<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year ended December
31, 1996 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
_______________ to _______________.
COMMISSION FILE NUMBER 1-12542
UTI ENERGY CORP.
------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
Delaware 23-2037823
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(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
Suite 112
485 Devon Park Drive
Wayne, Pennsylvania 19087
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(Address of principal executive offices) (Zip Code)
</TABLE>
(Registrant's telephone number, including area code) (610) 971-9600
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Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, Par value $.001 American 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 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 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.
State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
$51,078,000 at March 21, 1997
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(APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the number of shares
outstanding of each class of registrant's common stock, as of the latest
practicable date. 3,858,511 shares of Common Stock at March 21, 1997.
---------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE.
Proxy Statement for the 1997 Annual Meeting of Shareholders. (Part III)
Exhibit Index Begins on Page 24.
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PART I.
ITEM 1. BUSINESS
INTRODUCTION
The Company is a leading provider of contract drilling services in the
United States. Drilling operations currently are concentrated in the prolific
oil and natural gas producing basins of Oklahoma and Texas. The Company's rig
fleet consists of 74 land drilling rigs with effective depth capabilities
ranging from 5,000 to 25,000 feet. The Company also provides drilling and
pressure pumping services in the Appalachian Basin.
Beginning in 1995, the Company made a strategic decision to focus its
efforts on the expansion of its land drilling operations to take advantage of
improving market conditions and the benefits arising from a consolidation in
the land drilling industry. To effect this strategy, the Company disposed of
its oil field distribution business in September 1995 and immediately embarked
on a directed acquisition program aimed at expanding the Company's presence in
the oil and gas producing regions in the United States.
The Company's acquisition strategy is focused both on existing
drilling contractors with established reputations and on underutilized assets
that can be assimilated into the Company's existing operations. The Company
has sought acquisitions that would provide it with access to new markets,
established regional bases of operation, operational leverage through
additional capacity, and a well-trained work force. Since commencing its
growth strategy, the Company has more than doubled the size of its rig fleet
and has expanded both its drilling depth capabilities and the geographic scope
of its operations. The Company considers that its operating leverage, its
large inventory of low cost drill pipe and spare equipment and its diversified
and decentralized regional drilling operations are significant competitive
advantages.
BUSINESS AND ACQUISITION STRATEGY
The Company's business strategy is to continue to take advantage of
the consolidation in the industry and to grow through selective acquisitions of
drilling rigs and drilling contractors and to expand its operations by
redeploying excess and underutilized equipment into desirable markets. Key
aspects of the Company's acquisition and operational strategy include:
o Acquisition of High Quality Operations and Assets. The
Company seeks acquisitions of companies with existing drilling
operations and established reputations for quality service and high
quality assets that can easily be assimilated into the Company's
operations.
o Diversified Operations. The Company seeks to achieve a
diversified mix in its drilling operations through the maintenance of
regional bases of operations and a rig fleet designed to meet regional
demands and the ability to drill wells of all depths and types. The
Company believes this diversity minimizes the impact of changes in
regional drilling strategies by its customers and fluctuations in
prices in oil and natural gas that affect drilling decisions.
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o Customer Satisfaction and Regional Management and Expertise.
Management stresses customer satisfaction and local expertise and
knowledge. Drilling operations are managed on a regional basis by
local managers who are responsible for the day to day drilling
operations and customer relations in their area.
o Disciplined Bid Approach. The Company maintains a
disciplined approach to bidding. Contracts are bid to maximize
profitability rather than maximize rig utilization. Turnkey and
footage contracts are bid only when the Company has experience and
expertise in the geological and operational aspects of the project and
the anticipated benefits of the contract merit the risk.
o Operational Leverage and Allocation of Equipment. The
Company seeks operational leverage through the ownership of excess
equipment that can be utilized when needed with little additional
capital cost. Rigs, drill pipe and other equipment are allocated
among regional drilling units based on the needs and profitability of
the units.
