Bank agrees to exercise its best
efforts to keep any information delivered or made available by any Loan Party
to it which is clearly indicated to be confidential information, confidential
from anyone other than Persons employed or retained by such Bank who are or are
expected to become engaged in evaluating, approving, structuring or
administering the Loans; provided that nothing herein shall prevent any Bank
from disclosing such information (a) to the Agent, the Co-Agent or any other
Bank, (b) to any Person if reasonably incidental to the administration of the
Loans or Letter of Credit Liabilities, (c) upon the order of any court or
administrative agency, (d) upon the request or demand of any regulatory agency
or authority having jurisdiction over such Bank, (e) which has been publicly
disclosed, (f) in connection with any litigation to which the Agent, any Bank
or their respective Affiliates may be a party, (g) to the extent reasonably
required in connection with the exercise of any remedy under the Loan
Documents, (h) to such Bank's legal counsel and independent auditors, and (i)
to any actual or proposed participant or Assignee of all or part of its rights
hereunder, so long as such actual or proposed participant or Assignee agrees to
be bound by the provisions of this Section 13.20.
SECTION 13.21 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF THE AGENT OR ANY BANK IN THE NEGOTIATION, ADMINISTRATION OR
ENFORCEMENT THEREOF.
Section 13.22 Approvals and Consent. Except as may be expressly
provided to the contrary in this Agreement or in the other Loan Documents (as
applicable), in any instance under this Agreement or the other Loan Documents
where the approval, consent or exercise of judgment of any Bank Party is
requested or required, (a) the granting or denial of such approval or consent
and the exercise of such judgment shall be within the sole discretion of such
Bank Party, and such Bank Party shall not, for any reason or to any extent, be
required to grant such approval or consent or to exercise such judgment in any
particular manner, regardless of the reasonableness of the request or the
action or judgment of such Bank Party, and (b) no approval or consent of any
Bank Party shall in any event be effective unless the same shall be in writing
and the same shall be effective only in the specific instance and for the
specific purpose for which given.
Section 13.23 Agent for Services of Process. Each of the BORROWERS and
Guarantors hereby irrevocably designates Edwin T. Markham with offices at 666
Third Avenue, 9th Floor, New York, New
85
<PAGE> 92
York, 10017 to receive for and on behalf of such BORROWER and Guarantor service
of process in New York. In the event that Ms. Riordan resigns or ceases to
serve as the BORROWERS' and Guarantors' agent for service of process hereunder,
the BORROWERS and Guarantors agree forthwith (a) to designate another agent for
service of process in New York, New York and (b) to give prompt written notice
to the Agent of the name and address of such agent. Each of the BORROWERS and
Guarantors agrees that the failure of its agent for service of process to give
any notice of any such service of process to such BORROWER and Guarantor shall
not impair or affect the validity of such service or of any judgment based
thereon. If, despite the foregoing, there is for any reason no agent for
service of process of any BORROWER or Guarantor available to be served, then
such BORROWER or Guarantor further irrevocably consents to the service of
process by the mailing thereof by the Agent or the Required Banks by registered
or certified mail, postage prepaid, to such BORROWER or Guarantor at its
address listed on the signature pages hereof. Nothing in this Section 13.23
shall affect the right of the Agent or the Banks to serve legal process in any
other manner permitted by law or affect the right of the Agent or any Bank to
bring any action or proceeding against any BORROWER or Guarantor or its
Property in the court of any jurisdiction.
Section 13.24 Joint and Several Obligations. Each and every
representation, warranty, covenant, agreement, indebtedness, liability or
obligation of the BORROWERS and Guarantors under this Agreement or any other
Loan Document shall be, and shall be deemed to be, the joint and several
representation, warranty, covenant, agreement, indebtedness, liability or
obligation, respectively, of each BORROWER and all of the Borrowers and
Guarantors.
Section 13.25 Co-Agent. All of the privileges and immunities created by
Articles 12 and 13 of this Agreement in favor of the Agent in its capacity as
such shall be equally applicable to the Co-Agent in its capacity as such.
86
<PAGE> 93
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
BORROWERS:
---------
FALCON DRILLING COMPANY, INC.,
FALCON DRILLING DE VENEZUELA, INC.,
FALCON DRILLING MANAGEMENT, INC.,
FALCON INLAND, INC.,
FALCON OFFSHORE, INC.,
FALCON SERVICES COMPANY, INC.,
FALCON WORKOVER COMPANY, INC.,
FALRIG OFFSHORE, INC.,
KESTREL OFFSHORE, INC.
and
RAPTOR EXPLORATION CO., INC.
By: /s/ LEIGHTON E. MOSS
--------------------------------------
Name: Leighton E. Moss (on behalf of each
of the Borrowers named above)
Title: Vice President and General Counsel
(of each of the Borrowers named
above)
Address for Notices:
-------------------
1900 West Loop South, Suite 1800
Houston, Texas 77027
Telecopy No.: 713-623-8103
Telephone No.: 713-623-8984
Attention: Don P. Rodney
FALCON DRILLING HOLDINGS, L.P.,
FALRIG OFFSHORE PARTNERS,
FALRIG OFFSHORE (USA), L.P.
By: /s/ LEIGHTON E. MOSS
---------------------------------------
Name: Leighton E. Moss (on behalf of each
of the Borrowers named above)
Title: Agent (of each of the Borrowers
named above)
S - 1
<PAGE> 94
Address for Notices:
-------------------
1900 West Loop South, Suite 1800
Houston, Texas 77027
Telecopy No.: 713-623-8103
Telephone No.: 713-623-8984
Attention: Don P. Rodney
GUARANTORS:
----------
FALCON ATLANTIC LTD.
By: /s/ LEIGHTON E. MOSS
-------------------------------------
Name: Leighton E. Moss
Title: Vice President
Address for Notices:
-------------------
1900 West Loop South, Suite 1800
Houston, Texas 77027
Telecopy No.: 713-623-8103
Telephone No.: 713-623-8984
Attention: Don P. Rodney
FALCON DRILLING DO BRASIL, LTDA.
and
PERFORACIONES FALRIG DE
VENEZUELA C.A.
By: /s/ LEIGHTON E. MOSS
---------------------------------------
Name: Leighton E. Moss
Title: Agent
Address for Notices:
-------------------
1900 West Loop South, Suite 1800
Houston, Texas 77027
Telecopy No.: 713-623-8103
Telephone No.: 713-623-8984
Attention: Don P. Rodney
S - 2
<PAGE> 95
AGENT:
-----
BANQUE PARIBAS
By: /s/ BRIAN MALONE
---------------------------------------
Name: Brian Malone
-------------------------------------
Title: Vice President
------------------------------------
By: /s/ LARRY ROBINSON
---------------------------------------
Name: Larry Robinson
-------------------------------------
Title: Vice President
------------------------------------
Address for Notices:
-------------------
Banque Paribas
1200 Smith Street, Suite 3100
Houston, Texas 77002
Telecopy No.: 713-659-3832
Telephone No.: 713-659-4811
Attention: Mr. Brian M. Malone
Vice President
BANKS:
-----
BANQUE PARIBAS
By: /s/ BRIAN MALONE
---------------------------------------
Commitment: Name: Brian Malone
- ---------- -------------------------------------
Title: Vice President
------------------------------------
$17,307,692.31
By: /s/ LARRY ROBINSON
---------------------------------------
Name: Larry Robinson
-------------------------------------
Title: Vice President
------------------------------------
S - 3
<PAGE> 96
Address for Notices:
-------------------
Banque Paribas
1200 Smith Street, Suite 3100
Houston, Texas 77002
Telecopy No.: 713-659-3832
Telephone No.: 713-659-4811
Attention: Mr. Brian M. Malone
Vice President
Lending Office for ABR Loans:
----------------------------
Banque Paribas
1200 Smith Street, Suite 3100
Houston, Texas 77002
Attention: Leah Evans
Operations Officer
Lending Office for Eurodollar Loans:
-----------------------------------
Banque Paribas
1200 Smith Street, Suite 3100
Houston, Texas 77002
Attention: Leah Evans
Operations Officer
ARAB BANKING CORPORATION (B.S.C.)
By: /s/ STEPHEN A. PLAUCHE
--------------------------------------
Commitment: Name: Stephen A. Plauche
- ---------- -----------------------------------
Title: Vice President
----------------------------------
$7,692,307.69
Address for Notices:
-------------------
Arab Banking Corporation (B.S.C.)
277 Park Avenue, 32nd Floor
New York, New York 10172
Telecopy No.: (212) 583-0921
Telephone No.: (212) 583-4720
Attention: Loan Administration Manager
S - 4
<PAGE> 97
With copies to:
Arab Banking Corporation (B.S.C.)
600 Travis Street, Suite 1900
Houston, Texas 77002
Telecopy No.: (713) 227-6507
Telephone No.: (713) 227-8444
Attention: Mr. Stephen A. Plauche
Vice President
Lending Office for ABR Loans:
----------------------------
Arab Banking Corporation (B.S.C.)
277 Park Avenue, 32nd Floor
New York, New York 10172
Telecopy No.: (212) 583-0921
Telephone No.: (212) 583-4720
Attention: Loan Administration Manager
Lending Office for Eurodollar Loans:
-----------------------------------
Arab Banking Corporation (B.S.C.)
277 Park Avenue, 32nd Floor
New York, New York 10172
Telecopy No.: (212) 583-0921
Telephone No.: (212) 583-4720
Attention: Loan Administration Manager
S - 5
<PAGE> 1
EXHIBIT 10.25
================================================================================
CREDIT AGREEMENT
dated as of November 12, 1996
$40,000,000 ACQUISITION LOANS CREDIT FACILITY
FALCON DRILLING COMPANY, INC.
as BORROWER
BANQUE PARIBAS
as Agent and a Lender
ARAB BANKING CORPORATION (B.S.C.)
as Co-Agent and a Lender
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1- Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Definitional Provisions . . . . . . . . . . . . . 25
Section 1.3 Accounting Terms and Determinations . . . . . . . . . . 26
Section 1.4 Financial Covenants and Reporting . . . . . . . . . . . 26
ARTICLE 2 - Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.1 Commitments. . . . . . . . . . . . . . . . . . . . . . 26
Section 2.2 Notes . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.3 Repayment of Loans . . . . . . . . . . . . . . . . . . 27
Section 2.4 Interest . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.5 Borrowing Procedure . . . . . . . . . . . . . . . . . . 28
Section 2.6 Optional Prepayments, Conversions and
Continuations of Loans . . . . . . . . . . . . . . . . 28
Section 2.7 Mandatory Prepayments . . . . . . . . . . . . . . . . . 28
Section 2.8 Minimum Amounts. . . . . . . . . . . . . . . . . . . . 28
Section 2.9 Certain Notices. . . . . . . . . . . . . . . . . . . . 29
Section 2.10 Use of Proceeds . . . . . . . . . . . . . . . . . . . . 29
Section 2.11 Commitment Fee and Other Fees . . . . . . . . . . . . . 29
Section 2.12 Computations. . . . . . . . . . . . . . . . . . . . . . 30
Section 2.13 Termination or Reduction of Commitments . . . . . . . . 30
Section 2.14 Letters of Credit . . . . . . . . . . . . . . . . . . . 30
ARTICLE 3 - Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 3.1 Method of Payment . . . . . . . . . . . . . . . . . . . 33
Section 3.2 Pro Rata Treatment . . . . . . . . . . . . . . . . . . 34
Section 3.3 Sharing of Payments, Etc . . . . . . . . . . . . . . . 34
Section 3.4 Non-Receipt of Funds by the Agent . . . . . . . . . . . 34
Section 3.5 Withholding Taxes . . . . . . . . . . . . . . . . . . . 34
Section 3.6 Withholding Tax Exemption . . . . . . . . . . . . . . . 35
ARTICLE 4 - Yield Protection and Illegality . . . . . . . . . . . . . . . . . 36
Section 4.1 Additional Costs . . . . . . . . . . . . . . . . . . . 36
Section 4.2 Limitation on Types of Loans . . . . . . . . . . . . . 37
Section 4.3 Illegality . . . . . . . . . . . . . . . . . . . . . . 38
Section 4.4 Treatment of Affected Loans . . . . . . . . . . . . . . 38
Section 4.5 Compensation . . . . . . . . . . . . . . . . . . . . . 39
Section 4.6 Capital Adequacy . . . . . . . . . . . . . . . . . . . 39
Section 4.7 Additional Interest on Eurodollar Loans . . . . . . . . 39
ARTICLE 5 - Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 5.1 Collateral . . . . . . . . . . . . . . . . . . . . . . 40
Section 5.2 Substitute Collateral . . . . . . . . . . . . . . . . . 40
Section 5.3 Setoff . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 6 - Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . 41
Section 6.1 Initial Extension of Credit . . . . . . . . . . . . . . 41
Section 6.2 All Extensions of Credit . . . . . . . . . . . . . . . 44
ARTICLE 7 - Representations and Warranties . . . . . . . . . . . . . . . . . 45
Section 7.1 Corporate Existence . . . . . . . . . . . . . . . . . . 45
Section 7.2 Financial Statements . . . . . . . . . . . . . . . . . 45
Section 7.3 Entity Action; No Breach . . . . . . . . . . . . . . . 45
Section 7.4 Operation of Business . . . . . . . . . . . . . . . . . 46
Section 7.5 Intellectual Property . . . . . . . . . . . . . . . . . 46
Section 7.6 Litigation and Judgments . . . . . . . . . . . . . . . 46
Section 7.7 Rights in Properties; Liens . . . . . . . . . . . . . . 46
Section 7.8 Enforceability . . . . . . . . . . . . . . . . . . . . 46
Section 7.9 Approvals . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.10 Debt . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.12 Margin Securities . . . . . . . . . . . . . . . . . . . 47
Section 7.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.14 Disclosure . . . . . . . . . . . . . . . . . . . . . . 48
Section 7.15 Capitalization . . . . . . . . . . . . . . . . . . . . 48
Section 7.16 Agreements . . . . . . . . . . . . . . . . . . . . . . 49
Section 7.17 Compliance with Laws . . . . . . . . . . . . . . . . . 49
Section 7.18 Investment Company Act . . . . . . . . . . . . . . . . 49
Section 7.19 Public Utility Holding Company Act . . . . . . . . . . 49
Section 7.20 Environmental Matters . . . . . . . . . . . . . . . . . 49
Section 7.21 Labor Disputes and Acts of God . . . . . . . . . . . . 50
Section 7.22 Material Contracts . . . . . . . . . . . . . . . . . . 51
Section 7.23 Outstanding Securities . . . . . . . . . . . . . . . . 51
Section 7.24 Priority of Payment. . . . . . . . . . . . . . . . . . 51
Section 7.25 Solvency . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7.26 Employee Matters . . . . . . . . . . . . . . . . . . . 51
Section 7.27 Insurance . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE 8 - Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . 52
Section 8.1 Reporting Requirements . . . . . . . . . . . . . . . . 52
Section 8.2 Maintenance of Existence; Conduct of Business . . . . . 55
Section 8.3 Maintenance of Properties . . . . . . . . . . . . . . . 55
Section 8.4 Taxes and Claims . . . . . . . . . . . . . . . . . . . 55
Section 8.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . 56
Section 8.6 Inspection Rights . . . . . . . . . . . . . . . . . . . 56
Section 8.7 Keeping Books and Records . . . . . . . . . . . . . . . 56
Section 8.8 Compliance with Laws . . . . . . . . . . . . . . . . . 56
Section 8.9 Compliance with Agreements . . . . . . . . . . . . . . 57
Section 8.10 Further Assurances . . . . . . . . . . . . . . . . . . 57
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 8.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 8.12 Concentration Account . . . . . . . . . . . . . . . . . 57
Section 8.13 No Consolidation in Bankruptcy . . . . . . . . . . . . 57
ARTICLE 9 - Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . 58
Section 9.1 Debt . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 9.2 Limitation on Liens . . . . . . . . . . . . . . . . . . 59
Section 9.3 Mergers, Etc . . . . . . . . . . . . . . . . . . . . . 59
Section 9.4 Restricted Payments . . . . . . . . . . . . . . . . . . 59
Section 9.5 Investments. . . . . . . . . . . . . . . . . . . . . . 60
Section 9.6 Limitation on Issuance of Capital Stock . . . . . . . . 61
Section 9.7 Transactions With Affiliates . . . . . . . . . . . . . 62
Section 9.8 Disposition of Property . . . . . . . . . . . . . . . . 62
Section 9.9 Sale and Leaseback . . . . . . . . . . . . . . . . . . 63
Section 9.10 Lines of Business . . . . . . . . . . . . . . . . . . . 63
Section 9.11 Environmental Protection . . . . . . . . . . . . . . . 64
Section 9.12 Intercompany Transactions . . . . . . . . . . . . . . . 64
Section 9.13 Consulting and Management Fees . . . . . . . . . . . . 64
Section 9.14 Modification of Other Agreements . . . . . . . . . . . 64
Section 9.15 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 9.16 Drilling Rig Location. . . . . . . . . . . . . . . . . 65
ARTICLE 10 - Financial Covenants . . . . . . . . . . . . . . . . . . . . . . 65
Section 10.1 Consolidated Current Ratio . . . . . . . . . . . . . . 65
Section 10.2 Consolidated Tangible Net Worth . . . . . . . . . . . . 65
Section 10.3 Consolidated Interest Coverage Ratio . . . . . . . . . 65
ARTICLE 11 - Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 11.1 Events of Default . . . . . . . . . . . . . . . . . . . 66
Section 11.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . 69
Section 11.3 Cash Collateral . . . . . . . . . . . . . . . . . . . . 69
Section 11.4 Performance by the Agent . . . . . . . . . . . . . . . 70
ARTICLE 12 - The Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 12.1 Appointment, Powers and Immunities . . . . . . . . . . 70
Section 12.2 Rights of Agent as a Bank . . . . . . . . . . . . . . . 71
Section 12.3 Defaults . . . . . . . . . . . . . . . . . . . . . . . 71
Section 12.4 Indemnification . . . . . . . . . . . . . . . . . . . . 71
Section 12.5 Independent Credit Decisions . . . . . . . . . . . . . 72
Section 12.6 Several Commitments . . . . . . . . . . . . . . . . . . 72
Section 12.7 Successor Agent . . . . . . . . . . . . . . . . . . . . 73
ARTICLE 13 - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 13.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . 73
Section 13.2 Indemnification . . . . . . . . . . . . . . . . . . . . 74
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Section 13.3 Limitation of Liability . . . . . . . . . . . . . . . . 75
Section 13.4 No Duty . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 13.5 No Fiduciary Relationship . . . . . . . . . . . . . . . 75
Section 13.6 Equitable Relief . . . . . . . . . . . . . . . . . . . 75
Section 13.7 No Waiver; Cumulative Remedies . . . . . . . . . . . . 75
Section 13.8 Successors and Assigns . . . . . . . . . . . . . . . . 76
Section 13.9 Survival . . . . . . . . . . . . . . . . . . . . . . . 78
Section 13.10 Entire Agreement . . . . . . . . . . . . . . . . . . . 79
Section 13.11 Amendments. . . . . . . . . . . . . . . . . . . . . . . 79
Section 13.12 Maximum Interest Rate . . . . . . . . . . . . . . . . . 79
Section 13.13 Notices . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 13.14 Governing Law; Submission to Jurisdiction;
Service of Process . . . . . . . . . . . . . . . . . . 81
Section 13.15 Counterparts . . . . . . . . . . . . . . . . . . . . . 81
Section 13.16 Severability . . . . . . . . . . . . . . . . . . . . . 81
Section 13.17 Headings . . . . . . . . . . . . . . . . . . . . . . . 81
Section 13.18 Construction . . . . . . . . . . . . . . . . . . . . . 81
Section 13.19 Independence of Covenants . . . . . . . . . . . . . . . 81
Section 13.20 Confidentiality . . . . . . . . . . . . . . . . . . . . 81
Section 13.21 Waiver of Jury Trial . . . . . . . . . . . . . . . . . 82
Section 13.22 Approvals and Consent. . . . . . . . . . . . . . . . . 82
Section 13.23 Agent for Services of Process . . . . . . . . . . . . . 82
Section 13.24 Joint and Several Obligations . . . . . . . . . . . . . 83
Section 13.25 Co-Agent . . . . . . . . . . . . . . . . . . . . . . . 83
</TABLE>
iv
<PAGE> 6
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Section
- ------- ---------------------- -------
<S> <C> <C>
"A" Form of Assignment and Acceptance 1.1
"B" Form of Note 1.1
"C" Form of Notice of Borrowings, Conversions,
Continuations or Prepayments 2.9
</TABLE>
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
Schedule Description of Schedule
- -------- -----------------------
<S> <C>
1.1(a) Permitted Liens
1.1(b) Certain Receivables
7.6 Litigation
7.7 Drilling Rigs
7.10 Existing Debt
7.11 Taxes
7.13 Plans
7.15(b) Capitalization of Subsidiaries
7.15(c) Options, etc.
7.22 Material Contracts and Defaults
7.26 Employee Matters
7.27 Insurance
9.5 Investments
9.7 Certain Transactions with Affiliates
9.12 Intercompany Transactions
</TABLE>
v
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of November 12, 1996, is among FALCON
DRILLING COMPANY, INC., a Delaware corporation ("Falcon Drilling" or
"Borrower"), BANQUE PARIBAS, a bank organized under the laws of France acting
through its Houston Agency, ARAB BANKING CORPORATION (B.S.C.), a banking
corporation organized under the laws of Bahrain, each of the other banks or
lending institutions which is or which may from time to time become a party
hereto or any permitted successor or assignee thereof (each of Banque Paribas,
Arab Banking Corporation (B.S.C.), and such other banks or lending institutions
is sometimes hereinafter individually referred to as a "Bank" and all of such
Persons are sometimes hereinafter collectively referred to as the "Banks"),
BANQUE PARIBAS, as agent for itself and the other Banks (in such capacity,
together with its successors in such capacity, the "Agent") and ARAB BANKING
CORPORATION (B.S.C.), as Co-Agent for itself and the other Banks (in such
capacity, together with its successors and assigns in such capacity, the "Co-
Agent").
RECITALS:
BORROWER desires that the Lenders extend a revolving credit facility to
BORROWER to provide working capital financing for, and other funds for the
general corporate purposes of, BORROWER.
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Definitions
Section 1.1 Definitions. As used in this Agreement, the following
terms have the following meanings:
"ABR" means the sum of (a) the greater of the Prime Rate or the Federal
Funds Rate, plus (b) one-half of one percent per annum.
"ABR Loans" means Loans that bear interest at rates based upon the ABR.
"Additional Costs" means as specified in Section 4.1(a).
"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/16 of 1%) determined by the Agent to be equal to (a) the
Eurodollar Rate for such Eurodollar Loan for such Interest Period, divided by
(b) the remainder of one minus the Reserve Requirement for such Eurodollar Loan
for such Interest Period.
"Affiliate" means, as to any Person, any other Person (a) that directly
or indirectly, through one or more intermediaries, controls or is controlled
by, or is under common control
<PAGE> 8
with, such Person; (b) that directly or indirectly beneficially owns or holds
ten percent or more of any class of voting stock of such Person; or (c) ten
percent or more of the voting stock of which is directly or indirectly
beneficially owned or held by the Person in question. The term "control" means
the possession, directly or indirectly, of the power to direct or cause
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise. Notwithstanding the
foregoing, (i) in no event shall the Agent or any Bank be deemed an Affiliate
of BORROWER or any of its Subsidiaries and (ii) for purposes of (A) the
definition of the term "Net Proceeds" and (B) Sections 7.6 and 8.1(f), the
Chatterjee Group shall not be deemed to be an Affiliate of Falcon Drilling or
any of its Subsidiaries if (but only if) the Chatterjee Group (1) directly and
indirectly beneficially owns and holds no more than 50% of the voting stock of
Falcon Drilling and (2) does not directly or indirectly control the election of
a majority of the directors of Falcon Drilling or any of its Subsidiaries.
"Agent" means as specified in the initial paragraph of this Agreement.
"Agreement" means this Credit Agreement and any and all amendments,
modifications, supplements, renewals, extension or restatements hereof.
"Applicable Lending Office" means for each Bank and each Type of Loan,
the Lending Office of such Bank (or of an Affiliate of such Bank) designated
for such Type of Loan below its name on the signature pages hereof (or, with
respect to a Bank that becomes a party to this Agreement pursuant to an
assignment made in accordance with Section 13.8, in the Assignment and
Acceptance executed by it) or such other office of such Bank (or of an
Affiliate of such Bank) as such Bank may from time to time specify to BORROWER
and the Agent as the office by which its Loans of such Type are to be made and
maintained.
"Applicable Margin" means (a) 0.50% per annum with respect to ABR Loans
and (b) 2.50% per annum with respect to Eurodollar Loans; provided, however,
that in the event that Falcon Drilling consummates Equity Issuances of its
common stock subsequent to the Closing Date as to which the aggregate Net
Proceeds received by Falcon Drilling is greater than or equal to $75,000,000,
then the Applicable Margin with respect to Eurodollar Loans shall at all times
thereafter be 2.00% per annum.
"Asset Disposition" means the disposition (other than sales of Inventory
in the ordinary course of business consistent with past practices or the grant
of a Permitted Lien as security or the transfer of a Non-Recourse Rig) of any
or all of the Property of BORROWER or any of its Subsidiaries, whether by sale,
conveyance, lease, transfer, assignment, condemnation or otherwise, but
excluding (a) the issuance of Capital Stock and (b) any involuntary disposition
resulting from casualty damage to Property.
"Assignee" means as specified in Section 13.8(b).
"Assigning Bank" means as specified in Section 13.8(b).
2
<PAGE> 9
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Bank and its Assignee and accepted by the Agent pursuant to Section
13.8(e), in substantially the form of Exhibit A hereto.
"Bank" and "Banks" means as specified in the initial paragraph of this
Agreement.
"Bank Parties" means the Agent, the Co-Agent (at any time a Co-Agent has
been designated by Banque Paribas), the Banks, the Required Banks and/or any
Bank.
"Bankruptcy Code" means as specified in Section 11.1(e).
"Basle Accord" means the proposals for risk-based capital framework
described by the Basle Committee on Banking Regulations and Supervisory
Practices in its paper entitled "International Convergence of Capital
Measurement and Capital Standards" dated July 1988, as amended, supplemented
and otherwise modified and in effect from time to time, or any replacement
thereof.
"BORROWER" means as specified in the initial paragraph of this
Agreement.
"Borrower Member" means [add definition].
"Borrowing Base" means, at the time of determination, an amount equal to
40% of the lesser of (i) the fair market value of the Drilling Rigs and (ii)
the appraised value of the Drilling Rigs as set forth in the most recent
appraisal by a Qualified Appraiser that has been furnished to the Agent
pursuant hereto.
"Business Day" means (a) any day on which commercial banks are not
authorized or required to close in Houston, Texas, or New York, New York, and
(b) with respect to all borrowings, payments, Conversions, Continuations,
Interest Periods and notices in connection with Eurodollar Loans, any day which
is a Business Day described in clause (a) above and which is also a day on
which dealings in Dollar deposits are carried out in the London interbank
market.
"Capital Expenditures" means, for any period, expenditures (including
the aggregate amount of Capital Lease Obligations incurred during such period)
made by Falcon Drilling or any of its Subsidiaries to acquire or construct
fixed assets, plant or equipment (including renewals, improvements or
replacements) during such period and which, in accordance with GAAP, are
classified as capital expenditures.
"Capital Lease Obligations" means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal Property, which obligations
are classified as a capital lease on a balance sheet of such Person under GAAP.
For purposes of this Agreement, the amount of such Capital Lease Obligations
shall be the capitalized amount thereof, determined in accordance with GAAP.
3
<PAGE> 10
"Capital Stock" means corporate stock, partnership interests and any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock or partnership interests issued by any entity
(whether a corporation, a partnership or another entity) and any rights,
warrants or options to acquire an equity interest in such entity.
"Cash Proceeds" means, with respect to any Asset Disposition by any
Person, the aggregate consideration received for such Asset Disposition by such
Person in the form of cash or cash equivalents (including any amounts of
insurance or other proceeds received in connection with an Asset Disposition),
including payments in respect of deferred payment obligations when received in
the form of cash or cash equivalents (except to the extent that such
obligations are financed or sold with recourse to such Person or any subsidiary
thereof). For the purposes of this definition, "cash or cash equivalents"
shall be deemed to include, for a period not to exceed 12 months from the
related Asset Disposition, noncash consideration received with respect to an
Asset Disposition to the extent that such noncash consideration consists of (i)
publicly traded debt securities of a Person, which securities are rated as
"BBB-" or higher by Standard and Poor's Corporation ("S&P") and "Baa3" or
higher by Moody's Investors Service, Inc. ("Moody's"), or (ii) other
indebtedness of a Person if (A) the lowest rated long-term, unsecured debt
obligation issued by such Person is rated "BBB-" or higher by S&P and "Baa3" or
higher by Moody's or (B) in the case of other indebtedness, the payment of such
other indebtedness is secured by an irrevocable letter of credit issued by a
commercial bank having capital and surplus in excess of $100,000,000 and long
term unsecured debt obligations rated at least "A-" by S&P and "A3" by Moody's.
"Change of Control" means the existence or occurrence of any of the
following: (a) a determination by Falcon Drilling or the Agent that any Person
or group (as defined in Section 13(d)(3) or 14(d)(2) of the Exchange Act) other
than the Chatterjee Group has become the direct or indirect beneficial owner
(as defined in Rule 13d-3 under the Exchange Act) of more than 40% of the
Voting Stock of Falcon Drilling; (b) BORROWER is merged with or into or
consolidated with another corporation, and immediately after giving effect to
the merger or consolidation, less than 50% of the outstanding voting securities
entitled to vote generally in the election of directors or persons who serve
similar functions of the surviving or resulting entity are then beneficially
owned (within the meaning of Rule 13d-3 under the Exchange Act) in the
aggregate by (i) the stockholders of Falcon Drilling immediately prior to such
merger or consolidation, or (ii) if a record date has been set to determine the
stockholders of BORROWER entitled to vote on such merger or consolidation, the
stockholders of Falcon Drilling as of such record date; (c) BORROWER, either
individually or in connection with one or more Subsidiaries, sells, conveys,
transfers or leases, or the Subsidiaries sell, convey, transfer or lease, all
or substantially all of the assets of Falcon Drilling and its Subsidiaries,
taken as a whole (either in one transaction or a series of related
transactions), including Capital Stock of the Subsidiaries of Falcon Drilling,
to any Person (other than a Wholly Owned Subsidiary of Falcon Drilling); (d)
the liquidation or dissolution of Borrower; or (d) the first day on which a
majority of the individuals who constitute the Board of Directors of Falcon
Drilling on the date hereof are not Continuing Directors.
4
<PAGE> 11
"Chatterjee Group" means Purnendu Chatterjee and George Soros and any
Person, other than BORROWER or any Subsidiary of a Borrower, a majority of the
Capital Stock of which is beneficially owned, directly or indirectly, by such
individual(s), either individually or collectively.
"Closing Date" means the date of this Agreement as set forth on the
first page hereof.
"Co-Agent" means as specified in the initial paragraph of this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
"Collateral" means all Property of any nature whatsoever upon which a
Lien is purported to be created by any Loan Document, including, without
limitation, the Drilling Rigs and the Receivables of BORROWER.
"Collateral Option" means the option of Banque Paribas to purchase
common stock of Borrower pursuant to the Collateral Option Agreement.
"Collateral Option Agreement" means that certain Collateral Stock Option
Agreement dated as of November 12, 1996, between Borrower and Banque Paribas.
"Commitment" means, as to any Bank, the obligation of such Bank to make
Loans and incur or participate in Letter of Credit Liabilities hereunder in an
aggregate principal amount at any one time outstanding up to but not exceeding
the amount set forth opposite the name of such Bank on the signature pages
hereto under the heading "Commitment" or, if such Bank is a party to an
Assignment and Acceptance, the amount set forth in the most recent Assignment
and Acceptance of such Bank, as the same may be reduced or terminated pursuant
to Section 2.13 or 11.2.
"Commitment Percentage" means, as to any Bank, the percentage equivalent
of a fraction the numerator of which is the amount of the outstanding
Commitment of such Bank (or, if such Commitment has terminated or expired, the
outstanding principal amount of its Loans and Letter of Credit Liabilities) and
the denominator of which is the aggregate amount of the outstanding Commitments
of all of the Banks (or, if such Commitments have terminated or expired, the
aggregate outstanding principal amount of all Loans and Letter of Credit
Liabilities).
"Concentration Account" means a concentration deposit account or
accounts (as BORROWER may desire) into which all proceeds of Collateral that is
Receivables shall be deposited, which account is maintained by BORROWER and
certain of its Subsidiaries (other than the Non-Material Subsidiaries and the
Foreign Subsidiaries) with a bank (or banks) selected by BORROWER and
reasonably acceptable to the Agent.
"Concentration Account Agreement" means an agreement among BORROWER, the
Agent and a depository bank selected by BORROWER and reasonably acceptable to
the Agent in form and substance satisfactory to the Agent, dated the Closing
Date and relating to the Concentration
5
<PAGE> 12
Account, any and all amendments, modifications, supplements, renewals,
extensions, or restatements thereof.
"Consolidated Current Assets" means, at any particular time, all amounts
which, in conformity with GAAP, would be included as current assets on a
consolidated balance sheet of BORROWER.
"Consolidated Current Liabilities" means, at any particular time, all
amounts which, in conformity with GAAP, would be included as current
liabilities on a consolidated balance sheet of BORROWER and the current portion
of Consolidated Funded Debt, exclusive of, in connection with any calculation
of Consolidated Current Liabilities during the 12-month period immediately
preceding the Maturity Date or the Revolving Loans Maturity Date, the
outstanding principal amount of the Loans or the outstanding principal amount
of the Revolving Loans, respectively.
"Consolidated Current Ratio" means, at any particular time, the ratio of
Consolidated Current Assets to Consolidated Current Liabilities.
"Consolidated Funded Debt" means, at any particular time, (a) all Debt
of BORROWER and its consolidated subsidiaries which matures by its terms, or
is renewable at the option of the obligor to a date, more than one year after
the original creation of such Debt, (b) all other Debt which would be
classified as "funded indebtedness" or "long-term indebtedness" on a
consolidated balance sheet of BORROWER as of such date in accordance with GAAP,
and (c) all obligations of BORROWER for borrowed money.
"Consolidated Interest Coverage Ratio" means, for any period, the ratio
of (a) EBITDA of BORROWER for such period to (b) Consolidated Interest Expense
for such period.
"Consolidated Interest Expense" means, for any period, (a) all interest
on Debt of BORROWER and its consolidated subsidiaries accrued during such
period, including the interest portion of payments under Capital Lease
Obligations, and (b) all other amounts which would be classified as interest
expense on a consolidated statement of income of BORROWER for such period in
accordance with GAAP.
"Consolidated Net Income" means, for any period, the net income (or
loss) of BORROWER for such period, determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Worth" means, at any particular time, the sum of all
amounts which, in conformity with GAAP, would be included as stockholders'
equity on a consolidated balance sheet of BORROWER.
"Consolidated Tangible Net Worth" means, at any particular time, the
remainder of (a) Consolidated Net Worth minus (b) the aggregate book value of
Intangible Assets shown on a consolidated balance sheet of BORROWER.
6
<PAGE> 13
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 2.6 of a Eurodollar Loan as a Eurodollar Loan
from one Interest Period to the next Interest Period.
"Continuing Director" means an individual who (a) is a member of the
Board of Directors of Falcon Drilling and (b) either (i) was a member of the
Board of Directors of Falcon Drilling as of the Closing Date or (ii) whose
nomination for election or election to the Board of Directors of Falcon
Drilling was approved by a vote of at least 66 2/3% of the directors then still
in office who were either directors as of the Closing Date or whose election or
nomination for election was previously so approved.
"Contract Rate" means as specified in Section 13.12(a).
"Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 2.6 or Article 4 of one Type of Loan into the other Type of
Loan.
"Currency Hedge Agreement" means any foreign currency exchange
agreement, option or future contract or other similar agreement designed to
protect against or manage a Person's exposure to fluctuations in foreign
currency exchange rates.
"Current Date" means a date occurring no more than 30 days prior to the
Closing Date or such earlier date which is reasonably acceptable to the Agent.
"Debt" means as to any Person at any time (without duplication): (a) any
indebtedness, liability or obligation of such Person, contingent or otherwise,
for borrowed money; (b) any indebtedness, liability or obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments; (c)
any indebtedness, liability or obligation of such Person for all or any part of
the purchase price of Property or services or for the cost of Property
constructed or of improvements thereto (including any indebtedness, liability
or obligation under or in connection with any letter of credit related
thereto), other than accounts payable included in current liabilities incurred
in respect of Property and services purchased in the ordinary course of
business; (d) any indebtedness, liability or obligation of such Person upon
which interest charges are customarily paid (other than accounts payable
incurred in the ordinary course of business); (e) any indebtedness, liability
or obligation of such Person under conditional sale or other title retention
agreements relating to purchased Property; (f) any indebtedness, liability or
obligation of such Person issued or assumed as the deferred purchase price of
Property (other than accounts payable incurred in the ordinary course of
business); (g) any Capital Lease Obligation or any obligation pursuant to any
sale and lease-back transaction of such Person; (h) any indebtedness, liability
or obligation of any other Person secured by (or for which the obligee thereof
has an existing right, contingent or otherwise, to be secured by) any Lien on
Property owned or acquired, whether or not any indebtedness, liability or
obligation secured thereby has been assumed, by such Person; (i) any
indebtedness, liability or obligation of such Person in respect of any letter
of credit supporting any indebtedness, liability or obligation of any other
Person; (j) the maximum fixed repurchase price of any Redeemable Stock of such
Person or, if such Person is a Subsidiary, any preferred stock of such Person,
exclusive of any Redeemable Stock or Subsidiary preferred stock
7
<PAGE> 14
issued by a Subsidiary of BORROWER and owned by BORROWER; (k) any obligation of
such Person under or with respect to any Interest Rate Protection Agreement or
Currency Hedge Agreement; and (l) any indebtedness, liability or obligation
which is in economic effect a guarantee, regardless of its characterization,
with respect to any Debt of another Person, to the extent guaranteed. For
purposes of the preceding sentence, the maximum fixed repurchase price of any
Redeemable Stock or Subsidiary preferred stock that does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Stock or Subsidiary preferred stock as if such Redeemable Stock or
Subsidiary preferred stock were repurchased on any date on which Debt shall be
required to be determined pursuant to the this Agreement; provided, however,
that if such Redeemable Stock or Subsidiary preferred stock is not then
permitted to be repurchased, the repurchase price shall be the book value of
such Redeemable Stock or Subsidiary preferred stock. The amount of Debt of any
Person at any date shall be (i) the outstanding book value at such date of all
indebtedness, liabilities and obligations as described above and (ii) the
maximum liability of all contingent indebtedness, liabilities and obligations
at such date.
"Debtor Relief Law" means any applicable liquidation, conservatorship,
receivership, bankruptcy, moratorium, rearrangement, insolvency, reorganization
or similar law for the relief of debtors from time to time in effect and
generally affecting the rights of creditors.
"Default" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an Event of
Default.
"Default Rate" means, in respect of any principal of any Loan, any
Reimbursement Obligation or any other amount payable by BORROWER under this
Agreement or any other Loan Document which is not paid when due (whether at
stated maturity, by acceleration or otherwise), a rate per annum during the
period commencing on the due date until such amount is paid in full equal to
the sum of 2.00% plus the Prime Rate as in effect from time to time plus the
Applicable Margin for ABR Loans; provided, however, that if such amount in
default is principal of a Eurodollar Loan and the due date is a day other than
the last day of an Interest Period therefor, the "Default Rate" for such
principal shall be, for the period from and including the due date and to but
excluding the last day of the Interest Period therefor, 2.00% plus the interest
rate for such Eurodollar Loan for such Interest Period as provided in Section
2.4(a) hereof, and, thereafter, the rate provided for above in this definition.
"Dollars" and "$" mean lawful money of the United States.
"Drilling Rigs" means such drilling rigs or drilling vessels as are from
time to time owned by Borrower and as to which there is a valid first priority
ship mortgage for the benefit of the Banks securing the Obligations. As of the
Closing Date, the Drilling Rigs shall consist of the PHOENIX II (U.S. Official
No. 643906), the PHOENIX III (U.S. Official No. 644283), the PHOENIX IV (U.S.
Official No. 634728), the FALRIG 85 (U.S. Official No. 604568), and the FALRIG
86 (U.S. Official No. 624764).
"EBITDA" means, for any period, without duplication, the sum of the
following for BORROWER for such period determined on a consolidated basis in
accordance with GAAP:
8
<PAGE> 15
(a) Consolidated Net Income, plus (b) Consolidated Interest Expense, plus (c)
income and franchise taxes to the extent deducted in determining Consolidated
Net Income, plus (d) depreciation and amortization expense and other non-cash
items to the extent deducted in determining Consolidated Net Income, minus (e)
non-cash income to the extent included in determining Consolidated Net Income.
"Eligible Assignee" means any (i) a commercial bank or finance company
organized under the laws of the United States, or any State thereof or the
District of Columbia, and having total assets in excess of $1,000,000,000; (ii)
a savings and loan association or savings bank organized under the laws of the
United States, or any State thereof or the District of Columbia, and having a
net worth of at least $100,000,000, calculated in accordance with generally
accepted accounting principles; (iii) any Affiliate of any Bank; (iv) a
commercial bank organized under the laws of any other country which is a member
of the OECD, or a political subdivision of any such country, and having total
assets in excess of $1,000,000,000, provided that such bank is acting through a
branch or agency located in the country in which it is organized or another
country which is also a member of the OECD; (v) the central bank of any country
which is a member of the OECD; or (vi) if, but only if, any Event of Default
has occurred and is continuing, any other bank, insurance company, commercial
finance company or other financial institution approved by the Agent, such
approval not to be unreasonably withheld.
"Environmental Law" means any federal, state, local or foreign law,
statute, code or ordinance, principle of common law, rule or regulation, as
well as any Permit, order, decree, judgment or injunction issued, promulgated,
approved or entered thereunder, relating to pollution or the protection,
cleanup or restoration of the environment or natural resources, or to the
public health or safety, or otherwise governing the generation, use, handling,
collection, treatment, storage, transportation, recovery, recycling, renewal,
discharge or disposal of Hazardous Materials, including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601 et seq., the Superfund Amendment and
Reauthorization Act of 1986, 99-499, 100 Stat. 1613, the Resource Conservation
and Recovery Act of 1976, 42 U. S. C. Section 6901 et seq., the Occupational
Safety and Health Act, 29 U S.C. Section 651 et seq., the Clean Air Act, 42
U.S.C. Section 7401 et seq., the Clean Water Act, 33 U.S.C. Section 1251 et
seq., the Emergency Planning and Community Right to Know Act, 15 U.S.C.,
Section 651 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. Sections 300F et seq., and the Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq., and any state or local counterparts.
"Environmental Liabilities" means, as to any Person, all indebtedness,
liabilities, obligations, responsibilities, Remedial Actions, losses, damages,
punitive damages, consequential damages, treble damages, costs and expenses
(including, without limitation, all reasonable fees, disbursements and expenses
of counsel, expert and consulting fees and costs of investigation and
feasibility studies), fines, penalties, sanctions and interest incurred as a
result of any claim or demand, by any Person, whether based in contract, tort,
implied or express warranty, strict liability or criminal or civil statute,
including any Environmental Law, Permit, order or agreement with any
Governmental Authority or other Person, arising from environmental, health or
safety conditions or the Release or threatened Release of a Hazardous Material
into the environment.
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<PAGE> 16
"Equity Issuance" means any issuance by Falcon Drilling or any of its
Subsidiaries of any Capital Stock of Falcon Drilling or any of its
Subsidiaries, respectively.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of a group of entities, organizations or employers of which a Loan Party
is also a member and which is treated as a single employer within the meaning
of Sections 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loan" means any Loan that bears interest at a rate based
upon the Eurodollar Rate or the Adjusted Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/16 of 1%) quoted by the Reference Bank at approximately 11:00 a.m. London
time (or as soon thereafter as practicable) two Business Days prior to the
first day of such Interest Period for the offering by the Reference Bank to
leading banks in the London interbank market of Dollar deposits in immediately
available funds having a term comparable to such Interest Period and in an
amount comparable to the principal amount of the Eurodollar Loan made by the
Reference Bank to which such Interest Period relates. If the Reference Bank is
not participating in any Eurodollar Loans during any Interest Period therefor
(pursuant to Section 4.4 or for any other reason), the Eurodollar Rate and the
Adjusted Eurodollar Rate for such Loans for such Interest Period shall be
determined by reference to the amount of the Loans which the Reference Bank
would have made had it been participating in such Loans.
"Event of Default" has the meaning specified in Section 11.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Falcon Atlantic" means Falcon Atlantic Ltd., a Cayman Islands company.
"Falcon Brazil" means Falcon Drilling do Brasil, Ltda., a Brazilian
limited liability company.
"Falcon Drilling" means as specified in the initial paragraph of this
Agreement.
"Falcon Holdings" means Falcon Drilling Holdings, L.P., a Delaware
limited partnership.
"Falcon Inland" means Falcon Inland, Inc., a Delaware corporation.
"Falcon Management" means Falcon Drilling Management, Inc., a Delaware
corporation.
"Falcon Offshore" means Falcon Offshore, Inc., a Delaware corporation.
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<PAGE> 17
"Falcon Services" means Falcon Services Company, Inc., a Delaware
corporation.
"Falcon Venezuela" means Falcon Drilling de Venezuela, Inc., a Delaware
corporation.
"Falcon Workover" means Falcon Workover Company, Inc., a Delaware
corporation.
"FALRIG Offshore" means FALRIG Offshore, Inc., a Delaware corporation.
"FALRIG Offshore GP" means FALRIG Offshore Partners, a Texas general
partnership.
"FALRIG Offshore LP" means FALRIG Offshore (USA), L.P., a Delaware
limited partnership.
"FALRIG Venezuela" means Perforaciones Falrig de Venezuela C.A., a
Venezuelan company.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/16 of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (a) if the day for which such rate is to be
determined is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (b) if such rate is not so
published on such next succeeding Business Day, the Federal Funds Rate for any
day shall be the average rate which would be charged to the Reference Bank on
such day on such transactions as determined by the Agent.
"Foreign Subsidiary" means Falcon Atlantic, Falcon Brasil, FALRIG
Venezuela or any other Subsidiary of BORROWER which is incorporated, organized
or otherwise existing under the laws of a country other than the United States.
"Funding Date" means the earlier to occur of the date of the making of
the initial Loan or the date of the issuance of the initial Letter of Credit.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board and/or their respective successors
and which are applicable in the circumstances as of the date in question.
Accounting principles are applied on a "consistent basis" when the accounting
principles applied in a current period are comparable in all material respects
to those accounting principles applied in a preceding period.
"Governmental Authority" means any nation or government, any state or
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government.
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<PAGE> 18
"Governmental Requirement" means any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, Permit,
certificate, license, authorization or other directive or requirement of any
federal, state, county, municipal, parish, provincial or other Governmental
Authority or any department, commission, board, court, agency or any other
instrumentality of any of them.
"Guarantee" by any Person means any indebtedness, liability or
obligation, contingent or otherwise, of such Person directly or indirectly
guaranteeing any Debt or other indebtedness, liability or obligation of any
other Person and, without limiting the generality of the foregoing, any
indebtedness, liability or obligation, direct or indirect, contingent or
otherwise, of such Person (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Debt or other indebtedness, liability or
obligation (whether arising by virtue of partnership arrangements, by agreement
to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, to maintain financial statement conditions or otherwise) or (b)
entered into for the purpose of assuring in any other manner the obligee of
such Debt or other indebtedness, liability or obligation of the payment thereof
or to protect the obligee against loss in respect thereof (in whole or in
part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The amount of any Guarantee shall
be deemed to be an amount equal to the stated or determinable amount of the
primary indebtedness, liability or obligation in respect of which such
Guarantee is made or, if not stated or determinable, the maximum anticipated
indebtedness, liability or obligation in respect thereof (assuming such Person
is required to perform thereunder).
"Hazardous Material" means any substance, product, waste, pollutant,
chemical, contaminant, insecticide, pesticide, constituent or material which is
or becomes listed, regulated or addressed under any Environmental Law,
including, without limitation, asbestos, petroleum, underground storage tanks
(whether empty or containing any substance) and polychlorinated biphenyls.
"Holder" means a Person in whose name a note evidencing Senior Debt is
registered.
"Indenture" means that certain Indenture by and among Borrower, certain
of its Subsidiaries and Texas Commerce Bank National Association, as Trustee,
dated as of January 15, 1994, relating to the Senior Fixed Rate Notes, and any
and all amendments, modifications, supplements, renewals, extensions or
restatements thereof.
"Intangible Assets" of any Person means those assets of such Person
which are (a) deferred assets, other than prepaid insurance and prepaid taxes,
(b) patents, copyrights, trademarks, tradenames, franchises, goodwill,
experimental expenses and other similar assets which would be classified as
intangible assets on a balance sheet of such Person prepared in accordance with
GAAP, and (c) unamortized debt discount and expense.
"Intellectual Property" means any United States or foreign patents,
patent applications, trademarks, trade names, service marks, brand names, logos
and other trade designations (including unregistered names and marks),
trademark and service mark registrations and
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<PAGE> 19
applications, copyrights and copyright registrations and applications,
inventions, invention disclosures, protected formulae, formulations, processes,
methods, trade secrets, computer software, computer programs, source codes,
manufacturing research and similar technical information, engineering know-how,
customer and supplier information, assembly and test data drawings or royalty
rights.
"Intercreditor Agreement" means the Intercreditor Agreement in form and
substance satisfactory to the Banks and the Revolving Loans Banks with respect
to the relative priorities of Liens securing the Obligations and the Revolving
Loans Obligations.
"Interest Period" means, with respect to any Eurodollar Loan, each
period commencing on the date such Loan is made or Converted from an ABR Loan
or (if continued) the last day of the next preceding Interest Period with
respect to such Loan, and ending on the numerically corresponding day in the
first, second, third or sixth calendar month thereafter, as BORROWERS may
select as provided in Section 2.9 hereof, except that each such Interest Period
which commences on the last Business Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Business Day of the appropriate
subsequent calendar month. Notwithstanding the foregoing: (a) each Interest
Period which would otherwise end on a day which is not a Business Day shall end
on the next succeeding Business Day (or, if such succeeding Business Day falls
in the next succeeding calendar month, on the next preceding Business Day); (b)
any Interest Period which would otherwise extend beyond the Maturity Date shall
end on the Maturity Date; (c) no more than five Interest Periods for Eurodollar
Loans shall be in effect at the same time; and (d) no Interest Period shall
have a duration of less than one month and, if the Interest Period for any
Eurodollar Loans would otherwise be a shorter period, such Loans shall not be
available hereunder.
"Interest Rate Protection Agreements" means, with respect to any Person,
an interest rate swap, cap or collar agreement or similar arrangement between
such Person providing for the transfer or mitigation of interest rate risks
either generally or under specified contingencies.
"Investments" means as specified in Section 9.5.
"Issue Date" shall have the meaning specified in the Indenture.
"Issuing Bank" means Banque Paribas or (if Banque Paribas does not wish
to be the issuer of a particular Letter of Credit and another Bank agrees to be
such issuer) such other Bank as Borrower may designate from time to time which
agrees to be the issuer of such Letter of Credit.
"Kestrel" means Kestrel Offshore, Inc., a Delaware corporation.
"Letter of Credit" means any standby letter of credit issued by the
Issuing Bank for the account of BORROWER pursuant to this Agreement.
"Letter of Credit Liabilities" means, at any time, the aggregate face
amount of all outstanding Letters of Credit and all unreimbursed drawings under
Letters of Credit.
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<PAGE> 20
"Lien" means any lien, mortgage, security interest, tax lien, financing
statement, pledge, charge, hypothecation or other encumbrance of any kind or
nature whatsoever (including, without limitation, any conditional sale or title
retention agreement), whether arising by contract, operation of law or
otherwise.
"Loan Documents" means this Agreement, the Notes, the Security
Documents, the Master Vessel Trust Agreement, the Term Sheet, the Letters of
Credit, any Currency Hedge Agreement or Interest Rate Protection Agreement
between BORROWER and any Bank that is expressly approved by the Agent and
expressly determined by the Agent (at any time) to be a Loan Document, and all
other agreements, documents and instruments executed and/or delivered pursuant
to or in connection with any of the foregoing, and any and all amendments,
modifications, supplements, renewals, extensions or restatements thereof.
"Loan Party" means BORROWER and any other Person (if any) who is or
becomes a party to any agreement, document or instrument that Guarantees or
secures payment or performance of the Obligations or any part thereof.
"Loans" means as specified in Section 2.1(a).
"Master Vessel Trust Agreement" means that certain Master Vessel Trust
Agreement dated as of November 12, 1996, by and between Bank One, Texas, N.A.,
as Trustee, and the Agent, and any and all amendments, modifications,
supplements, renewals, extensions, restatements or replacements thereof.
"Material Adverse Effect" means any material adverse effect, or the
occurrence of any event or the existence of any condition that could reasonably
be expected to have a material adverse effect, on (a) the business or financial
condition of (i) Borrower and its Subsidiaries, taken as a whole, or (ii)
Borrower on an individual basis, (b) the ability of Borrower to pay and perform
the Obligations when due, or (c) the validity or enforceability of any of the
Loan Documents, any Lien created or purported to be created by any of the Loan
Documents or the rights and remedies of the Agent or the Banks under any of
the Loan Documents.
"Material Contracts" means, as to Borrower or any of its Subsidiaries,
any material contract as such term is used or defined in item 601(b)(10) of
Regulation S-K promulgated by the Securities and Exchange Commission (or in any
successor regulation).
"Material Subsidiary" means any Subsidiary of Borrower that engages in
any material operations or that contributes or has contributed, during any
fiscal quarter, 1% or more of the aggregate gross revenue of Borrower and its
consolidated Subsidiaries on a consolidated basis.
"Maturity Date" means November 12, 1998.
"Maximum Rate" means, with respect to any Bank, the maximum non-usurious
interest rate (or, if the context so requires, the amount calculated at such
rate), if any, that at any time or from time to time may be contracted for,
taken, reserved, charged or received with respect to the
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<PAGE> 21
Loans or on other amounts, if any, payable to such Bank pursuant to this
Agreement or any other Loan Document, under laws applicable to such Bank which
are presently in effect, or, to the extent allowed by law, under such
applicable laws which may hereafter be in effect and which allow a higher
maximum non-usurious interest rate than applicable laws now allow. The Maximum
Rate shall be calculated in a manner that takes into account any and all fees,
payments and other charges in respect of the Loan Documents that constitute
interest under applicable law. Each change in any interest rate provided for
herein based upon the Maximum Rate resulting from a change in the Maximum Rate
shall take effect without notice to BORROWERS at the time of such change in the
Maximum Rate. For purposes of determining the Maximum Rate under Texas law,
the applicable rate ceiling shall be the indicated rate ceiling described in,
and computed in accordance with, Article 5069-1.04, Vernon's Texas Civil
Statutes or any successor or replacement statute; provided, however, that, to
the extent permitted by applicable law, the Agent shall have the right to
change the applicable rate ceiling from time to time in accordance with
applicable law.
"Multiemployer Plan" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by or are required
from any Loan Party or any ERISA Affiliate since 1974 and which is covered by
Title IV of ERISA.
"Net Proceeds" means, with respect to any Asset Disposition, (a) the
gross amount of cash received by Borrower or any of its Subsidiaries from any
Asset Disposition, minus (b) the amount, if any, of all taxes paid or payable
by Borrower or any of its Subsidiaries directly resulting from such Asset
Disposition (including the amount, if any, estimated by Borrower in good faith
at the time of such Asset Disposition for taxes payable by Borrower or any of
its Subsidiaries on or measured by net income or gain resulting from such Asset
Disposition), minus (c) the out-of-pocket costs and expenses incurred by
Borrower or such Subsidiary in connection with such Asset Disposition
(including brokerage fees paid to a Person other than an Affiliate of Borrower)
excluding any fees or expenses paid to an Affiliate of Borrower, minus (d)
amounts applied to the repayment of indebtedness (other than the Obligations)
secured by a Permitted Lien on the Property subject to the Asset Disposition.
"Net Proceeds" with respect to any Asset Disposition shall also include
proceeds (after deducting any amounts specified in clauses (b), (c) and (d) of
the preceding sentence) of insurance with respect to any actual or constructive
loss of Property, an agreed or compromised loss of Property or the taking of
any Property under the power of eminent domain and condemnation awards and
awards in lieu of condemnation for the taking of Property under the power of
eminent domain. "Net Proceeds" means, with respect to any Equity Issuance, (i)
the gross amount of cash or other consideration received from such Equity
Issuance minus (ii) the out-of-pocket costs and expenses incurred by the issuer
in connection with such Equity Issuance (including underwriting fees paid to a
Person other than an Affiliate of Borrower) excluding any fees or expenses paid
to an Affiliate of Borrower. For purposes of determining the Applicable
Margin, "Net Proceeds" shall mean, with respect to an Equity Issuance of
Borrower common stock in full or partial consideration for the acquisition by
BORROWER of any Property, an amount equal to the product of (A) the closing
price per share of Borrower common stock on the date of such issuance (as
reported by the Wall Street Journal) multiplied by (B) the number of shares so
issued; provided, however, that (1) such Equity Issuance may not be to an
Affiliate of
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<PAGE> 22
Borrower and (2) the aggregate "Net Proceeds" of all such Equity Issuances that
may be considered in determining the Applicable Margin shall not exceed
$25,000,000.
"Non-Material Subsidiary" means any of Falcon Holdings, Falcon
Management, Kestrel or Raptor prior to the time that such entity is or becomes
a Material Subsidiary.
"Non-Recourse Debt" means Debt or that portion of Debt (a) as to which
neither Borrower nor any of its Subsidiaries (other than an Non-Recourse
Subsidiary) (i) provides credit support pursuant to any guaranty, undertaking,
agreement, document or instrument that would constitute Debt, (ii) is directly
or indirectly liable, or (iii) constitutes the lender, and (b) no default with
respect to which (including any rights that the holders thereof may have to
take enforcement action against an Non-Recourse Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Debt of Borrower or any
of its Subsidiaries (other than an Non-Recourse Subsidiary) to declare a
default on such other Debt or cause the payment thereof to be accelerated or
payable prior to its stated maturity.
"Non-Recourse Rig" means as defined in the Indenture.
"Non-Recourse Subsidiary" means a Subsidiary of Borrower (i) established
for the purpose of acquiring or investing in one or more of the Non-Recourse
Rigs, (ii) substantially all of the assets of which consist of one or more of
the Non-Recourse Rigs, (iii) at least 67% of the equity interest in all the
Capital Stock of which is owned directly, or indirectly through one or more
Wholly-Owned Subsidiaries, by Borrower and, in the case of a Non-Recourse
Subsidiary that has a board of directors or similar governing body, a majority
of the members of which board of directors or similar governing body are
nominees of Borrower or such Wholly-Owned Subsidiaries, and (iv) which shall
have been designated as a Non-Recourse Subsidiary by a resolution of the Board
of Directors of Borrower. Borrower may redesignate any Non-Recourse Subsidiary
to be a Subsidiary other than a Non-Recourse Subsidiary by a resolution of the
Board of Directors of Borrower if, after giving effect to such redesignation,
Borrower could incur $1.00 of additional Debt pursuant to Section 4.16 of the
Indenture (such redesignation being deemed an incurrence of Debt (other than
Non-Recourse Debt)). Any Non-Recourse Subsidiary shall become a Subsidiary
other than a Non-Recourse Subsidiary upon the repayment, renewal, extension,
refinancing, refunding or repurchase of the Non-Recourse Debt of such Non-
Recourse Subsidiary (other than Permitted Non-Recourse Subsidiary Refinancing
Indebtedness, as such term is defined in the Indenture). Any indebtedness
incurred to effect such renewal, extension, refinancing, refunding or
repurchase shall be deemed to be incurred on the date of such renewal,
extension, refinancing, refunding or repurchase.
"Notes" means the promissory notes of BORROWER evidencing the Loans in
the form of Exhibit C hereto, and any and all amendments, modifications,
supplements, renewals, extensions or restatements thereof and all substitutions
therefor (including promissory notes issued by BORROWER pursuant to Section
13.8).
"Note Purchase Agreement" means that certain agreement by and among
Borrower, certain of its Subsidiaries and Crescent/Mach I Partners, L.P., dated
as of February 23, 1994, relating
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<PAGE> 23
to the Senior Floating Rate Notes, and any and all amendments, modifications,
supplements, renewals, extensions or restatements thereof.
"OECD" means the Organization for Economic Cooperation and Development.
"Obligations" means (a) any and all indebtedness, liabilities and
obligations of BORROWER and the other Loan Parties, and/or any of them, to the
Agent, the Issuing Bank and/or the Banks, and/or any of them, evidenced by
and/or arising pursuant to any of the Loan Documents, now existing or hereafter
arising, whether direct, indirect, related, unrelated, fixed, contingent,
liquidated, unliquidated, joint, several or joint and several, including,
without limitation, (i) the obligations of BORROWER to repay the Loans and the
Reimbursement Obligations, to pay interest on the Loans and the Reimbursement
Obligations (including, without limitation, interest accruing after any, if
any, implementation of or filing under any Debtor Relief Law) and to pay all
fees, indemnities, costs and expenses (including attorneys' fees) provided for
in the Loan Documents, and (ii) the indebtedness constituting the Loans, the
Reimbursement Obligations and such fees, indemnities, costs and expenses, and
(b) the indebtedness, liabilities and obligations of BORROWER under any and all
Interest Rate Protection Agreements and Currency Hedge Agreements that it may
enter into with any Bank that are expressly approved by the Agent and expressly
determined by the Agent (at any time) to be Loan Documents.
"Operating Lease" means, with respect to any Person, any lease, rental
or other agreement for the use by that Person of any Property which is not a
Capital Lease Obligation.
"Outstanding Credit" means, at any particular time, the sum of (a) the
outstanding principal amount of the Loans, plus (b) the Letter of Credit
Liabilities.
"Payor" means as specified in Section 3.4.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"Pension Plan" means an employee pension benefit plan as defined in
Section 3(2) of ERISA (including a Multiemployer Plan) which is subject to the
funding requirements under Section 302 or 4212 of ERISA or Section 412 of the
Code, in whole or in part, and which is established or maintained or
contributed to currently or at any time within the six years immediately
preceding the Closing Date or, in the case of a Multiemployer Plan, at any time
since September 2, 1974, by BORROWER or any ERISA Affiliate for employees of
BORROWER or any ERISA Affiliate.
"Peril" means as specified in Section 8.5.
"Permits" means all permits, certificates, approvals, orders, licenses
and other authorizations.
"Permitted Capital Expenditures" means as specified in Section 10.6.
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<PAGE> 24
"Permitted Liens" means:
(a) Liens disclosed on Schedule 1.1(a) hereto;
(b) (i) Liens in favor of the Agent for the benefit of itself
and the Banks securing payment and performance of the Obligations
pursuant to the Loan Documents and (ii) Liens for the benefit of the
Revolving Loans Agent and the Revolving Loans Banks securing the payment
and performance of the Revolving Loans Obligations pursuant to the
Revolving Loans Documents;
(c) Encumbrances consisting of easements, zoning restrictions
or other restrictions on the use of real Property or imperfections to
title that (i) do not (individually or in the aggregate) materially
affect the value of the Property encumbered thereby or materially impair
the ability of Borrower or its Subsidiaries to use such Property in
their respective businesses, and none of which is violated in any
material respect by existing or proposed structures or land use and (ii)
were entered into in the ordinary course of business and could not have
a Material Adverse Effect;
(d) Liens for taxes, assessments or other governmental charges
that are not delinquent or which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing
the forfeiture or sale of the Property subject to such Liens, and for
which adequate reserves have been established;
(e) Liens of mechanics, materialmen, warehousemen, carriers,
landlords, suppliers or vendors imposed by law or arising by operation
of law, or Liens for master's or crew's wages imposed by law or arising
by operation of law, or other similar statutory or maritime Liens,
securing obligations that are not yet due and are incurred in the
ordinary course of business or which are being contested in good faith
by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the Property subject to such Liens,
and for which adequate reserves have been established;
(f) Liens resulting from good faith deposits to secure payment
of workmen's compensation or other social security programs or to secure
the performance of tenders, statutory obligations, surety and appeal
bonds, bids, contracts (other than for payment of Debt), or leases, all
in the ordinary course of business;
(g) Liens to secure Debt incurred for the purpose of financing
all or a part of the purchase price or construction cost of Property
(including the cost of upgrading refurbishing rigs or drillships)
acquired or constructed after the Closing Date; provided that (i) the
principal amount of Debt secured by such Liens shall not exceed 66 2/3%
of the lesser of cost or fair market value of the assets or Property so
acquired or constructed and (ii) such Liens shall not encumber any other
assets or Property of BORROWER and shall attach to such Property within
120 days of the construction or acquisition of such assets or Property;
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<PAGE> 25
(h) Easements, rights-of-way, restrictions and other Liens and
imperfections to title that are approved by the Agent;
(i) Liens on Property of a Person existing at the time such
Person is merged or consolidated with or into Borrower or any of its
Subsidiaries pursuant to a transaction permitted by this Agreement (and
not incurred as a result of, or in anticipation of, such transaction),
provided that such Lien relates solely to such Property;
(j) Liens on Property acquired after the Closing Date and
existing at the time of the acquisition thereof (and not incurred as a
result of, or in anticipation of, such transaction), provided that such
Lien relates solely to such Property;
(k) Liens securing Capital Lease Obligations not to exceed
$30,000,000 in aggregate principal amount (as to BORROWER and its
Subsidiaries) at any time outstanding;
(l) any charter or lease of equipment entered into in the
ordinary course of business for full and fair consideration;
(m) leases or subleases of real property to other Persons in
the ordinary course of business for full and fair consideration;
(n) Liens on the Capital Stock of a Non-Recourse Subsidiary
securing loans made to such Non-Recourse Subsidiary;
(o) Liens on Property other than Collateral securing Debt in
an aggregate principal amount not to exceed $20,000,000 at any time
outstanding;
(p) Liens securing that Debt permitted by Section 9.1 hereof;
and
(q) Any extension, renewal or replacement of any of the
foregoing, provided that Liens permitted hereunder shall not be extended
or spread to cover any additional indebtedness or Property;
provided, however, that (i) none of the Permitted Liens (except those in favor
of the Agent) may attach or relate to the Capital Stock of or any other
ownership interest in BORROWER or any Subsidiary (other than a Non-Recourse
Subsidiary) of BORROWER, (ii) none of the Permitted Liens, except the Permitted
Liens referred to in clauses (b), (d) and (e) preceding, may attach or relate
to any of the Collateral, and (iii) none of the Permitted Liens referred to in
subclause (ii) of clause (b) preceding may have priority equal or prior to the
Liens in favor of the Agent as security for the Obligations except such
Permitted Liens referred to in such subclause (ii) which attach or relate to
the Receivables of Borrower.
"Permitted Refinancing Debt" means Debt of BORROWER or any of its
Subsidiaries incurred in exchange for, or the net proceeds of which are used to
renew, extend, refinance, refund or repurchase, outstanding Debt of such Person
which outstanding Debt was incurred in accordance
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with, or is otherwise permitted by, the terms of this Agreement; provided that
(a) if the Debt being renewed, extended, refinanced, refunded or repurchased is
pari passu with or subordinated in right of payment to the Obligations or any
part thereof, then such new Debt shall be pari passu with or subordinated in
right of payment to, as the case may be, the Obligations (or the applicable
part thereof) at least to the same extent as the Debt being renewed, extended,
refinanced, refunded or repurchased, (b) such new Debt is scheduled to mature
later than the Debt being renewed, extended, refinanced, refunded or
repurchased, (c) such new Debt has an Average Life (as such term is defined in
the Indenture) at the time such Debt is incurred that is greater than the
Average Life of the Debt being renewed, extended, refinanced, refunded or
repurchased, and (d) such new Debt is in an aggregate principal amount (or, if
such Debt is issued at a price less than the principal amount thereof, the
aggregate amount of gross proceeds therefrom is) not in excess of the aggregate
principal amount then outstanding of the Debt being renewed, extended,
refinanced, refunded or repurchased (or if the Debt being renewed, extended,
refinanced, refunded or repurchased was issued at a price less than the
principal amount thereof, then not in excess of the amount of liability in
respect thereof determined in accordance with GAAP).
"Person" means any individual, corporation, trust, association, company,
partnership, joint venture, Governmental Authority or other entity.
"Plan" means any employee benefit plan as defined in Section 3(3) of
ERISA established or maintained or contributed to by any Loan Party or any
ERISA Affiliate, including any Pension Plan.
"Preferred Ship Mortgages" means (a) that certain First Preferred Fleet
Mortgage dated as of November 12, 1996, executed by Borrower, as owner and
mortgagor, to and in favor of BANK ONE, TEXAS, N.A., as mortgagee, which
creates a Lien on certain of the Drilling Rigs as security for the Obligations,
and any and all amendments, modifications, and supplements, renewals,
extensions, or restatements thereof, and (b) and any other mortgage or other
security agreement which creates a Lien on any Drilling Rig as security for the
Obligations.
"Prime Rate" means, at any time, the rate of interest per annum then
most recently established by Citibank, N.A. as its highest commercial prime
rate, which rate may not be the lowest rate of interest charged by Citibank,
N.A. to its commercial borrowers. Each change in any interest rate provided
for herein based upon the Prime Rate resulting from a change in the Prime Rate
shall take effect without notice to BORROWER at the time of such change in the
Prime Rate.
"Principal Office" means the principal office of the Agent, presently
located at 1200 Smith Street, Suite 3100, Houston, Texas 77002.
"Prior Credit Agreements" means (a) that certain Credit Agreement dated
as of September 12, 1994, among Borrower, Falcon Offshore, Turnstone Drilling,
FALRIG Offshore and FALRIG Venezuela and Banque Paribas, individually and as
agent, as amended, and (b) that certain Uncommitted Acquisition Credit
Agreement dated as of January 24, 1996, between Borrower and Banque Paribas,
individually and as agent.
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"Prior Obligations" means the "Obligations" as such term is defined in
each of the Prior Credit Agreements.
"Proforma Interest Coverage Ratio" means, as of the date of the
transaction giving rise to the need to calculate such ratio (the "Transaction
Date"), the ratio of (a) the aggregate EBITDA for the four fiscal quarters
preceding the Transaction Date to (b) the aggregate Consolidated Interest
Expense that is anticipated to accrue during the fiscal quarter in which the
Transaction Date occurs and the three fiscal quarters immediately subsequent
thereto (based upon the proforma amount and maturity of, and interest payments
in respect of, Debt expected by BORROWER to be outstanding on the Transaction
Date and reasonably anticipated by BORROWER to be outstanding from time to time
during such period). In determining such ratio, (i) interest rates in effect
on the Transaction Date shall remain in effect throughout the relevant period,
except that if BORROWER is a party to any Interest Rate Protection Agreements
that would have the effect of changing the interest rate on the Debt of such
Person proposed to be incurred during a period (or portion thereof), such
resulting rate shall be used for the period or portion thereof, (ii) any
Consolidated Interest Expense of BORROWER with respect to Debt incurred or
retired by BORROWER (excluding Non-Recourse Debt) during the fiscal quarter in
which the Transaction Date occurs shall be calculated as if such Debt was so
incurred or retired on the first day of the fiscal quarter in which the
Transaction Date occurs, (iii) if the transaction giving rise to the need to
calculate the Proforma Interest Coverage Ratio would have the effect of
increasing or decreasing EBITDA in the future and if such increase or decrease
is readily quantifiable and is directly attributable to such transaction,
EBITDA shall be calculated on a proforma basis as if such transaction had
occurred on the first day of the four fiscal quarters preceding the fiscal
quarter in which the Transaction Date occurs, and (iv) if BORROWER shall have
sold any material portion of its assets during such period, EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive), or
increased by an amount equal to the EBITDA (if negative), directly attributable
to the assets which were sold for such period calculated on a proforma basis as
if such asset sale and any related retirement of Debt had occurred on the first
day of such quarter. As used in this definition, "BORROWER" shall mean
Borrower and its consolidated Subsidiaries, excluding any Non-Recourse
Subsidiaries.
"Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Code.
"Property" means property of all kinds, real, personal or mixed,
tangible or intangible (including, without limitation, all rights relating
thereto), whether owned or acquired on or after the Closing Date.
"Qualified Appraiser" means a nationally or internationally recognized
appraiser of Property of the same type as the Rig Collateral, which appraiser
shall be designated by Borrower and approved by Agent, which approval shall not
be unreasonably withheld.
"Quarterly Date" means the last day of each March, June, September and
December of each year, the first of which shall be the first such day after the
Closing Date.
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"Raptor" means Raptor Exploration Co., Inc., a Delaware corporation.
"Receivables" means, as at any date of determination thereof, all
accounts (as such term is defined in the UCC) of BORROWER and includes, without
limitation, the unpaid portion of the obligation, as stated on the respective
invoice, or, if there is no invoice, other writing, of a customer of BORROWER
in respect of services rendered or inventory sold and shipped by such Person.
"Redeemable Stock" means, with respect to any Person, any equity
security that, by its terms or otherwise, is required to be redeemed, purchased
or paid by the issuer thereof, or is redeemable, transferable or payable at the
option of the holder thereof, at any time prior to January 15, 2002, or is
exchangeable into Debt of such Person or any of its Subsidiaries.
"Reference Bank" means Banque Paribas.
"Register" means as specified in Section 13.8(d).
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time to
time.
"Regulatory Change" means, with respect to any Bank, any change after
the Closing Date in United States federal, state or foreign laws or regulations
(including Regulation D) or the adoption or making after such date of any
interpretations, directives or requests applying to a class of banks including
such Bank of or under any United States federal or state, or any foreign, laws
or regulations (whether or not having the force of law) by any Governmental
Authority charged with the interpretation or administration thereof.
"Reimbursement Obligation" means the obligation of BORROWER to reimburse
the Issuing Bank for any drawing under a Letter of Credit.
"Release" means, as to any Person, any release, spill, emission,
leaking, pumping, injection, deposit, disposal, disbursement, leaching or
migration of Hazardous Materials into the indoor or outdoor environment or into
or out of Property owned by such Person, including, without limitation, the
movement of Hazardous Materials through or in the air, soil, surface water or
ground water.
"Remedial Action" means all actions required to (a) cleanup, remove,
respond to, treat or otherwise address Hazardous Materials in the indoor or
outdoor environment, (b) prevent the Release or threat of Release or minimize
the further Release of Hazardous Materials so that they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, (c) perform studies and investigations on the extent and
nature of any actual or suspected contamination, the remedy or remedies to be
used or health effects or risks of such contamination, or (d) perform post-
remedial monitoring, care or remedy of a contaminated site.
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"Required Banks" means, at any date of determination, Banks having in
the aggregate at least 75% (in Dollar amount) of the aggregate amount of the
outstanding Commitments (or, if such Commitments have terminated or expired,
the aggregate outstanding principal amount of the Loans and the aggregate
Letter of Credit Liabilities).
"Required Payment" means as specified in Section 3.4.
"Replacement Asset" means a Property or asset that, as determined by the
Board of Directors of Borrower as evidenced by a resolution of its Board of
Directors, is used or is useful in a business related, ancillary or
complementary to the business of Borrower and its Subsidiaries on the Closing
Date.
"Reportable Event" means any of the events set forth in Section 4043 of
ERISA.
"Reserve Requirement" means, for any Eurodollar Loan of any Bank for any
Interest Period therefor, the maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under any regulations of the Board of Governors of
the Federal Reserve System (or any successor) by such Bank for deposits
exceeding $1,000,000,000 against "Eurocurrency Liabilities" as such term is
used in Regulation D. Without limiting the effect of the foregoing, the
Reserve Requirement shall reflect any other reserves required to be maintained
by such member banks by reason of any Regulatory Change against (a) any
category of liabilities which includes deposits by reference to which the
Eurodollar Rate or the Adjusted Eurodollar Rate is to be determined, or (b) any
category of extensions of credit or other assets which include Eurodollar
Loans.
"Responsible Officer" means, as to any Loan Party, the chief financial
officer, vice president of finance, chief operating officer or chief executive
officer of such Person.
"Restricted Payment" means (a) any dividend or other distribution
(whether in cash, Property or obligations), direct or indirect, on account of
(or the setting apart of money for a sinking or other analogous fund for) any
shares of any class of Capital Stock of Borrower or any of its Subsidiaries now
or hereafter outstanding, except a dividend payable solely in shares of that
class of stock to the holders of that class; (b) any redemption, conversion,
exchange, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of
Capital Stock of Borrower or any of its Subsidiaries now or hereafter
outstanding; (c) any payment or prepayment of principal of, premium, if any, or
interest on, or any redemption, conversion, exchange, purchase, retirement or
defeasance of, or payment with respect to, any Subordinated Debt or any Senior
Debt; (d) any loan, advance or payment (pursuant to a tax sharing agreement or
otherwise) to any shareholder of Borrower or any of its Subsidiaries; and (e)
any payment made to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire shares of any class of Capital
Stock of Borrower or any of its Subsidiaries now or hereafter outstanding.
"Revolving Loans" means the "Loans" as such term is defined in the
Revolving Loans Credit Agreement.
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"Revolving Loans Agent" means the "Agent" as such term is defined in the
Revolving Loans Credit Agreement.
"Revolving Loans Banks" means the "Banks" as such term is defined in the
Revolving Loans Credit Agreement.
"Revolving Loans Credit Agreement" means that certain Credit Agreement
dated as of November 12, 1996, among Borrower, certain Subsidiaries of
Borrower, the banks named therein, Banque Paribas, as agent for such banks, and
Arab Banking Corporation (B.S.), as co-agent for such banks.
"Revolving Loans Documents" means the "Loan Documents" as such term is
defined in the Revolving Loans Credit Agreement.
"Revolving Loans Maturity Date" means the "Maturity Date" as such term
is defined in the Revolving Loans Credit Agreement.
"Revolving Loans Obligations" means the "Obligations" as such term is
defined in the Revolving Loans Credit Agreement.
"Security and Assignment Agreements" means the Security and Assignment
Agreements in form and substance satisfactory to the Agent, dated the Closing
Date or thereafter and executed by BORROWER in favor of the Agent for the
benefit of the Agent and the Banks, and any additional security agreement or
similar agreement executed by any Loan Party in connection with the Loan
Documents, and any and all amendments, modifications, supplements, renewals,
extensions or restatements thereof.
"Security Documents" means the Preferred Ship Mortgages, the Security
and Assignment Agreements, the Collateral Option Agreement, the Concentration
Account Agreement, as they may be amended, modified, supplemented, renewed,
extended or restated from time to time, and any and all other agreements, deeds
of trust, mortgages, chattel mortgages, security agreements, pledges,
guaranties, assignments of proceeds, assignments of income, assignments of
contract rights, assignments of partnership interests, assignments of royalty
interests, assignments of performance or other collateral assignments,
completion or surety bonds, standby agreements, subordination agreements,
undertakings and other agreements, documents, instruments and financing
statements now or hereafter executed and delivered by any Loan Party in
connection with or as security for, or as a Guarantee of, the payment or
performance of the Obligations or any part thereof.
"Senior Debt" means the Debt of Borrower under the Senior Debt
Documents.
"Senior Debt Documents" means the Senior Notes, the Indenture, the
Series 1996 Indenture, the Note Purchase Agreement, the Subsidiary Senior Note
Guaranties, all agreements, documents and instruments now or hereafter executed
by Borrower or any of its Subsidiaries and/or delivered to the trustee pursuant
to the Indenture or to any Holder pursuant to the
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Indenture, the Series 1996 Indenture, the Note Purchase Agreement or otherwise,
and any and all amendments, modifications, supplements, renewals, extensions or
restatements thereof.
"Senior Fixed Rate Notes" means the 9 3/4% Series B Notes due 2001, if
any, issued by Borrower, and any and all amendments, modifications,
supplements, renewals, extensions or restatements of such Senior Fixed Rate
Notes.
"Senior Floating Rate Notes" means the Senior Floating Rate Notes due
January 15, 2001, issued by Borrower pursuant to the Note Purchase Agreement or
otherwise, and any and all amendments, modifications, supplements, renewals,
extensions or restatements of such Senior Floating Rate Notes.
"Senior Note Guarantors" means Falcon Offshore, Falcon Drilling
Management, Inc., Falcon Rig Management Company, Inc., Falcon Rig (Liberia),
Ltd., Falcon Drilling Holdings, L.P., FALRIG Offshore, Kestrel Offshore, Inc.,
Falcon Workover Company, Inc., Raptor Exploration Company, Inc., FALRIG
Offshore (USA), L.P. and FALRIG Offshore Partners and any other Subsidiary of
Borrower which Guarantees Borrower's obligations with respect to any Senior
Note pursuant to the terms of the Indenture, the Note Purchase Agreement or
otherwise.
"Senior Notes" means, collectively, the Senior Fixed Rate Notes, the
Senior Floating Rate Notes and the Series 1996 Notes.
"Senior Subordinated Debt" means the Debt of Borrower under the Senior
Subordinated Debt Documents.
"Senior Subordinated Debt Documents" means the Senior Subordinated
Notes, the Senior Subordinated Notes Indenture, all agreements, documents and
instruments now or hereafter executed by Borrower or any of its Subsidiaries
and/or delivered to the Trustee pursuant to the Senior Subordinated Notes
Indenture or to any Senior Subordinated Notes Holder pursuant to the Senior
Subordinated Notes Indenture or otherwise, and any and all amendments,
modifications, supplements, renewals, extensions or restatements thereof.
"Senior Subordinated Notes" means those certain 12 1/2% Series B Senior
Subordinated Notes due 2005 in the aggregate principal amount of $50,000,000
issued pursuant to the terms of the Senior Subordinated Notes Indenture.
"Senior Subordinated Notes Holder" means a Person in whose name a Senior
Subordinated Note is registered.
"Senior Subordinated Notes Indenture" means that certain Indenture by
and between Borrower, as Issuer and Texas Commerce Bank National Association,
as Trustee, dated as of March 15, 1995, relating to the Senior Subordinated
Notes.
"Series B Notes" means the 9 3/4% Series B Notes due 2001, if any,
issued by Borrower pursuant to the Indenture or otherwise.
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"Series 1996 Indenture" means the Indenture dated as of March 1, 1996,
between Borrower and Bank One, Texas, N.A., pursuant to which the Series 1996
Notes have been issued.
"Series 1996 Notes" means the 8 7/8% Series B Notes due 2003 issued by
Borrower pursuant to the Series 1996 Indenture, and any and all amendments,
modifications, supplements, renewals, extensions or restatements thereof.
"Solvent" means, with respect to any Person as of the date of any
determination, that on such date (a) the fair value of the Property of such
Person (both at fair valuation and at present fair saleable value) is greater
than the total liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (d) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (e) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's Property would constitute
unreasonably small capital after giving due consideration to current and
anticipated future capital requirements and current and anticipated future
business conduct and the prevailing practice in the industry in which such
Person is engaged. In computing the amount of contingent liabilities at any
time, such liabilities shall be computed at the amount which in light of the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"Subordinated Debt" means any Debt of BORROWER or any of its
Subsidiaries which is, by its terms, subordinated in any manner (as to payment
or collection) to any other Debt of any such Person and includes, without
limitation, the Senior Subordinated Debt.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which at least a majority of the outstanding
shares of stock, partnership interests or other ownership interests having by
the terms thereof ordinary voting power to elect a majority of the board of
directors (or Persons performing similar functions) of such corporation,
partnership or entity (irrespective of whether or not at the time, in the case
of a corporation, stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any contingency)
is at the time directly or indirectly owned or controlled by such Person or one
or more of its Subsidiaries or by such Person and one or more of its
Subsidiaries.
"Subsidiary Senior Note Guaranties" means the obligations of the Senior
Note Guarantors under the Indenture and the Note Purchase Agreement pursuant to
which the Senior Note Guarantors guarantee payment of the Senior Fixed Rate
Notes and the Senior Floating Rates.
"Term Sheet" means that certain letter agreement dated September 26,
1996, containing a "Summary of Terms" as executed by Banque Paribas and agreed
to and accepted by Borrower as of September 26, 1996.
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"Type" means any type of Loan (i.e., an ABR Loan or an Eurodollar Loan).
"UCC" means the Uniform Commercial Code as in effect in the State of New
York, Texas, Louisiana or any other jurisdiction, as may be applicable to or in
connection with any Lien on any Property created pursuant to any Security
Document.
"UCP" means as specified in Section 2.14(b).
"United States" means the United States of America.
"Voting Stock" means, with respect to any Person, securities of any
class or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or at the times that such class of Capital Stock has
voting power by reason of the happening of any contingency) to vote in the
election of members of the board of directors or comparable body of such
Person.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
Subsidiary of such Person all of whose outstanding Capital Stock (other than
directors' qualifying shares, if any) shall at the time be owned by such Person
and/or one or more of its Wholly-Owned Subsidiaries.
Section 1.2 Other Definitional Provisions. All definitions contained
in this Agreement are equally applicable to the singular and plural forms of
the terms defined. The words "hereof", "herein", and "hereunder" and words of
similar import referring to this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement. Unless otherwise
specified, all Article and Section references pertain to this Agreement. Terms
used herein that are defined in the UCC, unless otherwise defined herein, shall
have the meanings specified in the UCC.
Section 1.3 Accounting Terms and Determinations.
(a) All accounting terms not specifically defined herein shall
be construed in accordance with GAAP consistent with such accounting
principles applied in the preparation of the audited financial
statements referred to in Section 7.2(a). All financial information
delivered to the Agent pursuant to Section 8.1 shall be prepared in
accordance with GAAP applied on a basis consistent with such accounting
principles applied in the preparation of the audited financial
statements referred to in Section 7.2(a) or in accordance with Section
8.7.
(b) Borrower shall deliver to the Agent and the Banks at the
same time as the delivery of any annual, quarterly or monthly financial
statement under Section 8.1 (i) a description in reasonable detail of
any material variation between the application of GAAP employed in the
preparation of the next preceding annual, quarterly or monthly financial
statements as to which no objection has been made in accordance with the
last sentence of subsection (a) above, and (ii) reasonable estimates of
the difference between such statements arising as a consequence thereof.
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(c) To enable the ready and consistent determination of
compliance with the covenants set forth in this Agreement (including
Article 10 hereof), Borrower will not change the last day of its fiscal
year from December 31, or the last days of the first three fiscal
quarters in each of its fiscal years from that existing on the Closing
Date.
Section 1.4 Financial Covenants and Reporting. The financial
covenants contained in Article 10 (including the defined terms used therein)
shall be calculated on a consolidated basis for BORROWER exclusive of any Non-
Recourse Subsidiary, notwithstanding anything to the contrary contained in this
Agreement.
ARTICLE 2
Loans
Section 2.1 Commitments.