ACQUISITIONS
Since November 1995, the Company has acquired 51 rigs, approximately
one million feet of drill pipe and other equipment through its acquisition of
FWA Drilling Company, Inc. ("FWA") and Viersen and Cochran Drilling Company
("Viersen") and its acquisition of the rigs and other assets used in the
contract drilling business of Quarles Drilling Corporation ("Quarles"). These
acquisitions were effected at a total cost to the Company of $43.6 million in
cash, notes, Common Stock and warrants to purchase Common Stock. The Company
also has entered into an agreement with Southland Drilling Company, Ltd. (the
"Southland Agreement") pursuant to which the Company has agreed to purchase
eight rigs and the contract drilling business of Southland Drilling Company,
Ltd. ("Southland") for $28 million and warrants to purchase 100,000 shares of
Common Stock at $48 per share.
FWA Drilling. The FWA acquisition was completed in November 1995 at a
cost of $12.9 million, net of cash, and added 29 rigs to the Company's fleet.
The FWA acquisition also substantially expanded the Company's operations into
markets in Texas where it had previously not been operating. Revenues
attributable to FWA during the year ended December 31, 1996, were $51.2
million.
Viersen & Cochran. The Viersen acquisition was completed in August
1996 at a cost of $14.5 million comprised of cash, a note and warrants to
purchase Common Stock. This acquisition provided the Company with 13 high
quality rigs, two of which are deep electric drilling rigs, over 600,000 feet
of drill pipe (approximately 40% of which had never been used) and over 800
drill collars. Since the Viersen acquisition, the Company has redeployed six
of the acquired rigs into its operations in Texas and Oklahoma and is utilizing
the acquired drill pipe and drill collars throughout its operations as needed.
The Company currently estimates that the drill pipe acquired in the Viersen
acquisition should satisfy the drill pipe needs of the Company's current fleet
for four to five years. The Company believes that the availability of this
drill pipe should provide the Company with a competitive advantage over other
drilling companies who may not be able to fully secure their drill pipe needs
and whose cost for drill pipe will be substantially in excess of that paid by
the Company in the Viersen acquisition.
Quarles Drilling. The Quarles acquisition was completed in January
1997 at a cost of $16.2 million in cash and Common Stock and provided the
Company with nine high-quality drilling rigs, including two deep electric
drilling rigs. All of the Quarles rigs currently are operating. The Quarles
acquisition also expanded the Company's operations in Oklahoma, East Texas and
the Texas Gulf Coast and added experienced rig crews to the Company's work
force.
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Southland. The Southland acquisition is intended to expand the
Company's operations in the South Texas and the Gulf Coast markets. The
acquisition will provide the Company with an established base of operation in
this market with eight fully equipped and manned rigs having an average
efficient drilling depth capacity of 12,000 to 18,000 feet. The Southland rigs
operated at an average utilization rate during 1996 of approximately 90% at an
average dayrate of approximately $5,700. The rigs are currently operating at a
utilization rate in excess of 90% at an average dayrate of approximately
$6,500.
The Company's acquisition of Southland is subject to financing. The
Company has paid a non-refundable deposit of $500,000 towards the purchase of
the rigs and will be required to pay an additional $500,000 as liquidated
damages in the event the transaction does not close due to the Company's
inability to obtain financing. Southland may terminate the agreement if the
Company does not obtain the required financing by April 15, 1997. The Company
currently expects to finance the acquisition of the Southland rigs through a
combination of an institutional private placement of debt and bank borrowings,
which is expected to include the issuance of warrants to purchase common stock.
The Company also has the right to finance $13 million of the purchase price
through a $13 million subordinated note payable to Southland. The Company,
however, can reduce the purchase price by $750,000 if it elects to pay cash in
lieu of such note. Accordingly, the Company is currently pursuing financing
for the entire purchase price to take advantage of this discount. The
Southland acquisition is also subject to various customary conditions to
closing. Although the Company currently anticipates obtaining financing for
the Southland acquisition, there can be no assurance that the transaction will
close.