(a) Loans. Subject to the terms and conditions of this
Agreement, each Bank severally agrees to make one or more loans (the
"Loans") to BORROWER from time to time from and including the Closing
Date to but excluding the Maturity Date up to but not exceeding the
amount of such Bank's Commitment as then in effect; provided, however,
that the Outstanding Credit shall not at any time exceed the lesser of
the Borrowing Base or the Commitments. Subject to the foregoing
limitations and the other terms and conditions of this Agreement,
BORROWER may borrow, repay and reborrow the Loans hereunder.
(b) Continuation and Conversion of Loans. Subject to the
terms and conditions of this Agreement, Borrowers may borrow the Loans
as ABR Loans or Eurodollar Loans and, until the applicable Maturity
Date, BORROWER may Continue Eurodollar Loans or Convert Loans of one
Type into Loans of the other Type.
(c) Lending Offices. Loans of each Type made by each Bank
shall be made and maintained at such Bank's Applicable Lending Office
for Loans of such Type.
(d) Limitations. Notwithstanding any other provision of this
Agreement, Borrower shall not be entitled to make any borrowing
hereunder or in any way utilize the Commitments hereunder unless the
"Outstanding Credit" as defined in the Revolving Loans Credit Agreement
equals $25,000,000.
Section 2.2 Notes. The Loans made by each Bank shall be evidenced by
a single promissory note made by BORROWER in substantially the form of Exhibit
B hereto, dated the Closing Date, payable to the order of such Bank in a
principal amount equal to its Commitment as originally in effect and otherwise
duly completed. Each Bank is hereby authorized by BORROWER to endorse on the
schedule (or a continuation thereof) attached to the Note of such Bank, to the
extent applicable, the date, amount and Type of and the Interest Period for
each Loan made by such Bank to BORROWER hereunder and the amount of each
payment or prepayment of principal of such Loan received by such Bank, provided
that any failure by such Bank to make any
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such endorsement shall not affect the obligations of BORROWER under such Note
or this Agreement in respect of such Loan.
Section 2.3 Repayment of Loans. BORROWER shall pay to the Agent for
the account of each Bank the outstanding principal of the Loans (and the
outstanding principal of the Loans shall be due and payable) on the Maturity
Date.
Section 2.4 Interest.
(a) Interest Rate. BORROWER shall pay to the Agent for the
account of each Bank interest on the unpaid principal amount of each
Loan made by such Bank for the period commencing on the date of such
Loan to but excluding the date such Loan shall be paid in full, at the
following rates per annum:
(i) during the periods such Loan is an ABR Loan, the
ABR Rate plus the Applicable Margin; and
(ii) during the periods such Loan is a Eurodollar Loan,
the Eurodollar Rate plus the Applicable Margin.
(b) Payment Dates. Accrued interest on the Loans shall be due
and payable as follows:
(i) in the case of ABR Loans, on each Quarterly Date;
(ii) in the case of each Eurodollar Loan, on the last
day of the Interest Period with respect thereto and, in the case
of an Interest Period greater than three months, at three-month
intervals after the first day of such Interest Period;
(iii) upon the payment or prepayment of any Loan or the
Conversion of any Loan to a Loan of the other Type (but only on
the principal amount so paid, prepaid, or Converted); and
(iv) on the Maturity Date.
(c) Default Interest. Notwithstanding the foregoing, BORROWER
will pay to the Agent for the account of each Bank interest at the
applicable Default Rate on any principal of any Loan made by such Bank,
any Reimbursement Obligation and (to the fullest extent permitted by
law) on any other amount payable by BORROWER (including, without
limitation, an amount required to be prepaid pursuant to Section 2.7,
but excluding unmatured interest) under this Agreement or any other Loan
Document to or for the account of such Bank, which is not paid in full
when due (whether at stated maturity, by acceleration or otherwise), for
the period from and including the due date thereof to but excluding the
date the same is paid in full. Interest payable at the Default Rate
shall be payable from time to time on demand.
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Section 2.5 Borrowing Procedure. BORROWER shall give the Agent notice
of each borrowing hereunder in accordance with Section 2.9. Not later than
11:00 a.m. (Houston, Texas time) on the date specified for each borrowing
hereunder, each Bank will make available the amount of the Loan to be made by
it on such date to the Agent, at the Principal Office, in immediately available
funds, for the account of BORROWER. The amount so received by the Agent shall,
subject to the terms and conditions of this Agreement, be made available to
BORROWER by wire transfer of immediately available funds to the Borrowing Base
Account (or to another account of BORROWER specified by them which is
acceptable to the Agent) no later than 1:00 p.m.
Section 2.6 Optional Prepayments, Conversions and Continuations of
Loans. Subject to Section 2.7, BORROWER shall have the right from time to time
to prepay the Loans, or to Convert all or part of a Loan of one Type into a
Loan of another Type or to Continue Eurodollar Loans; provided that: (a)
BORROWER shall give the Agent notice of each such prepayment, Conversion or
Continuation as provided in Section 2.9, (b) Eurodollar Loans may only be
Converted on the last day of the Interest Period, and (c) except for
Conversions of Eurodollar Loans into ABR Loans, no Conversions or Continuations
shall be made while a Default has occurred and is continuing.
Section 2.7 Mandatory Prepayments. If at anytime the Outstanding
Credit exceeds an amount equal to the lesser of the Borrowing Base or the
Commitments at such time, within seven days after the occurrence thereof
BORROWER shall pay to the Agent the amount of such excess as a prepayment of
the Loans.
Section 2.8 Minimum Amounts. Except for Conversions and prepayments
pursuant to Section 2.7 and Article 4, each borrowing, each Conversion and each
prepayment of principal of the Loans shall be in an amount at least equal to
$250,000 or an integral multiple thereof (borrowings, prepayments or
Conversions of or into Loans of different Types or, in the case of Eurodollar
Loans, having different Interest Periods at the same time hereunder shall be
deemed separate borrowings, prepayments and Conversions for purposes of the
foregoing, one for each Type, or Interest Period), provided, that no minimum
prepayment amount shall exist with respect to the Loans.
Section 2.9 Certain Notices. Notices by BORROWER to the Agent of
terminations or reductions of Commitments, of borrowings, Conversions,
Continuations and prepayments of Loans and of the duration of Interest Periods
shall be irrevocable and shall be effective only if received by the Agent not
later than 11:00 a.m. (Houston, Texas, time) on the Business Day prior to the
date of the relevant termination, reduction, borrowing, Conversion,
Continuation or prepayment or the first day of such Interest Period specified
below:
30
<PAGE> 37
<TABLE>
<CAPTION>
Number of Business
Notice Days Prior
------ ----------
<S> <C>
Termination or reductions of Commitments 3
Borrowing of Loans which are ABR Loans 1
Borrowing of Loans which are Eurodollar Loans 3
Conversions or Continuations of Loans 3
Prepayments of Revolving Credit Loans 1
</TABLE>
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or prepayment shall specify the Loans to be borrowed,
Converted, Continued or prepaid and the amount (subject to Section 2.8 hereof)
and Type of the Loans to be borrowed, Converted, Continued or prepaid (and, in
the case of a Conversion, the Type of Loans to result from such Conversion) and
the date of borrowing, Conversion, Continuation or prepayment (which shall be a
Business Day). Notices of borrowings, Conversions, Continuations or
prepayments shall be in the form of Exhibit D hereto, appropriately completed
as applicable. Each such notice of the duration of an Interest Period shall
specify the Loans to which such Interest Period is to relate. The Agent shall
promptly notify the Banks of the contents of each such notice. In the event
BORROWER fails to select the Type of Loan, or the duration of any Interest
Period for any Eurodollar Loan, within the time period and otherwise as
provided in this Section 2.9, such Loan (if outstanding as an Eurodollar Loan)
will be automatically Converted into an ABR Loan on the last day of the
preceding Interest Period for such Loan or (if outstanding as an ABR Loan) will
remain as, or (if not then outstanding) will be made as, an ABR Loan. BORROWER
may not borrow any Eurodollar Loans, Convert any Loans into Eurodollar Loans or
Continue any Loans as Eurodollar Loans if the interest rate for such Eurodollar
Loans would exceed the Maximum Rate.
Section 2.10 Use of Proceeds. The proceeds of the Loans shall be used
by BORROWER for general corporate purposes, including asset acquisition and
capital expenditure financing. None of the proceeds of any Loan will be used
to acquire any security in any transaction that is subject to Section 13 or 14
of the Securities Exchange Act of 1934, as amended.
Section 2.11 Commitment Fee and Other Fees. BORROWER agrees to pay to
the Agent for the account of each Bank a commitment fee on the daily average
unused amount of such Bank's Commitment for the period from and including the
Closing Date to and including the Maturity Date, at the rate of 0.50% per annum
based on a 365 day year and the actual number of days elapsed. Accrued
commitment fees shall be payable in arrears on each Quarterly Date beginning on
December 31, 1996, and on the Maturity Date. Furthermore, BORROWER agrees to
pay to the Agent the additional fees specified in the Term Sheet.
Section 2.12 Computations. Interest payable by BORROWER hereunder and
under the other Loan Documents on all Eurodollar Loans shall be computed on the
basis of a year of 360 days and the actual number of days elapsed (including
the first day but excluding the last day) occurring in
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<PAGE> 38
the period for which payable unless in the case of interest such calculation
would result in a usurious rate, in which case interest shall be calculated on
the basis of a year of 365 or 366 days, as the case may be. Interest payable
by BORROWER hereunder and under the other Loan Documents on ABR Loans and all
fees payable hereunder and under the Loan Documents shall be computed on the
basis of a year of 365 or 366 days, as the case may be.
Section 2.13 Termination or Reduction of Commitments. BORROWER shall
have the right to terminate or reduce in part the unused portion of the
Commitments at any time and from time to time, provided that: (a) BORROWER
shall give notice of each such termination or reduction as provided in Section
2.9; and (b) each partial reduction shall be in an aggregate amount at least
equal to $500,000. The Commitments may not be reinstated after they have been
terminated or reduced.
Section 2.14 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement,
BORROWER may utilize the Commitments by requesting that the Issuing Bank
issue Letters of Credit; provided, that the aggregate amount of
outstanding Letter of Credit Liabilities shall not at any time exceed
$1,000. Upon the date of issue of each Letter of Credit, the Issuing
Bank shall be deemed, without further action by any party hereto, to
have sold to each Bank, and each Bank shall be deemed, without further
action by any party hereto, to have purchased from the Issuing Bank, a
participation to the extent of such Bank's Commitment Percentage in such
Letter of Credit.
(b) BORROWER shall give the Issuing Bank (with a copy to the
Agent) at least five Business Days irrevocable prior notice (effective
upon receipt) specifying the date of each Letter of Credit and the
nature of the transactions to be supported thereby. Upon receipt of
such notice the Issuing Bank shall promptly notify each Bank of the
contents thereof and of such Bank's Commitment Percentage of the amount
of the proposed Letter of Credit. Each Letter of Credit shall have an
expiration date that does not exceed one year from the date of issuance
and that does not extend beyond the Maturity Date, shall be payable in
Dollars, shall support a transaction entered into in connection with and
reasonably related to BORROWER's existing business, shall be
satisfactory in form and substance to the Issuing Bank and shall be
issued pursuant to such agreements, documents and instruments (including
a letter of credit application and reimbursement agreement) as the
Issuing Bank may reasonably require, none of which shall be inconsistent
with this Section 2.14; provided, however, that Letters of Credit having
an aggregate face amount not to exceed $1,000 at any time outstanding
may have expiration dates that extend beyond one year from the date of
issuance (but not to extend beyond the Maturity Date) with the prior
written consent of the Agent, which consent shall not be unreasonably
withheld. Each Letter of Credit shall (i) provide for the payment of
drafts presented for, on or thereunder by the beneficiary, in accordance
with the terms thereof, when such drafts are accompanied by the
documents described in the Letter of Credit, if any, and (ii) to the
extent not inconsistent with the terms hereof or any applicable letter
of credit application, be subject to the Uniform Customs and Practice
for Documentary Credits (1993 Revision),
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<PAGE> 39
International Chamber of Commerce Publication No. 500 (together with any
subsequent revision thereof approved by a Congress of the International
Chamber of Commerce and adhered to by the Issuing Bank, the "UCP"), and
shall, as to matters not governed by the UCP, be governed by, and
construed and interpreted in accordance with, the laws of the State of
New York.
(c) BORROWER agrees to pay to the Agent for the account of
each Bank, in arrears on each Quarterly Date following the Closing Date
(beginning on December 31, 1996) and on the Maturity Date, if such
Letter of Credit was outstanding at any time during any portion of the
quarterly period (or, with respect to the December 31, 1996 Quarterly
Date, the period from Closing Date through such Quarterly Date)
immediately preceding such Quarterly Date or the Maturity Date, a
nonrefundable letter of credit fee with respect to each Letter of Credit
issued in an amount equal to (i) the rate per annum equal to the
Applicable Margin for Eurodollar Loans in effect on the date of issuance
of such Letter of Credit (with respect to the fee due on the first
Quarterly Date after issuance) or on the first day of the applicable
quarterly or other period beginning after the quarter during which the
issuance of such Letter of Credit occurred (with respect to the fee due
on each subsequent Quarterly Date or on the Maturity Date) minus 0.25%,
multiplied by (ii) the daily average face amount of the Letter of Credit
in effect during the applicable period. The Agent agrees to pay to each
Bank, promptly after receiving any payment of letter of credit fees
referred to above in this Section 2.14(c), such Bank's Commitment
Percentage of such fees. BORROWER agrees to pay to the Issuing Bank for
its own account, in arrears on each Quarterly Date following the Closing
Date (beginning on December 31, 1996) and on the Maturity Date, if such
Letter of Credit was outstanding at any time during any portion of the
quarterly period (or, with respect to the December 31, 1996 Quarterly
Date, the period from the Closing Date through such Quarterly Date)
immediately preceding such Quarterly Date or the Maturity Date, a
nonrefundable letter of credit fee with respect to each Letter of Credit
issued by the Issuing Bank hereunder in an amount equal to the greater
of (A) (1) 0.25% per annum multiplied by (2) the daily average face
amount of the Letter of Credit in effect during such period, or (B)
$300.00. In addition to the foregoing fees, BORROWER shall pay or
reimburse the Issuing Bank for such normal and customary costs and
expenses, including, without limitation, administrative, issuance,
amendment, payment and negotiation charges, as are incurred or charged
by the Issuing Bank in issuing, effecting payment under, amending, or
otherwise administering any Letter of Credit.
(d) Upon receipt from the beneficiary of any Letter of Credit
of any demand for payment or other drawing under such Letter of Credit,
the Issuing Bank shall promptly notify BORROWER and each Bank as to the
amount to be paid as a result of such demand or drawing and the payment
date. If at any time the Issuing Bank shall make a payment to a
beneficiary of a Letter of Credit pursuant to a drawing under such
Letter of Credit, each Bank will pay to the Issuing Bank, immediately
upon the Issuing Bank's demand at any time commencing after such payment
until reimbursement therefor in full by BORROWER, an amount equal to
such Bank's Commitment Percentage of such payment, together with
interest on such amount for each day from the date of such payment to
the date of payment
33
<PAGE> 40
by such Bank of such amount at a rate of interest per annum equal to the
Federal Funds Rate.
(e) BORROWER shall be irrevocably and unconditionally
obligated, without presentment, demand, protest or other formalities of
any kind, to reimburse the Issuing Bank for any amounts paid by the
Issuing Bank upon any drawing under any Letter of Credit on or before
the second Business Day after such drawing. The Issuing Bank will pay
to each such Bank such Bank's Commitment Percentage of all amounts
received from or on behalf of BORROWER for application in payment, in
whole or in part, of the Reimbursement Obligation in respect of any
Letter of Credit, but only to the extent such Bank has made payment to
the Issuing Bank in respect of such Letter of Credit pursuant to Section
2.14(d). Outstanding Reimbursement Obligations shall bear interest (i)
at the rate then applicable to ABR Loans to and including the fifth day
after such Reimbursement Obligations become outstanding and (ii) at the
Default Rate thereafter, and such interest shall be payable on demand.
(f) The Reimbursement Obligations of BORROWER under this
Agreement and the other Loan Documents shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the
terms of this Agreement and the other Loan Documents under all
circumstances whatsoever, including, without limitation, the following
circumstances:
(i) Any lack of validity or enforceability of any
Letter of Credit or any other Loan Document;
(ii) Any amendment or waiver of or any consent to
departure from any Loan Document;
(iii) The existence of any claim, setoff, counterclaim,
defense or other right which any Loan Party or other Person may
have at any time against any beneficiary of any Letter of Credit,
the Agent, the Issuing Bank, the Banks or any other Person,
whether in connection with this Agreement or any other Loan
Document or any unrelated transaction;
(iv) Any statement, draft or other document presented
under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect whatsoever;
(v) Payment by the Issuing Bank under any Letter of
Credit against presentation of a draft or other document that
does not comply with the terms of such Letter of Credit,
provided, that such payment shall not have constituted gross
negligence or willful misconduct of the Issuing Bank; and
34
<PAGE> 41
(vi) Any other circumstance whatsoever, whether or not
similar to any of the foregoing, provided that such other
circumstance or event shall not have been the result of the gross
negligence or willful misconduct of the Issuing Bank.
(g) BORROWER assumes all risks of the acts or omissions of any
beneficiary of any Letter of Credit with respect to its use of such Letter of
Credit. Neither the Agent, the Issuing Bank, the Banks nor any of their
respective officers or directors shall have any responsibility or liability to
BORROWER or any other Person for: (i) the failure of any draft to bear any
reference or adequate reference to any Letter of Credit, or the failure of any
documents to accompany any draft at negotiation, or the failure of any Person
to surrender or to take up any Letter of Credit or to send documents apart from
drafts as required by the terms of any Letter of Credit, or the failure of any
Person to note the amount of any instrument on any Letter of Credit; (ii)
errors, omissions, interruptions or delays in transmission or delivery of any
messages; (iii) the validity, sufficiency or genuineness of any draft or other
document, or any endorsement(s) thereon, even if any such draft, document or
endorsement should in fact prove to be in any and all respects invalid,
insufficient, fraudulent or forged or any statement therein is untrue or
inaccurate in any respect; (iv) the payment by the Issuing Bank to the
beneficiary of any Letter of Credit against presentation of any draft or other
document that does not comply with the terms of the Letter of Credit; or (v)
any other circumstance whatsoever in making or failing to make any payment
under a Letter of Credit; provided, however, that, notwithstanding the
foregoing, BORROWER shall have a claim against the Issuing Bank, and the
Issuing Bank shall be liable to BORROWER, to the extent of any direct, but not
indirect or consequential, damages suffered by BORROWER which BORROWER proves
in a final nonappealable judgment were caused by (A) the Issuing Bank's willful
misconduct or gross negligence in determining whether documents presented under
any Letter of Credit complied with the terms thereof or (B) the Issuing Bank's
willful failure to pay under any Letter of Credit after presentation to it of
documents strictly complying with the terms and conditions of such Letter of
Credit. The Issuing Bank may accept documents that appear on their face to be
in order, without responsibility for further investigation, regardless of any
notice or information to the contrary.
ARTICLE 3
Payments
Section 3.1 Method of Payment. All payments of principal, interest
and other amounts to be made by BORROWER under this Agreement and the other
Loan Documents shall be made to the Agent at the Principal Office for the
account of each Bank's Applicable Lending Office in Dollars and in immediately
available funds, without setoff, deduction or counterclaim, not later than
11:00 a.m. (Houston, Texas time) on the date on which such payment shall become
due (each such payment made after such time on such due date to be deemed to
have been made on the next succeeding Business Day). BORROWER shall, at the
time of making each such payment, specify to the Agent the sums payable by
BORROWER under this Agreement and the other Loan Documents to which such
payment is to be applied (and in the event that BORROWER fails to so specify,
or if an Event of Default has occurred and is continuing, the Agent may apply
such payment to the Obligations in such order and manner as the Agent may
elect, subject to Section 3.2). Upon the
35
<PAGE> 42
occurrence and during the continuation of an Event of Default, all proceeds of
any Collateral, and all funds from time to time on deposit in the Concentration
Account, may be applied by the Agent to the Obligations in such order and
manner as the Agent may elect, subject to Section 3.2. Each payment received
by the Agent under this Agreement or any other Loan Document for the account of
a Bank shall be paid promptly to such Bank, in immediately available funds, for
the account of such Bank's Applicable Lending Office. Whenever any payment
under this Agreement or any other Loan Document shall be stated to be due on a
day that is not a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of the payment of interest and commitment fee, as the case may be.
Section 3.2 Pro Rata Treatment. Except to the extent otherwise
provided herein: (a) each Loan shall be made by the Banks under Section 2.1,
each payment of commitment fees under Section 2.11 shall be made for the
account of the Banks and each termination or reduction of the Commitments under
Section 2.13 shall be applied to the Commitments of the Banks on a pro rata
basis; (b) the making, Conversion and Continuation of Loans of a particular
Type (other than Conversions provided for by Section 4.4) shall be made pro
rata among the Banks holding Loans of such Type in accordance with their
respective Commitment Percentages; (c) each payment and prepayment by BORROWER
of principal of or interest on Loans of a particular Type shall be made to the
Agent for the account of the Banks holding Loans of such Type pro rata in
accordance with the respective unpaid principal amounts of such Loans held by
such Banks; (d) Interest Periods for Eurodollar Loans shall be allocated among
the Banks holding Eurodollar Loans pro rata according to the respective
principal amounts held by such Banks; and (e) the Banks (other than the Issuing
Bank) shall purchase participations in the Letters of Credit pro rata in
accordance with their respective Commitment Percentages.
Section 3.3 Sharing of Payments, Etc. If a Bank shall obtain payment
of any principal of or interest on any of the Obligations due to such Bank
hereunder through the exercise of any right of setoff, banker's lien,
counterclaim or similar right, or otherwise, it shall promptly purchase from
the other Banks participations in the Obligations held by the other Banks in
such amounts and make such adjustments from time to time as shall be equitable
to the end that all the Banks shall share pro rata in accordance with the
unpaid principal and interest on the Obligations then due to each of them. To
such end, all of the Banks shall make appropriate adjustments among themselves
(by the resale of participations sold or otherwise) if all or any portion of
such excess payment is thereafter rescinded or must otherwise be restored.
BORROWER agrees, to the fullest extent it may effectively do so under
applicable law, that any Bank so purchasing a participation in the Obligations
by the other Banks may exercise all rights of setoff, banker's lien,
counterclaim or similar rights with respect to such participation as fully as
if such Bank were a direct holder of Obligations in the amount of such
participation. Nothing contained herein shall require any Bank to exercise any
such right or shall affect the right of any Bank to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness
or obligation of BORROWER.
Section 3.4 Non-Receipt of Funds by the Agent. Unless the Agent shall
have been notified by a Bank or BORROWER (the "Payor") prior to the date on
which such Bank is to make payment to the Agent of the proceeds of a Loan to be
made by it hereunder or BORROWER is to
36
<PAGE> 43
make a payment to the Agent for the account of one or more of the Banks, as the
case may be (such payment being herein called the "Required Payment"), which
notice shall be effective upon receipt, that the Payor does not intend to make
the Required Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall not
be required to), make the amount thereof available to the intended recipient on
such date and, if the Payor has not in fact made the Required Payment to the
Agent, the recipient of such payment shall, on demand, pay to the Agent the
amount made available to it together with interest thereon in respect of the
period commencing on the date such amount was so made available by the Agent
until the date the Agent recovers such amount at a rate per annum equal to the
Federal Funds Rate for such period.
Section 3.5 Withholding Taxes. (a) All payments by BORROWERS of
principal of and interest on the Loans and the Letter of Credit Liabilities and
of all fees and other amounts payable under the Loan Documents shall be made
free and clear of, and without deduction by reason of, any present or future
taxes, duties, imposts, assessments or other charges levied or imposed by any
Governmental Authority (other than taxes on the overall net income or gross
receipts of the Agent or any Bank). If any such taxes, duties, imposts,
assessments or other charges are so levied or imposed, BORROWER will (i) make
additional payments in such amounts so that every net payment of principal of
and interest on the Loans and the Letter of Credit Liabilities and of all other
amounts payable by it under the Loan Documents, after withholding or deduction
for or on account of any such present or future taxes, duties, imposts,
assessments or other charges (including, without limitation, any tax imposed on
or measured by net income or gross receipts of the Agent or a Bank attributable
to payments made to or on behalf of the Agent or a Bank pursuant to this
Section 3.5 and any penalties or interest attributable to such payments), will
not be less than the amount provided for herein or therein absent such
withholding or deduction (provided that BORROWER shall have no obligation to
pay such additional amounts to the Agent or any Bank to the extent that such
taxes, duties, imposts, assessments or other charges are levied or imposed by
reason of the failure of the Agent or such Bank to comply with the provisions
of Section 3.6), (ii) make such withholding or deduction, and (ii) remit the
full amount deducted or withheld to the relevant Governmental Authority in
accordance with applicable law. Without limiting the generality of the
foregoing, BORROWER will, upon written request of any Bank, reimburse each such
Bank for the amount of (A) such taxes, levies, duties, imports, assessments or
other charges so levied or imposed by any Governmental Authority and paid by
such Bank as a result of payments made by BORROWER under or with respect to the
Loans and Letter of Credit Liabilities other than such taxes, levies, duties,
imports, assessments and other charges previously withheld or deducted by
BORROWER which have previously resulted in the payment of the required
additional amount to such Bank, and (B) such taxes, levies, duties, assessments
and other charges so levied or imposed with respect to any Bank reimbursement
under the foregoing clause (A), so that the net amount received by such Bank
(net of payments made under or with respect to the Loans and the Letter of
Credit Liabilities) after such reimbursement will not be less than the net
amount such Bank would have received if such taxes, levies, duties, assessments
and other charges on such reimbursement had not been levied or imposed.
BORROWER shall furnish promptly to the Agent for distribution to each affected
Bank, as the case may be, upon request of such Bank, official receipts
evidencing any such withholding or reduction.
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<PAGE> 44
(b) BORROWER will indemnify the Agent and each Bank (without
duplication) against, and reimburse the Agent and each Bank for, all present
and future taxes, duties, imposts, assessments or other charges (including
interest and penalties) levied or collected (whether or not legally or
correctly imposed, assessed, levied or collected), excluding, however, any
taxes imposed on the overall net income or gross receipts of the Agent or such
Bank, on or in respect of this Agreement, any of the Loan Documents or the
Obligations or any portion thereof (the "reimbursable taxes"). Any such
indemnification shall be on an after-tax basis, taking into account any such
reimbursable taxes imposed on the amounts paid as indemnity.
(c) Without prejudice to the survival of any other term or provision
of this Agreement, the obligations of BORROWER under this Section 3.5 shall
survive the payment of the Loans, the Letter of Credit Liabilities and the
other Obligations and termination of the Commitments
Section 3.6 Withholding Tax Exemption. Each Bank that is originally a
party to this Agreement as of the Closing Date and that is not incorporated
under the laws of the United States or a state thereof agrees that it will
deliver to BORROWER and the Agent two duly completed copies of United States
Internal Revenue Service Form 1001, 4224 or W-8, as appropriate, certifying in
any case that such Bank is entitled to receive payments from BORROWER under any
Loan Document without deduction or withholding of any United States federal
income taxes. Each other Bank that is not incorporated under the laws of the
United States or a state thereof and which is eligible to deliver a Form 1001,
4224 or W-8, as applicable, undertakes to deliver to BORROWER and the Agent two
duly completed copies of such form promptly upon its becoming a Bank under this
Agreement. Each Bank which initially so delivers a Form 1001, 4224 or W-8
pursuant to this Section 3.6 further undertakes to deliver to BORROWER and the
Agent two additional copies of such form (or a successor form) on or before the
date such form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by BORROWER or the Agent, in each case certifying that such Bank is
entitled to receive payments from BORROWER under any Loan Document without
deduction or withholding of any United States federal income taxes, unless an
event (including without limitation any change in treaty, law or regulation)
has occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Bank from duly completing and delivering any such form with respect to it and
such Bank advises BORROWER and the Agent that it is not capable of receiving
such payments without any deduction or withholding of United States federal
income tax.
ARTICLE 4
Yield Protection and Illegality
Section 4.1 Additional Costs.
(a) BORROWER shall pay directly to each Bank from time to
time, promptly upon the request of such Bank, the reasonable costs
incurred by such Bank which such Bank determines are attributable to its
making or maintaining of any Eurodollar Loans hereunder
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<PAGE> 45
or its obligation to make any of such Loans hereunder, or any reduction
in any amount receivable by such Bank hereunder in respect of any such
Loans or such obligation (such increases in costs and reductions in
amounts receivable being herein called "Additional Costs"), resulting
from any Regulatory Change which:
(i) changes the basis of taxation of any amounts
payable to such Bank under this Agreement or its Notes in respect
of any of such Loans (other than taxes imposed on the overall net
income or gross receipts of such Bank or its Applicable Lending
Office for any of such Loans by the jurisdiction in which such
Bank has its principal office or such Applicable Lending Office);
(ii) imposes or modifies any reserve, special deposit,
minimum capital, capital ratio or similar requirement relating to
any extensions of credit or other assets of, or any deposits with
or other liabilities or commitments of, such Bank (including any
of such Loans or any deposits referred to in the definition of
"Eurodollar Rate" in Section 1.1 hereof, but excluding the
Reserve Requirement to the extent it is included in the
calculation of the Adjusted Eurodollar Rate); or
(iii) imposes any other condition affecting this
Agreement or the Notes or any of such extensions of credit or
liabilities or commitments.
Each Bank will notify BORROWER (with a copy to the Agent) of any event
occurring after the Closing Date which will entitle such Bank to
compensation pursuant to this Section 4.1(a) as promptly as practicable
after it obtains knowledge thereof and determines to request such
compensation, and (if so requested by BORROWER) will designate a
different Applicable Lending Office for the Eurodollar Loans of such
Bank if such designation will avoid the need for, or reduce the amount
of, such compensation and will not, in the sole opinion of such Bank,
violate any law, rule or regulation or be in any way disadvantageous to
such Bank, provided that such Bank shall have no obligation to so
designate an Applicable Lending Office located in the United States.
Each Bank will furnish BORROWER with a certificate setting forth the
basis and the amount of each request of such Bank for compensation under
this Section 4.1(a). If any Bank requests compensation from BORROWER
under this Section 4.1(a), BORROWER may, by notice to such Bank (with a
copy to the Agent), suspend the obligation of such Bank to make or
Continue making, or Convert ABR Loans into, Eurodollar Loans until the
Regulatory Change giving rise to such request ceases to be in effect (in
which case the provisions of Section 4.4 hereof shall be applicable).
(b) Without limiting the effect of the foregoing provisions of
this Section 4.1, in the event that, by reason of any Regulatory Change,
any Bank either (i) incurs Additional Costs based on or measured by the
excess above a specified level of the amount of a category of deposits
or other liabilities of such Bank which includes deposits by reference
to which the interest rate on Eurodollar Loans is determined as provided
in this Agreement or a category of extensions of credit or other assets
of such Bank which includes Eurodollar Loans or (ii) becomes subject to
restrictions on the amount of such a
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<PAGE> 46
category of liabilities or assets which it may hold, then, if such Bank
so elects by notice to BORROWER (with a copy to the Agent), the
obligation of such Bank to make or Continue making, or Convert ABR Loans
into, Eurodollar Loans hereunder shall be suspended until such
Regulatory Change ceases to be in effect (in which case the provisions
of Section 4.4 hereof shall be applicable).
(c) Determinations and allocations by any Bank for purposes of
this Section 4.1 of the effect of any Regulatory Change on its costs of
maintaining its obligation to make Loans or of making or maintaining
Loans or on amounts receivable by it in respect of Loans, and of the
additional amounts required to compensate such Bank in respect of any
Additional Costs, shall be conclusive in the absence of manifest error,
provided that such determinations and allocations are made on a
reasonable basis.
Section 4.2 Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if with respect to any Eurodollar Loans for any
Interest Period therefor:
(a) The Agent determines (which determination shall be
conclusive absent manifest error) that quotations of interest rates for
the relevant deposits referred to in the definition of "Eurodollar Rate"
in Section 1.1 hereof are not being provided in the relative amounts or
for the relative maturities for purposes of determining the rate of
interest for such Loans as provided in this Agreement; or
(b) Required Banks determine (which determination shall be
conclusive absent manifest error) and notify the Agent that the relevant
rates of interest referred to in the definition of "Eurodollar Rate" or
"Adjusted Eurodollar Rate" in Section 1.1 hereof on the basis of which
the rate of interest for such Loans for such Interest Period is to be
determined do not accurately reflect the cost to the Banks of making or
maintaining such Loans for such Interest Period;
then the Agent shall give BORROWER prompt notice thereof and, so long as such
condition remains in effect, the Banks shall be under no obligation to make
Eurodollar Loans or to Convert ABR Loans into Eurodollar Loans and BORROWER
shall, on the last day(s) of the then current Interest Period(s) for the
outstanding Eurodollar Loans, either prepay such Loans or Convert such Loans
into ABR Loans in accordance with the terms of this Agreement.
Section 4.3 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to (a) honor its obligation to make Eurodollar Loans hereunder
or (b) maintain Eurodollar Loans hereunder, then such Bank shall promptly
notify BORROWER (with a copy to the Agent) thereof and such Bank's obligation
to make or maintain Eurodollar Loans and to Convert ABR Loans into Eurodollar
Loans hereunder shall be suspended until such time as such Bank may again make
and maintain Eurodollar Loans (in which case the provisions of Section 4.4
hereof shall be applicable).
Section 4.4 Treatment of Affected Loans. If the obligation of any
Bank to make or Continue, or to Convert ABR Loans into, Eurodollar Loans is
suspended pursuant to Section 4.1
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or 4.3 hereof, such Bank's Eurodollar Loans shall be automatically Converted
into ABR Loans on the last day(s) of the then current Interest Period(s) for
the Eurodollar Loans (or, in the case of a Conversion required by Section
4.1(b) or 4.3 hereof, on such earlier date as such Bank may specify to BORROWER
with a copy to the Agent) and, unless and until such Bank gives notice as
provided below that the circumstances specified in Section 4.1 or 4.3 hereof
which gave rise to such Conversion no longer exist:
(a) To the extent that such Bank's Eurodollar Loans have been
so Converted, all payments and prepayments of principal which would
otherwise be applied to such Bank's Eurodollar Loans shall be applied
instead to its ABR Loans; and
(b) All Loans which would otherwise be made or Continued by
such Bank as Eurodollar Loans shall be made as or Converted into ABR
Loans and all Loans of such Bank which would otherwise be Converted into
Eurodollar Loans shall be Converted instead into (or shall remain as)
ABR Loans.
If such Bank gives notice to BORROWER (with a copy to the Agent) that the
circumstances specified in Section 4.1 or 4.3 hereof which gave rise to the
Conversion of such Bank's Eurodollar Loans pursuant to this Section 4.4 no
longer exist (which such Bank agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans are outstanding, such Bank's
ABR Loans shall be automatically Converted, on the first day(s) of the next
succeeding Interest Period(s) for such outstanding Eurodollar Loans, to the
extent necessary so that, after giving effect thereto, all Loans held by the
Banks holding Eurodollar Loans and by such Bank are held pro rata (as to
principal amounts, Types and Interest Periods) in accordance with their
respective Commitments.
Section 4.5 Compensation. BORROWER shall pay to the Agent for the
account of each Bank, promptly upon the request of such Bank through the Agent,
such amount or amounts as shall be sufficient (in the reasonable opinion of
such Bank) to compensate it for any loss, cost or expense incurred by it as a
result of:
(a) Any payment, prepayment or Conversion of a Eurodollar Loan
for any reason (including, without limitation, the acceleration of the
outstanding Loans pursuant to Section 11.2) on a date other than the
last day of an Interest Period for such Loan; or
(b) Any failure by BORROWER for any reason (including, without
limitation, the failure of any conditions precedent specified in Article
6 to be satisfied) to borrow, Convert or prepay a Eurodollar Loan on the
date for such borrowing, Conversion, or prepayment specified in the
relevant notice of borrowing, prepayment, or Conversion under this
Agreement.
Section 4.6 Capital Adequacy. If, after the Closing Date, any Bank
shall have determined that the adoption or implementation of any applicable
law, rule or regulation regarding capital adequacy (including, without
limitation, any law, rule or regulation implementing the Basle Accord), or any
change therein, or any change in the interpretation or administration thereof
by
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any central bank or other Governmental Authority charged with the
interpretation or administration thereof, or compliance by such Bank (or its
parent) with any guideline, request or directive regarding capital adequacy
(whether or not having the force of law) of any central bank or other
Governmental Authority (including, without limitation, any guideline or other
requirement implementing the Basle Accord), has or would have the effect of
reducing the rate of return on such Bank's (or its parent's) capital as a
consequence of its obligations hereunder or the transactions contemplated
hereby to a level below that which such Bank (or its parent) could have
achieved but for such adoption, implementation, change or compliance (taking
into consideration such Bank's policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, within ten
Business Days after demand by such Bank (with a copy to the Agent), BORROWER
shall pay to such Bank such additional amount or amounts as will compensate
such Bank (or its parent) for such reduction. A certificate of such Bank
claiming compensation under this Section 4.6 and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive absent
manifest error, provided that the determination thereof is made on a reasonable
basis. In determining such amount or amounts, such Bank may use any reasonable
averaging and attribution methods.
Section 4.7 Additional Interest on Eurodollar Loans. BORROWER shall
pay, directly to each Bank from time to time, additional interest on the unpaid
principal amount of each Eurodollar Loan held by such Bank, from the date of
the making of such Eurodollar Loan until such principal amount is paid in full,
at an interest rate per annum determined by such Bank in good faith equal to
the positive remainder (if any) of (a) the Adjusted Eurodollar Rate applicable
to such Eurodollar Loan minus (b) the Eurodollar Rate applicable to such
Eurodollar Loan. Each payment of additional interest pursuant to this Section
4.7 shall be payable by BORROWER on each date upon which interest is payable on
such Eurodollar Loan pursuant to Section 2.4(b); provided, however, that
BORROWER shall not be obligated to make any such payment of additional interest
until the first Business Day after the date when BORROWER have been informed
(i) that such Bank is subject to a Reserve Requirement and (ii) of the amount
of such Reserve Requirement (after which time BORROWER shall be obligated to
make all such payments of additional interest, including, without limitation,
such payments of additional interest that otherwise would have been payable by
BORROWER on or prior to such time had BORROWER been earlier informed).
ARTICLE 5
Security
Section 5.1 Collateral. To secure the full and complete payment and
performance of the Obligations, BORROWER will grant to the Agent, for the
ratable benefit of itself and the Banks, a perfected first priority Lien
(except as stated in clause (a) succeeding) or assignment, as appropriate, on
all of its right, title and interest in and to the following Property, whether
now owned or hereafter acquired, pursuant to the Security Documents:
(a) all Receivables of BORROWER and of each "Borrower" other
than the "Non-Material Subsidiaries" (as such terms are defined in the
Revolving Loans Credit Agreement) and all products and proceeds
thereof; provided however that the Lien with
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respect to all such Receivables shall be junior and subordinate to the
Lien granted to secure the Revolving Loans Obligations; and
(b) its interest in the Concentration Account (including,
without limitation, any cash from time to time deposited or held in such
account), and all products and proceeds thereof; and
(c) the Drilling Rigs.
Section 5.2 Substitute Collateral. If the Banks, in the exercise of
reasonable discretion, determine that any drilling rig mortgaged by Borrower as
security for the Loans does not constitute appropriate collateral, Banks may
give written notice to that effect to the Borrower, whereupon any such drilling
rig shall cease to be a Drilling Rig on the thirtieth day following such
notice. In such event, Banks agree to act in good faith to accept as
collateral for the Loans other drilling rigs proposed by Borrower.
Section 5.3 Setoff. If an Event of Default shall have occurred and be
continuing, each Bank is hereby authorized at any time and from time to time,
without notice to BORROWER (any such notice being hereby expressly waived by
BORROWER), to set off and apply any and all deposits (general or special, time
or demand, provisional or final) at any time held and other indebtedness at any
time owing by such Bank to or for the credit or the account of BORROWER against
any and all of the Obligations of such Borrower now or hereafter existing under
this Agreement, any of such Bank's Notes or any other Loan Document,
irrespective of whether or not the Agent or such Bank shall have made any
demand under this Agreement or any of such Bank's Note or such other Loan
Document and although such Obligations may be unmatured. Each Bank agrees
promptly to notify BORROWER (with a copy to the Agent) after any such setoff
and application, provided that the failure to give such notice shall not affect
the validity of such setoff and application. The rights and remedies of each
Bank hereunder are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which such Bank may have.
ARTICLE 6
Conditions Precedent
Section 6.1 Initial Extension of Credit. The obligation of each Bank
to make its initial Loan and the obligation of the Issuing Bank to issue the
initial Letter of Credit are subject to the condition precedent that the Agent
shall have received, on or before the Funding Date, all of the following, each
dated (unless otherwise indicated or otherwise agreed by the Agent) as of the
Closing Date, in form and substance satisfactory to the Agent and, in the case
of actions to be taken, evidence that the following required actions have been
taken to the satisfaction of the Agent:
(a) Resolutions. Resolutions of the Board of Directors of
each Loan Party certified by its Secretary or an Assistant Secretary
which authorize the execution, delivery and performance by such Loan
Party of the Loan Documents to which it is or is to be a party;
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(b) Incumbency Certificate. A certificate of incumbency
certified by the Secretary or an Assistant Secretary of each Loan Party
certifying the name of each officer of such Loan Party (i) who is
authorized to sign the Loan Documents to which such Loan Party is or is
to be a party (including any certificates contemplated therein),
together with specimen signatures of each such officer, and (ii) who
will, until replaced by other officers duly authorized for that purpose,
act as its representative for the purposes of signing documents and
giving notices and other communications in connection with the Loan
Documents and the transactions contemplated thereby;
(c) Articles or Certificates of Incorporation. The articles
or certificates of incorporation of each Loan Party certified by the
Secretary of State of the state of incorporation of such Loan Party and
dated as of a Current Date;
(d) Bylaws. The bylaws of each Loan Party certified by the
Secretary or an Assistant Secretary of such Loan Party;
(e) Governmental Certificates. Certificates of appropriate
officials as to the existence and good standing of each Loan Party in
its respective jurisdiction of incorporation and any and all
jurisdictions where such Loan Party is qualified to do business as a
foreign corporation, each such certificate to be dated as of a Current
Date;
(f) Notes. The Notes duly completed and executed by BORROWER;
(g) Security Documents. The Security Documents executed by
BORROWER;
(h) Insurance Policies. Certificates of insurance with
respect to all insurance policies required by this Agreement and the
other Loan Documents, all in form and substance satisfactory to the
Agent;
(i) Financing Statements. UCC-1 financing statements and all
other requisite filing documents executed by the Loan Parties necessary
to perfect the Liens created pursuant to the Security Documents;
(j) Lien Releases. Duly executed releases or assignments of
Liens and UCC-3 financing statements in recordable form, as may be
necessary to reflect that the Liens created by the Security Documents
are perfected Liens having the priorities required by this Agreement and
the Security Documents;
(k) UCC Searches. UCC searches in the names of each of
BORROWER (and all corporate names under which it has done business
within the last five years) in each jurisdiction where each such Person
maintains an office or has Property, showing no financing statements or
other Lien instruments of record except for Permitted Liens;
(l) Solvency Certificate. A certificate executed by a
Responsible Officer of BORROWER and its Subsidiaries (with respect to
such Subsidiaries) to the effect that, before
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and after giving effect to the Loans, BORROWER and its Subsidiaries will
be Solvent, both on a consolidated and consolidating basis;
(m) Other Consents. Copies of all material consents necessary
for the execution, delivery and performance by each of the Loan Parties
of the Loan Documents to which it is a party, including, without
limitation, any consents or waivers in connection with the grant of a
security interest pursuant to the Security Documents, which consents
shall be certified by a Responsible Officer of BORROWER as true and
correct copies of such consents as of the Closing Date;
(n) Permits. Copies of all material Permits of Borrower or
any of its Subsidiaries and all material permits relating to any of the
Properties owned or leased by any of them (except for certificates of
class of the American Shipping Bureau and certificates of documentation
or inspection of the United States Coast Guard and except to the extent
that the Agent may inform BORROWER that copies of certain of such
Permits shall not be required to be delivered); and evidence
satisfactory to the Agent that Borrower and its Subsidiaries have taken
appropriate action to ensure that Borrower and its Subsidiaries are able
to conduct their businesses with the use of such Permits in full force
and effect;
(o) Payment of Fees and Expenses. BORROWER shall have paid
all fees due on the Closing Date as specified in the Term Sheet and all
fees and expenses of or incurred by the Agent and its counsel to the
extent billed as of the Closing Date and payable pursuant to this
Agreement;
(p) Regulatory Approvals. Evidence satisfactory to the Agent
that all filings, consents, or approvals with or of Governmental
Authorities necessary to consummate the transactions contemplated by the
Loan Documents, if any, have been obtained;
(q) Compliance with Laws. On the Closing Date, each Person
that is a party to this Agreement or any of the other Loan Documents
shall have complied with all Governmental Requirements necessary to
consummate the transactions contemplated by this Agreement and the other
Loan Documents;
(r) No Prohibitions. No Governmental Requirement shall
prohibit the consummation of the transactions contemplated by this
Agreement or any other Loan Document, and no order, judgment or decree
of any Governmental Authority or arbitrator shall, and no litigation or
other proceeding shall be pending or threatened which would, enjoin,
prohibit, restrain or otherwise adversely affect the consummation of the
transactions contemplated by this Agreement or the other Loan Documents
or otherwise have a Material Adverse Effect;
(s) Material Adverse Change. No material adverse change shall
have occurred with respect to the financial condition, business,
operations, capitalization or liabilities of Borrower, or of Borrower
and its Subsidiaries taken as a whole, since June 30, 1996;
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(t) Wiring Instructions. A letter of direction from BORROWER
to the Agent with respect to the disbursement of the proceeds of the
Loans on the Funding Date;
(u) Bank Accounts. BORROWER shall have established the
Concentration Account into which all proceeds (except for any cash
deposited into the Borrowing Base Account pursuant to the Security
Documents) of the Collateral shall be directed, which account shall be
governed by the Concentration Account Agreement;
(v) Financial Statements. Copies of each of the financial
statements referred to in Section 7.2, including, without limitation,
the most recent audited financial statements of Borrower and its
Subsidiaries;
(w) Opinion of Counsel. A favorable opinion of counsel for
BORROWER reasonably acceptable to the Agent, each in form and substance
(and covering such matters as are) satisfactory to the Agent;
(x) Notice of Borrowing or Issuance of Letter of Credit. A
notice of borrowing in accordance with Section 2.9 (with respect to a
Loan) or a notice of request for the issuance of a Letter of Credit in
accordance with Section 2.14 (with respect to a Letter of Credit);
(y) Preferred Ship Mortgage. A valid, perfected, first
priority ship mortgage on the Drilling Rigs shall exist in favor of a
trustee (approved by Agent) for the benefit of the Banks, securing the
Loans;
(z) Appraisal. The Agent shall have received from a Qualified
Appraiser an appraisal of the Drilling Rigs in form and substance
satisfactory to Agent; and
(aa) Intercreditor Agreement. The Agent shall have received
the Intercreditor Agreement executed by all parties thereto.
(bb) Repayment of Prior Obligations and Release of Prior Liens.
The Prior Obligations shall have been paid in full and all Liens
securing the Prior Obligations shall have been released.
BORROWER shall deliver, or cause to be delivered, to the Agent
sufficient counterparts of each document to be received by the Agent under this
Section 6.1 to permit the Agent to distribute a copy of such document to the
Banks.
Section 6.2 All Extensions of Credit. The obligation of each Bank to
make any Loan (including the initial Loan) and the obligation of the Issuing
Bank to issue any Letter of Credit (including the initial Letter of Credit) are
subject to the following additional conditions precedent:
(a) No Default. No Default shall have occurred and be
continuing, or would result from such Loan or Letter of Credit;
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(b) Representations and Warranties. All of the
representations and warranties of BORROWER and the other Loan Parties
contained in Article 7 hereof and in the other Loan Documents (a) shall
be true and correct when made and (b) shall be deemed to be repeated on
and as of the date of such Loan or Letter of Credit and shall be true
and correct in all respects on and as of such date, except in the case
of representations and warranties which expressly and specifically
relate only to an earlier date;
(c) Additional Documentation. The Agent shall have received
all notices and other agreements, documents and instruments as may be
required under this Agreement as a condition to such Loan or Letter of
Credit in compliance with this Agreement (including, without limitation,
the notice required under Section 2.9 with respect to a Loan and the
notice required under Section 2.14 with respect to a Letter of Credit)
and such additional approvals, opinions, agreements, documents and
instruments as the Agent may reasonably request;
(d) Borrowing Base. After giving effect to the Loans and/or
Letters of Credit requested to be made and/or issued, respectively, the
Outstanding Credit shall not exceed an amount equal to the lesser of the
Borrowing Base or the Commitments at such time; and
(e) No Material Adverse Effect. Both before and after giving
effect to the Loans and/or Letters of Credit requested to be made and/or
issued, respectively, no Material Adverse Effect shall have occurred and
shall be continuing.
Each notice of borrowing or request for the issuance of a Letter of Credit by
BORROWER hereunder shall constitute a representation and warranty by BORROWER
that the conditions precedent set forth in this Section 6.2 (other than the
Agent's receipt of any additional documentation that it may, at its option,
request pursuant to Section 6.2(c) preceding) have been satisfied (both as of
the date of such notice and, unless BORROWER otherwise notifies the Agent prior
to the date of such borrowing or Letter of Credit, as of the date of such
borrowing or Letter of Credit).
ARTICLE 7
Representations and Warranties
BORROWER represents and warrants to the Agent and the Banks that the
following statements are true, correct and complete:
Section 7.1 Corporate Existence. Each Loan Party (a) is a corporation
or other entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization, (b) has all
requisite entity power and authority to own its Properties and carry on its
business as now being or as proposed to be conducted, and (c) is qualified to
do business in all jurisdictions in which the nature of its business makes such
qualification necessary and where failure to so qualify would have a Material
Adverse Effect. Each Loan Party has the corporate power and authority and
legal right to execute, deliver and perform its obligations under
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the Loan Documents to which it is or may become a party. The chief executive
office and principal place of business of BORROWER is located in the State of
Texas.
Section 7.2 Financial Statements. BORROWER has delivered to the Agent
and the Banks the Form 10-K of Borrower for the fiscal year ended December 31,
1995, and the Forms 10-Q of Borrower for the fiscal quarters ended March 31,
1996, and June 30, 1996, which contain audited (with respect to the Form 10-K )
and unaudited (with respect to the Forms 10-Q) consolidated (and certain
audited and unaudited consolidating) balance sheets and statements of
operations and statements of cash flow of Borrower and its consolidated
Subsidiaries as of or for (as applicable) the fiscal year or fiscal quarter (as
applicable) ended December 31, 1995, March 31, 1996, and June 30, 1996. To
BORROWER's knowledge, such financial statements are true and correct, have been
prepared in accordance with GAAP and fairly and accurately present, on a
consolidated and consolidating (where applicable) basis, the financial
condition of Borrower and its consolidated Subsidiaries as of the respective
dates indicated therein and the results of operations for the respective
periods indicated therein. There has been no material adverse change in the
business, condition (financial or otherwise), operations or Properties of
Borrower, or of Borrower and its consolidated Subsidiaries taken as a whole,
since the effective date of the financial statements referred to in this
Section 7.2(a).
Section 7.3 Entity Action; No Breach. The execution, delivery and
performance by each Loan Party of the Loan Documents to which it is or may
become a party and compliance with the terms and provisions hereof and thereof
have been duly authorized by all requisite corporate action on the part of the
Loan Parties and do not and will not (a) violate or conflict with, or result in
a breach of, or require any consent under (i) the articles or certificates of
incorporation or bylaws of any Loan Party or the partnership agreement or
certificate of limited partnership or other constitutional document of any Loan
Party, (ii) any Governmental Requirement or any order, writ, injunction or
decree of any Governmental Authority or arbitrator, or (iii) any material
agreement, document or instrument to which any Loan Party is a party or by
which any Loan Party or any of its Property is bound or subject, or (b)
constitute a default under any such material agreement, document or instrument,
or result in the creation or imposition of any Lien (except under the Security
Documents as provided in Article 5) upon any of the revenues or Property of any
Loan Party.
Section 7.4 Operation of Business. The Loan Parties possess all
Permits, franchises, licenses and authorizations necessary to conduct their
respective businesses substantially as now conducted and as presently proposed
to be conducted except where the failure to so possess would not cause a
Material Adverse Effect. None of such Persons is in material violation of any
such Permits, franchises, licenses or authorizations required to be possessed
pursuant to this Section 7.4.
Section 7.5 Intellectual Property. The Loan Parties own or possess
(or will be licensed or have the full right to use) all Intellectual Property
which is necessary for the operation of their respective businesses as
presently conducted and as proposed to be conducted, without any known conflict
with the rights of others. The consummation of the transactions contemplated
by this Agreement and the other Loan Documents will not materially alter or
impair, individually or in
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the aggregate, any of such rights of such Persons. No product of the Loan
Parties infringes upon any Intellectual Property owned by any other Person, and
no claim or litigation is pending or, to the knowledge of BORROWER, threatened
against any Loan Party or any such Person contesting its right to use any
product or material which could have a Material Adverse Effect. There is no
violation by any Loan Party of any right of such Loan Party with respect to any
material Intellectual Property owned or used by such Loan Party.
Section 7.6 Litigation and Judgments. Each material action, suit,
investigation or proceeding before or by any Governmental Authority or
arbitrator pending or, to the knowledge of BORROWER, threatened against or
affecting any Loan Party as of the date of this Agreement is disclosed on
Schedule 7.6 hereto or in the Form 10-K of Borrower for the fiscal year ended
December 31, 1995, or in the Form 10-Q of Borrower for the fiscal quarter ended
March 31, 1996, or June 30, 1996 except for suits for personal injury, death or
property damage which are adequately covered by insurance (subject to any
deductibles, all of which deductibles are customary for the industry in which
BORROWER are engaged). None of such actions, suits, investigations or
proceedings (a) could be reasonably expected to be adversely determined or (b)
if and to the extent the same could be reasonably expected to be adversely
determined, could be reasonably expected to have a Material Adverse Effect. On
the date of this Agreement, there are no outstanding judgments against any Loan
Party or any of their Subsidiaries or Affiliates. No Loan Party has received
any opinion or memorandum or legal advice from legal counsel to the effect that
it is exposed to any liability or disadvantage that could have a Material
Adverse Effect.
Section 7.7 Rights in Properties; Liens. Except as expressly stated
to the contrary on Schedule 1.1(a), each of the Loan Parties has good and
indefeasible title to, or valid leasehold interests in, its Properties and
assets, real and personal, including the Properties, assets and leasehold
interests reflected in the financial statements described in Section 7.2(a),
and none of the Properties or leasehold interests of any Loan Party or any of
its Subsidiaries is subject to any Lien, except Permitted Liens. Each of the
Eligible Receivables will be derived or generated from Properties or assets
owned or leased by a Borrower. As of the Closing Date, each of the Drilling
Rigs purported to be owned by Borrower is owned, of record and beneficially, by
BORROWER, except for the Phoenix II Drilling Rig which is to be transferred
from FALRIG Offshore (USA), L.P. to Borrower free of all liens, mortgages and
encumbrances in connection with the Closing.
Section 7.8 Enforceability. The Loan Documents have been duly and
validly executed and delivered by each of the Loan Parties that is a party
thereto and constitute the legal, valid and binding obligations of the Loan
Parties, enforceable against the Loan Parties in accordance with their
respective terms, except as limited by bankruptcy, insolvency or other laws of
general application relating to the enforcement of creditors' rights and
general principles of equity.
Section 7.9 Approvals. No authorization, approval or consent of, and
no filing or registration with or notice to, any Governmental Authority or
third party is or will be necessary for the execution, delivery or performance
by any Loan Party of any of the Loan Documents to which it is a party or for
the validity or enforceability thereof, except for such consents, approvals and
filings as have been validly obtained or made and are in full force and effect.
None of the Loan Parties has failed to obtain any material governmental
consent, approval, license, Permit,
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franchise or other governmental authorization necessary for the ownership of
any of its Properties or the conduct of its business.
Section 7.10 Debt. As of the Closing Date and after giving effect to
the payment of the Prior Obligations (as required by Section 6.1(aa)), Borrower
and its consolidated Subsidiaries have no Debt except for (a) the Obligations
and the Acquisition Loans Obligations, (b) the Debt disclosed in the financial
statements including in the Form 10-Q of Borrower for the fiscal quarter ended
June 30, 1996, and (c) the Debt disclosed with respect to such Person on
Schedule 7.10 hereto.
Section 7.11 Taxes. The Loan Parties have filed all tax returns
(federal, state and local) required to be filed, including all income,
franchise, employment, Property and sales tax returns, and have paid all of
their respective liabilities for taxes, assessments, governmental charges and
other levies that are due and payable. BORROWER is not aware of any pending
investigation by any taxing authority of any Loan Party or any of its
Subsidiaries or of any pending but unassessed tax liability of any Loan Party
or any of its Subsidiaries. No tax Liens have been filed and, except as
disclosed on Schedule 7.11, no claims are being asserted against any Loan Party
or any of its Subsidiaries with respect to any taxes. Except as disclosed on
Schedule 7.11 hereto, as of the Closing Date, none of the United States income
tax returns of the Loan Parties and any of their respective Subsidiaries are
under audit. The charges, accruals and reserves on the books of the Loan
Parties in respect of taxes or other governmental charges are in accordance
with GAAP.
Section 7.12 Margin Securities. None of the Loan Parties or any of
their respective Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulations G, T, U,
or X of the Board of Governors of the Federal Reserve System), and no part of
the proceeds of any Loan will be used to purchase or carry any margin stock or
to extend credit to others for the purpose of purchasing or carrying margin
stock.
Section 7.13 ERISA.
(a) Each Plan of each Loan Party and of each Borrower Member
is in compliance in all material respects with all applicable provisions
of ERISA and the Code. Neither a Reportable Event nor a Prohibited
Transaction has occurred within the last 60 months with respect to any
Plan of any Loan Party or any Borrower Member. No notice of intent to
terminate a Pension Plan of any Loan Party or any Borrower Member has
been filed, nor has any Pension Plan been terminated. No circumstances
exist which constitute grounds entitling the PBGC to institute
proceedings to terminate, or appoint a trustee to administer, a Pension
Plan of any Loan Party or any Borrower Member, nor has the PBGC
instituted any such proceedings. Neither any of the Loan Parties nor
any Borrower Member has completely or partially withdrawn from a
Multiemployer Plan. Each Loan Party and each Borrower Member has met
its minimum funding requirements under ERISA and the Code with respect
to all of its Plans subject to such requirements, and, as of the Closing
Date except as specified on Schedule 7.13, the present value of all
vested benefits under each funded Plan (exclusive of any Multiemployer
Plan) does not exceed
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the fair market value of all such Plan assets allocable to such
benefits, as determined on the most recent valuation date of such Plan
and in accordance with ERISA. Neither any of the Loan Parties nor any
Borrower Member has incurred any liability to the PBGC under ERISA. No
litigation is pending or threatened concerning or involving any Plan of
any Loan Party or any Borrower Member. There are no unfunded or
unreserved liabilities relating to any Plan of any Loan Party or any
Borrower Member that could, individually or in the aggregate, have a
Material Adverse Effect if such Loan Party or Borrower Member were
required to fund or reserve such liability in full. As of the Closing
Date, no funding waivers have been requested or granted under Section
412 of the Code with respect to any Plan of any Loan Party or Borrower
Member. As of the Closing Date, no unfunded or unreserved liability for
benefits under any Plan or Plans of any Loan Party or any Borrower
Member (exclusive of any Multiemployer Plans) exceeds $1,000,000 with
respect to any such Plan or $3,000,000 with respect to all such Plans in
the aggregate.
(b) No ERISA Affiliate has incurred any liability to the PBGC
or has withdrawn from a Multiemployer Plan. Neither BORROWER nor any
ERISA Affiliate has received a demand letter from the PBGC (i) for the
payment of minimum funding contributions under Section 302 of ERISA
which exceed $1,000,000 with respect to any Pension Plan or $3,000,000
with respect to all Pension Plans in the aggregate or (ii) for the
payment of employer liabilities under Section 4062, 4063 or 4064 of
ERISA which exceeds $1,000,000 with respect to any Pension Plan or
$3,000,000 with respect to all Pension Plans in the aggregate. The PBGC
has not filed or perfected any Lien under Section 302(f)(1) or 4068(a)
of ERISA against BORROWER or any ERISA Affiliate. Neither BORROWER nor
any ERISA Affiliate has received a notice of complete or partial
withdrawal from a Multiemployer Plan in which the amount of the
liability asserted exceeds $1,000,000 with respect to any Multiemployer
Plan or $3,000,000 with respect to all Multiemployer Plans in the
aggregate.
Section 7.14 Disclosure. No written statement, information, report,
representation or warranty made by any Loan Party in any Loan Document, or
furnished to the Agent or any Bank by any Loan Party in connection with the
Loan Documents, or made in connection with any transaction contemplated hereby
or thereby, contains (as of the date when made) any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading. There is no fact known to
BORROWER which has had a Material Adverse Effect, and there is no fact known to
BORROWER which might in the future have a Material Adverse Effect, except as
may have been disclosed in writing to the Agent and the Banks.
Section 7.15 Capitalization.
(a) As of June 30, 1996, the capitalization of Borrower and
its consolidated Subsidiaries was as set forth in the Form 10-Q of
Borrower for the fiscal quarter ended June 30, 1996.
(b) On and as of the Closing Date, Borrower directly or
indirectly owns (legally and beneficially) all of the issued and
outstanding Capital Stock of each of its consolidated
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Subsidiaries. On and as of the Closing Date, none of the Subsidiaries
of Borrower has authorized or issued any Redeemable Stock.
(c) All of the outstanding common stock of BORROWER and its
Subsidiaries has been validly issued, is fully paid and is
nonassessable. Since June 30, 1996, no Subsidiary has issued any
subscriptions, options, warrants, calls or rights (including preemptive
rights) to acquire, or securities or instruments convertible into,
Capital Stock of such Subsidiary.
Section 7.16 Agreements. None of the Loan Parties is a party to any
indenture, loan, credit agreement, stock purchase agreement, lease or other
agreement, document or instrument, or subject to any charter, corporate,
partnership or similar restriction, that could reasonably be expected to have a
Material Adverse Effect. Except as disclosed on Schedule 7.22, none of the
Loan Parties is in default in any respect in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
agreement, document or instrument binding on it or its Properties, except for
instances of noncompliance that, individually or in the aggregate, could not
have a Material Adverse Effect.
Section 7.17 Compliance with Laws. None of the Loan Parties is in
violation of any Governmental Requirement, except for instances of non-
compliance that, individually or in the aggregate, could not have a Material
Adverse Effect.
Section 7.18 Investment Company Act. None of the Loan Parties is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
Section 7.19 Public Utility Holding Company Act. None of the Loan
Parties is a "holding company" or a "subsidiary company" of a "holding company"
or an "affiliate" of a "holding company" or a "public utility" within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 7.20 Environmental Matters.
(a) Except for instances of noncompliance with or exceptions
to any of the following representations and warranties that could not
have, individually or in the aggregate, a Material Adverse Effect:
(i) The Loan Parties and all of their respective
Properties and operations are in full compliance with all
Environmental Laws. BORROWER is not aware of, and BORROWER has
received no written notice of, any past, present or future
conditions, events, activities, practices or incidents which may
interfere with or prevent the compliance or continued compliance
by any Loan Party with all Environmental Laws;
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(ii) The Loan Parties have obtained all Permits that are
required under applicable Environmental Laws, and all such
Permits are in good standing and all such Persons are in
compliance with all of the terms and conditions thereof;
(iii) No Hazardous Materials exist on, about or within or
have been (to BORROWER's knowledge) or are being used, generated,
stored, transported, disposed of on or Released from any of the
Properties of the Loan Parties except in compliance with
applicable Environmental Laws. The use which the Loan Parties
make and intend to make of their respective Properties will not
result in the use, generation, storage, transportation,
accumulation, disposal or Release of any Hazardous Material on,
in or from any of their Properties except in compliance with
applicable Environmental Laws;
(iv) Neither the Loan Parties nor any of their
respective Subsidiaries currently or previously owned or leased
Properties or operations is subject to any outstanding or, to the
best of BORROWER's knowledge, threatened order from or agreement
with any Governmental Authority or other Person or subject to any
judicial or administrative proceeding with respect to (A) any
failure to comply with Environmental Laws, (B) any Remedial
Action, or (C) any Environmental Liabilities;
(v) There are no conditions or circumstances associated
with the currently or previously owned or leased Properties or
operations of the Loan Parties that could reasonably be expected
to give rise to any Environmental Liabilities or claims resulting
in any Environmental Liabilities. None of the Loan Parties is
subject to, or has received written notice of any claim from any
Person alleging that any of the Loan Parties is or will be
subject to, any Environmental Liabilities;
(vi) None of the Properties of the Loan Parties is a
treatment facility (except for the recycling of Hazardous
Materials generated onsite and the treatment of liquid wastes
subject to the Clean Water Act), storage facility (except for
temporary storage of Hazardous Materials generated onsite prior
to their disposal offsite) or disposal facility requiring a
permit under the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 et seq., regulations thereunder or any
comparable provision of state law. The Loan Parties and their
Subsidiaries are compliance with all applicable financial
responsibility requirements of all Environmental Laws; and
(vii) None of the Loan Parties has failed to file any
notice required under applicable Environmental Law reporting a
Release.
(b) No Lien arising under any Environmental Law that could
have, individually or in the aggregate, a Material Adverse Effect has
attached to any Property or revenues of any Loan Party.
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Section 7.21 Labor Disputes and Acts of God. Neither the business nor
the Properties of any Loan Party are affected by any fire, explosion, accident,
strike, lockout or other labor dispute, drought, storm, hail, earthquake,
embargo, act of God or of the public enemy, or other casualty (whether or not
covered by insurance), that is having or could have a Material Adverse Effect.
Section 7.22 Material Contracts. Except as may be disclosed on
Schedule 7.22, (a) all of the Material Contracts of each Loan Party are in full
force and effect, (b) there are no defaults under any Material Contracts
(which, individually or in the aggregate, could reasonably be expected to have
a Material Adverse Effect), and (c) to the best of BORROWER's knowledge after
due inquiry, no other Person that is a party thereto is in default under any of
the Material Contracts. None of the Material Contracts, and no other
agreement, document or instrument to which any Loan Party is a party or by
which any Loan Party or any of its Property is based or subject, prohibits the
transactions contemplated under the Loan Documents.
Section 7.23 Outstanding Securities. As of the Closing Date, all
outstanding securities (as defined in the Securities Act of 1933, as amended,
or any successor thereto, and the rules and regulations of the Securities and
Exchange Commission thereunder) of the Loan Parties have been offered, issued,
sold and delivered in compliance with all applicable Governmental Requirements.
Section 7.24 Priority of Payment. The Debt evidenced by the Notes and
all other Obligations of BORROWER to the Agent and the Banks under the Loan
Documents (a) constitutes "Permitted Indebtedness" (as such term is defined in
the Indenture and the Note Purchase Agreement) of BORROWER, (b) is pari passu
in right of payment with the Senior Debt, except that the Debt evidenced by the
Notes and the other Obligations are secured by the Collateral while the Senior
Debt is wholly unsecured (subject to the contractual right of the holders of
the Senior Fixed Rate Notes to obtain security in the future under certain
circumstances as provided in Section 4.10 of the Indenture), and (c) shall in
no event be subordinate in any respect (including, without limitation, right of
payment) to any other Debt of Borrower or any of its Subsidiaries, exclusive of
the effect of any Permitted Liens.
Section 7.25 Solvency. Borrower and each of its consolidated
Subsidiaries, as a separate entity and on a consolidated basis, is Solvent,
both before and after giving effect to the Loans and the other transactions
contemplated by the Loan Documents.
Section 7.26 Employee Matters. Except as set forth on Schedule 7.26,
as of the Closing Date (a) none of the Loan Parties nor any of their respective
Subsidiaries, nor any of their respective employees, is subject to any
collective bargaining agreement, and (b) no petition for certification or union
election is pending with respect to the employees of any Loan Party or any of
their respective Subsidiaries, and no union or collective bargaining unit has
sought such certification or recognition with respect to the employees of any
of the Loan Parties or any of their respective Subsidiaries. There are no
strikes, slowdowns, work stoppages or controversies pending or, to the best
knowledge of BORROWER after due inquiry, threatened against, any of the Loan
Parties or any of their respective Subsidiaries or their respective employees
which could have, either individually or in the aggregate, a Material Adverse
Effect.
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Section 7.27 Insurance. BORROWER has delivered to the Agent a true and
complete summary of the insurance that will be in effect as of the Closing Date
for BORROWER. No notice of cancellation has been received for such insurance
and BORROWER and its Subsidiaries are in substantial compliance with all of the
terms and conditions of the policies providing such insurance.
ARTICLE 8
Affirmative Covenants
BORROWER covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Bank has any Commitment hereunder or any
Letter of Credit remains outstanding, BORROWER will perform and observe, or
cause to be performed and observed, the following covenants:
Section 8.1 Reporting Requirements. BORROWER will furnish to the
Agent and each Bank:
(a) Annual Financial Statements. As soon as available, and in
any event within 90 days after the end of each fiscal year of Borrower,
beginning with the fiscal year ending December 31, 1996, (i) a copy of
the annual audit report of Borrower and its consolidated Subsidiaries as
of the end of and for such fiscal year then ended containing, on a
consolidated basis and with unaudited consolidating schedules attached,
balance sheets and statements of income, retained earnings and cash
flow, in each case setting forth in comparative form the figures for the
preceding fiscal year, all in reasonable detail and audited by Arthur
Andersen & Co. or other independent certified public accountants of
recognized national standing, to the effect that such report has been
prepared in accordance with GAAP and (ii) a letter from such independent
certified public accountants to the Agent (A) stating that nothing has
come to its attention during its auditing procedures which indicates
that a Default has occurred and is continuing or, if in its opinion a
Default has occurred and is continuing, stating the nature thereof, and
(B) confirming the calculations set forth in the officer's certificate
delivered simultaneously therewith;
(b) Quarterly Financial Statements. As soon as available, and
in any event within 45 days after the end of each of the quarters of
each fiscal year of Borrower, beginning with the fiscal quarter ending
September 30, 1996, a copy of an unaudited financial report of Borrower
and its consolidated Subsidiaries as of the end of such fiscal quarter
and for the portion of the fiscal year then ended containing, on a
consolidated basis, balance sheets and statements of income, retained
earnings and cash flow, in each case setting forth in comparative form
the figures for the corresponding period of the preceding fiscal year
all in reasonable detail certified by a Responsible Officer of BORROWER
to have been prepared in accordance with GAAP and to fairly and
accurately present (subject to year-end audit adjustments) the financial
condition and results of operation of Borrower and its consolidated
Subsidiaries, on a consolidated and consolidating basis, at the date and
for the periods indicated therein;
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(c) Monthly Financial Statements. As soon as available, a
copy of any monthly financial report or statement of Borrower or any of
its Subsidiaries as may be prepared by or for the directors of any such
Person;
(d) Certificate of No Default. Concurrently with the delivery
of each of the financial statements referred to in Sections 8.1(a) or
8.1(b), a certificate of a Responsible Officer of BORROWER (i) stating
that, to the best of such officer's knowledge, no Default has occurred
and is continuing or, if a Default has occurred and is continuing,
stating the nature thereof and the action that is proposed to be taken
with respect thereto, and (ii) showing in reasonable detail the
calculations demonstrating compliance with Article 10;
(e) Appraisals. At such times as may be requested by Agent,
an appraisal of the Rig Collateral prepared by a Qualified Appraiser;
provided, if the Agent requests more than three appraisals during any
twelve month period, the cost of additional appraisals shall be for the
account of the Banks;
(f) Rig Reports. As soon as available, a copy of any periodic
report(s) of Borrower or any of its Subsidiaries as may be prepared by
or for the directors of any such Person pertaining to the status of any
rig(s) (e.g., the location of, the operator of, the contract terms with
respect to and the average day rate or utilization of any rig) owned
and/or operated by any such Person or any Affiliate of any such Person;
(g) Budget; Projections. As soon as available, a copy of any
budget or projections of Borrower or any of its Subsidiaries as may be
prepared by or for the directors of any such Person and, in any event
with 30 days after the end of each fiscal year, a copy of a budget and
projections of Borrower and its consolidated Subsidiaries for the then
current fiscal year, which budget and projections shall including
consolidating schedules containing information exclusively as to
BORROWER;
(h) Management Letters. Promptly upon receipt thereof, a copy
of any management letter or written report submitted to any Loan Party
by independent certified public accountants with respect to the
business, condition (financial or otherwise), operations, prospects or
Properties of such Loan Party;
(i) Notice of Litigation. Promptly after the commencement
thereof, notice of all actions, suits and proceedings before any
Governmental Authority or arbitrator affecting any Loan Party which, if
determined adversely to such Loan Party, could have a Material Adverse
Effect;
(j) Notice of Default. As soon as possible and in any event
immediately upon any Borrower's knowledge of the occurrence of any
Default, a written notice setting forth the details of such Default and
the action that BORROWER has taken and proposes to take with respect
thereto;
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(k) ERISA Reports. Promptly after the filing or receipt
thereof, copies of all reports, including annual reports, and notices
which any Loan Party or any Borrower Member files with or receives from
the PBGC or the U.S. Department of Labor under ERISA; as soon as
possible and in any event within five days after any such Person knows
or has reason to know that any Pension Plan is insolvent, or that any
Reportable Event or Prohibited Transaction has occurred with respect to
any Plan or Multiemployer Plan, or that the PBGC, any Loan Party or any
Borrower Member has instituted or will institute proceedings under ERISA
to terminate or withdraw from or reorganize any Pension Plan, a
certificate of a Responsible Officer of BORROWER setting forth the
details as to such insolvency, withdrawal, Reportable Event, Prohibited
Transaction or termination and the action that BORROWER proposes to take
with respect thereto; and promptly after the receipt thereof, a copy of
each demand letter or notice which would have been described in Section
7.13(b) if it had been received on or prior to the Closing Date.
(l) Reports to Other Creditors. Promptly after the furnishing
thereof, a copy of any statement or report furnished by any Loan Party
to any other party pursuant to the terms of any indenture, loan, stock
purchase or credit or similar agreement relating to any Consolidated
Funded Debt and not otherwise required to be furnished to the Agent and
the Banks pursuant to any other clause of this Section 8.1;
(m) Notice of Material Adverse Effect. Within five Business
Days after BORROWER becomes aware thereof, written notice of any matter
that could reasonably be expected to have a Material Adverse Effect;
(n) Proxy Statements, Etc. As soon as available, one copy of
each financial statement, report, notice or proxy statement sent by any
Loan Party to its stockholders generally and one copy of each regular,
periodic or special report, registration statement or prospectus filed
by any Loan Party with any securities exchange or the Securities and
Exchange Commission or any successor agency, and of all press releases
and other statements made by any of the Loan Parties to the public
containing material developments in its business;
(o) Notices regarding Subsidiaries and Transfers of Drilling
Rigs. (i) Concurrently with the delivery of each of the financial
statements referred to in Sections 8.1(a) and 8.1(b), notice of the
creation or acquisition of any Subsidiary by BORROWER after the Closing
Date and subsequent to the last delivery of such information, (ii)
promptly upon the occurrence thereof, notice of any sale, transfer or
other disposition of any Drilling Rig by BORROWER and information
concerning the identity of the Drilling Rig affected thereby, the
identity of the transferee thereof and the date of such sale, transfer
or other disposition, (iii) promptly upon the occurrence thereof, notice
of the creation or acquisition of any Material Subsidiary of BORROWER,
or of the existence of any Material Subsidiary of BORROWER, after the
Closing Date and subsequent to the last delivery of such information;
and (iv) promptly upon the occurrence thereof, notice of any Non-
Material Subsidiary being or becoming a Material Subsidiary
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(p) Insurance. Within 60 days prior to the end of each fiscal
year of Borrower, a report in form and substance reasonably satisfactory
to the Agent summarizing all material insurance coverage maintained by
BORROWER and their Subsidiaries as of the date of such report and all
material insurance coverage planned to be maintained by such Persons in
the subsequent fiscal year;
(q) Environmental Assessments and Notices. Promptly after the
receipt thereof, a copy of each environmental assessment (including any
analysis relating thereto) involving an amount in excess of $50,000
prepared with respect to any real Property of any Loan Party and each
notice sent by any Governmental Authority relating to any failure or
alleged failure of a material nature to comply with any Environmental
Law or any liability with respect thereto;
(r) Notices relating to the Senior Debt. Promptly after the
delivery or receipt thereof by BORROWER, a copy of each notice, demand
or other written information given or received by BORROWER under or in
connection with any of the Senior Debt (including, without limitation,
any notice of a default or of any redemption, purchase or repayment);
(s) Notice relating to Drilling Rig Revenues. Within thirty
days after the end of each calendar quarter, a report setting forth the
following information for each Drilling Rig: the revenues earned by
such Drilling Rig during the preceding calendar quarter and the current
contract status of such Drilling Rig;
(t) Notice relating to Drilling Rig Damage. Promptly, upon
the occurrence of any material damage to a Drilling Rig a report
describing such damage, the estimated cost of, and time to, repair such
damage, and the proposed plan for repairing such damage; and
(u) General Information. Promptly, such other information
concerning the Loan Parties and their respective Subsidiaries, the
creditworthiness of the Loan Parties and their respective Subsidiaries
and/or the Collateral as the Agent or any Bank may from time to time
reasonably request.
Section 8.2 Maintenance of Existence; Conduct of Business. BORROWER
will, and will cause each of its Subsidiaries to, preserve and maintain its
corporate existence and all of its material leases, privileges, licenses,
Permits, franchises, qualifications and rights that are necessary in the
ordinary conduct of its business. BORROWER will, and will cause each of its
Subsidiaries to, conduct its business in an orderly and efficient manner in
accordance with good business practices.
Section 8.3 Maintenance of Properties. BORROWER will, and will cause
each of its Subsidiaries to, maintain, keep and preserve all of its Properties
necessary in the proper conduct of its business in good repair, working order
and condition (ordinary wear and tear excepted) and make all necessary repairs,
renewals, replacements, betterments and improvements thereof; provided,
however, that nothing in this Section 8.3 shall prevent BORROWER or any of its
Subsidiaries from discontinuing the operation or maintenance of any of its
Properties if such
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discontinuance is, in the judgment of BORROWER, desirable in the conduct of its
business or the business of any Subsidiary.
Section 8.4 Taxes and Claims. BORROWER will, and will cause each of
its Subsidiaries to, pay or discharge at or before maturity or before becoming
delinquent (a) all taxes, levies, assessments and governmental charges imposed
on it or its income or profits or any of its Property, and (b) all lawful
claims for labor, material and supplies which, if unpaid, might become a Lien
upon any of its Property; provided, however, that neither BORROWER nor any of
its Subsidiaries shall be required to pay or discharge any tax, levy,
assessment or governmental charge or claim for labor, material or supplies
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings being diligently pursued and for which adequate
reserves have been established under GAAP.
Section 8.5 Insurance. BORROWER will, and will cause each of its
Subsidiaries to, keep insured by financially sound and reputable insurers all
Property of a character usually insured by responsible corporations engaged in
the same or a similar business similarly situated against loss or damage of the
kinds and in the amounts customarily insured against by such entities and carry
such other insurance as is usually carried by such entities. Such insurance
shall be written by financially responsible companies selected by BORROWER
which are reasonably acceptable to the Required Banks. Each policy of
insurance shall provide that it will not be canceled, amended or reduced except
after not less than ten days' prior written notice to the Agent. BORROWER will
advise the Agent promptly of any policy cancellation, reduction or amendment.
Section 8.6 Inspection Rights. BORROWER will, and will cause each of
its Subsidiaries to, permit representatives and agents of the Agent and each
Bank, during normal business hours and upon reasonable notice to BORROWER, to
examine, copy and make extracts from its books and records, to visit and
inspect its rigs and other Properties and to discuss its business, operations
and financial condition with its officers and independent certified public
accountants (provided that Agent and Bank shall provide BORROWER reasonable
opportunity to participate in any such discussions between or among (a) Agent
and Banks and (b) the independent certified public accountants of BORROWER and
their Subsidiaries). BORROWER shall authorize each of its Subsidiaries to
authorize their accountants in writing (with a copy to the Agent) to comply
with this Section 8.6. The Agent or its representatives may (at Borrower'
expense after the occurrence of a Default or at any other time during which,
due to the occurrence or possible occurrence of some event or circumstance, or
the existence or possible existence of some condition, reasonable cause for
such verification exists) conduct field exams to verify the Borrowing Base and
at such other times as the Agent may reasonably request.
Section 8.7 Keeping Books and Records. BORROWER will, and will cause
each of its Subsidiaries to, maintain appropriate books of record and account
in accordance with GAAP consistently applied in which true, full and correct
entries will be made of all their respective dealings and business affairs. If
any changes in accounting principles from those used in the preparation of the
financial statements referenced in Section 8.1 are hereafter required or
permitted by GAAP and are adopted by Borrower or any of its Subsidiaries with
the concurrence of its independent certified public accountants and such
changes in GAAP result in a change in the
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method of calculation or the interpretation of any of the financial covenants,
standards or terms found in Section 8.1 or Article 10 or any other provision of
this Agreement, BORROWER and the Required Banks agree to amend any such
affected terms and provisions so as to reflect such changes in GAAP with the
result that the criteria for evaluating BORROWER's or such Subsidiaries'
financial condition shall be the same after such changes in GAAP as if such
changes in GAAP had not been made; provided, that until any necessary
amendments have been made, the certificate required to be delivered under
Section 8.1(d) hereof demonstrating compliance with Article 10 shall include
calculations setting forth the adjustments from the relevant items as shown in
the current financial statements based on the changes to GAAP to the
corresponding items based on GAAP as used in the financial statements
referenced in Section 7.2(a), in order to demonstrate how such financial
covenant compliance was derived from the current financial statements.
Section 8.8 Compliance with Laws. BORROWER will, and will cause each
of its Subsidiaries to, comply with all applicable Governmental Requirements,
except for instances of noncompliance that could not have, individually or in
the aggregate, a Material Adverse Effect.
Section 8.9 Compliance with Agreements. BORROWER will, and will cause
each of its Subsidiaries to, comply in all material respects with all
agreements, contracts and instruments binding on it or affecting its Properties
or business. BORROWER will comply with all terms and provisions of the Senior
Debt Documents and Senior Subordinated Debt Documents which are intended to
benefit the holders of any "Permitted Indebtedness" and the Agent and the Banks
as beneficiaries of "Permitted Liens" (as such terms are defined in the
Indenture and the Note Purchase Agreement, respectively), including, without
limitation, the terms and provisions of Sections 4.16 and 4.10 of the Indenture
and Sections 8.13 and 8.07 of the Note Purchase Agreement.
Section 8.10 Further Assurances. BORROWER will, and will cause each of
its Subsidiaries to, execute and deliver such further agreements, documents and
instruments and take such further action as may be requested by the Agent to
carry out the provisions and purposes of this Agreement and the other Loan
Documents, to evidence the Obligations and to create, preserve, maintain and
perfect the Liens of the Agent for the benefit of itself and the Banks in the
Collateral.
Section 8.11 ERISA. BORROWER will, and will cause each of Borrower
Members to, comply with all minimum funding requirements and all other material
requirements of ERISA, if applicable, so as not to give rise to any liability
thereunder.
Section 8.12 Concentration Account. BORROWER will deposit, or cause to
be deposited, into the Concentration Account all proceeds of all its
Receivables, which proceeds shall be subject to the Concentration Account
Agreement. BORROWER shall maintain in effect, at all times during the term of
this Agreement, the Concentration Account Agreement (or a similar agreement in
form and substance satisfactory to the Agent with a depository bank or banks
satisfactory to the Agent).
Section 8.13 No Consolidation in Bankruptcy. BORROWER will, and will
cause each of its Subsidiaries to, (a) maintain corporate or partnership (as
applicable) records and books of account separate from those of any other
ENTITY, (b) not commingle its funds or assets with those
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of any other entity, except that BORROWER may commingle proceeds of Receivables
in the Concentration Account, and (c) except for consents or meetings to
approve the transactions contemplated by this Agreement and the Revolving Loans
Credit Agreement, provide that its board of directors or, with respect to any
partnership, analogous managing body will hold all appropriate meetings which
will not be jointly held with any Subsidiary or Affiliate. BORROWER will
ensure that the Concentration Account contains only proceeds of Collateral and,
e.g., does not include any monies of a Non-Material Subsidiary or a Foreign
Subsidiary in which the Agent, for the benefit of itself and the Banks, does
not have a perfected, first priority security interest.
Section 8.14 Dissolution of FALRIG Venezuela Falcon Drilling will cause
FALRIG Venezuela to be dissolved and its assets, if any, distributed to Falcon
Drilling within ninety (90) days after the Closing Date.
ARTICLE 9
Negative Covenants
BORROWER covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Bank has any Commitment hereunder or any
Letter of Credit remains outstanding, BORROWER will perform and observe, or
cause to be performed and observed, the following covenants:
Section 9.1 Debt. Borrower will not, and will not permit any of its
Subsidiaries (other than Non-Recourse Subsidiaries) to, incur, create, assume
or permit to exist any Debt, except:
(a) Debt pursuant hereto and Debt of BORROWER and its
Subsidiaries to the Revolving Loans Banks pursuant to the Revolving
Loans Documents;
(b) Existing Debt identified in the Form 10-Q of Borrower for
the quarter ended June 30, 1996, and renewals, extensions or
refinancings of any of such Debt referred to in this Section 9.1(b)
which do not increase the outstanding principal amount of such Debt and
the terms and provisions of which are not materially more onerous than
the terms and conditions of such Debt on the Closing Date;
(c) Purchase money Debt secured by purchase money Liens, which
Debt and Liens are permitted under and meet all of the requirements of
clause (g) of the definition of Permitted Liens;
(d) Intercompany Debt between BORROWER and any of its
Subsidiaries incurred in the ordinary course of business or consistent
with prudent business practices; provided, however, that any and all of
the Debt permitted pursuant to this Section 9.1(d) shall be unsecured,
and, if evidenced by instruments, shall be evidenced by instruments
satisfactory to the Agent which will be pledged to the Agent for the
benefit of the Banks pursuant to a security agreement in form and
substance satisfactory to the Agent (except if and to the
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extent that such a pledge would give the holders of the Senior Notes the
contract right to also obtain the benefit of such a pledge);
(e) Debt under Currency Hedge Agreements and Interest Rate
Protection Agreements, provided that (i) each counterparty shall be
rated in one of the two highest rating categories of Standard and Poor's
Corporation or Moody's Investors Service, Inc. and (ii) the aggregate
notional amount (as to BORROWER and its Subsidiaries, other than Non-
Recourse Subsidiaries) of all Currency Hedge Agreements and Interest
Rate Protection Agreements to which BORROWER or any of its Subsidiaries
is a party shall not exceed $10,000,000 at any time outstanding;
(f) Debt of BORROWER or any of its Subsidiaries incurred in
the ordinary course of business in respect of performance bonds, surety
bonds and appeal bonds in an aggregate principal amount (as to BORROWER
and its Subsidiaries) not to exceed $5,000,000 at any time outstanding;
(g) Debt of a Person who becomes a Subsidiary of Borrower
pursuant to a transaction permitted by this Agreement occurring after
the Closing Date, which Debt was outstanding prior to the date on which
such Subsidiary was acquired (other than Debt incurred as a result of,
or in anticipation of, such transaction);
(h) Permitted Refinancing Debt; and
(i) Debt the incurrence of which, after giving proforma effect
to such incurrence, would not result in the Proforma Interest Coverage
Ratio exceeding 2.50 to 1.00;
provided, however, that, other than loans by a Subsidiary of Borrower to
Borrower or any other Subsidiary of Borrower, no Debt described in clause (c),
(d), (g), (h) or (i) preceding may be incurred if a Default exists at the time
of such incurrence or would result therefrom. For purposes of clause (d) of
this Section 9.1, the term "Borrower" shall include the Guarantors to the
extent necessary so that the requirements of Section 4.12 of the Indenture and
Section 8.09 of the Note Purchase Agreement are not violated by the Borrower
and the Guarantors.