The Company is continuing to review potential acquisitions of rigs and
rig contractors. These potential acquisitions are currently focused on
operating drilling companies that have between five and fifteen rigs of various
depth capabilities and operations in locations in which the Company does not
currently have any significant presence. Although there can be no assurance
that such acquisitions will be completed or as to the terms thereof, such
acquisitions would further expand the Company's rig fleet and operations.
CONTRACT DRILLING
General
The Company's contract drilling fleet currently consists of 74 land
drilling rigs having effective depth capacities ranging from 5,000 to 25,000
feet. As of March 7, 1997, the Company had a total of 63 rigs available for
contract up from 43 rigs available for contract at December 31, 1995. The
Company also has 11 stacked rigs that could be returned to operation at an
average estimated cost of approximately $200,000 per rig. The Company's rig
utilization rate was 54% for the year ended December 31, 1996. The Company
believes that its excess capacity provides substantial capacity for growth.
The Company's contract drilling services are performed through various
regional drilling units and markets under the names Triad, FWA, and IPSCO. The
Company's drilling operations currently are concentrated in the prolific oil
and natural gas producing regions of Texas and Oklahoma. The Company also
markets six smaller rigs in the Appalachian Basin in Ohio, Pennsylvania and New
York. Drilling operations are managed through regional offices located in
Oklahoma City, Oklahoma; Midland, Tyler and Houston, Texas; and Sheffield,
Pennsylvania. Rigs and equipment are deployed and allocated among the various
drilling units based on regional need and profitability. The Company's
contract drilling customers include major oil companies and independent
producers, both large and small.
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Day-to-day drilling operations are managed at the Company's regional
offices by unit managers who are responsible for designated rigs and locations
and clients at those locations. Drilling contracts are bid on the basis of
profitability and local market conditions and not to maximize rig utilization
at the expense of profitability. Rigs, drill pipe and other equipment are
allocated on a Company-wide basis among the Company's regional drilling units
based on the needs and profitability of the units.
The Company maintains an incentive compensation plan for its
managerial and key employees based on operating and budgeted results. The
Company believes that this plan provides the Company with the ability to
attract and retain qualified managers and key operating employees. The Company
also provides incentive compensation to its rig workers based on operating
results and safety records.
Drilling Rigs and Other Contract Drilling Properties
A land drilling rig consists of various components including engines,
drawworks or hoist, derrick or mast, pumps, blowout preventers and drill pipe.
Rig size and configuration vary with depth, terrain and operator requirements.
An active maintenance program during the life of a drilling rig permits the
maintenance, replacement and upgrading of its components on an individual
basis. Over the life of a typical drilling rig, major components, such as
engines, pumps, drawworks and drill pipe are replaced or rebuilt on a periodic
basis as required while other components, such as the mast and substructure,
can be utilized for extended periods of time with proper maintenance.
Drilling rigs and related equipment deteriorate over time unless they
are operated and maintained properly. The Company follows a policy of keeping
its drilling rigs well maintained and technologically competitive.
As of March 7, 1997, the Company had an inventory of 74 rigs, 54 of
which were active. The Company's rig fleet is configured to suit the Company's
various operating regions with drilling depths abilities ranging to 25,000
feet. The Company allocates its rigs among its operating regions based upon
market conditions and in accordance with the needs of its customers and the
capabilities of its rigs.
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The following table sets forth certain information with respect to the
Company's rig fleet and the current distribution of rigs among the Company's
regional operating regions as of March 7, 1997.
<TABLE>
<CAPTION>
Maximum
Active Idle Stacked Total Drilling
Region Rigs (1) Rigs (1) Rigs (1) Rigs Depth Range
----------------- ---------- ---------- ---------- ------- -----------------
<S> <C> <C> <C> <C> <C>
Arklatex . . . . . . . . 11 - - 11 10,000 - 22,000
Permian . . . . . . . . 19 7 - 26 8,500 - 22,000
Gulf Coast . . . . . . . 3 - - 3 22,000
Mid Continent . . . . . 16 - 11 27 6,500 - 25,000
Northeast . . . . . . . 4 2 - 6 5,000 - 12,000
Other (2) . . . . . . . 1 - - 1 25,000
------ ------- ------- ------
54 9 11 74
</TABLE>
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(1) A rig is considered active when under contract. An idle rig is one
that is not under contract but is available and being marketed. A
stacked rig is not currently being marketed but can be made available
after refurbishment. Excludes rigs to be acquired pursuant to the
Southland Agreement.