Section 9.2 Limitation on Liens. BORROWER will not, and will not
permit any of its Subsidiaries (other than Non-Recourse Subsidiaries) to,
incur, create, assume or permit to exist any Lien upon any of its Property or
revenues, whether now owned or hereafter acquired, except Permitted Liens.
BORROWER will not, and will not permit any of its Subsidiaries to, incur,
create, assume or permit to exist any Lien upon any Capital Stock, whether now
outstanding or hereafter issued, of any Subsidiary of Borrower (other than a
Non-Recourse Subsidiary).
Section 9.3 Mergers, Etc. BORROWER will not become a party to a
merger or consolidation, or wind-up, dissolve or liquidate itself. BORROWER
will not, and will not permit any of its Subsidiaries to, purchase or acquire
all or a substantial part of the business, assets or Properties of any Person
if such purchase or acquisition (i) could reasonably be expected to cause
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or result in the occurrence of a Default or (ii) could reasonably be expected
to have a material adverse effect upon the financial position or performance of
BORROWER.
Section 9.4 Restricted Payments. BORROWER will not, and will not
permit any of its Subsidiaries (other than Non-Recourse Subsidiaries) to, make
any Restricted Payments, except:
(a) Payroll advances in the ordinary course of business not to
exceed an aggregate amount of $1,000,000 at any one time;
(b) Other advances and loans to officers, employees or
shareholders of BORROWER or any of its Subsidiaries, so long as the
aggregate principal amount (as to BORROWER and all of its Subsidiaries)
of any such advances and loans does not exceed $500,000 at any time
outstanding;
(c) Payments of accrued interest and expenses with respect to
the Senior Debt and the Senior Subordinated Debt when due in accordance
with the Senior Debt Documents and the Senior Subordinated Debt
Documents, respectively, and regularly scheduled payments of principal
and accrued interest with respect to the Senior Floating Rate Notes and
Senior Subordinated Debt when due in accordance with the terms of the
Senior Floating Rate Notes and Senior Subordinated Debt Documents,
respectively;
(d) Repayment of Debt permitted pursuant to Section 9.1, which
repayment occurs pursuant to a refinancing transaction in which the
resulting Debt constitutes Permitted Refinancing Debt;
(e) Restricted Payments not exceeding $2,000,000 in aggregate
amount (as to BORROWER and all of its Subsidiaries) during any fiscal
year;
(f) Restricted Payments made to redeem any preferred stock or
Redeemable Stock issued after the Closing Date at a price not exceeding
the issue price thereof;
(g) Payment of dividends on any preferred stock issued after
the Closing Date;
(h) Investments permitted pursuant to Section 9.5; and
(i) Loans by a Subsidiary of Borrower to Borrower or any other
Subisdiary of Borrower;
provided, however, that, except for loans described in clause (i) above, no
such Restricted Payments otherwise permitted pursuant to this Section 9.4 may
be made to any Person if a Default exists at the time of such Restricted
Payment or would result therefrom or may be made if an Event of Default exists
at the time of such Restricted Payment or would result therefrom. For purposes
of clause (a) of this Section 9.4, the term "Borrower" shall include the
Guarantors to the
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extent necessary so that the requirements of Section 4.12 of the Indenture and
Section 8.09 of the Note Purchase Agreement are not violated by the Borrower
and the Guarantors.
Section 9.5 Investments. BORROWER will not, and will not permit any
of its Subsidiaries to make or permit to remain outstanding any advance, loan,
extension of credit or capital contribution to or investment in any Person, or
purchase or own any stock, bonds, notes, debentures or other securities of any
Person, or be or become a joint venturer with or partner of any Person (all
such transactions being herein called "Investments"), except:
(a) Investments in obligations or securities received in
settlement of debts (created in the ordinary course of business) owing
to BORROWER;
(b) Investments existing as of the Closing Date identified on
Schedule 9.5 hereto;
(c) Investments in securities issued or guaranteed by the
United States or any agency thereof with maturities of four years or
less from the date of acquisition;
(d) Investments in certificates of deposit and Eurodollar time
deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits, in each case with any Bank or with
any domestic commercial bank having capital and surplus in excess of
$100,000,000;
(e) Investments in repurchase obligations with a term of not
more than seven days for securities of the types described in clause (c)
above with any Bank or with any domestic commercial bank having capital
and surplus in excess of $100,000,000;
(f) Investments in commercial paper of a domestic issuer rated
A-1 or better or P-1 or better by Standard & Poor's Corporation or
Moody's Investors Services, Inc., respectively, maturing not more than
six months from the date of acquisition;
(g) Investments in shares of money market mutual or similar
funds having assets in excess of $100,000,000;
(h) Investments in a Subsidiary of BORROWER that is an obligor
on the Revolving Loans;
(i) Advances and loans to officers and employees of BORROWER
or any of its Subsidiaries, so long as the aggregate principal amount
(as to BORROWER and all of its Subsidiaries) of such advances and loans
does not exceed $500,000 at any time outstanding;
(j) Investments represented by that portion of the proceeds
from Asset Dispositions permitted pursuant to Section 9.8, which
proceeds are either not Cash
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Proceeds or are deemed to be Cash Proceeds pursuant to the second
sentence of the definition of "Cash Proceeds";
(k) The contribution of the Non-Recourse Rigs to the Non-
Recourse Subsidiaries;
(l) Debt permitted pursuant to Section 9.3 and Restricted
Payments permitted pursuant to Section 9.4; and
(m) Other Investments in an aggregate amount (as to BORROWER
and all of its Subsidiaries) not to exceed the sum of the following at
any time outstanding: (i) $15,000,000, plus (ii) 50% of the aggregate
net cash proceeds received by Borrower after the Closing Date from the
issuance or sale of shares of Capital Stock to any Person other than a
Subsidiary of Borrower, minus (iii) the aggregate amount paid by
BORROWER and all of its Subsidiaries after the Closing Date in
redemption of preferred stock or Redeemable Stock.
provided, however, that no Investments may be made by BORROWER pursuant to
clauses (h), (i), (j), (k), (l) or (m) preceding if a Default exists at the
time of such Investment or would result therefrom. For purposes of clause (h)
of this Section 9.5, the term "Borrower" shall include the Guarantors to the
extent necessary so that the requirements of Section 4.12 of the Indenture and
Section 8.09 of the Note Purchase Agreement are not violated by the Borrower
and the Guarantors.
Section 9.6 Limitation on Issuance of Capital Stock. BORROWER will
not at any time on or after the Closing Date issue, sell, assign or otherwise
dispose of (a) any of its Capital Stock, (b) any securities exchangeable for or
convertible into or carrying any rights to acquire any of its Capital Stock or
(c) any option, warrant or other right to acquire any of its Capital Stock;
provided, however, that, if and to the extent not otherwise prohibited by this
Agreement or the other Loan Documents (i) Borrower may issue additional shares
of its Capital Stock or such securities, options, warrants or other rights,
other than Redeemable Stock, for full and fair consideration, (ii) BORROWER may
issue stock in accordance with the terms of options and warrants that were
outstanding on June 30, 1996, and (iii) BORROWER may grant compensatory stock
options in the ordinary course of business consistent with past practices and
issue shares upon the exercise of such options. For purposes of clause (c)(ii)
of this Section 9.6, the term "Borrower" shall include the Guarantors to the
extent necessary so that the requirements of Section 4.12 of the Indenture and
Section 8.09 of the Note Purchase Agreement are not violated by the Borrower
and the Guarantors.
Section 9.7 Transactions With Affiliates. Except for (a) the payment
of salaries in the ordinary course of business consistent with prudent business
practices, (b) the furnishing of employment benefits in the ordinary course of
business consistent with prudent business practices, (c) the transactions
permitted by Section 9.13, and (d) the transactions specified in Schedule 9.7,
BORROWER will not, and will not permit any of its Subsidiaries to, enter into
any transaction, including, without limitation, the purchase, sale or exchange
of Property or the rendering of any
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service, with any Affiliate of BORROWER or such Subsidiary, except in the
ordinary course of and pursuant to the reasonable requirements of BORROWER's or
such Subsidiary's business and upon fair and reasonable terms no less favorable
to BORROWER or such Subsidiary than would be obtained in a comparable arms-
length transaction with a Person not an Affiliate of BORROWER or such
Subsidiary.
Section 9.8 Disposition of Property. BORROWER will not, and will not
permit any of its Subsidiaries (other than Non-Recourse Subsidiaries) to, enter
into an Asset Disposition, directly or indirectly, except:
(a) Asset Dispositions pursuant to which (i) BORROWER or its
Subsidiary, as the case may be, receives consideration at the time of
such disposition at least equal to the fair market value of such
Property, except in the case of (A) a Bargain Purchase Contract (as such
term is defined in the Indenture) entered into in the ordinary course of
business, (B) a transfer of a drilling rig or rigs and related equipment
between Borrower and one of its Subsidiaries if no Default exists at the
time of such transfer or would result therefrom, or (C) an Asset
Disposition resulting from the requisition of title to, seizure or
forfeiture of any Property or assets or any actual or constructive total
loss or an agreed or compromised total loss; (ii) at least 75% of such
consideration consists of Cash Proceeds (or the assumption of Debt of
BORROWER or such Subsidiary relating to the Capital Stock or Property
that was the subject of such disposition and the release of BORROWER or
such Subsidiary from such indebtedness); and (iii) after giving effect
to such disposition, the total noncash consideration from all
dispositions held by Borrower and its Subsidiaries, including noncash
consideration described in the second sentence of the definition of
"Cash Proceeds" which is not converted into cash within 12 months after
the related dispositions, then outstanding is not greater than
$25,000,000;
(b) the sale of drill-string components, inventory (other than
drilling rigs) and obsolete and worn-out equipment in the ordinary
course of business;
(c) any drilling contract, charter (bareboat or otherwise) or
other lease of property entered into by BORROWER or any Subsidiary
(including, without limitation, bareboat charters by BORROWER to any
Subsidiary other than any Non-Recourse Subsidiary) in the ordinary
course of business; provided, however, that (i) any such contract,
charter or other lease affecting any Drilling Rig shall be for full and
fair consideration payable to Borrower, and with respect to such
contracts, charters or other leases other than drilling contracts
entered into in the ordinary course of business, shall be in form and
substance satisfactory to the Agent and shall expressly include terms
and provisions in form and substance satisfactory to the Agent to the
effect that the parties thereto acknowledge the existing Lien on such
Drilling Rig securing the Acquisition Loans Obligations and agree that
such Lien securing such obligations is prior to, and will not in any way
be affected by, such contract, charter or other lease and (ii) neither
BORROWER nor any of its Subsidiaries shall enter into any such contract,
charter or lease with a Non-Recourse Subsidiary.
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(d) a Restricted Payment permitted under Section 9.4 or any
Investment permitted under Section 9.5;
(e) the transfer of the Non-Recourse Rigs to one or more Non-
Recourse Subsidiaries;
(f) the conveyance, transfer or other disposition of rigs
pursuant to which such rigs are exchanged for rigs of a like kind, i.e.
barge rigs may be exchanged for barge rigs and jackup rigs may be
exchanged for jackup rigs, having an equivalent value; and
(g) issuances or dispositions of Capital Stock permitted under
Section 9.6.
Provided, in no event shall Borrower sell, transfer, encumber or otherwise
dispose of any Drilling Rig, except for:
(a) Permitted Liens;
(b) Drilling Contracts entered into in the ordinary course of
business; and
(c) Disposition of Drilling Rig components that have been
replaced by components of equal or better quality.
Section 9.9 Sale and Leaseback. Except for transactions in the
ordinary course of business involving real or personal Property having an
aggregate fair market value of $30,000,000 or less and providing for annual
lease payments in an annual aggregate amount not to exceed $3,000,000, BORROWER
will not, and will not permit any of its Subsidiaries (other than Non-Recourse
Subsidiaries) to, enter into any arrangement with any Person pursuant to which
it leases from such Person real or personal Property that has been or is to be
sold or transferred, directly or indirectly, by it to such Person.
Section 9.10 Lines of Business. BORROWER will not, and will not permit
any of its Subsidiaries to, engage in any line or lines of business activity
other than the businesses in which they are engaged on the Closing Date and
lines of business reasonably related thereto.
Section 9.11 Environmental Protection. BORROWER will not, and will not
permit any of its Subsidiaries to, (a) use (or permit any tenant to use) any of
its Properties for the handling, processing, storage, transportation or
disposal of any Hazardous Material except in compliance with applicable
Environmental Laws, (b) generate any Hazardous Material except in compliance
with applicable Environmental Laws, (c) conduct any activity that is likely to
cause a Release or threatened Release of any Hazardous Material in violation of
any Environmental Law, or (d) otherwise conduct any activity or use any of its
Properties in any manner that violates or is likely to violate any
Environmental Law or create any Environmental Liabilities for which BORROWER or
any of its Subsidiaries would be responsible, except for circumstances or
events described in clauses (a) through (d) preceding that could not have,
individually or in the aggregate, a Material Adverse Effect.
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Section 9.12 Intercompany Transactions. Except as may be expressly
permitted or required by the Loan Documents or except as may be expressly
permitted or required by the Senior Debt Documents or the Senior Subordinated
Debt Documents as summarized on Schedule 9.12, BORROWER will not, and will not
permit any of its Subsidiaries to, create or otherwise cause or permit to exist
or become effective any consensual encumbrance or restriction of any kind on
the ability of any Subsidiary (other than a Non-Recourse Subsidiary) to (a) pay
dividends or make any other distribution to BORROWER or any of its Subsidiaries
(other than Non-Recourse Subsidiaries) in respect of such Subsidiary's Capital
Stock or with respect to any other interest or participation in, or measured
by, its profits, (b) pay any Debt owed to BORROWER or any of its Subsidiaries
(other than Non-Recourse Subsidiaries), (c) make any loan or advance to
BORROWER or any of its Subsidiaries (other than Non-Recourse Subsidiaries), or
(d) sell, lease or transfer any of its Property to BORROWER or any of its
Subsidiaries (other Non-Recourse Subsidiaries). Nothing contained in this
Section 9.12 shall be deemed to constitute an encumbrance or restriction
prohibited by Section 4.12 of the Indenture or Section 8.09 of the Note
Purchase Agreement.
Section 9.13 Consulting and Management Fees. Other than reasonable
consulting fees paid to Affiliates of Borrower on an arm's-length basis for
specific services rendered not to exceed $750,000 in the aggregate during any
calendar year, BORROWER will not, and will not permit any of its Subsidiaries
to, pay any management, consulting or similar fees (excluding directors' fees
and legal fees) to any Affiliate of BORROWER or to any director, officer or
employee of BORROWER or any Affiliate of BORROWER.
Section 9.14 Modification of Other Agreements. BORROWER will not, and
will not permit any of its Subsidiaries to, consent to or implement any
termination, amendment, modification, supplement or waiver of (a) the Senior
Debt Documents, (b) the Senior Subordinated Debt Documents, (c) the certificate
of incorporation or bylaws or partnership agreement or certificate of limited
partnership or analogous constitutional documents of BORROWER or any of its
Subsidiaries if the same could have a Material Adverse Effect, or (d) any other
Material Contract to which it is a party or any Permit which it possesses if
the same could have a Material Adverse Effect. Without limiting the generality
of and in addition to the foregoing, BORROWER will not consent to or implement
any termination, amendment, modification, supplement or waiver of the Senior
Debt Documents or Senor Subordinated Debt Documents (i) to increase the
principal amount of any Senior Debt or Senor Subordinated Debt, (ii) to shorten
the maturity of, or any date for the payment of any principal of or interest
on, any Senior Debt or Senior Subordinated Debt, (iii) to increase the rate of
interest on or with respect to any Senior Debt or Senior Subordinated Debt,
(iv) to otherwise amend or modify the payment or subordination terms of any
Senior Debt or Senior Subordinated Debt, (v) to increase any cost, fee or
expense payable by BORROWER or any its Subsidiaries, (vi) to provide any
Collateral or security for payment or collection of any Senior Debt or Senior
Subordinated Debt without the written consent of Required Banks, or (vii) in
any other respect that could be materially adverse to Borrower and its
Subsidiaries taken as a whole.
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Section 9.15 ERISA. BORROWER will not:
(a) allow, or take (or permit any Borrower Member to take) any
action which would cause, any unfunded or unreserved liability for
benefits under any Plan (exclusive of any Multiemployer Plan) to exist
or to be created that exceeds $4,000,000 with respect to any such Plan
or $8,000,000 with respect to all such Plans in the aggregate; or
(b) with respect to any Multiemployer Plan, allow, or take (or
permit any ERISA Affiliate to take) any action which would cause, any
unfunded or unreserved liability for benefits under any Multiemployer
Plan to exist or to be created, either individually as to any such Plan
or in the aggregate as to all such Plans, that could, upon any partial
or complete withdrawal from or termination of any such Multiemployer
Plan or Plans, have a Material Adverse Effect.
Section 9.16 Drilling Rig Location. BORROWER will not allow any
Drilling Rig to be removed from the United States Gulf of Mexico.
ARTICLE 10
Financial Covenants
BORROWER covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Bank has any Commitment hereunder or any
Letter of Credit remains outstanding, BORROWER will perform and observe the
following covenants:
Section 10.1 Consolidated Current Ratio. Borrower will at all times
maintain a Consolidated Current Ratio of not less than 1.00 to 1.00.
Section 10.2 Consolidated Tangible Net Worth. Borrower will at all
times maintain Consolidated Tangible Net Worth in an amount not less than the
sum of (a) $95,000,000, plus (b) 50% of cumulative Consolidated Net Income
during any fiscal quarter ending after the Closing Date if, but only if, such
Consolidated Net Income during such fiscal quarter is positive, plus (c) 75% of
all Net Proceeds of each Equity Issuance after the Closing Date.
Section 10.3 Consolidated Interest Coverage Ratio. BORROWER will not
permit the Consolidated Interest Coverage Ratio, calculated as of the end of
each fiscal quarter of Borrower commencing with the fiscal quarter ending
September 30, 1996, for the four fiscal quarters of Borrower then most recently
ended, to be less than 2.50 to 1.00.
ARTICLE 11
Default
Section 11.1 Events of Default. Each of the following shall be deemed
an "Event of Default":
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(a) BORROWER (i) shall fail to pay, repay or prepay when due
any amount of principal owing to the Agent or any Bank pursuant to this
Agreement or any other Loan Document, (ii) shall fail to pay within one
day of the date when due any amount of accrued interest owing to the
Agent or any Bank pursuant to this Agreement or any other Loan Document,
or (iii) or shall fail to pay within five days of the date when due any
fee or other amount or other Obligation (other than principal or
interest) owing to the Agent or any Bank pursuant to this Agreement or
any other Loan Document.
(b) Any representation or warranty made or deemed made by
BORROWER or any Loan Party in any Loan Document or in any certificate,
report, notice or financial statement furnished at any time in
connection with this Agreement or any other Loan Document shall be
false, misleading or erroneous in any material respect when made or
deemed to have been made.
(c) BORROWER or any Loan Party shall fail to perform, observe
or comply with any other covenant, agreement or term contained in this
Agreement or any other Loan Document (other than covenants to pay the
Obligations) and such failure is not remedied or waived within 15 days
after the Agent or any Bank shall have notified BORROWER of such failure
or, if a different grace period is expressly made applicable in such
other Loan Documents, within such applicable grace period.
(d) Any of the Loan Parties shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts
become due.
(e) Any Loan Party shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee, examiner, liquidator or the like of itself or of all or any
substantial part of its Property, (ii) make a general assignment for the
benefit of its creditors, (iii) commence a voluntary case under the
United States Bankruptcy Code (as now or hereafter in effect, the
"Bankruptcy Code"), (iv) institute any proceeding or file a petition
seeking to take advantage of any other Debtor Relief Law, (v) fail to
controvert in a timely and appropriate manner, or acquiesce in writing
to, any petition filed against it in an involuntary case under the
Bankruptcy Code, or (vi) take any corporate or other action for the
purpose of effecting any of the foregoing.
(f) A proceeding or case shall be commenced, without the
application, approval or consent of any of the Loan Parties in any court
of competent jurisdiction, seeking (i) its reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition or
readjustment of its debts, (ii) the appointment of a receiver,
custodian, trustee, examiner, liquidator or the like of any of the Loan
Parties or of all or any substantial part of its Property, or (iii)
similar relief in respect of any of the Loan Parties under any Debtor
Relief Law, and such proceeding or case shall continue undismissed, or
an order, judgment or decree approving or ordering any of the foregoing
shall be entered and continue unstayed and in effect, for a period of 60
or more days; or an order for relief against any of the Loan Parties
shall be entered in an involuntary case under the Bankruptcy Code.
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(g) Any of the Loan Parties shall fail to discharge (or fail
to have continually stayed until subsequently discharged) within a
period of 30 days after the commencement thereof any attachment,
sequestration, forfeiture or similar proceeding or proceedings involving
an aggregate amount in excess of $3,000,000 against any of its
Properties.
(h) A final judgment or judgments for the payment of money in
excess of $5,000,000 in the aggregate shall be rendered by a court or
courts against the Loan Parties or any of them on claims not covered by
insurance or as to which the insurance carrier has denied responsibility
and the same shall not be discharged, or a stay of execution thereof
shall not be procured, within 30 days from the date of entry thereof and
the Loan Parties shall not, within said period of 30 days, or such
longer period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during
such appeal.
(i) Any of the Loan Parties shall fail to pay when due
(including any applicable grace period) any principal of or interest on
any Debt or Debts (other than the Obligations or any Non-Recourse Debt)
having a principal amount of at least $3,000,000 individually, or
$5,000,000 in the aggregate, or the maturity of any such Debt or Debts
shall have been accelerated, or any such Debt or Debts shall have been
required to be prepaid prior to the stated maturity thereof.
(j) Any event shall have occurred (and shall not have been
waived or otherwise cured) that permits any holder or holders of such
Debt or any Person acting on behalf of such holder or holders to
accelerate the maturity of such Debt or require prepayment of such Debt.
(k) Any event shall have occurred (and shall not have been
waived or otherwise cured) that, with the giving of notice or lapse of
time or both, would permit any holder or holders of such Debt or any
Person acting on behalf of such holder or holders to accelerate the
maturity of such Debt or require the prepayment of such Debt, and such
default shall have continued for a period of 30 days after a Responsible
Officer of Borrower obtains actual knowledge of such default.
(l) This Agreement or any other Loan Document shall cease to
be in full force and effect or shall be declared null and void or the
validity or enforceability thereof shall be contested or challenged by
any Loan Party or any of its shareholders, or any Loan Party shall deny
that it has any further liability or obligation under any of the Loan
Documents, or any Lien created by the Loan Documents shall for any
reason cease to be a valid, first priority perfected Lien (except for
Permitted Liens) upon any of the Collateral purported to be covered
thereby.
(m) Any of the following events shall occur or exist with
respect to any Loan Party or any ERISA Affiliate: (i) any Prohibited
Transaction involving any Plan; (ii) any Reportable Event with respect
to any Pension Plan; (iii) the filing under Section 4041 of ERISA of a
notice of intent to terminate any Pension Plan or the termination of any
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Pension Plan; (iv) any event or circumstance that might constitute
grounds entitling the PBGC to institute proceedings under Section 4042
of ERISA for the termination of, or for the appointment of a trustee to
administer, any Pension Plan, or the institution by the PBGC of any such
proceedings; (v) any "accumulated funding deficiency" (as defined in
Section 406 of ERISA or Section 412 of the Code), whether or not waived,
shall exist with respect to any Plan; or (vi) complete or partial
withdrawal under Section 4201 or 4204 of ERISA from a Plan or the
reorganization, insolvency, or termination of any Pension Plan; and in
each case above, such event or condition, together with all other events
or conditions, if any, have subjected or could in the reasonable opinion
of the Agent subject any Loan Party or any ERISA Affiliate to any tax,
penalty or other liability to a Plan, a Multiemployer Plan, the PBGC or
otherwise (or any combination thereof) which in the aggregate exceed or
could reasonably be expected to exceed $3,000,000.
(n) The occurrence of a Change of Control;
(o) If, at any time, the Senior Debt shall (i) cease to be
either pari passu with, or subordinate in right of payment to, the Notes
or the Obligations, (ii) become superior in right of payment to the
Notes or the Obligations, or (iii) otherwise have a right to any payment
or any security superior to that of the Notes or the Obligations; or if,
at any time, the Senior Subordinated Debt shall (A) cease to be
subordinate in right of payment to the Notes or the Obligations, (B)
become equal or superior in right of payment to the Notes or the
Obligations, or (C) otherwise have a right to payment or any security
equal or superior to that of the Notes or the Obligations;
(p) The occurrence of (i) a "Default" (as such term is used or
defined in any of the Senior Debt Documents or the Senior Subordinated
Debt Documents) under any of the Senior Debt Documents or the Senior
Subordinated Debt Documents, unless (A) within 30 days after a
Responsible Officer of Borrower obtains or should have obtained actual
knowledge of such Default, such Default has been waived, cured or
consented to in accordance with such documents, (B) the maturity of the
Loans has not been accelerated, and (C) such waiver or consent is not
made in connection with any amendment or modification of any such
documents in violation of Section 9.14 hereof or in violation of any of
the Senior Debt Documents or the Senior Subordinated Debt Documents or
in connection with any payment to the holders of any Senior Debt or any
Senior Subordinated Debt, (ii) an "Event of Default" (as such term is
used or defined in any of the Senior Debt Documents or Senior
Subordinated Debt Documents) under any of the Senior Debt Documents or
Senior Subordinated Debt Documents, or (iii) any acceleration of the
maturity of any Senior Debt or Senior Subordinated Debt.
(q) If, at any time, (i) Borrower or any of its Subsidiaries
shall make, or shall be required to make, any redemption, purchase or
prepayment (whether optional or mandatory) with respect to any of the
Senior Debt or Senior Subordinated Debt, (ii) any event or circumstance
shall occur which gives any party to the Senior Debt Documents or Senior
Subordinated Debt Documents or any holder of any Senior Debt or Senior
Subordinated Debt the right to request or require Borrower or any of its
Subsidiaries, as
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the case may be, to redeem, purchase or prepay the Senior Debt or Senor
Subordinated Debt, as the case may be (including, without limitation (A)
the making of, or the obligation of Borrower or any of its Subsidiaries
to make, an Asset Sale Offer (as such term is defined in the Indenture)
or a Senior Notes Assets Sale Offer (as such term is defined in the Note
Purchase Agreement) or (B) the occurrence of a Change of Control (as
such term is defined in the Indenture or the Note Purchase Agreement),
or (iii) Borrower or any of its Subsidiaries shall initiate or give (A)
any election or notice relating to any redemption, purchase or
prepayment (whether optional or mandatory) of any of the Senior Debt or
Senior Subordinated Debt or (B) any election or notice relating to any
defeasance of the Senior Debt or Senior Subordinated Debt.
(r) If at any time, there shall have occurred and be
continuing an "Event of Default" as that term is used in the Revolving
Loans Credit Agreement.
Section 11.2 Remedies. If any Event of Default shall occur and be
continuing, the Agent may and, if directed by the Required Banks, the Agent
shall do any one or more of the following:
(a) Acceleration. Declare all outstanding principal of and
accrued and unpaid interest on the Loans and the other Obligations and
all other amounts payable by BORROWER under the Loan Documents
immediately due and payable, and the same shall thereupon become
immediately due and payable, without notice, demand, presentment, notice
of dishonor, notice of acceleration, notice of intent to accelerate,
protest or other formalities of any kind, all of which are hereby
expressly waived by BORROWER;
(b) Termination of Commitments. Terminate the Commitments
(including, without limitation, the obligation of the Issuing Bank to
issue Letters of Credit) without notice to BORROWER;
(c) Judgment. Reduce any claim to judgment;
(d) Foreclosure. Foreclose or otherwise enforce any Lien
granted to the Agent for the benefit of itself and the Banks to secure
payment and performance of the Obligations in accordance with the terms
of the Loan Documents; or
(e) Rights. Exercise any and all rights and remedies afforded
by the laws of the State of Texas or any other jurisdiction, by any of
the Loan Documents, by equity or otherwise against any or all of the
Loan Parties or any other Person;
provided, however, that upon the occurrence of an Event of Default under
Section 11.1(e) or Section 11.1(f), the Commitments of all of the Banks
(including, without limitation, the obligation of the Issuing Bank to issue
Letters of Credit) shall immediately and automatically terminate, and the
outstanding principal of and accrued and unpaid interest on the Loans and the
other Obligations and all other amounts payable by BORROWER under the Loan
Documents shall thereupon become immediately and automatically due and payable
without notice, demand, presentment, notice of
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dishonor, notice of acceleration, notice of intent to accelerate, protest or
other formalities of any kind, all of which are hereby expressly waived by
BORROWER.
Section 11.3 Cash Collateral. If (a) an Event of Default shall have
occurred and be continuing or (b) any Letter of Credit shall, for whatever
reason, remain outstanding after all Loans and Reimbursement Obligations have
been paid in full and all Commitments have expired or terminated, then BORROWER
shall, if requested by the Agent or the Required Banks, pledge to the Agent as
security for the Obligations, pursuant to a security agreement or assignment in
form and substance satisfactory to the Agent, an amount in immediately
available funds (in excess of any funds already pledged or assigned by BORROWER
to the Agent as of the date of the occurrence of such Event of Default) equal
to the then outstanding Letter of Credit Liabilities, such funds to be held in
a cash collateral account satisfactory to the Agent without any right of
withdrawal by BORROWER.
Section 11.4 Performance by the Agent. If BORROWER shall fail to
perform any covenant or agreement in accordance with the terms of the Loan
Documents, the Agent may, at the direction of the Required Banks, perform or
attempt to perform such covenant or agreement on behalf of BORROWER. In such
event, BORROWER shall, at the request of the Agent, promptly pay any amount
expended by the Agent or the Banks in connection with such performance or
attempted performance to the Agent at the Principal Office, together with
interest thereon at the applicable Default Rate from and including the date of
such expenditure to but excluding the date such expenditure is paid in full.
Notwithstanding the foregoing, it is expressly agreed that neither the Agent
nor any Bank shall have any liability or responsibility for the performance of
any obligation of BORROWER under this Agreement or any of the other Loan
Documents.
ARTICLE 12
The Agent
Section 12.1 Appointment, Powers and Immunities. Each Bank hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under the other Loan Documents with such powers as are specifically delegated
to the Agent by the terms of this Agreement and the other Loan Documents,
together with such other powers as are reasonably incidental thereto. Neither
the Agent, the Co-Agent, nor any of their respective Affiliates, officers,
directors, employees, attorneys or agents shall be liable for any action taken
or omitted to be taken by any of them hereunder or otherwise in connection with
this Agreement or any of the other Loan Documents except for its or their own
gross negligence or willful misconduct or the wrongful failure of the Agent or
Co-Agent, in their capacities as a Bank, to fund their own respective
Commitment pursuant to the terms of this Agreement. Without limiting the
generality of the preceding sentence, the Agent (a) may treat the payee of any
Note as the holder thereof until the Agent receives written notice of the
assignment or transfer thereof signed by such payee and in form satisfactory to
the Agent; (b) shall have no duties or responsibilities except those expressly
set forth in this Agreement and the other Loan Documents, and shall not by
reason of this Agreement or any other Loan Document be a trustee or fiduciary
for any Bank; (c) shall not be required to initiate any litigation or
collection proceedings hereunder or under any other Loan
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Document except to the extent requested by the Required Banks; (d) shall not be
responsible to the Banks for any recitals, statements, representations or
warranties contained in this Agreement or any other Loan Document, or any
certificate or other document referred to or provided for in, or received by
any of them under, this Agreement or any other Loan Document, or for the value,
validity, effectiveness, enforceability or sufficiency of this Agreement or any
other Loan Document or any other document referred to or provided for herein or
therein or for any failure by any Person to perform any of its obligations
hereunder or thereunder; (e) may consult with legal counsel (including counsel
for BORROWER), independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants or
experts; and (f) shall incur no liability under or in respect of any Loan
Document by acting upon any notice, consent, certificate or other instrument or
writing reasonably believed by it to be genuine and signed or sent by the
proper party or parties. As to any matters not expressly provided for by this
Agreement, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with instructions signed by the
Required Banks, and such instructions of the Required Banks and any action
taken or failure to act pursuant thereto shall be binding on all of the Banks;
provided, however, that the Agent shall not be required to take any action
which exposes the Agent to liability or which is contrary to this Agreement or
any other Loan Document or applicable law.
Section 12.2 Rights of Agent as a Bank. With respect to its
Commitment, the Loan made by it and the Note issued to it, Banque Paribas (and
any successor acting as Agent) in its capacity as a Bank hereunder shall have
the same rights and powers hereunder as any other Bank and may exercise the
same as though it were not acting as the Agent, and the term "Bank" or "Banks"
shall, unless the context otherwise indicates, include the Agent in its
individual capacity. The Agent and its Affiliates may (without having to
account therefor to any Bank) accept deposits from, lend money to, act as
trustee under indentures of, provide merchant banking services to and generally
engage in any kind of banking, trust or other business with the Loan Parties or
any of their Affiliates, and any other Person who may do business with or own
securities of the Loan Parties or any of their Affiliates, all as if it were
not acting as the Agent and without any duty to account therefor to the Banks.
Section 12.3 Defaults. The Agent shall not be deemed to have knowledge
or notice of the occurrence of a Default (other than the non-payment of
principal of or interest on the Loans or of commitment fees) unless the Agent
has received notice from a Bank or BORROWER specifying such Default and stating
that such notice is a "Notice of Default". In the event that the Agent
receives such a notice of the occurrence of a Default, the Agent shall give
prompt notice thereof to the Banks (and shall give each Bank prompt notice of
each such non-payment). The Agent shall (subject to Section 12.1) take such
action with respect to such Default as shall be directed by the Required Banks,
provided that unless and until the Agent shall have received such directions,
the Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default as it shall seem advisable and
in the best interest of the Banks.
SECTION 12.4 INDEMNIFICATION. THE BANKS HEREBY AGREE TO INDEMNIFY THE
AGENT AND THE CO-AGENT FROM AND HOLD THE AGENT AND
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THE CO-AGENT HARMLESS AGAINST (TO THE EXTENT NOT PROMPTLY REIMBURSED UNDER
SECTIONS 13.1 AND 13.2, BUT WITHOUT LIMITING THE OBLIGATIONS OF BORROWER UNDER
SECTIONS 13.1 AND 13.2), RATABLY IN ACCORDANCE WITH THEIR RESPECTIVE COMMITMENT
PERCENTAGES, ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS'
FEES) AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED
ON, INCURRED BY, OR ASSERTED AGAINST THE AGENT OR THE CO-AGENT IN ANY WAY
RELATING TO OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR
OMITTED TO BE TAKEN BY THE AGENT OR THE CO-AGENT UNDER OR IN RESPECT OF ANY OF
THE LOAN DOCUMENTS; PROVIDED, FURTHER, THAT NO BANK SHALL BE LIABLE FOR ANY
PORTION OF THE FOREGOING TO THE EXTENT CAUSED BY THE AGENT'S OR THE CO-AGENT'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING,
IT IS THE EXPRESS INTENTION OF THE BANKS THAT THE AGENT AND THE CO-AGENT SHALL
BE INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES) AND
DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE AGENT OR THE CO-AGENT
(EXCEPT TO THE EXTENT THE SAME ARE CAUSED BY THE AGENT'S OR THE CO-AGENT'S [AS
APPLICABLE] OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT). WITHOUT LIMITING ANY
OTHER PROVISION OF THIS SECTION 12.4, EACH BANK AGREES TO REIMBURSE THE AGENT
AND THE CO-AGENT PROMPTLY UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON THE
BASIS OF THE COMMITMENTS) OF ANY AND ALL OUT-OF-POCKET EXPENSES (INCLUDING
ATTORNEYS' FEES) INCURRED BY THE AGENT OR THE CO-AGENT IN CONNECTION WITH THE
PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT OR
ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF,
OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN
DOCUMENTS, TO THE EXTENT THAT THE AGENT OR THE CO-AGENT, AS APPLICABLE, IS NOT
PROMPTLY REIMBURSED FOR SUCH EXPENSES BY BORROWER.
Section 12.5 Independent Credit Decisions. Each Bank agrees that it
has independently and without reliance on the Agent or any other Bank, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of BORROWER and decision to enter into this Agreement and
that it will, independently and without reliance upon the Agent or any other
Bank, and based upon such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any of the other Loan
Documents. The Agent shall not be required to keep itself informed as to the
performance or observance by any Loan Party of this Agreement or any other Loan
Document or to inspect the Properties or books of any Loan Party. Except for
notices,
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reports and other documents and information expressly required to be furnished
to the Banks by the Agent hereunder or under the other Loan Documents, the
Agent shall not have any duty or responsibility to provide any Bank with any
credit or other financial information concerning the affairs, financial
condition or business of any Loan Party (or any of their Affiliates) which may
come into the possession of the Agent or any of its Affiliates.
Section 12.6 Several Commitments. The Commitments and other
obligations of the Banks under this Agreement are several. The default by any
Bank in making a Loan in accordance with its Commitment shall not relieve the
other Banks of their obligations under this Agreement. In the event of any
default by any Bank in making any Loan, each nondefaulting Bank shall be
obligated to make its Loan but shall not be obligated to advance the amount
which the defaulting Bank was required to advance hereunder. In no event shall
any Bank be required to advance an amount or amounts with respect to any of the
Loans which would in the aggregate exceed such Bank's Commitment with respect
to such Loans. No Bank shall be responsible for any act or omission of any
other Bank. Notwithstanding anything to the contrary contained in this
Agreement or any of the other Loan Documents, any Bank that fails to make
available to the Agent its pro rata share of any Loan or to purchase its pro
rata share of any Letter of Credit as, when and to the full extent required by
the provisions of this Agreement, shall be deemed delinquent (a "Non-Funding
Bank") and shall be deemed a Non-Funding Bank until such time as such
delinquency is satisfied. A Non-Funding Bank shall be deemed to have assigned
any and all payments due to it from the Loan Parties, whether on account of
outstanding Loans, the Letter of Credit, interest, fees or otherwise, to the
remaining non-delinquent Banks for application to, and reduction of, their
respective pro rata shares of all outstanding Loans, Letters of Credit, fees
and/or otherwise. As among the Banks, a Non-Funding Bank shall be deemed to
have satisfied in full a delinquency when and if, as a result of application of
the assigned payments to all outstanding Loans, etc. of the non-delinquent
Banks, the Banks' respective pro rata shares of all outstanding Loans and
Letters of Credit have returned to those in effect immediately prior to such
delinquency and without giving effect to the nonpayment causing such
delinquency.
Section 12.7 Successor Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving notice thereof to the Banks and Borrower. Upon any such
resignation, the Required Banks will have the right, after notice to and
consultation with Borrower if (but only if) no Default has then occurred and is
continuing, to appoint another Bank as a successor Agent. If no successor
Agent shall have been so appointed by the Required Banks and shall have
accepted such appointment within 30 days after the retiring Agent's giving of
notice of resignation, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a commercial bank organized under the
laws of the United States or any state thereof and having combined capital and
surplus of at least $100,000,000. Upon the acceptance of its appointment as
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all rights, powers, privileges, immunities and duties of the
resigning Agent, and the resigning Agent shall be discharged from its duties
and obligations under this Agreement and the other Loan Documents. After any
Agent's resignation as Agent, the provisions of this Article 12 shall continue
in effect for its benefit in respect of any actions taken or omitted to be
taken by it while it was the Agent.
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ARTICLE 13
Miscellaneous
Section 13.1 Expenses. Whether or not the transactions contemplated
hereby are consummated, BORROWER hereby agrees, on demand, to pay or reimburse
the Agent and each of the Banks for paying (as the Agent may request): (a) all
reasonable out-of-pocket costs and expenses of the Agent in connection with the
preparation, negotiation, execution and delivery of this Agreement and the
other Loan Documents and any and all (actual or proposed) amendments,
modifications, renewals, extensions and supplements thereof and thereto, and
the syndication of the Loans, including, without limitation, the reasonable
fees and expenses of legal counsel for the Agent, (b) all reasonable out-of-
pocket costs and expenses of the Agent and the Banks in connection with any
Default and the enforcement of this Agreement or any other Loan Document,
including, without limitation, the reasonable fees and expenses of legal
counsel for the Agent and the Banks, (c) all transfer, stamp, documentary or
other similar taxes, assessments or charges levied by any Governmental
Authority in respect of this Agreement or any of the other Loan Documents, (d)
all costs, expenses, assessments and other charges incurred in connection with
any filing, registration, recording or perfection of any Lien contemplated by
this Agreement or any other Loan Document, and (e) all reasonable out-of-
pocket costs and expenses incurred by the Agent in connection with due
diligence, computer services, copying, appraisals, environmental audits,
collateral audits, field exams, insurance, consultants and search reports.