(2) Represents a rig acquired from Quarles in January 1997, which
currently is operating in Utah.
The following table sets forth for the periods indicated certain data
concerning the utilization of the Company's drilling rigs:
<TABLE>
<CAPTION>
Years Ended December 31,
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1996 1995 1994
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<S> <C> <C> <C>
Number of owned rigs
at end of period (1) . . . . . . . . . . . . . . 65 55 27
Average number of owned
rigs during period . . . . . . . . . . . . . . . 59 31 27
Operating days . . . . . . . . . . . . . . . . . . 11,872 4,405 3,931
Rig utilization rate (2) . . . . . . . . . . . . . 54% 39% 40%
</TABLE>
__________________________________
(1) Excludes nine rigs acquired in January 1997 and eight rigs subject to
the Southland Agreement.
(2) Utilization rates are computed by dividing operating days by the
product of average owned rigs and the number of days in the period.
An operating day is defined as a day during which a rig is being
operated, mobilized, demobilized, assembled, or dismantled while under
contract.
The Company currently owns yards in Woodward, Oklahoma; Midland,
Texas; Tyler, Texas; and Sheffield, Pennsylvania, and leases a yard in Oklahoma
City, Oklahoma, on which it has exercised an option to buy. The Company also
maintains a fleet of trucks that are utilized in certain regions to mobilize and
demobilize its drilling rigs.
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As a result of the Company's acquisition of Viersen, the Company
currently has an inventory of more than 425,000 feet of spare drill pipe
available for its operations. The price of drill pipe recently has increased
substantially and many contractors are subject to allocations and back orders.
The Company estimates that its inventory of drill pipe should satisfy the drill
pipe needs of its current fleet for the next four to five years. The Company
believes that the availability of this large inventory of drill pipe provides
it with a competitive advantage over many of its competitors who may have
difficulty in securing drill pipe and whose cost of drill pipe is substantially
in excess of the amounts paid by the Company for the pipe acquired by it in the
Viersen acquisition.
Drilling Contracts
The Company's drilling rigs are employed under individual contracts
which extend either over a stated period of time or the time required to drill
a well or a number of wells. Drilling contracts are generally obtained through
competitive bidding though some may be obtained by negotiation. Contracts
generally are subject to termination by the customer on short notice, but can
be firm for a number of wells or years. Drilling contracts may provide for
compensation on a daywork, footage or turnkey basis.
The Company maintains a disciplined approach to bidding. Contracts
are bid on the basis of profitability and not to maximize rig utilization.
Turnkey and footage contracts are bid only when the Company has experience and
expertise in the geological and operational aspects of the project and the
anticipated benefits of the contract merit the risk.
A day-work contract provides for a basic rate per day when drilling
(the "Dayrate") and for lower rates when the rig is moving, or when drilling
operations are interrupted or restricted by equipment breakdowns, actions of
the customer or adverse weather conditions or other conditions beyond the
control of the Company. In addition, day-work contracts typically provide for
a lump sum fee for the mobilization and demobilization of the drilling rig. The
Dayrate depends on market and competitive conditions, the nature of the
operations to be performed, the duration of the work, the equipment and
services to be provided, the geographic area involved and other variables.