SECTION 13.2 INDEMNIFICATION. BORROWER SHALL INDEMNIFY THE AGENT, THE
CO-AGENT AND EACH BANK AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE
OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND AGENTS FROM, AND HOLD EACH OF
THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES,
PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE
ATTORNEYS' AND CONSULTANTS' FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH
DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION,
DELIVERY, PERFORMANCE, ADMINISTRATION OR ENFORCEMENT OF ANY OF THE LOAN
DOCUMENTS, (B) ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C)
ANY BREACH BY ANY LOAN PARTY OF ANY REPRESENTATION, WARRANTY, COVENANT OR OTHER
AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE USE OR PROPOSED USE
OF ANY LOAN OR LETTER OF CREDIT, (E) ANY AND ALL TAXES, LEVIES, DEDUCTIONS AND
CHARGES IMPOSED ON THE AGENT, THE ISSUING BANK OR ANY BANK (OTHER THAN TAXES
IMPOSED ON THE OVERALL NET INCOME OR GROSS RECEIPTS OF THE AGENT, THE CO-
AGENT, THE ISSUING BANK OR ANY OTHER BANK) IN RESPECT OF ANY LETTER OF CREDIT,
(F) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL OR CLEANUP OF
ANY HAZARDOUS MATERIAL OR THE EXISTENCE OF ANY UNDERGROUND STORAGE TANK LOCATED
ON, ABOUT, WITHIN OR AFFECTING ANY OF THE PROPERTIES OF ANY LOAN PARTY, OR
OTHERWISE ATTRIBUTABLE TO ANY LOAN PARTY IN CONNECTION WITH
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ANY OTHER SITE, OR (G) ANY INVESTIGATION, LITIGATION OR OTHER PROCEEDING,
INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION OR
OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING; BUT EXCLUDING ANY OF THE
FOREGOING TO THE EXTENT DIRECTLY CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE PERSON TO BE INDEMNIFIED. WITHOUT LIMITING ANY PROVISION OF
THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF
THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION 13.2
SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES,
LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND
EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) ARISING OUT OF OR RESULTING
FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON. WITHOUT PREJUDICE TO
THE SURVIVAL OF ANY OTHER TERM OR PROVISION OF THIS AGREEMENT, THE OBLIGATIONS
OF BORROWER UNDER THIS SECTION 13.2 SHALL SURVIVE THE REPAYMENT OF THE LOANS
AND LETTER OF CREDIT LIABILITIES AND OTHER OBLIGATIONS AND TERMINATION OF THE
COMMITMENTS.
Section 13.3 Limitation of Liability. None of the Agent, the Co-Agent,
any Bank or any Affiliate, officer, director, employee, attorney or agent
thereof shall be liable to BORROWER or any Loan Party for any error of judgment
or act done in good faith, or be otherwise liable or responsible under any
circumstances whatsoever (including such Person's negligence), except for such
Person's gross negligence or willful misconduct. None of the Agent, the Co-
Agent, any Bank, or any Affiliate, officer, director, employee, attorney or
agent thereof shall have any liability with respect to, and BORROWER hereby
waives, releases and agrees not to sue any of them upon, any claim for any
special, indirect, incidental or consequential damages suffered or incurred by
BORROWER or any other Loan Party in connection with, arising out of, or in any
way related to, this Agreement or any of the other Loan Documents, or any of
the transactions contemplated by this Agreement or any of the other Loan
Documents. Borrower hereby waive, release and agree not to sue the Agent, the
Co-Agent or any Bank or any of their respective Affiliates, officers,
directors, employees, attorneys or agents for exemplary or punitive damages in
respect of any claim in connection with, arising out of, or in any way related
to, this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the other Loan Documents.
Section 13.4 No Duty. All attorneys, accountants, appraisers and other
professional Persons and consultants retained by the Agent, the Co-Agent and
the Banks shall have the right to act exclusively in the interest of the Agent,
the Co-Agent and the Banks and shall have no duty of disclosure, duty of
loyalty, duty of care or other duty or obligation of any type or nature
whatsoever to BORROWER or any of Borrower' shareholders or any other Person.
Section 13.5 No Fiduciary Relationship. The relationship between
BORROWER and each Bank is solely that of debtor and creditor, and neither the
Agent, the Co-Agent nor any Bank has any fiduciary or other special
relationship with BORROWER or any other Loan Party, and no term
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or condition of any of the Loan Documents shall be construed so as to deem the
relationship between BORROWER and any Bank, or any other Loan Party and any
Bank, to be other than that of debtor and creditor. No joint venture or
partnership is created by this Agreement among the Banks or between BORROWER or
any other Loan Party and any Bank.
Section 13.6 Equitable Relief. BORROWER recognize that in the event
BORROWER fail to pay, perform, observe or discharge any or all of the
Obligations, any remedy at law may prove to be inadequate relief to the Agent
and the Banks. BORROWER therefore agrees that the Agent and the Banks, if the
Agent or the Banks so request, shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
Section 13.7 No Waiver; Cumulative Remedies. No failure on the part of
the Agent or any Bank to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege under this Agreement or
any other Loan Document shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, power or privilege under this Agreement or
any other Loan Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
provided for in this Agreement and the other Loan Documents are cumulative and
not exclusive of any rights and remedies provided by law.
Section 13.8 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns. BORROWER may not assign or transfer any of their rights or
obligations hereunder without the prior written consent of the Agent and
the Banks. Any Bank may sell participations to one or more banks or
other institutions in or to all or a portion of its rights and
obligations under this Agreement and the other Loan Documents
(including, without limitation, all or a portion of its Commitment and
the Loan owing to it); provided, however, that (i) such Bank's
obligations under this Agreement and the other Loan Documents
(including, without limitation, its Commitment) shall remain unchanged,
(ii) such Bank shall remain solely responsible to BORROWER for the
performance of such obligations, (iii) such Bank shall remain the holder
of its Note for all purposes of this Agreement, (iv) BORROWER shall
continue to deal solely and directly with such Bank in connection with
such Bank's rights and obligations under this Agreement and the other
Loan Documents, and (v) such Bank shall not sell a participation that
conveys to the participant the right to vote or give or withhold
consents under this Agreement or any other Loan Document, other than the
right to vote upon or consent to (A) any increase of such Bank's
Commitment, (B) any reduction of the principal amount of, or interest to
be paid on, the Loan of such Bank, (C) any reduction of any commitment
fee or other amount payable to such Bank under any Loan Document, (D)
any postponement of any date for the payment of any amount payable in
respect of the Loan of such Bank, (E) any release of a material portion
of the Collateral from the Liens created by the Security Documents and
not otherwise expressly authorized by the Loan Documents, and (F) any
release of any Loan Party from liability under the Loan Documents. Each
holder of a participation interest in this Agreement shall be entitled
to
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the benefits of the provisions of Section 3.5, 4.6, 4.7 and 13.2 of this
Agreement as if and to the same extent as if it were a Bank hereunder.
(b) BORROWER and the Banks agree that any Bank (the "Assigning
Bank") may at any time assign to one or more Eligible Assignees all, or
a proportionate part of all, of its rights and obligations under this
Agreement and the other Loan Documents (including, without limitation,
its Commitment, Loans and Letter of Credit Liabilities) (each an
"Assignee"); provided, however, that (i) each such assignment shall be
of a consistent, and not a varying, percentage of all of the Assigning
Bank's rights and obligations under this Agreement and the other Loan
Documents, (ii) except in the case of an assignment of all of a Bank's
rights and obligations under this Agreement and the other Loan
Documents, the amount of the Commitment, Loans and Letter of Credit
Liabilities of the Assigning Bank being assigned pursuant to each
assignment (determined as of the date of the Assignment Acceptance with
respect to such assignment) shall in no event be less than an amount
equal to $5,000,000, and (iii) the parties to each such assignment shall
execute and deliver to the Agent for its acceptance and recording in the
Register (as defined below), an Assignment and Acceptance, together with
the Notes subject to such assignment, and a processing and recordation
fee of $2,500. Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five Business Days
after the execution thereof, or, if so specified in such Assignment and
Acceptance, the date of acceptance thereof by the Agent, (A) the
Assignee thereunder shall be a party hereto as a "Bank" and, to the
extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, have the rights and
obligations of a Bank hereunder and under the Loan Documents and (B) the
Assigning Bank thereunder shall, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from
its obligations under this Agreement and the other Loan Documents (and,
in the case of an Assignment and Acceptance covering all or the
remaining portion of a Bank's rights and obligations under the Loan
Documents, such Bank shall cease to be a party thereto).
Notwithstanding anything to the contrary contained herein, each
Assigning Bank shall, concurrently with each assignment to an Assignee
referred to in this Section 13.8(b), also assign to such Assignee an
identical interest in such Assigning Bank's Acquisition Loans and
commitments thereunder. (For example, if an Assigning Bank assigns 50%
of its Commitment or its Obligations to an Assignee, such Assigning Bank
shall also, concurrently therewith, assign 50% of its commitment
relating to the Acquisition Loans or its Acquisition Loans Obligations,
respectively, to such Assignee.)
(c) By executing and delivering an Assignment and Acceptance,
the Assigning Bank thereunder and the Assignee thereunder confirm to and
agree with each other and the other parties hereto as follows: (i) other
than as provided in such Assignment and Acceptance, such Assigning Bank
makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with the Loan Documents or the execution, legality, validity
and enforceability, genuineness, sufficiency or value of the Loan
Documents or any other instrument or
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document furnished pursuant thereto; (ii) such Assigning Bank makes no
representation or warranty and assumes no responsibility with respect to
the financial condition of any Loan Party or the performance or
observance by any Loan Party of its obligations under the Loan
Documents; (iii) such Assignee confirms that it has received a copy of
the other Loan Documents, together with copies of the financial
statements referred to in Section 7.2 and such other documents and
information as it has deemed appropriate to make its own credit analysis
and decision to enter into such Assignment and Acceptance; (iv) such
Assignee will, independently and without reliance upon the Agent or such
Assigning Bank and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement and the other Loan
Documents; (v) such Assignee confirms that it is an Eligible Assignee;
(vi) such Assignee appoints and authorizes the Agent to take such action
as agent on its behalf and exercise such powers under the Loan Documents
as are delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; and (vii) such Assignee
agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Loan Documents are required to be
performed by it as a Bank.
(d) The Agent shall maintain at its Principal Office a copy of
each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Banks and
the Commitments of, and principal amount of the Loans owing to, each
Bank from time to time (the "Register"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error,
and BORROWER, the Agent and the Banks may treat each Person whose name
is recorded in the Register as a Bank hereunder for all purposes under
the Loan Documents. The Register shall be available for inspection by
BORROWER or any Bank at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed
by an Assigning Bank and Assignee representing that it is an Eligible
Assignee, together with the Note subject to such assignment, the Agent
shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit A hereto, (i) accept such Assignment
and Acceptance, (ii) record the information contained therein in the
Register, and (iii) give prompt written notice thereof to BORROWER.
Within five Business Days after its receipt of such notice BORROWER, at
their expense, shall execute and deliver to the Agent in exchange for
each surrendered Note a new Note in an amount equal to the Commitment
assumed by it (or, if the Commitments have terminated or expired, the
Loans assigned to it) pursuant to such Assignment and Acceptance and, if
the Assigning Bank has retained any Loan or Letter of Credit Liability,
the Commitment retained by it (or, if the Commitments have terminated or
expired, the Loans retained by it) (each such promissory note shall
constitute a "Note" for purposes of the Loan Documents). Such new Notes
shall be dated the effective date of such Assignment and Acceptance and
shall otherwise be in substantially the form of Exhibit C hereto.
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(f) Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this
Section 13.8, disclose to the Assignee or participant, or proposed
Assignee or participant, any information relating to BORROWER or any
Subsidiary or Affiliate of BORROWER furnished to such Bank by or on
behalf of BORROWER or any Subsidiary or Affiliate of BORROWER; provided
that each such actual or proposed Assignee or participant shall agree to
be bound by the provisions of Section 13.20.
(g) Any Bank may assign and pledge all or part of the Note
held by it to any Federal Reserve Bank or the United States Treasury as
collateral security pursuant to Regulation A of the Board of Governors
of the Federal Reserve System and any operating circular issued by such
Federal Reserve System and/or Federal Reserve Bank; provided, that any
payment made by BORROWER for the benefit of such assigning and/or
pledging Bank in accordance with the terms of the Loan Documents shall
satisfy BORROWER's obligations under the Loan Documents in respect
thereof to the extent of such payment. No such assignment and/or pledge
shall release the assigning and/or pledging Bank from its obligations
hereunder.
Section 13.9 Survival. All representations and warranties made or
deemed made in this Agreement or any other Loan Document or in any document,
statement or certificate furnished in connection with this Agreement shall
survive the execution and delivery of this Agreement and the other Loan
Documents and the making of the Loans and the issuance of the Letters of
Credit, and no investigation by the Agent or any Bank or any closing shall
affect the representations and warranties or the right of the Agent or any Bank
to rely upon them. Without prejudice to the survival of any other obligation
of BORROWER hereunder, the obligations of BORROWER under Article 4 and Sections
13.1 and 13.2 shall survive repayment of the Notes and termination of the
Commitments.
SECTION 13.10 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES, AND THE
OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT
AMONG THE PARTIES HERETO AND (EXCEPT AS PROVIDED IN THIS SECTION 13.10 WITH
RESPECT TO THE TERM SHEET) SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE
PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES
HERETO. Notwithstanding the foregoing, the Term Sheet shall continue in full
force and effect as it relates to fees as provided in Section 2.11.
Section 13.11 Amendments. No amendment or waiver of any provision of
this Agreement, the Notes or any other Loan Document to which BORROWER is a
party, nor any consent to any departure by BORROWER therefrom, shall in any
event be effective unless the same shall be agreed or consented to by the
Required Banks and BORROWER in writing, and each such waiver or consent
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shall be effective only in the specific instance and for the specific purpose
for which given; provided, that no amendment, waiver or consent shall, unless
in writing and signed by all of the Banks and BORROWER, do any of the
following: (a) increase the Commitments of the Banks or subject the Banks to
any additional obligations; (b) reduce the principal of, or interest on, the
Notes or any fees or other amounts payable hereunder; (c) postpone any date
fixed for any payment of principal of, or interest on, the Notes or any fees or
other amounts payable hereunder; (d) waive any of the conditions precedent
specified in Article 6; (e) change the Commitment Percentages or the aggregate
unpaid principal amount of the Notes or the percentage of the Banks which shall
be required for the Banks or any of them to take any action under this
Agreement; (f) change any provision contained in Section 9.14 or this Section
13.11 or modify the definition of "Borrowing Base", "Eligible Receivables" or
"Required Banks" contained in Section 1.1; or (g) release any Collateral from
any of the Liens created by the Security Documents; and provided further,
however, that no amendment, waiver or consent relating to Sections 12.1, 12.2,
12.3, 12.4 or 12.5 shall require the agreement of any Loan Party.
Notwithstanding anything to the contrary contained in this Section 13.11, no
amendment, waiver or consent shall be made with respect to Article 12 hereof
without the prior written consent of the Agent.
Section 13.12 Maximum Interest Rate.
(a) No interest rate specified in this Agreement or any other
Loan Document shall at any time exceed the Maximum Rate. If at any time
the interest rate (the "Contract Rate") for any Obligation shall exceed
the Maximum Rate, thereby causing the interest accruing on such
Obligation to be limited to the Maximum Rate, then any subsequent
reduction in the Contract Rate for such Obligation shall not reduce the
rate of interest on such Obligation below the Maximum Rate until the
aggregate amount of interest accrued on such Obligation equals the
aggregate amount of interest which would have accrued on such Obligation
if the Contract Rate for such Obligation had at all times been in
effect.
(b) Notwithstanding anything to the contrary contained in this
Agreement or the other Loan Documents, none of the terms and provisions
of this Agreement or the other Loan Documents shall ever be construed to
create a contract or obligation to pay interest at a rate in excess of
the Maximum Rate; and neither the Agent nor any Bank shall ever charge,
receive, take, collect, reserve or apply, as interest on the
Obligations, any amount in excess of the Maximum Rate. The parties
hereto agree that any interest, charge, fee, expense or other obligation
provided for in this Agreement or in the other Loan Documents which
constitutes interest under applicable law shall be, ipso facto and under
any and all circumstances, limited or reduced to an amount equal to the
lesser of (i) the amount of such interest, charge, fee, expense or other
obligation that would be payable in the absence of this Section
13.12(b), or (ii) an amount, which when added to all other interest
payable under this Agreement and the other Loan Documents, equals the
Maximum Rate. If, notwithstanding the foregoing, the Agent or any Bank
ever contracts for, charges, receives, takes, collects, reserves or
applies as interest any amount in excess of the Maximum Rate, such
amount which would be deemed excessive interest shall be deemed a
partial payment or prepayment of principal of the Obligations and
treated hereunder as such; and if the Obligations, or applicable
portions thereof, are paid in full, any remaining excess shall
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promptly be paid to BORROWER (or other appropriate Person). In
determining whether the interest paid or payable, under any specific
contingency, exceeds the Maximum Rate, BORROWER, the Agent and the Banks
shall, to the maximum extent permitted by applicable law, (A)
characterize any nonprincipal payment as an expense, fee or premium
rather than as interest, (B) exclude voluntary prepayments and the
effects thereof, and (C) amortize, prorate, allocate and spread in equal
or unequal parts the total amount of interest throughout the entire
contemplated term of the Obligations, or applicable portions thereof, so
that the interest rate does not exceed the Maximum Rate at any time
during the term of the Obligations; provided that, if the unpaid
principal balance is paid and performed in full prior to the end of the
full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the Maximum Rate, the Agent
and/or the Banks, as appropriate, shall refund to BORROWER (or other
appropriate Person) the amount of such excess and, in such event, the
Agent and the Banks shall not be subject to any penalties provided by
any laws for contracting for, charging, receiving, taking, collecting,
reserving or applying interest in excess of the Maximum Rate.
(c) Pursuant to Article 15.10(b) of Chapter 15, Subtitle 79,
Revised Civil Statutes of Texas 1925, as amended, BORROWER agrees that
such Chapter 15 (which regulates certain revolving credit loan accounts
and revolving tri-party accounts) shall not govern or in any manner
apply to the Obligations.
Section 13.13 Notices. All notices and other communications provided
for in this Agreement and the other Loan Documents to which BORROWER is a party
shall be given or made by telecopy or in writing and telecopied, mailed by
certified mail return receipt requested, or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof (or, with respect to a Bank that becomes a party to this Agreement
pursuant to an assignment made in accordance with Section 13.8, in the
Assignment and Acceptance executed by it); or, as to any party, at such other
address as shall be designated by such party in a notice to each other party
given in accordance with this Section 13.13. Except as otherwise provided in
this Agreement, all such communications shall be deemed to have been duly given
when transmitted by telecopy or personally delivered or, in the case of a
mailed notice, upon receipt, in each case given or addressed as aforesaid;
provided, however, that notices to the Agent shall be deemed given when
received by the Agent.
SECTION 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF
PROCESS. EXCEPT AS MAY BE EXPRESSLY STATED TO THE CONTRARY IN CERTAIN LOAN
DOCUMENTS, THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS
AND APPLICABLE LAWS OF THE UNITED STATES. EACH OF BORROWER HEREBY SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF EACH OF (A) ANY UNITED STATES DISTRICT COURT
OF NEW YORK, (B) THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
TEXAS, (C) ANY NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK, AND (D) ANY
TEXAS STATE COURT SITTING IN HOUSTON, TEXAS, FOR THE PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING
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OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BORROWER IRREVOCABLY CONSENTS TO
THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES OF SUCH PROCESS TO SUCH BORROWER AT ITS ADDRESS SET FORTH
UNDERNEATH ITS SIGNATURE HERETO. BORROWER IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY
CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORM.
Section 13.15 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 13.16 Severability. Any provision of this Agreement held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be invalid or illegal.
Section 13.17 Headings. The headings, captions and arrangements used in
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
Section 13.18 Construction. BORROWER, the Agent, and the Banks
acknowledges that it has had the benefit of legal counsel of its own choice and
has been afforded an opportunity to review this Agreement and the other Loan
Documents with its legal counsel and that this Agreement and the other Loan
Documents shall be construed as if jointly drafted by the parties hereto.
Section 13.19 Independence of Covenants. All covenants hereunder shall
be given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or such condition
exists.
Section 13.20 Confidentiality. Each Bank agrees to exercise its best
efforts to keep any information delivered or made available by any Loan Party
to it which is clearly indicated to be confidential information, confidential
from anyone other than Persons employed or retained by such Bank who are or are
expected to become engaged in evaluating, approving, structuring or
administering the Loans; provided that nothing herein shall prevent any Bank
from disclosing such information (a) to the Agent, the Co-Agent or any other
Bank, (b) to any Person if reasonably incidental to the administration of the
Loans or Letter of Credit Liabilities, (c) upon the order of any court or
administrative agency, (d) upon the request or demand of any regulatory agency
or authority having jurisdiction over such Bank, (e) which has been publicly
disclosed, (f) in connection with any litigation to which the Agent, any Bank
or their respective Affiliates may be a party, (g) to the extent reasonably
required in connection with the exercise of any remedy under
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the Loan Documents, (h) to such Bank's legal counsel and independent auditors,
and (i) to any actual or proposed participant or Assignee of all or part of its
rights hereunder, so long as such actual or proposed participant or Assignee
agrees to be bound by the provisions of this Section 13.20.
SECTION 13.21 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF THE AGENT OR ANY BANK IN THE NEGOTIATION, ADMINISTRATION OR
ENFORCEMENT THEREOF.
Section 13.22 Approvals and Consent. Except as may be expressly
provided to the contrary in this Agreement or in the other Loan Documents (as
applicable), in any instance under this Agreement or the other Loan Documents
where the approval, consent or exercise of judgment of any Bank Party is
requested or required, (a) the granting or denial of such approval or consent
and the exercise of such judgment shall be within the sole discretion of such
Bank Party, and such Bank Party shall not, for any reason or to any extent, be
required to grant such approval or consent or to exercise such judgment in any
particular manner, regardless of the reasonableness of the request or the
action or judgment of such Bank Party, and (b) no approval or consent of any
Bank Party shall in any event be effective unless the same shall be in writing
and the same shall be effective only in the specific instance and for the
specific purpose for which given.
Section 13.23 Agent for Services of Process. BORROWER hereby
irrevocably designates Edwin T. Markham with offices at 666 Third Avenue, 9th
Floor, New York, New York, 10017 to receive for and on behalf of such BORROWER
service of process in New York. In the event that Ms. Riordan resigns or
ceases to serve as BORROWER's agent for service of process hereunder, BORROWER
agrees forthwith (a) to designate another agent for service of process in New
York, New York and (b) to give prompt written notice to the Agent of the name
and address of such agent. BORROWER agrees that the failure of its agent for
service of process to give any notice of any such service of process to
BORROWER shall not impair or affect the validity of such service or of any
judgment based thereon. If, despite the foregoing, there is for any reason no
agent for service of process of BORROWER available to be served, then BORROWER
further irrevocably consents to the service of process by the mailing thereof
by the Agent or the Required Banks by registered or certified mail, postage
prepaid, to BORROWER at its address listed on the signature pages hereof.
Nothing in this Section 13.23 shall affect the right of the Agent or the Banks
to serve legal process in any other manner permitted by law or affect the right
of the Agent or any Bank to bring any action or proceeding against BORROWER or
its Property in the court of any jurisdiction.
Section 13.24 Joint and Several Obligations. Each and every
representation, warranty, covenant, agreement, indebtedness, liability or
obligation of BORROWER under this Agreement or any other Loan Document shall
be, and shall be deemed to be, the joint and several representation, warranty,
covenant, agreement, indebtedness, liability or obligation, respectively, of
BORROWER.
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Section 13.25 Co-Agent. All of the privileges and immunities created by
Articles 12 and 13 of this Agreement in favor of the Agent in its capacity as
such shall be equally applicable to the Co-Agent in its capacity as such.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
BORROWER:
--------
FALCON DRILLING COMPANY, INC.
By: /s/ LEIGHTON E. MOSS
--------------------------------------
Name: Leighton E. Moss
Title: Vice President and General Counsel
Address for Notices:
-------------------
1900 West Loop South, Suite 1800
Houston, Texas 77027
Telecopy No.: 713-623-8103
Telephone No.: 713-623-8984
Attention: Don P. Rodney
S-1
<PAGE> 95
AGENT:
-----
BANQUE PARIBAS
By: /s/ BRIAN MALONE
---------------------------------------
Name: Brian Malone
-------------------------------------
Title: Vice President
------------------------------------
By: /s/ LARRY ROBINSON
---------------------------------------
Name: Larry Robinson
-------------------------------------
Title: Vice President
------------------------------------
Address for Notices:
-------------------
Banque Paribas
1200 Smith Street, Suite 3100
Houston, Texas 77002
Telecopy No.: 713-659-3832
Telephone No.: 713-659-4811
Attention: Mr. Brian M. Malone
Vice President
BANKS:
-----
BANQUE PARIBAS
By: /s/ BRIAN MALONE
---------------------------------------
Commitment: Name: Brian Malone
- ---------- -------------------------------------
Title: Vice President
------------------------------------
$27,692,307.69
By: /s/ LARRY ROBINSON
---------------------------------------
Name: Larry Robinson
-------------------------------------
Title: Vice President
------------------------------------
S - 2
<PAGE> 96
Address for Notices:
-------------------
Banque Paribas
1200 Smith Street, Suite 3100
Houston, Texas 77002
Telecopy No.: 713-659-3832
Telephone No.: 713-659-4811
Attention: Mr. Brian M. Malone
Vice President
Lending Office for ABR Loans:
----------------------------
Banque Paribas
1200 Smith Street, Suite 3100
Houston, Texas 77002
Attention: Leah Evans
Operations Officer
Lending Office for Eurodollar Loans:
-----------------------------------
Banque Paribas
1200 Smith Street, Suite 3100
Houston, Texas 77002
Attention: Leah Evans
Operations Officer
S - 3
<PAGE> 97
ARAB BANKING CORPORATION (B.S.C.)
By: /s/ STEPHEN A. PLAUCHE
--------------------------------------
Commitment: Name: Stephen A. Plauche
- ---------- ------------------------------------
Title: Vice President
-----------------------------------
$12,307,692.31
Address for Notices:
-------------------
Arab Banking Corporation (B.S.C.)
277 Park Avenue, 32nd Floor
New York, New York 10172
Telecopy No.: (212) 583-0921
Telephone No.: (212) 583-4720
Attention: Loan Administration Manager
With copies to:
Arab Banking Corporation (B.S.C.)
600 Travis Street, Suite 1900
Houston, Texas 77002
Telecopy No.: (713) 227-6507
Telephone No.: (713) 227-8444
Attention: Mr. Stephen A. Plauche
Vice President
Lending Office for ABR Loans:
----------------------------
Arab Banking Corporation (B.S.C.)
277 Park Avenue, 32nd Floor
New York, New York 10172
Telecopy No.: (212) 583-0921
Telephone No.: (212) 583-4720
Attention: Loan Administration Manager
Lending Office for Eurodollar Loans:
-----------------------------------
Arab Banking Corporation (B.S.C.)
277 Park Avenue, 32nd Floor
New York, New York 10172
Telecopy No.: (212) 583-0921
Telephone No.: (212) 583-4720
Attention: Loan Administration Manager
S - 4
<PAGE> 1
EXHIBIT 10.26
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of December 10, 1996, by and between Falcon Drilling Company, Inc., a
Delaware corporation (the "Company") and KS Deepsea Drillships, a Norwegian
Limited Partnership ("Drillships").
W I T N E S S E T H
WHEREAS, the Company and Drillships have entered into a Memorandum of
Agreement dated November 6, 1996 (as amended, the "Purchase Agreement")
providing for the sale by Drillships or its guaranteed nominee and the purchase
by the Company or its guaranteed nominee of two Bahamas flag drillships
described therein, a portion of the purchase price of which consists of shares
of the Common Stock of the Company;
WHEREAS, to induce Drillships to enter into the Purchase Agreement and
as a condition precedent to the Closing thereunder (as such term is defined
therein), the Company has agreed to grant certain registration rights, from
time to time, with respect to the Registrable Securities (as hereinafter
defined) in accordance with the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Agreement" shall have the meaning set forth in the initial paragraph
hereof, and as the same may be amended or modified from time to time in
accordance with the provisions hereof.
"Closing Date" shall have the meaning set forth in the Purchase
Agreement.
"Commission" shall mean the Securities and Exchange Commission (or any
successor body thereto).
"Common Stock" shall mean the common stock, par value $.01 per share, of
the Company which is not registered under the Securities Act, in the amount
specified in the Purchase Agreement.
"Demand Registration" shall have the meaning set forth in Section 3(a),
hereto
"Holder" shall have the meaning set forth in Section 4(a).
"Holder's Counsel" shall have the meaning set forth in Section 6(a)(i).
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
<PAGE> 2
"Purchase Agreement" shall have the meaning set forth in the second
paragraph of this Agreement.
"Registrable Securities" shall mean the Common Stock of the Company
constituting Registrable Securities as provided in Section 2 of this Agreement.
"Registration Expenses" shall mean all expenses incident to the
Company's performance of or compliance with the registration rights granted
hereunder, including, without limitation, all registration, filing, listing and
NASD fees, all fees and expenses of complying with securities or blue sky laws,
all word processing, duplicating and printing expenses, messenger and delivery
expenses, the fees and expenses of the Company's independent public
accountants, including fees and expenses associated with any special audits or
"cold comfort" letters required by or incident to such performance and
compliance, and any fees and disbursements of underwriters customarily paid by
issuers and sellers of securities provided, however, that "Registration
Expenses" shall not include fees and expenses of counsel to any holder of
Registrable Securities nor shall it include underwriting discounts, commissions
and transfer taxes, if any.
"Securities Act" shall mean the Securities Act of 1933, as amended.
2. Securities Subject to this Agreement; Representations and
Warranties
(a) The securities entitled to the benefit of this Agreement are the
shares of Common Stock of the Company issued to Drillships pursuant to the
Purchase Agreement. The term "Registrable Securities" shall include the
foregoing securities and shall also include any securities issued as a dividend
or distribution or pursuant to a recapitalization, reorganization,
consolidation or merger on account of Registrable Securities, and includes any
shares of Common Stock received by Drillships by way of sub division of the
outstanding shares of Common Stock into a greater number of shares (by
reclassification, stock split or otherwise). Certificates representing
Registrable Securities shall contain the following legend on the face thereof:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be offered or sold except pursuant to (i) an
effective registration statement under the Act, (ii) to the
extent applicable, Rule 144 under the Act (or any similar rule
under the Act relating to the disposition of securities), or
(iii) an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel of the Company, that an exemption from
registration under the Act is available.
The foregoing legend shall remain on the face of such certificates until the
Common Stock represented thereby has been registered with the Commission or
until counsel to the Company has determined that such legend may be removed in
accordance with applicable provisions of the Securities Act and the rules and
regulations promulgated thereunder.
(b) A Registrable Security shall cease to be a Registrable Security
when: (i) such security has been effectively registered under the Securities
Act and has been disposed of pursuant to a registration
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<PAGE> 3
statement (which shall not include the sale of Registrable Securities to
Drillships pursuant to the Purchase Agreement); (ii) such security is sold
pursuant to Rule 144 under the Securities Act (or similar provision); (iii)
such security has been otherwise transferred and (A) the Company delivers a new
certificate for such security which does not bear a registration legend and (B)
Holder's counsel is of the reasonable opinion that subsequent disposition of
such security into the public market does not require registration under the
Securities Act; or (iv) such security has ceased to be outstanding.
(c) The Company represents and warrants, as follow:
(i) The Company is a corporation organized, validly existing and in
good standing under the laws of Delaware.
(ii) The Company has duly authorized and approved by all requisite
corporate action this Agreement, and the Company has all requisite corporate
power and authority to enter into, execute and deliver this Agreement and
perform its obligations hereunder.
(iii) This Agreement has been duly executed and delivered by the
Company and is a valid and binding obligation of it enforceable against it in
accordance with its terms except to the extent that its enforceability may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the enforcement of creditors' rights generally and
general equitable principals.
(iv) The Registrable Securities have been duly and validity authorized
and issued, fully paid and non-assessable and will not subject the Holder
thereof to any liability solely by reason of being such Holder. The
Registrable Securities are free and clear of all liens, encumbrances,
restrictions and claims of every kind. The Company has full legal right, power
and authority to sell, assign, transfer and convey the Registrable Securities
so owned and to deliver such Registrable Securities, and the Company can and
will deliver good and marketable title to such Registrable Securities.
(v) The Company is not subject to any charter, by-law, mortgage, lien,
lease, agreement, instrument, order, law, rule, regulation, judgment or decree,
or any other restriction of any kind or character, which would prevent
consummation of the transactions contemplated by this Agreement.
(d) Drillships shall be provided with an opinion of counsel dated the
date hereof, in form and substance reasonably satisfactory to Drillships,
covering the matters set forth in Section 2(c) hereof, and such other matters
as it may reasonably request.
3. Demand Registration.
(a) At any time on and after March 1, 1997, any Holder or Holders of
50% or more of Registrable Securities may make a written request (specifying
the intended method of disposition) that the Company effect the registration of
Registrable Securities under the Securities Act (such registration upon such
request, a "Demand Registration"), provided that such request shall relate to
an amount of Registrable Securities at least equal to 25% of the total amount
of Registrable Securities.
(b) Within ten days after receipt of a request for the Demand
Registration, the Company shall give written notice (the "Notice") of such
request to all other Holders and shall include in such registration (except as
otherwise provided herein) all Registrable Securities for which the Company has
received,
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within 15 days after receipt by the applicable Holder of the Notice, a written
request to be included therein. All requests made under this Section 3(b)
shall specify the aggregate number of Registrable Securities to be registered.
(c) A registration shall not constitute a Demand Registration until
it has become effective. In any registration initiated as a Demand
Registration, the Company shall pay all Registration Expenses incurred in
connection therewith, whether or not such Demand Registration becomes
effective; provided that a Holder participating in such registration shall pay
all Registration Expenses if such Demand Registration fails to become effective
solely as a result of an act or omission by such Holder.
(d) The Company shall only be obligated to effect one Demand
Registration.
(e) The Holder of a majority of the Registrable Securities shall have
the right to decide whether or not the offering of the securities will be an
underwritten offering and shall have the right to choose such underwriter or
underwriters.
4. Piggy-back Registration.
(a) If, at any time, the Company proposes to file a registration
statement under the Securities Act with respect to an offering by the Company
for its own account or for the account of any security holders of the Company
of any class of debt or equity security of the Company (other than a
registration statement on Form S-4 or S-8 or any successor or similar forms
thereto), which is anticipated to be or becomes effective on or after May 30,
1997, the Company shall give written notice of such proposed filing (the
"Offering Notice") to Drillships and to all holders of Registrable Securities
to whom the transfer of Registrable Securities have, from time to time, been
registered on the books and records of the Company (Drillships and any such
transferee each referred to herein as a "Holder" and collectively as
"Holders"), such securities so transferred constituting Registrable Securities
immediately following such transfer, at least 30 days before the date of
anticipated filing with the Commission. Such Offering Notice shall offer to any
Holder, the opportunity, but in no event shall such offer constitute a
mandatory obligation, to register such number of Registrable Securities as any
such Holder may request in writing. For such request for registration (each a
"Piggyback Registration") to be effective it must be received by the Company
within 15 days after receipt by such Holder of the Offering Notice.
(b) In connection with any Piggy-back Registration, the Company shall
use best effort to cause the managing underwriter or underwriters of a proposed
underwritten offering to permit any Holder of the Registrable Securities who
requested to be included in the registration for such offering to include such
Registrable Securities in such offering on the same terms and conditions as any
similar securities of the Company or, if such offering is for the account of
other security holders, any similar securities of such security holders
included therein. Notwithstanding the foregoing, if the managing underwriter
or underwriters of a proposed underwritten offering advise the Company in
writing that in its or their opinion the number of Registrable Securities
proposed to be sold in such offering exceeds the number of Registrable
Securities that can be sold in such offering without adversely affecting the
market for the Common Stock, the Company will include in such registration the
number of Registrable Securities that in the opinion of such managing
underwriter or underwriters can be sold without adversely affecting the market
for the Common Stock. In such event, the Company shall reduce the number of
Registrable Securities to be offered for the accounts of any Holder pro rata on
the basis of the relative number of any Registrable Securities requested by
each Holder to be included in such registration to the extent necessary
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<PAGE> 5
to reduce the total number of Registrable Securities to be included in such
offering to the number recommended by such managing underwriter or
underwriters; provided however, that any such reduction in the number of
Registrable Securities shall not constitute a Piggy-back Registration. The
Company shall pay all Registration Expenses incurred in connection with a
Piggy-back Registration.
(c) The Holders of Registrable Securities shall be entitled to
participate in no more than two Piggy-back Registrations.
5. Certain Matters Concerning Demand Registrations.
(a) Notwithstanding anything in the foregoing Sections 3(a) and 4(a),
if the Company's Board of Directors reasonably determines that a Demand
Registration would substantially interfere with a material transaction being
considered by the Company, the Company may delay such Demand Registration for
30 days.
(b) The Company may, if permitted by law, effect any Demand
Registration by the filing of a registration statement on Form S-3 (or any
successor or similar short-form registration statement).
(c) A Demand Registration shall not be deemed to have been effected
unless it becomes effective with the Commission, provided that a registration
which does not become effective after the Company filed a registration
statement with respect thereto with the Commission solely by reason of any
participating Holder failing to proceed shall be deemed to have been effected
by the Company in satisfaction of the obligation of the Company to register
Registrable Securities pursuant to the Demand Registration, unless the Company
shall have been promptly reimbursed for all Registration Expenses by the Person
who demanded registration and failed to proceed. If a Demand registration has
been initiated, the failure of any Holder to proceed with such registration
shall not constitute a revocation of the request for registration nor relieve
the Company of its obligation to effect such Demand Registration as to
Registrable Securities of any other Holder who has elected to participate in
such Demand Registration and who proceeds therewith. Notwithstanding the
foregoing, a registration statement will not be deemed to have been effected if
after it becomes effective with the Commission, such registration is interfered
with by any stop order, injunction or other order or requirement of the
Commission or other governmental agency or any court proceeding for any reason
other than a misrepresentation or omission by the Holder initiating the demand.
6. Registration Procedures; Damages.
(a) If and whenever any Holder of Registrable Securities have
requested that any Registrable Securities be registered pursuant to Section 3
or 4, the Company shall use its best efforts to effect the registration of such
Registrable Securities under the Securities Act and in accordance with the
intended method of disposition thereof as expeditiously as practicable and in
connection with any such request will, as expeditiously as possible:
(i) in connection with a Demand Registration, prepare and file with
the Commission, as soon as practicable, but in any event not later than 60 days
after receipt of a request to file a registration statement with respect to
Registrable Securities, a registration statement on any form for which the
Company then qualifies or which counsel for the Company and the Holder's
Counsel (as hereinafter defined) shall deem appropriate and which form shall be
available for the sale of such Registrable
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<PAGE> 6
Securities in accordance with the intended method of distribution thereof and,
if the offering is an underwritten offering, shall be reasonably satisfactory
to the managing underwriter or underwriters, and use its best efforts to cause
such registration statement to become effective; provided, however, that before
filing a registration statement or prospectus or amendments or supplements
thereto, the Company shall (a) furnish to the counsel (the "Holder's Counsel")
selected by the Holder making the demand, or if no demand is made, the holders,
in the aggregate, of a majority of the Registrable Securities covered by such
registration statement, copies of all documents proposed to be filed a
reasonable period of time prior to the filing thereof, which documents will be
subject to the review and comment of such counsel and each seller of
Registrable Securities included in such registration statement, and (b) notify
each seller of Registrable Securities of any stop order, injunction or other
order or requirement issued or threatened by the Commission or other
governmental agency or any court injunction and take all reasonable actions
required to prevent the entry of such stop order, injunction or other order or
requirement or to remove it if entered; provided further, that in no event
shall the Company be under any obligation to cause a Demand Registration to
become effective prior to May 30, 1997;
(ii) in connection with a registration pursuant to Section 3 or 4,
prepare and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective for a period of not
less than 90 days (or such shorter period that will terminate when all
Registrable Securities covered by such registration statement have been sold,
but not before the expiration of the applicable period referred to in Section
4(3) of the Securities Act and Rule 174 thereunder, if applicable), and comply
with the provisions of the Securities Act applicable to it with respect to the
disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
(iii) furnish to each seller of Registrable Securities one signed copy
of the registration statement and each amendment thereto as filed with the
Commission, and such number of copies of such registration statement,
amendments and supplements thereto (in each case including all exhibits
thereto), the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as such seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them;
(iv) use all reasonable efforts to register or qualify such
Registrable Securities under such other securities or "blue sky" laws of such
jurisdictions as any seller or underwriter reasonably requests in writing and
do any and all other acts and things that may be reasonably necessary or
advisable to qualify for sale in such jurisdictions the Registrable Securities
owned by such seller; provided, however, that the Company shall not be required
(a) to qualify generally to do business in any jurisdiction where it is not
then so qualified, (b) to subject itself to jurisdiction or qualification in
any such jurisdiction, (c) to consent to general service of process in any such
jurisdiction, (d) to provide any undertaking required by such other securities
or "blue sky" laws or (e) make any change in the charter or bylaws that the
Board of Directors determines in good faith to be contrary to the best interest
of the Company and its stockholders;
(v) use all reasonable efforts to cause the Registrable Securities
covered by such registration statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary by virtue
of the business and operations of the Company to enable the sellers thereof or
the underwriters, if any, to consummate the disposition of such Registrable
Securities;
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(vi) notify each seller of such Registrable Securities and the
Holder's Counsel at any time when a prospectus relating thereto is required to
be delivered under the Securities Act of the happening of any event as a result
of which the prospectus included in such registration statement contains an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statement therein, in
light of the circumstances under which they were made, not misleading, and
prepare and file with the Commission a supplement or amendment to such
prospectus after prompt review by the Holder's Counsel so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
will not contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statement
therein, in light of the circumstances under which they were made, not
misleading;
(vii) enter into customary agreements in form and substance reasonably
satisfactory to the Company (including an underwriting agreement in customary
form for companies of similar size and credit rating, if the offering is an
underwritten offering) and take in good faith such other actions as are
reasonably required in order to expedite or facilitate the disposition of such
Registrable Securities, including making presentations to brokers, analysts and
potential purchasers, in each case as if the Company were the seller of the
Registrable Securities;
(viii) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement, the Holder's Counsel and any attorney, accountant or
other agent retained by any such seller or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records") and provide
reasonable access during normal business hours to officers, directors,
employees and agents to ask questions, in each ease as shall be reasonably
necessary to enable the Inspectors to exercise their due diligence
responsibility, and cause the Company's officers, directors, employees and
agents to supply all information reasonably requested and to answer all
questions reasonably asked by any such Inspector in connection with such
registration statement. Records that the Company determines, in good faith, to
be confidential and that it notifies the Inspectors are confidential shall not
be disclosed by the Inspectors unless (a) the disclosure of such records is, in
the reasonable opinion of Holder's Counsel, necessary to avoid or correct a
misstatement or omission of a material fact in the registration statement,
provided that any such Holder has notified the Company of such condition and
has afforded the Company an opportunity to correct any such misstatement or
omission, or (b) the release of such records is required (in the written
opinion of counsel of such seller or underwriter, which counsel shall be
reasonably acceptable to the Company) pursuant to applicable state or federal
law. The seller of Registrable Securities agrees that it will deliver such
opinion to the Company a reasonable period before releasing such information
and, upon learning that disclosure of such records is sought by a court or
governmental agency, provide notice to the Company and, in each case, allow the
Company, at the Company's expenses, to undertake an appropriate action to
prevent disclosure of the records deemed confidential;
(ix) if such sale is pursuant to an underwritten offering, use all
reasonable efforts to obtain a "cold comfort" letter and updates thereof from
the Company's independent public accountants in customary form and covering
such matters of the type customarily covered by "cold comfort" letters as the
holders, in the aggregate, of a majority of the Registrable Securities being
sold and the managing underwriter or underwriters reasonably request;
(x) otherwise use all reasonable efforts to comply with all
applicable rules and regulations of
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<PAGE> 8
the Commission, and make generally available to its security holders, as soon
as reasonably practicable, an earnings statement covering a period of 12
months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act;
(xi) use all reasonable efforts to cause all Registrable Securities
covered by the registration statement to be listed on each securities exchange,
if any, on which similar securities issued by the Company are then listed,
provided that the applicable listing requirements are satisfied;
(xii) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
and
(xiii) cause counsel to the Company to provide customary legal opinions
reasonably requested by the Holders holding, in the aggregate, of a majority of
the Registrable Securities being sold.