The Company also is a party to turnkey and footage contracts in
certain areas of the United States. In a turnkey contract, the Company
undertakes to drill a well to a specified depth for a fixed price. In a
footage contract, the Company undertakes to drill a well to a specified depth
at a fixed price per foot of hole. In both turnkey and footage contracts, the
Company must bear the cost of performing the drilling services until the well
has been drilled, and accordingly, such contracts require significant cash
commitments by the Company. In both the turnkey and footage contracts, the
Company generally agrees to furnish services such as testing, coring and casing
the hole and other services which are not normally provided by a drilling
contractor working under a daywork contract. In both situations, compensation
is earned upon completion of the well to the specified depth. If the well is
not completed to the specified depth, the Company may not receive the fixed
turnkey or footage price. For those reasons, footage and turnkey contracts
generally involve a higher degree of risk to the Company than daywork contracts
because the Company bears the cost of unanticipated downhole problems.
PRESSURE PUMPING SERVICES AND OTHER OPERATIONS
Pressure Pumping
The Company, through its Universal Well Servicing unit, is a leading
provider of pressure pumping services in the northern Appalachian Basin.
Pressure pumping services consist primarily of well
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stimulation and cementing for the completion of new wells and remedial work on
existing wells. Generally, all completed Appalachian Basin wells require
cementing services before production commences. In addition, substantially all
completed wells drilled in the Appalachian Basin require some form of
fracturing or other stimulation to enhance the flow of gas and oil to the well
bore. With the purchase of proprietary technology and equipment in 1995,
Universal has added the capability to fracture wells using liquid carbon
dioxide and sand.
Universal maintains four base camps in the Appalachian Basin: one
each in Punxsutawney, Bradford, and Meadville, Pennsylvania; and Wooster, Ohio.
These camps typically consist of an office area, an equipment maintenance
facility, a bulk storage facility and a storage yard for vehicles and other
materials. Universal also maintains a portable, temporary facility which is
available for special projects.
The Company's pressure pumping equipment consists of cement,
fracturing and nitrogen pumpers, blenders, and cement, sand, acid, connection
and nitrogen transport trucks. The Company maintains its pressure pumping
equipment in good condition. Virtually all of the Company's pressure pumping
equipment is in use on a regular basis. At March 7, 1997, the Company operated
the following equipment:
<TABLE>
<CAPTION>
Number
Equipment Type of Units
------------------------------------------------------------------------------- --------
<S> <C>
Pumper Trucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Blender Trucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Bulk Cement Trucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Sand Trucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Acid Trucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Connection Trucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
</TABLE>
The following table sets forth for the periods indicated certain data
concerning the operations of the Company's pressure pumping business:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1996 1995 1994
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<S> <C> <C> <C>
Pressure Pumping Jobs:
Cementing jobs . . . . . . . . . . . . . . 2,094 1,840 2,021
Conventional stimulation jobs (1) . . . . 900 688 706
CO2 fracturing jobs . . . . . . . . . . . 5 16 -
</TABLE>
(1) Conventional well stimulation includes hydraulic fracturing,
acidizing, and nitrogen injection jobs.
Other Operations
The Company also operates a horizontal hard rock boring division
("Boring"). Using a patented process and equipment, Boring applies vertical
drilling technology to bore horizontal holes for the placement of pipelines and
cables, including fiber optic cables, under obstacles such as highways and
railroads when hard rock conditions are encountered. Boring currently markets
its services in the eastern
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half of the United States.
In addition to its operating activities, the Company has invested in
working interests in gas and oil wells from time to time, principally in the
Appalachian and Permian Basins. The net book value of such investments at
December 31, 1996 and December 31, 1995, was $310,000 and $162,000,
respectively.
INDUSTRY CONDITIONS, COMPETITION, AND SEASONALITY
The Company's revenues and earnings are affected directly by the
demand for contract drilling and related oilfield services in the United
States. Demand is a function of the level of oil and gas exploration and
development activity. The level of such activity is impacted by many factors
over which the Company has no control, including among others, the market
prices of oil and gas, the stability or volatility of such prices, levels of
production, activities of OPEC and other oil and gas producers, governmental
regulations, the level of worldwide economic activity, the development of
alternate energy sources, and the short and long-term effect of worldwide
energy conservation measures. Substantial uncertainty exists as to the future
level of oil and gas exploration and production drilling activity in the United
States.