The Company may request each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities and other matters as
may be reasonably required to be included in the registration statement and
each seller of Registrable Securities shall have the opportunity to review and
approve the presentation of such material in the registration statement. In
addition, any Holder of Registrable Securities will have the right to propose a
plan of distribution section of the registration statement/prospectus in the
form attached hereto as Exhibit A. The Company shall promptly notify the
Holder's Counsel of any request by the Commission for any amendment or
supplement of such registration statement or prospectus or for additional
information and shall promptly notify each seller of Registrable Securities of
any such request by the Commission if such request pertains directly to the
material set forth in the preceding sentence. The Company shall promptly
notify each seller of Registrable Securities and the Holder's Counsel after the
Company shall receive notice of the time when such registration statement
became effective or when any amendment or supplement referred to in the
preceding sentence is filed.
Each Holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Paragraph (vi) of this Section 6(a), each such Holder shall forthwith
discontinue disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Person's receipt of
the copies of the supplemented or amended prospectus contemplated by paragraph
(vi) of this Section 6(a), and, if so directed by the Company, such Person
shall deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. If the Company shall give any such notice, the Company shall extend
the period during which such registration statement shall be maintained
effective pursuant to this Agreement (including the period referred to in
paragraph (ii) of this Section 6(a)) by the number of days during the period
from and including the date of the giving of such notice pursuant to paragraph
(vi) of this Section 6(a) to and including the date when each seller of
Registrable Securities covered by such registration statement shall have
received the copies of the supplemented or amended prospectus contemplated by
paragraph (vi) of this Section 6(a).
(b) The Company may require each Holder, at Company's expense, to
furnish the Company with such information and undertakings as it may reasonably
request regarding each such Holder and the distribution of such securities as
the Company may from time to time reasonably request in writing.
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<PAGE> 9
7. Underwritten Offerings.
(a) If a Demand Registration is an underwritten offering, if
requested by the underwriters, the Company will enter into an underwriting
agreement with the managing underwriter or underwriters for such offering
(which managing underwriter or underwriters shall be an investment banking firm
or firms of national reputation), such agreement to be in form and substance
reasonably satisfactory to the Company and to Holder's Counsel and to contain
such representations and warranties by the Company and such other terms as are
customarily contained in agreements of such type, including, without
limitation, indemnities to the effect and to the extent provided in Section 8.
The sellers of Registrable Securities in such offering shall be party to such
underwriting agreement and may require that any or all of the representations
and warranties by, and the other agreements on the part of, the Company to and
for the benefit of such underwriters shall also be made to and for the benefit
of such sellers and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligation of such sellers. No Holder shall be
required to make any representations or warranties to or agreements with the
Company or the underwriters other than representations, warranties or
agreements regarding such Person, its ownership of Registrable Securities and
its intended method of distribution and any other representation required by
applicable law.
(b) Each Holder of Registrable Securities agrees by acquisition of
such Registrable Securities, if so required by the managing underwriter, not to
effect any public sale or distribution of Registrable Securities or sales of
such Registrable Securities pursuant to Rule 144 or Rule 144A under the
Securities Act, during the 14 days prior to and the 90 days after any firm
commitment underwritten registration pursuant to Section 3 or 4 has become
effective (except as part of such registration) or, if the managing underwriter
advises the Company that in its opinion, no such public sale or distribution
should be effected for a period of 120 days after such underwritten
registration in order to complete the sale and distribution of securities
included by such registration and the Company gives written notice to each
Holder of such advice. Each such Person shall not effect any public sale or
distribution of Registrable Securities or sales of such Registrable Securities
pursuant to Rule 144 or Rule 144A under the Securities Act during such 120-day
period after such underwritten registration, except as part of such
underwritten registration, whether or not such Person participates in such
registration.
8. Indemnification.
(a) The Company will, and hereby does, agree to indemnify and hold
harmless, to the full extent permitted by law, Drillships and each Holder, and
each other Person, if any, who controls Drillships or such Holder within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities (or actions in respect thereof), joint or several, to which
Drillships or any Holder or any such director, partner, member, manager,
officer, employee, agent or other controlling Person or Drillships or its
controlling Persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein or any
document incorporated therein by reference, or any amendment or supplement
thereto, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make such statements therein (in
the case of a prospectus, in light of the circumstance under which they
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<PAGE> 10
were made) not misleading, or (ii) any violation by the Company or any of its
officers, directors, employees, representatives or agents of any rule or
regulation under applicable securities laws or other laws applicable to the
Company, in each case, the Company will reimburse Drillships, any Holder and
each such director, partner, member, manager, officer, employee, agent and
controlling Person of Drillships or its controlling Persons for any legal and
any other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, liability, action or proceeding; provided
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospects,
summary prospectus, amendment or supplement in reliance upon and in conformity
with information furnished in writing to the Company by Drillships or any such
Holder.
(b) Drillships and each Holder will, and hereby does, agree to
provide the Company with an undertaking to indemnify and hold harmless,
severally and not jointly, to the full extent permitted by law, the Company,
its directors, officers and each other Person, if any, who controls the Company
(within the meaning of the Securities Act), against any losses, claims, damages
or liabilities, joint or several, to which the Company or any such director,
officer or controlling Person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings, whether commenced or threatened, in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact or any omission or alleged omission of a material fact required
to be stated in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained herein or any document incorporated
therein by reference, or any amendment or supplement hereto, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (in the case of a prospectus, in
light of the circumstances under which they were made) not misleading, only to
the extent, such statement or alleged statement or omission or alleged omission
was made in reliance upon and in conformity with information furnished in
writing to the Company solely by Drillships or any such Holder.
(c) Promptly after receipt by an indemnified party of notice of any
threatened action or proceeding or the commencement of any action or proceeding
involving a claim referred to in the preceding subsections of this Section 8,
such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the threat
or commencement of such action or proceeding, provided that the failure of any
indemnified party to give notice as provided herein shalt not relieve the
indemnifying party of its obligations under the preceding subsections of this
Section 8, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election to
so assume the defense thereof, the indemnifying patty shall not be liable to
such indemnified company for any legal or other expenses subsequently incurred
by the latter in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall consent to entry of any
judgment or enter into any settlement without the consent of the indemnified
company which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to
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such indemnified party of a release from all liability in respect of such claim
or litigation.
(d) Indemnification similar to that specified in the preceding
subsections of this Section 8 (with appropriate modifications) shall be given
by the Company and the sellers of Registrable Securities with respect to any
required registration or other qualification of securities under any Federal or
state law or regulation of any governmental authority, other than the
Securities Act.
(e) If the indemnification provided for in this Section 8 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses referred to herein,
then the indemnifying party, to the extent such indemnification is unavailable,
in lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified parties in
connection with the actions that resulted in such losses, claims, damages,
liabilities or expenses. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
indemnifying party or indemnified parties, and the parties' relative extent of
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party
in connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(e) were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 10(f) of the Securities Act) shall be entitled to
contribution from any Person.
If indemnification is available under this Section 8, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
Sections 8(a) and 8(b) without regard to the relative fault of said
indemnifying parties or indemnified party or any other equitable consideration
provided for in this Section 8.
(f) The indemnification or contribution required by this Section 8
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
9. Covenants Relating to Rule 144. The Company covenants that it
shall use its best efforts to file the reports required to be filed by it under
the Securities Exchange Act of 1934, as amended, and the rules and regulations
of the Commission thereunder for so long as the Company becomes obligated to
file such reports (or, if the Company ceases to be required to file such
reports, it shall, upon the request of any Holder, make publicly available
other information so that Rule 144 shall be available to any Holder), and it
shall, if feasible, take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable such Person to
sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144 or Rule 144A
under the Securities Act, as such Rules may be amended from time to time, or
(b) any similar rules or
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<PAGE> 12
regulations hereafter adopted by the Commission. Upon the request of any
Holder, the Company shall deliver to such Person a written statement as to
whether it has complied with such requirement.
10. Miscellaneous.
(a) Specific Performance. The parties hereto acknowledge that there
may be no adequate remedy at law if any party fails to perform any of its
obligations hereunder and that each party may be irreparably harmed by any such
failure, and accordingly agree that each party, in addition to any other remedy
to which it may be entitled at law or in equity, shall be entitled to compel
specific performance of the obligations of any other party under this Agreement
in accordance with the terms and conditions of this Agreement.
(b) Notices. All notices, requests, claims, demands, waivers and
other communications hereunder shall be in writing md shall be deemed to have
been duly given when delivered by hand, if delivered personally by courier, or
by telecopy or ten (10) days after being deposited in the mail (registered or
certified mail, postage prepaid, return receipt requested) as follows: if to
the Company, to it at 1900 West Loop South, Suite 1800, Houston, Texas 77027,
Attention: Steven A. Webster and if to Drillships, to it at c/o Wexford
Management LLC, 411 West Putnam Avenue, Greenwich, CT 06830, Attention: Spyros
Skouras and if to a Holder, to its address as indicated on the Company's
register or stock ledger or other books or records, or to such other address as
any such Holder may have furnished to the Company in writing in accordance
herewith, except the notices of change of address shall be effective only upon
receipt.
(c) Governing Law and Arbitration. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
Any dispute arising out of or in relation to this Agreement or the activities
conducted hereunder (whether tort or otherwise) shall be finally and
exclusively resolved by arbitration in New York, New York, in accordance with
the Rules of Arbitration of the American Arbitration Association by three
arbitrators. The arbitration shall be conducted in the English language, and
each arbitrator shall have English as his or her first (mother-tongue)
language. Disputes involving sums less than US$25,000 shall be resolved on the
basis of document submission alone by one arbitrator. All decisions of the
arbitrator(s) shall be in writing, and the arbitrator(s) shall provide written
reasons for their decisions. The arbitration shall be final and binding on the
parties. The prevailing party shall be entitled to recover from the losing
party reasonable expenses, attorneys' fees and costs.
(d) Headings. The descriptive headings of the several Sections and
paragraphs of this Agreement are inserted for convenience only, and do not
constitute a part of this Agreement and shall not affect in any way the meaning
or interpretation of this Agreement.
(e) Entire Agreement; Amendments. This Agreement and the other
writings referred to herein or delivered pursuant hereto which form a part
hereof and contain the entire understanding of the parties with respect to its
subject matter. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its subject matter. This
Agreement may be amended and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either
retroactively or prospectively) only by a written instrument duly executed by
the Company, Drillships and any Holder. Drillships and any other Holder shall
be bound by an amendment or waiver authorized by this Section 10(e), whether or
not any Registrable Securities held by such Person
12
<PAGE> 13
shall, have been marked to indicate such consent.
(f) Assignability of Registration Rights. The rights and benefits
accruing to, and the obligations of, any Holder hereunder shall be freely
assignable in connection with and shall attach to any transfer of Registrable
Securities to any Person provided that any of such rights, benefits and
obligations shall be effective only to the extent set forth herein and that,
except as set forth in Section 4, no individual holder of a Registrable
Security shall have any rights, benefits or obligations hereunder unless such
individual holder constitutes a Holder; and provided further that any Holder
effecting a transfer of the rights set forth in this Agreement, or who has
knowledge that any such transfer would cause any other Person or group of
Persons to have the rights of a Holder, shall provide the Company with notice
of such transfer and the identity of such Person or Persons.
(h) Counterparts. This Agreement may be entered into in any number
of counterparts, and by the parties to it on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
together shall constitute one and the same instrument.
(i) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions hereof shall not be in any way impaired, it being intended
that all of the rights of Drillships or any other Holder shall be enforceable
to the fullest extent permitted by law.
(j) Written Consent. The Company, Drillships and each Holder agree
that whenever in this Agreement the written consent of any party is required,
such written consent shall not be unreasonably withheld or delayed.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
FALCON DRILLING COMPANY, INC.
By /s/ LEIGHTON E. MOSS
----------------------------------------
Name: Leighton E. Moss
Title: V.P.
KS DEEPSEA DRILLSHIPS
By /s/ SPYROS SKOURAS
----------------------------------------
Name: Spyros Skouras
Title:
13
<PAGE> 14
EXHIBIT A
PLAN OF DISTRIBUTION
The Common Stock may be sold from time to time by the Selling
Stockholders, or by pledgees, donees, transferees or other successors in
interest. Such sales may be made on one or more exchanges or in the over-the-
counter market, or otherwise at prices and at terms then prevailing or at
prices related to the then current market price, or in negotiated transactions.
The shares may be sold by one or more of the following: (a) a block trade in
which the broker or dealer so engaged will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to facilitate
the transaction; (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; (c) an
exchange distribution in accordance with the rules of such exchange; and (d)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers. In addition, any securities covered by this Prospectus which
qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than
pursuant to this Prospectus. From time to time the Selling Stockholders may
engage in short sales, short sales versus the box, puts and calls and other
transactions in securities of the issuer or derivatives thereof, and may sell
and deliver the shares in connection therewith.
In effecting sales, brokers or dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate. Brokers
or dealers will receive commissions or discounts from Selling Stockholders in
amounts to be negotiated immediately prior to the sale. The Selling
Stockholders and agents who execute orders on their behalf may be deemed to be
underwriters as that term is defined in Section 2(11) of the Act and a portion
of any proceeds of sales and discounts, commissions or other compensation may
be deemed to be underwriting compensation for purposes of the Act.
14
<PAGE> 1
EXHIBIT 10.27
STATE OF LOUISIANA
PARISH OF IBERIA
LEASE AND AGREEMENT
BE IT KNOWN that on the date and place written below but effective as
of January 1, 1997 (the "Effective Date") and in the presence of the
undersigned Notary Public and two competent witnesses there personally came and
appeared:
W & H VENTURES, L.L.C., a Louisiana Limited Liability Company
domiciled in the Parish of Iberia
(sometimes hereinafter referred to as "Lessor") and Double Eagle Marine, Inc.,
a Louisiana corporation domiciled in the Parish of St. Mary (sometimes
hereafter referred to as "Lessee") who did declare and agree as follows:
W I T N E S S E T H :
WHEREAS, Lessor is the owner of certain premises situated in St. Mary,
Louisiana; and
WHEREAS, Lessor has agreed to lease such property to Lessee for the
term of five (5) years and eleven (11) months for use by Lessee in connection
with oilfield marine services; and
WHEREAS, Lessor and Lessee have agreed to certain terms, conditions,
stipulations and provisions in respect to the said lease and, to that end, in
consideration of the terms and conditions herein recited, Lessor and Lessee
have agreed and do hereby agree as follows:
<PAGE> 2
1. LEASED PREMISES
Lessor does hereby lease, let, rent and demise unto and in favor of
Lessee those certain premises located in Morgan City, St. Mary Parish,
Louisiana, which are fully described in Exhibit "A" attached hereto and made a
part hereof (the "Leased Premises").
2. TERM OF LEASE; OPTION
This Lease shall be for a primary term of five (5) years and eleven
(11) months, commencing January 1, 1997 and terminating at midnight November
30, 2002. Lessee shall have the option to renew this lease for one (1)
additional five (5) year term on the same terms and conditions except for the
rental amount which shall be negotiated by Lessor and Lessee. Lessee shall
notify Lessor of his election to exercise this renewal option at least ninety
(90) days prior to expiration of the primary term.
3. RENTALS
Lessee shall pay to Lessor as rental for the Leased Premises, each
month, in advance, on or before the 1st day of each and every month, during the
initial term of this Lease, the sum of $2,500.00. The monthly rent payable
during any renewal term shall be at a rate determined by negotiations between
Lessor and Lessee and established at least thirty (30) days prior to the
commencement of the renewal term.
4. USE OF LEASED PREMISES
Lessee agrees that the activities to be conducted on the Leased
Premises will not in any manner constitute a nuisance or hazard and that Lessee
will observe and comply with all land use, environmental, pollution and other
applicable laws,
- 2 -
<PAGE> 3
regulations, orders and ordinances prescribed by any and all governmental and
regulatory authorities having jurisdiction over the Leased Premises and the
activities conducted thereon by Lessee.
5. IMPROVEMENTS TO THE PREMISES
Only upon Lessor's written consent first obtained, which consent shall
not be unreasonably withheld, Lessee may, at its sole expense, construct and
erect buildings, sheds and other structures upon the Leased Premises and
otherwise make improvements and alterations thereto consistent with Lessee's
use and occupancy. All such improvements shall be constructed in conformity
with any applicable zoning ordinances, setback requirements, building codes or
other applicable ordinances, laws or regulations and shall not obstruct or
otherwise interfere with the use of any servitudes to which the Lease Premises
are subject. All such improvements shall become the property of Lessor upon
termination hereof without cost, charge or reimbursement to Lessee.
6. REPAIRS AND ALTERATIONS
Lessor shall not be obligated to fix, maintain, repair, replace or
refurbish the Leased Premises or the leased equipment or any structure,
building, facility or improvement now located on the Leased Premises, or to be
located and constructed thereon by Lessee. All such repairs, replacements,
maintenance and refurbishing shall be done and performed by Lessee at Lessee's
sold cost and expense during the term of this Lease. Lessee shall keep the
Leased Premises, buildings, facilities and improvements in good repair and
working condition throughout the entire term of this
- 3 -
<PAGE> 4
Lease and return same to Lessor in the same condition as received, ordinary
wear and tear excepted. Lessor warrants the premises are in good repair and
working condition on the commencement hereof.
7. UTILITIES
Lessee shall be responsible for all utility and other services used,
connected or provided in connection with Lessee's occupancy of the Leased
Premises and equipment, including electricity, natural gas, sewer, telephone
and waste disposal. Lessee shall obtain all such services in its name and shall
post all meter, connection and similar deposits as may be required in
connection therewith.
8. TAXES
Lessor shall pay all ad valorem property and all other special tax
assessments levied and assessed against the Leased Premises or improvements
located thereon.
9. INSURANCE; WAIVER OF SUBROGATION
Lessee shall provide and keep in force at its own cost and expense
during the entire term hereof full comprehensive public liability and property
damage insurance with respect to the Leased Premises and Lessee's use and
occupancy thereof, including those portions of the Leased Premises used as
driveways, walkways and parking areas. Such insurance shall contain limits of
not less than $500,000.00 per person and $1,000,000.00 per accident for bodily
injury or death, together with $500,000.00 for damage to property in any one
occurrence. All such policies of insurance shall be issued by one or more
solvent and financially sound insurance
- 4 -
<PAGE> 5
companies authorized to engage in business in the State of Louisiana, and at
least twenty-five (25) days prior to the expiration of any such policy Lessee
shall supply Lessor with a substitute therefor with evidence of payment of all
premiums.
Lessee shall at all times furnish Lessor with certificates attesting
to the existence of the aforesaid insurance coverage and shall not commence
occupancy of the Leased Premises without first providing same to Lessor.
Lessee further agrees to cause all policies of insurance required hereunder,
including all liability policies insuring Lessee against personal injury, death
or physical damage or destruction of property on or about the Leased Premises,
to contain a specific provision or endorsement by which the insurer renounces,
disclaims, and waives all rights of recovery or subrogation against Lessor and
its managers, members and employees. All policies required hereunder shall
name Lessor as either a co-insured or an additional insured thereunder.
10. INDEMNIFICATION AND LIABILITY FOR INJURIES
Lessee agrees hereby to indemnify and save lessor harmless from any
and all actions, demands, liabilities, claims, losses or litigation arising in
whole or in part out of Lessee's occupancy or use of the Leased Premises, out
of any activity conducted thereon, or out of the condition of the Leased
Premises, and any building, structure or improvement situated thereon.
Further, at all times, Lessee assumes complete responsibility for the
condition of the Leased Premises and the buildings and improvements situated
thereon, and hereby relieves Lessor from all liability for personal injury to
Lessee, or to Lessee's
- 5 -
<PAGE> 6
patrons, customers, invitees, business guests, deliverymen, or to anyone else
on or about the Leased Premises who derives their right to be thereon from
Lessee, arising from, or in any way related to, any defect or vice on the
Leased Premises, whether latent or patent.
11. PROPERTY DAMAGE; DISCLAIMER
Lessee disclaims, waives and renounces any and all claims, actions and
demands which Lessee may have against Lessor for damages to, or the destruction
and loss of, personal property, including consequential and residual damages,
however arising, and whether caused in whole or in part by any vice or defect,
latent or patent, of the Leased Premises, it being understood and agreed
between Lessor and Lessee that Lessee shall have no claim or recourse against
Lessor for the loss of or damage to property belonging to Lessee or any other
third party situated on or about the Leased Premises.
12. DEFAULT
As used in this Lease, the term "Event of Default" shall mean any of
the following:
(a) The failure of Lessee to make any payment of rental as and
when the same becomes due and payable and the failure to cure
such default within two (2) business days after written notice
from Lessor.
(b) The failure of Lessee to fulfill any duty or obligation
imposed on Lessee by this Lease, and the failure to commence
promptly and diligently cure same within thirty (30) days
following written notice from Lessor.
(c) The appointment of a receiver or the entry of an order
declaring Lessee bankrupt or the assignment by Lessee for the
benefit of creditors or the participation by Lessee in any
other insolvency proceeding.
- 6 -
<PAGE> 7
(d) The seizure or taking of the leasehold interest of Lessee
hereunder pursuant to an execution of a judgment or any act of
assignment for the benefit of Lessee's creditors.
Upon the happening of any "Event of Default", Lessor may at its sole
option and election i) terminate this Lease and cause Lessee's eviction from
the Leased Premises without prejudice to any other right, action and remedy
available to Lessor or ii) permit and suffer Lessee's continued occupancy of
the Leased Premises and, upon Lessee's continued failure to pay rent after
receipt of ten (10) days' written notice from Lessor to make such payment,
accelerate all rentals due for the remainder of the term of the Lease, which
said accelerated rentals shall be payable, in full, without discount or
reduction, by Lessee to Lessor within ten (10) days after written demand
therefore has been served by Lessor upon Lessee. Upon Lessee's payment of the
accelerated rentals, Lessee shall be considered to have cured any rental
default, and shall be entitled to remain in possession of the Leased Premises
for the remainder of the term, subject to all of the other obligations of
Lessee hereunder.
13. IDENTITY OF INTEREST
The execution of this Lease or the performance of any act pursuant to
the provisions hereof shall not be deemed or construed to have the effect of
creating between Lessor and Lessee the relationship of principal and agent or
of a partnership or of a joint venture, and the relationship between them shall
be and remain only that of Lessor and Lessee.
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<PAGE> 8
14. MINERAL LEASES
Lessor shall have and hereby reserves the unconditional right to make,
grant and execute any and all oil, gas and mineral leases or other similar
grants for the drilling, exploration and mining of all oil, gas and other
minerals and hydrocarbons which may be situated on, under or beneath the
surface of the Leased Premises.
In so doing, Lessor (without Lessee's written permission and consent
first obtained) shall require all such mineral leases to drill, mine or
otherwise explore for such minerals only by means of slant or directional
drilling operations and in a manner so as not to interfere with Lessee's use
and enjoyment of the Leased Premises. Accordingly, this lease, and all rights
held hereunder by Lessee, shall at all times be inferior, secondary and
subordinate to any and all existing or future oil, gas and mineral leases and
other grants and contracts which have already or may hereafter be granted by
Lessor.
15. NOTICES AND REPORTS
Any notice, report, statement, approval, consent, designation, demand
or request to be given and any option or election to be exercised by a party
under the provisions of this Lease shall be effective only when made in writing
and delivered (or mailed by registered or certified mail with postage prepaid)
to the other party at the address given below:
Lessor: W&H Ventures, L.L.C.
c/o Wayne Pourciau
2107 Bayou Bend Road
New Iberia, LA 70560
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<PAGE> 9
Lessee: Double Eagle Marine, Inc.
c/o Steven Webster
1900 West Loop South, Suite 1800
Houston, TX 77027
Provided, however, that either party may designate a different address from
time to time by giving to the other party notice in writing of the changes.
16. ENTIRE AGREEMENT
This Lease contains all of the understandings by and between the
parties hereto, and all prior or contemporaneous agreements relative thereto
have been merged herein or are voided by this instrument. This Lease may be
amended, modified, altered, or changed in whole or in part only by an
instrument in writing signed by each of the parties hereto.
17. ASSIGNMENT AND SUBLETTING
Lessee may assign this Lease or sublet the Leased Premises, or any
part or portion thereof, or otherwise transfer any right or interest hereunder,
with the prior written consent of Lessor, provided, Lessee shall remain fully
liable hereunder notwithstanding any sublease, assignment, or other transfer of
any right or interest hereunder by Lessee. Any such approval by Lessor shall be
limited to the particular instance specified in such written consent, and
Lessee shall not thereby be relieved of any duty, obligation or liability under
the provisions of this Lease, and shall remain at all times liable and
responsible therefore in solido with any such sub-Lessee and/or assignee.
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<PAGE> 10
18. ATTORNEY'S FEES
In the event it becomes necessary for either Lessor or Lessee to
employ an attorney to obtain enforcement of any obligation provided hereunder
and imposed upon either Lessor or Lessee hereby, and in the event such party is
successful in asserting such claim, including claims for payment of rentals,
then, in such event, the party so adjudged liable shall be responsible to the
other for all responsible attorney's fees thereby incurred. The provisions of
this paragraph include attorney's fees which might be incurred by Lessor in
connection with an eviction of Lessee and the regaining of possession and
occupancy by Lessor of the Leased Premises.
19. INTEREST ON RENTAL DEFAULT
In the event Lessee becomes more than ten (10) days delinquent in the
payment of any rental due hereunder to Lessor then, in such event, such
delinquency shall carry and bear and Lessee shall pay to Lessor, in addition to
such rental, eighteen (18%) per cent per annum interest on all such unpaid
rental installments from due date, until finally paid.
20. BINDING EFFECT
The terms and provisions of this lease shall be binding upon and will
enure to the benefit of the respective successors and assigns of the parties
hereto.
21. GOVERNING LAW
This lease and the rights, duties and obligations of Lessor and Lessee
shall be governed and controlled under the laws of the State of Louisiana.
- 10 -
<PAGE> 11
22. PARAGRAPH CAPTIONS
The paragraph captions as to the contents of particular paragraphs
herein are inserted only for convenience and are in no way to be construed as
part of this Lease or as a limitation on the scope of the particular paragraphs
to which they refer.
THUS DONE, PASSED AND SIGNED BY LESSOR IN THE CITY OF NEW ORLEANS,
PARISH OF ORLEANS, LOUISIANA ON THE 10TH DAY OF JANUARY, 1997 IN THE PRESENCE
OF THE UNDERSIGNED NOTARY AND COMPETENT WITNESSES AFTER DUE READING OF THE
WHOLE.
<TABLE>
<S> <C>
WITNESSES: LESSOR:
W & H VENTURES, L.L.C.
/s/ JULIE POURCIAU By: /s/ WAYNE POURCIAU
- ------------------------ --------------------------------
Wayne Pourciau
Member/Manager
/s/ LEIGHTON E. MOSS LESSEE:
- ------------------------
DOUBLE EAGLE MARINE, INC.
BY: /s/ HARRY WIGGINS
--------------------------------
Harry Wiggins
Vice President
</TABLE>
/s/ NATHAN P. HORNER
-------------------------------------
NOTARY PUBLIC
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<PAGE> 12
EXHIBIT "A"
PROPERTY DESCRIPTION
That certain tract or parcel of land, together with all buildings and
improvements thereon and all rights, ways, privileges, and servitudes thereto
appertaining and all appurtenances thereof, situated in Section 1, Township 16
South, Range 12 East, St. Mary Parish, Louisiana, about one mile below the
original Town of Berwick as per map and plan thereof by A. L. Fields,
containing and measuring eighty-three and 18/100 (83.18') feet on the East side
of River Road and extending back to the Atchafalaya River a distance of three
hundred ten (310') feet, more or less, along the Southern boundary, a distance
of three hundred twenty(320') feet, more or less, along the Northern boundary
and extending a distance of eighty-eight (88') feet along the Eastern boundary,
all as shown by a map and plan of said property by T. F. Kramer, C. E. and
Surveyor, dated November 18, 1947, and recorded in COB 9-Z, at Page 662, under
Entry No. 99,963 of the records of St. Mary Parish, Louisiana, which is made a
part hereof by reference thereto and according to said map and plan of land,
the said tract is bounded on the North by property of Andrew C. Freeman, on the
East by the Atchafalaya River, on the West by River Road, and on the South by
property of Mrs. Hester Freeman Robicheaux.
Being the same property acquired by Wayne Pourciau, et al by Act of Cash Sale
from Atchafalaya Federal Savings Bank, dated October 19, 1987, filed for record
at COB 30-T, under Entry No. 220,744, of the records of St. Mary Parish,
Louisiana; and by Wayne M. Pourciau in that Judgment of Possession in
Succession of Roberta Hebert Pourciau, dated October 31, 1995, filed for record
at COB 39-R, under Entry No. 225,239, of the records of St. Mary Parish,
Louisiana.
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<PAGE> 1
EXHIBIT 10.28
BAREBOAT CHARTER AGREEMENT
THIS Bareboat Charter Agreement (the "Charter") is made the 10th day of
December, 1996, by and between Hyde Offshore Limited Partnership, a California
limited partnership (the "OWNER") and Falcon Drilling Company, Inc., a Delaware
Corporation (the "CHARTERER").
R E C I T A L S
WHEREAS, contemporaneously with the execution of this Charter, the OWNER
has purchased from K/S Deepsea Drillships ("Deepsea") the Bahamian flag
drilling vessel FALCON ICE (ex. DEEPSEA ICE), Official Number 710745, and its
appurtenant machinery and equipment, more fully described in Exhibit 1 hereto
and incorporated herein by reference (the "Vessel"); and
WHEREAS, the OWNER and the CHARTERER desire for the OWNER to charter to
the CHARTERER the Rig to be used from time to time for oil or gas drilling,
completion, or reworking operations, and related services, by one or more third
party petroleum companies (an "Operator"), which shall contract with the
CHARTERER directly or through a sub-charter for the use of the Vessel.
<PAGE> 2
A G R E E M E N T
NOW THEREFORE, in consideration of the mutual promises, covenants and
conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the OWNER and the
CHARTERER agree as follows:
1. (a) Term. Subject to the terms and conditions of this Charter, the
OWNER hereby charters and demises to the CHARTERER, and the
CHARTERER hereby hires from the OWNER, the Vessel. Except as
otherwise provided in this Charter, the term of this Charter (the
"Charter Term") shall continue from the Date of Delivery (as
defined in Section 2(a) herein) of the Vessel to the OWNER up to
and through the date thirty-six (36) months following the Date of
Delivery. The CHARTERER may directly or through a sub-charter,
for so long as the CHARTERER is not in default under the Charter
and always subject, without limitation, to Section 4 herein, from
time to time enter into an agreement with an Operator for
utilization of the Vessel (a "Third Party Contract") which shall
be subordinate to this Charter.
(b) Completion of Contracts. The CHARTERER shall contract for work
for the Vessel which terminates on or before the end of the
Charter Term. If, in the reasonable judgment of the CHARTERER,
the work to be contracted for may exceed the Charter Term, then
the CHARTERER
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<PAGE> 3
shall not enter into such Third Party Contract without the
OWNER's prior written consent. The OWNER will reasonably review
the CHARTERER's request for such a consent and will either: (i)
provide its consent with the stipulation that the Charter will be
extended until the end of the Third Party Contract; or (ii) not
consent to the Third Party Contract and allow the CHARTERER to
terminate the Charter up to thirty (30) days prior to the end of
the Charter Term. Should a Third Party Contract terminate during
the Charter Term, and the CHARTERER has not requested the OWNER's
consent for further Third Party Contracts, then the CHARTERER may
terminate the Charter up to thirty (30) days prior to the end of
the Charter Term.
(c) Third Party Contract Extension. In the event the Vessel is
engaged in a Third Party Contract at the end of the Charter Term,
notwithstanding Section l(b) herein, and expiration of this
Charter would cause a breach or default in the performance of the
Third Party Contract (an "Ongoing Third Party Contract"), this
Charter shall be extended for such time on terms as are then in
effect as is reasonably necessary to complete the Ongoing Third
Party Contract and re-deliver the Vessel to the OWNER.
(d) Termination of Charter During Third Party Contract. In the event
the Charter is terminated by reason of an
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<PAGE> 4
Event of Default (as hereinafter defined) or by mutual agreement
during the term of a Third Party Contract or any sub-charter, if
the OWNER so elects in its sole discretion, the CHARTERER shall
use its reasonable efforts to assign to the OWNER the interests
of the CHARTERER in and to any such sub-charter and/or Third
Party Contract. The CHARTERER shall execute such documents as
are reasonably necessary to effect any such assignments, and upon
termination of the Charter shall take such actions as are
reasonably requested by the OWNER and otherwise use its best
efforts to cause a full transfer of the CHARTERER's interests in
the sub-charter and Third Party Contract to the OWNER and if
requested by the OWNER to effect a smooth transition in the
operation of the Vessel to a nominee of the OWNER.
2. (a) Delivery. The delivery of the Vessel by Deepsea to the OWNER, in
such condition as the Vessel is accepted by and delivered to the
OWNER, shall be deemed to be delivery of the Vessel by the OWNER
to the CHARTERER and acceptance of the Vessel by the CHARTERER
under this Charter (the date of such occurrence being the "Date
of Delivery") and shall constitute full performance of the
OWNER's obligations to deliver the Vessel to the CHARTERER. The
OWNER shall deliver to the CHARTERER with the Vessel all
documentation
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<PAGE> 5
relating to the operation of the Vessel and its equipment that
the OWNER receives from Deepsea, including technical and
operating manuals, construction drawings, specifications, repair
records and regulatory inspection records (collectively, the
"Technical Documents"). During the Charter Term, the CHARTERER
shall be entitled to possession of the Technical Documents;
provided, however, that the OWNER and its designees shall be
allowed reasonable access to and may make copies of the Technical
Documents. THE OWNER HEREBY EXPRESSLY DISCLAIMS ANY AND ALL
WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING, BUT NOT
LIMITED TO, THE DESIGN, CONDITION, MERCHANTABILITY, SEAWORTHINESS
OF OR THE QUALITY OF THE MATERIAL, EQUIPMENT, OR WORKMANSHIP IN
THE VESSEL, OR AS TO ITS FITNESS FOR A PARTICULAR PURPOSE OR ANY
PARTICULAR TRADE, AND THE OWNER FURTHER DISCLAIMS ALL OTHER
LIABILITIES (AT COMMON LAW OR IN CONTRACT OR TORT OR OTHERWISE,
INCLUDING, WITHOUT LIMITATION, STRICT LIABILITY). THE VESSEL IS
DELIVERED BY THE OWNER TO THE CHARTERER "AS IS, WHERE IS" AND
WITH ALL FAULTS.
(b) Re-Delivery. The CHARTERER shall, at its expense, on the
expiration date of the Charter Term or other termination of the
Charter, re-deliver the Vessel to the OWNER at a safe location in
the port of Singapore or offshore Singapore, or at such other
safe port
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as may be mutually agreed upon by the OWNER and the CHARTERER.
The CHARTERER shall re-deliver all Technical Documents to the
OWNER with the Vessel. The CHARTERER shall provide the OWNER
with 30/14/7 days approximate notice of the place and anticipated
date of re-delivery of the Vessel and three (3) days definite
notice of the actual date and place of re-delivery.
(c) Survey, Inventory and Inspection. To establish a benchmark for
the condition of the Vessel and the amount of inventory on the
Vessel at the commencement of the Charter, a joint survey will be
performed at the time of delivery of the Vessel (the "On-hire
Survey") and a joint survey is to be held immediately prior to
the redelivery of the Vessel (the "Off-hire Survey") as provided
for in this Section 2(c). The expenses for independent surveyors
for such surveys shall be shared equally between the CHARTERER
and the OWNER. Such surveys will include, but not be limited to,
an inventory of all consumables, stores, spare parts and
equipment on board the Vessel and ashore; a monetary valuation of
such inventory; a general condition survey of the Vessel
including photographic or videotape records; an inspection of
class records; and an inspection of maintenance records. The
CHARTERER and the OWNER each will mutually agree on the factual
nature of such surveys and such agreement will not be
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<PAGE> 7
unreasonably withheld. At the OWNER's option and expense, an
underwater survey may be performed as a part of the On-hire
Survey and Off-hire Survey. The On-hire Survey report and the
Off-hire Survey report produced pursuant to this Section 2(c),
when agreed, shall be deemed to be incorporated into this Charter
by reference.
(d) (i) Re-delivery - Condition. The CHARTERER shall re-deliver
the Vessel in the same good order, structure, state and
condition as it was when it was delivered, except for
ordinary wear and tear. The Vessel when so re-delivered
(i) shall have installed thereon all spares required by
the American Bureau of Shipping ("ABS") and any other
regulatory authority having jurisdiction over the Vessel;
(ii) shall have a currently effective Certificate of the
highest classification and rating issued by the ABS for
drillships of its age and type, with continuous survey
cycles up to date; (iii) shall be in good order, condition
and repair required by all of the
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<PAGE> 8
terms of Section 5 hereof, with no requirements,
recommendations or citations of the ABS, the United States
Coast Guard or any other governmental agency or department
having jurisdiction over the Vessel uncorrected as
evidenced by a special survey of the Vessel completed
within six (6) months of re-delivery; (iv) shall have all
national and international trading or other certificates
required for operation as a mobile offshore drilling unit
in the location of its most recent employment prior to
redelivery; (v) the main diesel engines of the Vessel
shall at redelivery be returned to the OWNER with the same
time remaining, in aggregate, until their next major
overhauls (assuming 30,000 operating hours per engine
between major overhauls) as recorded in the On-hire
Survey; the CHARTERER will compensate the OWNER for any
deficiency in remaining time, at
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<PAGE> 9
the CHARTERER'S then current cost for overhaul, pro-rated
for 30,000 hours and the OWNER will compensate the
CHARTERER for any surplus at the same rate; (vi) the
CHARTERER shall have fulfilled its obligations under any
Third Party Contract then currently in force as may be
required by the respective Operator; (vii) if the Vessel
is not in Singapore or Singapore waters, the CHARTERER
shall on behalf of the OWNER obtain valid and current
documentation for immediate export of the Vessel from its
location to Singapore to the extent such documentation is
required, such documentation to be provided at the
CHARTERER's expense; and (viii) the Vessel shall be in all
respects seaworthy. The CHARTERER shall also deliver to
the OWNER with the Vessel, the Vessel's log books, all
plans and drawings in the possession of the CHARTERER, and
all classification
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<PAGE> 10
society, inspection, modification and overhaul records
relating applicable to the Vessel.
(ii) Re-delivery - Standards. The Vessel is to be re-delivered
(i) in the same (or better) condition as received by the
CHARTERER, ordinary wear and tear excepted, and (ii) with
equipment in compliance with published operating
specifications and the CHARTERER's maintenance practice
for similar equipment on similar drillships owned or
operated by the CHARTERER or its owners or affiliates. If
the OWNER elects to perform an underwater survey, as
provided in Section 2(c) above, any damage affecting class
revealed by such survey shall be repaired by the
CHARTERER, at the CHARTERER's time and expense. If the
OWNER requires the CHARTERER (pursuant to the preceding
sentence) to repair damage revealed pursuant to an
underwater survey, and the estimated cost of such repairs
exceeds USD 1,000,000, the Option granted to the CHARTERER
pursuant to Section 18 below shall be extended for a
period of fifteen (15) days from the date of such
underwater survey.
(e) Re-delivery Inventory. The CHARTERER shall re-deliver the Vessel
with the same amount of fuel oil, lubricating oil, unbroached
provisions, paints, oils,
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<PAGE> 11
ropes, spare parts and equipment, including, but not limited, to
the inventory determined as a part of the On-hire Survey, and
other unused consumable stores as are on board and ashore at the
commencement of the Charter Term. In the event the quantity of
fuel oil or lubricating oil is less than it was determined in the
On-hire Survey, the CHARTERER shall compensate the OWNER for such
discrepancy at the then current unit cost for the difference in
value as appropriate. In the event consumable stores are greater
at re-delivery than at delivery, the CHARTERER may remove the
excess. In the event the amount of fuel oil or lubricating oil
is greater at re-delivery than delivery, the OWNER will purchase
the excess at the then current unit cost for the difference in
value as appropriate.
3. (a) (i) Basic Charter Hire. The CHARTERER shall pay to the OWNER
charter hire ("Basic Charter Hire") for the Vessel during
the Charter Term as follows: (x) for months 1 through 12 -
USD 10,000 per day; (y) for months 13 through 24 - USD
11,000 per day and (z) for months 25 through 36 and for
any extended period pursuant to Sections 1(c) and 2(c)
above - USD 13,000 per day. Basic Charter Hire for the
first and last calendar months for the Charter Term shall
be prorated if the Date of Delivery is other than the
first day of a calendar month. The
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<PAGE> 12
Charter Hire for the month in which the Date of Delivery
occurs shall be payable within ten (10) days after the
Date of Delivery. Charter Hire payments for each
subsequent calendar month shall be made prior to the first
day of each such month.
(ii) Additional Hire. All other amounts to be paid by the
CHARTERER to the OWNER under this Charter shall be deemed
"Additional Hire."
(iii) Charter Hire Payments. Payments of Basic Charter Hire and
Additional Hire (collectively, "Charter Hire") shall be
paid in U.S. currency to such account and in such manner
as may be designated in writing by the OWNER from time to
time.
(b) Hell or High Water Charter Obligation. Except as hereinafter
provided, the CHARTERER's obligation to pay Charter Hire
hereunder shall be absolute during the term of this Charter
irrespective of any contingency whatsoever, including, but not
limited to (i) any set-off, counterclaim, recoupment, defense or
other right which either party hereto may have against the other;
(ii) any temporary unavailability of the Vessel by reason of any
damage to the Vessel; (iii) any failure or delay on the part of
any party hereto, whether with or without fault on its part, in
performing or complying with any of the terms or covenants
hereunder; (iv) any insolvency, bankruptcy, reorganization,
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<PAGE> 13
arrangement, readjustment or debt, dissolution, liquidation or
similar proceeding by or against the CHARTERER or any other
person; and (v) any invalidity or unenforceability, or lack of
due authorization of or defect in the execution, of this Charter.
The CHARTERER shall not be obligated to pay Basic Charter Hire
for any period during which the Vessel is not available for the
CHARTERER's use due to defect in the OWNER's title or as a result
of an act or omission of the OWNER.
(c) Withholding Deductions. Notwithstanding anything herein to the
contrary, the CHARTERER hereby covenants and agrees that it shall
make all payments of Charter Hire under this Charter to the OWNER
free and clear from, and without deduction by reason of, income,
gross receipts, sales or use taxes or withholdings of any nature
whatsoever imposed, assessed, levied or collected by or within
any taxing jurisdiction; provided, however, that to the extent
required by the laws of the United States or any jurisdiction
where the OWNER is domiciled, the CHARTERER may make any
deductions or withholdings in respect of payments hereunder.
(d) Audit and Inspection. The CHARTERER will, upon request, permit
the OWNER or its representatives at any reasonable time or times
during normal business hours,
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<PAGE> 14
to inspect the Vessel; provided, however that any inspection of
the Vessel shall be subject to the consent of the Operators under
applicable drilling contracts and the consent of applicable
governmental agencies; which consents the CHARTERER shall use its
best efforts to obtain.
4. (a) Use; Operating Areas. The CHARTERER may use the Vessel in
connection with contract oil and gas drilling operations for
Operators in any area, provided: (i) the CHARTERER shall only use
the Vessel in the territorial waters of nations which recognize
the rights of vessels documented under the flag of the Vessel;
(ii) the Vessel shall be moved only to a location where the
Vessel's operating specifications allow it to operate safely, and
(iii) the Vessel shall be employed only in lawful activities
under the laws of the United States and any other authority
having jurisdiction over the Vessel, in connection with contract
oil or gas drilling, completion, or re-working operations, and
related services. The CHARTERER further agrees that it shall
always operate the Vessel in compliance with the effective
contract between the CHARTERER or any sub-charterer and the
Operator, but always within the Vessel's technical capacities and
certification and within the limits of the Vessel's insurance
coverage.
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<PAGE> 15
(b) Limits on Third Party Contracts.
(i) Subject to the terms of this Charter, and in particular
Sections 4 and 7 herein, the CHARTERER shall have the
right to enter into Third Party Contracts with financially
responsible Operators, (which for operations in U.S.
territorial waters or the U.S. economic zone shall be as
defined by the U.S. Minerals Management Service, and for
any operations in all other areas shall be as defined by
applicable governmental authorities for the area in which
the Vessel is operating) for oil or gas drilling,
completion, or re-working operations, and related
services. As a condition precedent to entering into any
Third Party Contracts. The CHARTERER shall use its best
efforts to have the Operator under such Third Party
Contracts indemnify and hold harmless the Vessel, the
CHARTERER, the Owner and any sub-charterer for any loss or
damage to any geological formation, strata, or oil or gas
reservoir beneath the surface of the earth, as well as for
pollution claims resulting from a kick, blowout, seepage
or other escape of pollutants from below the surface of
the water.
(ii) the CHARTERER shall comply with and satisfy all provisions
of any applicable law, convention,
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regulation, proclamation, rule or order concerning
financial responsibility for liabilities imposed on the
CHARTERER or the Vessel with respect to pollution by any
state or nation or political subdivision thereof and shall
maintain all certificates or other evidence of financial
responsibility as may be required by any such law,
convention, regulation, proclamation, rule or order with
respect to the operations in which the Vessel is from time
to time engaged.
(c) Marketing Efforts. It is agreed that the CHARTERER shall market
and contract the Vessel and shall keep the OWNER advised of such
activities as well as general market conditions. The CHARTERER
shall also keep the OWNER advised on a monthly basis of the work
and contract status of the Vessel and the day rates being
obtained, and, upon request by the OWNER, forward copies of any
Third Party Contracts to the OWNER.
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<PAGE> 17
5. Maintenance and Operation.
(a) Charterer's Control and Expenses. During the Charter Term, the
CHARTERER shall have exclusive control of the Vessel and, subject
to the terms of the Charter, will operate, navigate, man and
victual the Vessel at its own expense. The CHARTERER shall pay
all charges and expenses of every kind and nature whatsoever
incident to the use and operation of the Vessel under the
Charter, and under any Third Party Contract, throughout the
Charter Term. Such costs and expenses shall include, but not be
limited to, those relating to (i) customs duties, bonds, work
permits, fees, licenses, clearances, pilotage fees, wharfage
fees, canal fees and costs, or similar charges incurred in
connection with the importation, exportation, operation or
navigation of the Vessel by the CHARTERER, (ii) maintaining the
Vessel's classification society status with unexpired
classification certificates and its Bahamian registration,
national, local, and international trading certificates and all
other certificates required by the United States Coast Guard or
other governmental agencies or regulatory authorities having
jurisdiction over the Vessel (or the area where the Vessel is
operating from time to time), (iii) maintaining the Vessel's
machinery, appurtenances and spare parts, and drilling equipment,
including, without limitation, downhole equipment, in a good
state
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<PAGE> 18
of repair and in efficient operating condition in accordance with
good offshore practices, the CHARTERER's practice for similar
drillships and equipment owned or operated by the CHARTERER or
its affiliates, and in compliance with manufacturers'
recommendations, and (iv) supervision, management, victualing
(including catering), supplies, parts service companies, port
charges, dockage and wharfage, fueling and lubrication.
(b) Maintenance and Repairs. During the Charter Term, the CHARTERER,
at its own cost and expense, will perform work on the Vessel as
necessary to keep the Vessel clean, painted and in good running
order, repair and condition in accordance with good industry
maintenance practice, the CHARTERER's practice for similar
drillships owned or operated by the CHARTERER or its owners or
affiliates, requirements set out in Third Party Contracts and as
set forth in this Charter. The CHARTERER additionally will
maintain the Vessel's machinery and drilling equipment,
including, without limitation, downhole equipment, in compliance
with manufacturer's recommendations and specifications and the
requirements of the classification societies and regulatory
agencies having authority over the Vessel and its equipment. The
CHARTERER will notify the OWNER immediately of any accident
involving the Vessel
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<PAGE> 19
estimated to require repairs the cost of which will exceed USD
100,000.
(c) Inspections. On reasonable prior notice, the OWNER or any
persons designated by the OWNER shall have the right at any
reasonable time, but will be under no obligation, to inspect the
Vessel to ascertain its condition, to satisfy itself that the
Vessel is being properly maintained and repaired, and to
otherwise confirm that the CHARTERER is in compliance with the
Charter; provided, that prior to any such inspection the persons
inspecting the Vessel shall execute a release of the CHARTERER,
releasing the CHARTERER from liability for any personal claims
arising during such inspection of the Vessel. The cost of such
inspection shall be borne by the OWNER.
(d) Stacking. The CHARTERER shall be responsible for stacking the
Vessel in a safe and acceptable condition and location during
such time as the Vessel is not employed under a Third Party
Contract. During any such stacking period, the CHARTERER shall
ensure that the Vessel is adequately supervised and manned at all
times, and that the Vessel is at all times kept in a condition
which would permit reactivation and start-up of drilling
operations on thirty (30) days notice, subject to the
availability of necessary manning and materials. The costs and
expenses in any way related
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to such stacking or reactivation shall be paid by the CHARTERER.
6. Alterations.
(a) Structural Modifications. The CHARTERER will not make any
substantial structural or other changes in the Vessel without the
prior written consent of the OWNER, which consent shall not be
unreasonably withheld.
(b) Alterations and Restoration. Subject to the re-delivery and
maintenance provisions of this Charter, the CHARTERER may at any
time alter or remove items of equipment, or may fit additional
items of equipment required to render the Vessel available for an
Operator's purpose, provided the CHARTERER absorbs the cost and
time of such alterations and refitting and restoring the Vessel
to original condition before redelivery of the Vessel. Such
changes shall not be made without the appropriate approval of the
relevant classification and certifying authorities.
(c) Replacements. The CHARTERER shall from time to time during this
Charter, at its own cost and expense, replace such items of
equipment as shall be so damaged or worn as to be unfit for use.
All such items of equipment so replaced by the CHARTERER shall
without further action become the property of the OWNER.
(d) Capital Expenditures. The cost associated with any addition of
capital equipment not on the Vessel or
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replacement of functioning equipment with higher capability
equipment shall be considered to be a "Capital Expenditure". Any
Capital Expenditure that requires a material structural
modification of the Vessel shall be in all respects subject to
the prior written approval of the OWNER which approval shall not
be unreasonably withheld. The CHARTERER shall have the right to
pay for any Capital Expenditure if it so elects. In the event
that the CHARTERER does not elect to pay for a Capital
Expenditure, and the OWNER elects to pay for such Capital
Expenditure at the request of or with the agreement of the
CHARTERER, all items, improvements, additions or replacement so
made to the Vessel or its equipment shall become the property of
the OWNER and the Charter Hire for the remainder of the Charter
Term shall be increased by an amount equal to the Capital
Expenditure multiplied by 0.00073 for each day in the applicable
month (the collective amount of such increase in the Charter Hire
paid by the CHARTERER to the OWNER at any given time is referred
to as the "Capital Payments"). In the event the OWNER does not
pay for a Capital Expenditure, any items, improvements and
additions to the Vessel or its equipment so purchased or made by
the CHARTERER shall become the property of the CHARTERER so long
as the removal thereof from the Vessel upon its re-delivery to
the
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<PAGE> 22
OWNER does not render the Vessel unfit for its intended use and
provided the Vessel is restored to its original condition, normal
wear and tear excepted, at the CHARTERER's time and expense prior
to re-delivery. To the extent any reimbursement or adjustment of
compensation is made by an Operator with respect to any Capital
Expenditure, such amounts will be the property of the party that
paid for such Capital Expenditure. Capital Expenditures required
by new applicable regulatory or classification requirements
arising after the purchase of the Vessel by the OWNER shall be
paid by the OWNER; provided, however, that the total amount of
all such Capital Expenditures paid by the OWNER shall be added to
the amount of the Purchase Price as defined in Section 18 below.
7. (a) Insurance-General. The CHARTERER shall, at its own expense, keep
the Vessel insured against such risks which should be covered by
experienced, prudent and responsible companies engaged in the
offshore contract drilling of hydrocarbons in places and under
conditions comparable to those in which the Vessel is employed
from time to time, and possessing financial and operating
characteristics similar to the CHARTERER ("Similar Companies") in
accordance with the practices of Similar Companies, with present
underwriters or other insurers reasonably acceptable to the
OWNER, in
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<PAGE> 23
conformance with good marine practice, including, without
limiting the generality of the foregoing, insurance for damage to
the Vessel, hull and machinery, trip/tow protection and
indemnity, collision liability, employer's liability, pollution
(excluding that emanating from the well bore), comprehensive
general liability, property damage, fire, and theft. All
insurance coverage shall be placed through independent brokers of
recognized standing and with the CHARTERER's current club or
underwriters or with a club or first-class underwriters
reasonably acceptable to the OWNER. The limits specified below
shall be minimum limits with respect to the Vessel, and shall in
no way diminish the CHARTERER's insurance or indemnity
obligations herein:
(i) Marine full form hull and machinery and increased
value insurance extended to insure against all
risks of loss or damage, including, but not limited
to, the risk of blowout and cratering and against
such other risks as are typically insured against
by Similar Companies for the protection of the
interests of the OWNER and the CHARTERER for not
less than the Insured Value as set forth in Section
7(g) below. The deductible or self-insured
retention under the policy shall
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<PAGE> 24
not exceed USD 250,000 per occurrence;
(ii) Marine full form protection and indemnity insurance
and comprehensive general lability insurance, under
forms typically maintained by Similar Companies.
Such insurance shall be maintained in the United
States or London markets, or other major insurance
market approved by the OWNER, and shall be in an
amount not less than that: (A) carried by Similar
Companies or (B) carried by the CHARTERER for any
other drillship owned or chartered by the CHARTERER
or its affiliates. Said policy shall not include a
deductible or self-insured retention in excess of
USD 250,000 per occurrence;
(iii) The CHARTERER shall, at all times during which the
Vessel is within the jurisdiction of the United
States of America, maintain insurance or post bond
or maintain evidence of financial responsibility
with respect to the Vessel to cover the actual cost
of removal of discharged oil for which the
CHARTERER or the Vessel may be held strictly liable
(or held liable due to the negligence of the
CHARTERER or any other person) under the Clean
Water Act of 1977, the Oil
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Pollution Act of 1990 or the Outer Continental
Shelf Lands Act, or any subsequent enactment, or
under any other federal, state or local law, rule,
regulation or ordinance applicable where the Vessel
is located which may apply to the Vessel or to the
CHARTERER; and the CHARTERER shall maintain
insurance covering similar pollution risks or
liabilities incident thereto under any law, rule,
regulation or judicial decision of any foreign
jurisdiction or jurisdictions or political
subdivision thereof applicable to the CHARTERER,
the Vessel, or its operations;
(iv) Such workers' compensation insurance, including,
without limitation, longshoremen's and harbor
workers' insurance, as shall be required by
applicable law, including endorsements for Outer
Continental Shelf operations, borrowed servant,
voluntary compensation, and in rem claims;
(v) Insurance (with a minimum limit of USD 20,000,000
per occurrence or such greater amount as is carried
by the CHARTERER or its affiliates on their owned
or chartered rigs) naming the CHARTERER and the
OWNER as
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<PAGE> 26
assureds and loss payees, as their interests may
appear, against Contingent Operator's Extra Expense
("C.O.E.E.") liability in connection with
operations conducted by the Vessel under a Third
Party Contract with a financially responsible
Operator that indemnifies against such C.O.E.E.
arising out of blowout (above and below ground),
cratering, re-drilling/re-completion, cost of
control, clean-up, containment, seepage, pollution,
spillage or leakage in connection with operations
conducted by the Vessel, in form and substance
typically maintained by Similar Companies, and
third party liabilities that may be assumed by a
contract which is legally enforceable and in form
and substance typically maintained by Similar
Companies. Deductibles or self-insured retention
shall not exceed USD 250,000 and shall be for the
account of the CHARTERER;
(vi) If the Vessel is used outside the U.S. Gulf of
Mexico, war-risk and political-risk insurance
naming the CHARTERER and the OWNER as assureds and
loss payees, which shall be maintained in the
broadest forms generally available in the United
States market, and
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<PAGE> 27
shall include coverage for war risk hull and
machinery, confiscation, terrorist acts,
expropriation, nationalization, and deprivation.
Such insurance and deductibles shall be in amounts
equal to the corresponding policies described in
sub-paragraphs (i) and (ii) above; and
(vii) The insurance set out in section 7(a)(i) above
shall be endorsed by the CHARTERER at its own
expense to include breach of warranty coverage for
the benefit of the OWNER.
(b) Form of Insurance. All insurance required under Section 7(a)
above shall be in such form and with such underwriters, companies
or clubs as the OWNER shall reasonably approve. The OWNER (and
if applicable, the OWNER's bank as mortgagee of the Vessel) shall
be named as named assureds as their interest may appear, but
without liability for premiums, club calls, or assessments; and
in respect of insurance pursuant to 7(a), shall be named as loss
payee(s) up to the Insured Value. All policies shall provide
that the OWNER (and if applicable, the OWNER's bank as mortgagee
of the Vessel) and the CHARTERER will be given at least thirty
(30) days notice of cancellation, non-renewal or material
alteration. Any deductibles under such policies shall always be
for the account of the
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CHARTERER. Unless otherwise required by the OWNER, such coverage
shall be in the same form as the CHARTERER or its affiliates
maintains in force on the drillships owned or operated by them.
(c) Proof of Insurance. The CHARTERER shall furnish the OWNER from
time to time on request, and in any event at least annually, with
copies of all insurance policies, cover notes or other documents
evidencing the creation, renewal, amount and payment of the
insurance maintained on the Vessel and for which period the
insurance premiums are paid.
(d) Forced Insurance. In the event the CHARTERER fails to procure
and maintain insurance in accordance with this Section 7, the
OWNER may, but shall not be obligated to, effect and maintain the
insurance or entries in a protection and indemnity association or
club as required herein and to pay the premiums therefore and,
upon the OWNER's giving notice to the CHARTERER of the amounts of
premiums and costs so incurred, the CHARTERER shall reimburse the
OWNER for such amounts not later than fifteen (15) days after
such notice.
(e) Insurance Indemnity. Should the CHARTERER fail or neglect to
fulfill any of the insurance requirements of a Third Party
Contract, the CHARTERER hereby undertakes to indemnify and hold
the OWNER harmless from and against any loss, claim, damage,
expense or costs
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(including all legal fees and costs) incurred as a consequence of
such failure or neglect.
(f) Termination Due To Loss. This Charter shall be terminated due to
a total or constructive total loss of the Vessel as determined by
underwriters, and Charter Hire pursuant to Section 3 hereof shall
be payable until the date of such total or constructive loss, as
ultimately determined by the underwriters.
(g) Payments in Event of Total or Constructive Loss. In the event of
a total or constructive loss of the Vessel, the OWNER, in lieu of
any and all other claims and damages, shall receive from the
CHARTERER, and the CHARTERER shall pay to the OWNER, an amount
equal to the sum of (i) any accrued and unpaid Charter Hire
payable in accordance with Section 3 hereof calculated through
the date of such loss, (ii) the value of the hull and machinery
of the Vessel which is hereby agreed to be the Purchase Price (as
defined in Section 18 hereof), determined as if the date of such
total or constructive loss were the Effective Date (as defined in
Section 18 hereof), plus one-hundred ten (110) percent of any
Capital Expenditure paid for by the OWNER (the "Insured Value")
and (iii) all other sums that may be due and payable by the
CHARTERER on the date of such loss under this Charter, less (x)
all insurance proceeds received directly by the OWNER
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attributable for such total or constructive loss (other than
those relating to any insurance policies paid for by the OWNER),
and (y) all payments of Charter Hire paid by the CHARTERER with
respect to the period beginning upon the date of such total loss,
together with interest calculated at an annual rate of ten (10)
percent. The CHARTERER's obligation to pay amounts set forth in
(i), (ii) and (iii) above shall be absolute and shall be due to
the OWNER upon the earlier of the CHARTERER's receipt of
insurance proceeds and ninety (90) days following the date of the
declaration of such total loss. The OWNER may, at its own
expense, place additional Total Loss Only coverage. Any proceeds
paid under such additional insurance shall be paid directly by
insurers to the OWNER and shall not be included in the
calculation set forth above.
(h) Limitation of Liability. Nothing in this Charter shall be
construed or held to deprive the OWNER, the CHARTERER or the
Vessel of any right to claim limitation of liability against
third parties provided by any applicable statute of any
jurisdiction.
(i) Wreck Removal. In the event the Vessel becomes a wreck or
obstruction to navigation, the CHARTERER shall indemnify the
OWNER against any sums whatsoever which the OWNER shall become
liable to pay or shall pay in consequence of the Vessel becoming
a wreck or
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obstruction to navigation.
8. Liens.
Neither the CHARTERER nor any of its employees shall have any right,
power or authority to create,incur or permit to be imposed upon the
Vessel any lien whatsoever during the Charter Term, except for crew's
wages, general average and salvage. The CHARTERER shall carry a copy of
this Charter with the Vessel's papers, and on demand will exhibit the
same to any person having business with the Vessel which might give rise
to any lien thereon, other than liens for crew's wages, general average
and salvage. The CHARTERER will place and keep prominently displayed in
the chart room and the captain's cabin on the Vessel in a conspicuous
place, a notice, framed under glass, printed in plain type of such size
that the paragraph of reading material shall cover a reasonable space
acceptable to the OWNER reading as follows:
"THIS VESSEL IS UNDER CHARTER TO FALCON DRILLING COMPANY, INC.
UNDER THE TERMS OF SAID CHARTER, NEITHER THE CHARTERER, NOR ANY
SUB-CHARTERER, NOR THE MASTER, NOR ANY OTHER PERSON HAS THE
RIGHT, POWER OR AUTHORITY TO CREATE, INCUR OR PERMIT TO BE PLACED
OR IMPOSED UPON THIS VESSEL ANY LIEN WHATSOEVER OTHER THAN LIENS
FOR CREW'S WAGES, GENERAL AVERAGE AND SALVAGE."
-31-
<PAGE> 32
9. Mortgages; Financing.
The CHARTERER hereby agrees that should the OWNER wish to mortgage the
Vessel or assign this Charter in connection with any financing
arrangements of the OWNER, the CHARTERER shall agree to post notices of
the mortgage and the Charter as reasonably required, execute such
documents acknowledging the terms and existence of the mortgage, and
otherwise cooperate reasonably with the OWNER and any mortgagee in
respect of such financing. Any such mortgage shall provide that the
CHARTERER shall have the right of quiet enjoyment so long as no Event of
Default has occurred under this Charter and that the Option contained in
Section 18 below shall not be adversely effected by the mortgage or the
acts of the mortgagee. Any reasonable costs and expenses associated
with such activity will be borne by the OWNER.
10. Sale of Vessel During Charter.
(a) OWNER shall have the right to sell the Vessel and assign
the Charter at any time during the Charter Term; provided,
however, that any such sale and assignment shall be
subject to the continued effectiveness of this Charter,
including, but not limited to the Option contained in
Section 18 below. Upon such sale and assignment, if the
CHARTERER consents to such sale and assignment, which
consent shall not to be unreasonably withheld, the OWNER
shall be relieved of all of its obligations under the
Charter
-32-
<PAGE> 33
except for the indemnities provided for in Section 16(b)
and Section 16(c)(ii) herein.
(b) If the OWNER shall decide to sell the Vessel or to market
the Vessel for possible sale, it shall give the CHARTERER
written notice of such decision. The CHARTERER shall have
the right, notwithstanding the provisions of Section 18
below, within ten (10) days of receipt of such notice to
inform the OWNER in writing of its exercise of its Option
under Section 18 below.
(c) If the CHARTERER elects not to exercise its Option under
Section 18 below after receiving the OWNER'S notice
pursuant to Section 10(b) above, the CHARTERER shall have,
in addition to its rights under Section 18 below, a right
of first refusal as to any third party offer to purchase
the Vessel received by the OWNER. The right of the
CHARTERER to purchase the Vessel shall be on the same
terms and conditions as contained in the third party offer
and the CHARTERER shall exercise such right by written
notice to the OWNER delivered within three (3) days of
being notified in writing of the third party offer and its
terms and conditions by the OWNER.
11. Representations and Warranties.
(a) CHARTERER's Representations. The CHARTERER represents,
warrants, covenants, and agrees to and with the OWNER
that: (i) the CHARTERER is a corporation duly
-33-
<PAGE> 34
organized, validly existing, and in good standing under
the laws of the State of Delaware, has the corporate power
to own its property and assets, and is duly qualified in
each jurisdiction where the nature of its operations
requires such qualification; and (ii) the execution,
delivery, and performance of this Charter are within the
CHARTERER's power, have been duly authorized by all
necessary corporate action, do not contravene the
CHARTERER's articles or certificate of incorporation or
bylaws, or similar documents, and do not contravene any
law, any order of any court or other agency of government,
or any agreement or instrument or contractual restriction
binding on or affecting any of its property, or constitute
a default thereunder.
(b) OWNER's Representations. The OWNER represents, warrants,
covenants, and agrees to and with the CHARTERER that (i)
the OWNER is a limited partnership duly organized, validly
existing, and in good standing under the laws of the State
of California, has the legal power to own its property and
assets, and is duly qualified in each jurisdiction where
the nature of its operations requires such qualification;
and (ii) the execution, delivery, and performance of this
Charter are within the OWNER's power, have been duly
authorized by all necessary partnership action, do not
contravene the OWNER's certificate of limited partnership,
and do
-34-
<PAGE> 35
not contravene any law, any order of any court or other
agency of government, or any agreement or instrument or
contractual restriction binding or affecting any of its
property, or constitute a default thereunder.
12. Assignment; Sub-charter.
(a) The CHARTERER does not have the right to, and shall not,
assign, pledge, or hypothecate this Charter (by operation
of law or otherwise), in whole or in part, or any interest
herein, or any right, duty or obligation hereunder, or to
sub-charter the Vessel (collectively, an "Assignment")
without the prior written consent of the OWNER, and any
purported Assignment without the OWNER's prior written
consent shall be void and unenforceable against the OWNER.
The CHARTERER shall remain primarily liable under this
Charter in the event of any permitted Assignment, which
will in no event be considered a novation of this Charter
unless the OWNER expressly agrees to the contrary in
writing.
(b) Notwithstanding the foregoing:
(i) the CHARTERER may sub-charter the Vessel
without the necessity of obtaining the OWNER's consent
provided physical, financial and operational control of
the Vessel remains in the hands of the CHARTERER for the
duration of the
-35-
<PAGE> 36
sub-charter, the sub-charter is subordinate to this
Charter, and the sub-charterer executes an acknowledgement
of the existence and priority of this Charter, in form and
substance reasonably satisfactory to the OWNER and;
(ii) the CHARTERER may sub-charter the Vessel to
any entity wholly owned by the CHARTERER so long as the
CHARTERER remains primarily liabile under this Charter.
13. Logo and Vessel Names.
The OWNER agrees that the CHARTERER may display the CHARTERER's logo and
the CHARTERER's designated name on the Vessel during the Charter Term.
14. Notices.
All notices and other communications required under this Charter shall
be by personal delivery or facsimile, confirmed in writing by letter, to
each party at its address as it may declare from time to time pursuant
to this notice provision. Any such notice or communication shall be
deemed effective on the date of delivery, if by personal delivery, or on
the next business day after transmission if by facsimile.
OWNER: CHARTERER:
Hyde Offshore Limited Partnership Falcon Drilling Company, Inc.
One Market Plaza 1900 West Loop South
Steuart Street Tower, Suite 800 Suite 1800
San Francisco, California 94105-1301 Houston, Texas 77027
Attn: Legal Department Attn: Steve A. Webster
Tel: (415) 974-1399 Tel: (713) 623-8984
Fax: (415) 882-0861 Fax: (713) 623-8103
Telex: 34430
-36-
<PAGE> 37
15. Defaults; Remedies.
(a) Events of Default. Any one or more of the following is an Event
of Default by the CHARTERER:
(i) the CHARTERER shall fail to pay the whole or part of any
Basic Charter Hire or Additional Hire specified in Section
3 hereof on the due date thereof, and the same shall
continue for three (3) business days following the due
date thereof;
(ii) the CHARTERER shall fail to pay when due the whole or any
part of the Insured Value of the Vessel when required by
this Charter, and the same shall have continued for three
(3) business days following the due date thereof;
(iii) the CHARTERER shall fail to carry and maintain insurance
on or with respect to the Vessel in accordance with the
provisions of Section 7 hereof;
(iv) the CHARTERER shall fail to perform or comply with any
other covenant, condition, or agreement to be performed or
observed by it hereunder and the CHARTERER shall fail to
cure such failure to perform or comply within ten (10)
business days
-37-
<PAGE> 38
after the OWNER shall have demanded in writing the cure
thereof;
(v) Any representation or warranty made by the CHARTERER
herein shall prove to have been incorrect in any material
respect as of the date on which made, or any statement,
report, schedule, notice or other writing furnished by the
CHARTERER to the OWNER in connection herewith shall prove
to have been incorrect in any material respect as of the
date on which the facts set forth therein are stated or
certified, and the CHARTERER shall fail to cure such
defect within five (5) business days after the OWNER shall
have demanded in writing the cure thereof;
(vi) the CHARTERER or any sub-charterer shall become insolvent
or bankrupt or shall cease paying or providing for the
payment of its debts generally; the CHARTERER or any sub-
charterer shall be dissolved, shall be adjudged a bankrupt
by a court of competent jurisdiction, shall make a general
assignment for the benefit of its creditors, or shall lose
its charter by forfeiture or otherwise; or a petition for
an arrangement or for reorganization of the CHARTERER,
FALCON or any sub-charterer under the bankruptcy laws of
the relevant jurisdiction shall be filed by the
-38-
<PAGE> 39
CHARTERER, FALCON or such sub-charterer, or such petition
shall be filed by creditors and the same shall be approved
by a court of competent jurisdiction; and
(vii) An arrangement or reorganization of the CHARTERER or any
sub-charterer under the bankruptcy laws of the relevant
jurisdiction shall be approved by a court, whether
proposed by a creditor, a stockholder or any other party
or person whatsoever; or a receiver or receivers of any
kind whatsoever, whether appointed in admiralty,
bankruptcy, common law or equity proceedings, shall be
appointed by a decree of a court of competent jurisdiction
with respect to the Vessel or all or substantially all of
the property of the CHARTERER or any sub-charterer.
(b) Remedies. At any time that an Event of Default has occurred and
is continuing, the OWNER, by written notice to the CHARTERER, may
declare the CHARTERER in default hereunder, in which case the
OWNER shall be entitled to pursue all remedies available at law
or in equity, including, without limitation, the following
remedies:
(i) By notice to the CHARTERER, the OWNER may terminate this
Charter, whereupon the CHARTERER will re-deliver the
Vessel to the OWNER with all
-39-
<PAGE> 40
reasonable dispatch and in accordance with all of the
relevant provisions of Section 2;
(ii) The OWNER may, after notice to the CHARTERER, re-take the
Vessel wherever found, whether upon the high seas or at
any port, harbor or other place and irrespective of
whether the CHARTERER, any sub-charterer or any other
person is in possession of the Vessel, all without prior
demand and without legal process, the CHARTERER HEREBY
WAIVING ANY AND ALL RIGHTS TO PRIOR NOTICE AND A JUDICIAL
HEARING WITH RESPECT TO THE REPOSSESSION OF THE VESSEL BY
THE OWNER, and for that purpose the OWNER or its agent may
enter upon any dock, pier or other premises where the
Vessel is and may take possession thereof, without the
OWNER or its agent incurring any liability by reason of
such re-taking, whether for the restoration of damage to
property caused by such re-taking or for damages of any
kind for any reason to the CHARTERER or any person
claiming under the CHARTERER;
(iii) The OWNER may sell or otherwise dispose of the Vessel at
public auction or by private sale, without prior notice to
the CHARTERER, at such time or times and upon such terms
as the OWNER may determine, for cash or credit, at such
price as
-40-
<PAGE> 41
the OWNER shall deem fair, with the Vessel in its then
condition or following any commercially reasonable
preparation, or otherwise dispose of, hold, use, operate,
charter to others the Vessel, in a commercially reasonable
manner, all free and clear of any rights of the CHARTER,
including any right of redemption, and without any duty to
account to the CHARTERER with respect to such action or
inaction or for any proceeds with respect hereto; any
disposition or holding of the Vessel shall not be deemed a
retention by the OWNER in satisfaction of the CHARTERER's
obligations under this Charter; and
(iv) The OWNER may proceed by appropriate action for collection
from the CHARTERER of all costs and expenses, including
attorneys' fees, court costs, and other expenses, incurred
by the OWNER in connection with the enforcement of this
Charter and the exercise of remedies hereunder. Further,
in addition to any other amounts to which the OWNER may be
entitled, the CHARTERER shall be liable for all costs and
expenses incurred by the OWNER, which shall include all
insurance premiums, all demurrage, dockage, and anchorage
charges, all legal fees, and all other costs and expenses
whatsoever incurred by the OWNER by reason of the
-41-
<PAGE> 42
occurrence of an Event of Default or by reason of the
exercise by the OWNER of any remedy hereunder, including,
without limitation, any cost or expense incurred by the
OWNER in connection with any re-taking of the Vessel. No
remedy referred to in this Section 15(b) is intended to be
exclusive, but each remedy shall be cumulative and in
addition to, and may exercised concurrently with, any
other remedy which is referred to herein or which may
otherwise be available to the OWNER at law, in equity or
in admiralty.
16. (a) CHARTERER's Indemnification of the OWNER. The CHARTERER hereby
assumes liability for, and shall defend, indemnify and hold
harmless the OWNER, its owners and affiliates and any mortgagee
of the Vessel, and each of their respective successors and
assigns, and the directors, officers, employees, representatives,
agents and servants of any of the foregoing (collectively, the
"Indemnified Parties") from and against any and all Claims (as
hereinafter defined) which may be imposed on, incurred by or
asserted against any of the Indemnified Parties or the Vessel
(whether or not also indemnified against pursuant to any other
agreement or by any other person), regardless of when asserted
(whether before, after or during the Charter Term), in any way
relating
-42-
<PAGE> 43
to or arising out of any of the following occurring during the
Charter Term: the construction, documentation, registry,
delivery, possession, ownership (as owner pro hac vice), use,
operation, chartering, sub-chartering, condition, maintenance,
repair, and return of the Vessel. Notwithstanding the foregoing,
the CHARTERER shall not be obligated to indemnify the OWNER in
respect of any act or omission constituting gross negligence or
willful misconduct by the OWNER or its agents or representatives.
The CHARTERER agrees to further indemnify, defend and hold
harmless the OWNER and the Vessel from and against all liens
created and imposed on the Vessel as a result of the CHARTERER's
manning and operating the Vessel, and in the event of the seizure
of the Vessel under legal process to enforce such lien or
asserted lien, the CHARTERER shall secure the prompt release of
the Vessel by payment of same or otherwise as may be appropriate.
The OWNER's right to compensation provided for in Section 3
herein for the operation of the Vessel shall not be suspended
during any time when the Vessel is under seizure by legal process
as a result of such liens or asserted liens. As used herein,
"Claims" shall mean any and all liabilities, obligations, losses,
damages, penalties, claims, actions, suits, costs, expenses,
fines, penalties and disbursements
-43-
<PAGE> 44
(including, without limitation, reasonable attorneys' fees, and
investigatory fees and disbursements) of whatsoever kind and
nature, including, without limitation, (i) claims or penalties
arising from any violation of the laws or regulations of any
authority or country or political subdivision thereof, (ii)
claims as the result of latent, patent or other defects, whether
or not discoverable by the OWNER or the CHARTERER, and (iii) tort
claims of any kind, including, without limitation, claims for
injury or damage caused by leakage, discharge or spillage of oil
or cargo or refuse.
(b) OWNER's Indemnification of the CHARTERER. The OWNER agrees to
indemnify, defend, and hold harmless the CHARTERER from all
damages or costs arising as a result of the gross negligence,
violation of any law or regulation (the performance of which
rests solely with the OWNER rather than the performance of the
CHARTERER under the terms of this Charter), or willful misconduct
of the OWNER, except to the extent such damages or costs are
contributed to or caused by the CHARTERER.
(c) Tax Indemnification.
(i) The CHARTERER agrees to pay, and shall indemnify, protect,
defend and hold harmless the OWNER from all sales taxes,
use taxes, ad valorem taxes, governmental fees, duties,
and dues of whatever
-44-
<PAGE> 45
nature, imposed, assessed, or levied on the Vessel during
the Charter Term, and shall also be responsible for and
pay any employment, payroll and other similar taxes
arising from employment of its employees. Ad valorem
taxes for any period that is not fully within the Charter
Term shall be prorated and the OWNER shall be responsible
for the portion thereof not allocable to the Charter Term.
(ii) The OWNER shall be responsible for any customs duties
levied on the Vessel or income taxes or similar charges on
the net income of the OWNER levied against the OWNER or
the Vessel by the United States or by the OWNER's country
of registration, domicile or place of business or the
country of registry of the Vessel.
(d) The obligations of the OWNER and the CHARTERER under this Section
16 shall survive the expiration or earlier termination of this
Charter in perpetuity and are expressly made for the benefit of,
and shall be enforceable by, the party to which the obligations
are owed, and its successors and assigns.
(e) Except as otherwise limited herein, it is the intent of the
parties hereto that all indemnity obligations or liabilities
assumed by such parties under this Charter be without limit and
without regard to the cause or
-45-
<PAGE> 46
causes thereof (including preexisting conditions), the
unseaworthiness of any vessel, strict liability or the negligence
of any party or parties, whether such negligence be sole, joint
or concurrent, active or passive.
(f) Consequential Damages. Neither party hereto shall be liable to
the other party for any economic losses, or incidental,
consequential or special damages, arising out of, resulting from
or relating in any way to this Charter, irrespective of the
negligence or fault of any party.
17. Arbitration. If any dispute arises between the parties with respect to
this Charter which cannot be settled amicably by mutual agreement, such
dispute shall be settled exclusively by arbitration in accordance with
the rules of the Society of Maritime Arbitrators, Inc. (the "Rules") and
this Section 17. In the event of such dispute, either party may serve
notice of arbitration ("Notice of Arbitration") on the other party.
Notwithstanding anything in Section 14 hereof to the contrary, a Notice
of Arbitration shall only be sent by facsimile, confirmed by registered
letter, postage prepaid, and shall be effective on receipt of or
facsimile by the party to whom it is addressed. Proof of receipt of a
facsimile shall be the answer back of the party to whom it is addressed
on the facsimile confirmation page. The Notice of Arbitration shall be
dated, shall name the arbitrator
-46-
<PAGE> 47
selected by such party and, without prejudice to any right under the
Rules permitting subsequent modifications, shall specify the claims or
issues which are to be subjected to arbitration. Within thirty (30)
days of the effective date of the Notice of Arbitration, the other party
shall appoint an arbitrator and notify the first party of the arbitrator
so appointed. If such other party fails to appoint an arbitrator (who
accepts such appointment) and notify the first party thereof within such
thirty (30) day period, then the arbitrator appointed by the first party
shall sit as a sole arbitrator and decide the matter with all the powers
of the arbitration tribunal, and the party who fails to appoint an
arbitrator shall cooperate fully with such arbitration, the award
rendered or any subsequent enforcement thereof on the basis of the
arbitration being conducted by and the award being rendered by a sole
arbitrator. If the party receiving the Notice of Arbitration appoints
an arbitrator (who accepts such appointment) within the foregoing thirty
(30) day period, then within sixty (60) days of the effective date of
the Notice of Arbitration the two arbitrators thus appointed shall
appoint a third arbitrator, who shall serve as chairman of the
arbitration panel. If the two arbitrators are unable to agree on the
appointment of a third arbitrator within such period, such appointment
shall be made by the President of the Society of Maritime Arbitrators,
Inc. upon application by either party. The arbitration panel shall
decide the matter
-47-
<PAGE> 48
as expeditiously as possible; however, no time limits shall be imposed.
The arbitration shall be conducted in the English language in New York,
New York, or at such other place or places as the parties may agree
upon. Decisions of the arbitration panel shall be by majority vote.
The costs and expenses of the arbitration panel, including, but not
limited to, the costs and expenses of administration of the arbitration
proceeding, shall be borne by the parties as determined by the
arbitration panel or, failing such determination, shall be shared
equally by the parties. The arbitration award shall be final, binding
and not subject to appeal and shall be enforceable in any court of
competent jurisdiction in any country.
18. Purchase Option. (a) The CHARTERER shall have the option (the
"Option") to purchase the Vessel at any time during the Charter Term for
the Purchase Price (as hereinafter defined) provided that (i) no Event
of Default under Section 15 (a)(i) or (ii) of this Charter shall have
occurred and be continuing, (ii) the CHARTERER shall have given the
OWNER no less than sixty (60) days written notice (the "Option Notice")
of its election to exercise the Option and (iii) the Purchase Price
shall be increased by any amounts paid by the OWNER for Capital
Expenditures pursuant to Section 6(d) above, as reduced by any Capital
Payments paid by the CHARTERER to the OWNER pursuant to Section 6(d).
The Option Notice shall specify the date on which the CHARTERER intends
-48-
<PAGE> 49
to purchase the Vessel pursuant to its exercise of the Option, which
date shall be no less than thirty (30) days nor more than ninety (90)
days after the Option Notice is received by the OWNER (the "Effective
Date"). Notwithstanding the foregoing, the CHARTERER may revoke any
Option Notice at any time prior to ten (10) days prior to the Effective
Date without affecting the CHARTERER's rights hereunder to exercise the
Option. The sale of the Vessel pursuant to the Option shall be on an
"AS IS, WHERE IS" basis and substantially in the form of the Memorandum
of Agreement attached hereto as Exhibit 2 and incorporated herein by
reference. As used herein, and subject to an increase in amount based
on any Capital Expenditure pursuant to Section 6(d) hereof, the
"Purchase Price" shall mean the following:
(i) USD 21,500,000, if the Effective Date is within the first twelve
(12) months of the Charter Term;
(ii) USD 22,500,000, if the Effective Date is within the second twelve
(12) months of the Charter Term; or
(iii) USD 23,000,000, if the Effective Date is within the third twelve
(12) months of the Charter Term or the Option is exercised
pursuant to any extension under Section 2(d)(ii) above.
(b) Upon any sale of the Vessel by the OWNER to the CHARTERER at any
time during the Charter Term, the OWNER shall refund to the CHARTERER any Basic
Charter Hire paid by the CHARTERER to the OWNER attributable to the period
after the date
-49-
<PAGE> 50
of such sale.
19. Governing Law. This Charter will be governed by and interpreted in
accordance with the general maritime laws of the United States of
America and, to the extent they are not applicable, the internal laws of
the State of New York.
20. Waiver. No waiver by either party of any breach by the other of any
obligation, agreement or covenant hereunder shall be deemed to be a
waiver of that or any subsequent breach of the same or any other
covenant, agreement or obligation nor shall any forbearance by any party
to seek a remedy for any breach by the other party may deemed a waiver
by such party of its rights or remedies with respect to such breach,
unless such waiver is in each case in writing duly executed by such
party.
21. Entire Agreement; Amendment. This Charter and its exhibits constitute
the entire agreement between the parties hereto relating to the subject
matter hereof and supersedes all prior agreements and undertakings of
the parties hereto, whether oral or written, in connection herewith. No
amendment of this Charter shall be valid unless made in writing and
signed by each of the parties hereto.
22. Counterparts. This Charter may be executed in counterparts, in which
event all executed counterparts will be treated as an original hereof.
23. Severability. The OWNER and the CHARTERER agree that with respect to
any specific provision of this Charter that is
-50-
<PAGE> 51
held by any court or other constituted legal authority to be void or
otherwise unenforceable in any particular manner, the parties hereto
consider and permit this Charter to be amended in such manner as may be
required in order to cause said provision and all other terms of this
Charter to remain binding and enforceable against the OWNER and the
CHARTERER.
24. Captions. The captions in this Charter are for convenience and
reference only and shall not define or limit any of the terms or
provisions, or otherwise affect the construction, hereof.
25. Binding Effect. Subject to Section 12 hereof, this Charter shall be
binding upon, inure to the benefit of, and be enforceable by the parties
hereto and their respective successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Charter as of the
date first written above.
OWNER
HYDE OFFSHORE LIMITED PARTNERSHIP
By:Hyde Offshore, Inc.,
Its General Partner
By: /s/ ROBERT A. CAREY
---------------------------------------
Name: Robert A. Carey
-------------------------------------
Title: Vice President
------------------------------------
CHARTERER
FALCON DRILLING COMPANY, INC.
By: /s/ LEIGHTON E. MOSS
---------------------------------------
Name: Leighton E. Moss
------------------------------------
Title: Vice President
-----------------------------------
-51-
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF FALCON DRILLING COMPANY, INC.
Double Eagle Marine, Inc. (Louisiana)
Eilert-Olsen Investments, Inc. (Texas)
Falcon Drilling Management, Inc. (Delaware)
Falcon Inland, Inc. (Delaware)
Falcon Offshore, Inc. (Delaware)
Falcon Services Company, Inc. (Delaware) (Also d/b/a Falcon Drilling Company)
Falcon Workover Company, Inc. (Delaware) (Also d/b/a Blake Workover & Drilling
Company)
Falcon Drilling Holdings, L.P. (Delaware)
Falcon Drilling De Venezuela, Inc. (Delaware)
Falcon Atlantic Ltd. (Cayman Islands)
Falcon Drilling (S.E.A.) Pte. Ltd. (Singapore)
Falcon Drilling Do Brasil, Ltda. (Brazil)
Falrig Offshore (USA), L.P. (Delaware)
Falrig Offshore Partners (Texas)
Falrig Offshore, Inc. (Delaware)
Kestrel Offshore, Inc. (Delaware)
Perforaciones Falrig De Venezuela C.A. (Venezuela)
Raptor Exploration Co., Inc. (Delaware)
<PAGE> 1
EXHIBIT 23
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into Falcon Drilling Company's previously
filed Registration Statement on Form S-8 filed September 29, 1995 (Registration
No. 33-97546).
ARTHUR ANDERSEN LLP
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ITEM 1 -
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 85,050
<SECURITIES> 0
<RECEIVABLES> 73,062
<ALLOWANCES> (1,471)
<INVENTORY> 0
<CURRENT-ASSETS> 166,574
<PP&E> 526,828
<DEPRECIATION> (58,866)
<TOTAL-ASSETS> 652,042
<CURRENT-LIABILITIES> 57,062
<BONDS> 295,051
0
0
<COMMON> 393
<OTHER-SE> 273,355
<TOTAL-LIABILITY-AND-EQUITY> 652,042
<SALES> 0
<TOTAL-REVENUES> 319,341
<CGS> 0
<TOTAL-COSTS> 245,806
<OTHER-EXPENSES> (1,913)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,894
<INCOME-PRETAX> 51,554
<INCOME-TAX> 19,075
<INCOME-CONTINUING> 32,479
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,479
<EPS-PRIMARY> .90
<EPS-DILUTED> .90
</TABLE>