The contract drilling, workover and well servicing industry is a
highly-fragmented, intensely competitive and cyclical business. Since 1982,
the contract drilling business has been severely affected by the decline and
continued instability in the prices of oil and natural gas. Though these
depressed economic conditions have resulted in a consolidation of the number of
competitors and the reduction of the number of rigs available, the supply of
available rigs, particularly in the U.S. land markets, still exceeds the demand
for those rigs. Competition for services in a particular market is based on
price, location, type and condition of available equipment and quality of
service. A number of large and small contractors provide competition for
drilling contracts in all areas of the Company's business. Certain competitors
are present in more than one of those areas and drilling rigs are mobile and
can be moved from one region to another in response to increased demand.
Within the last several months, prices for land drilling rigs have started to
increase, particularly with respect to electric rigs and mechanical rigs that
are capable of drilling in excess of 12,000 feet. Seasonality is not a
significant factor with respect to the overall operations of the Company,
although the Company's pressure pumping and contract drilling services in
Appalachia are subject to slow periods of activity during spring months.
OPERATING RISKS AND INSURANCE
The Company's operations are subject to many hazards inherent in the
drilling, workover and well servicing industries including blowouts, cratering,
explosions and fires, any of which could result in personal injury or death,
damage to or destruction of equipment and facilities, suspension of operations,
environmental damage to surrounding areas and damage to the property of others.
To the extent that such risks are not transferred to customers by contract or
indemnification agreements, the Company seeks protection through insurance
which the Company's management considers to be adequate. However, there is no
assurance that such insurance or indemnification agreements will be adequate to
protect the Company against liability from all of the consequences of the
hazards described above. The occurrence of an event not fully insured or
indemnified against, or the failure of a customer to meet its indemnification
obligations could result in substantial losses to the Company. In addition,
there can be no assurance that insurance will be available to the Company in
the future, or, even if available, that it will be adequate or that insurance
premiums or other costs will not rise significantly.
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ENVIRONMENTAL REGULATION
The Company's activities are subject to existing federal, state and
local laws and regulations governing environmental quality and pollution
control. It is not anticipated that compliance with existing laws and
regulations regulating the release of materials into the environment or
otherwise relating to the protection of the environment will have a material
adverse effect upon the operations, capital requirements or earnings of the
Company in the foreseeable future, absent the occurrence of an extraordinary
event. The Company cannot predict what effect additional regulation or
legislation, enforcement policies thereunder and claims for damages to
property, employees, other persons, and the environment could have on its
activities.
The Company's operations routinely involve the handling of various
materials, some of which are classified as hazardous materials. The Company's
operations and facilities are subject to numerous state and federal
environmental laws, rules and regulations, including, but not limited to, laws
concerning the containment and disposal of hazardous materials, oil field
waste, other waste materials and acids, and the use of underground storage
tanks. Laws protecting the environment have generally become more restrictive
in recent years. In addition, environmental laws and regulations may impose
strict liability whereby the Company could be liable for clean-up costs, even
if the situation resulted from previous conduct of the Company that was lawful
at the time conducted or from improper conduct of, or conditions caused by,
previous property owners or other persons not associated with the Company.
From time to time, claims may be made and litigation might be brought against
the Company under these laws. Such clean-up costs or costs associated with
changes in environmental laws and regulations could be substantial and could
have a material adverse effect on the Company's financial condition. However,
the cost of environmental compliance has not had any material adverse effect on
the Company's financial condition in the past. The Company is unable to
predict the effect of new regulations and amendments to existing regulations
governing its operations, and therefore is unable to determine the ultimate
costs of complying with environmental laws and regulations.
The Oil Pollution Act of 1990 ("OPA") amends certain provisions of the
federal Water Pollution Control Act of 1972, commonly referred to as the Clean
Water Act ("CWA") and other statutes as they pertain to the prevention of and
response to oil spills into navigable waters. The OPA subjects owners of
facilities to strict, joint and several liability for all containment and
cleanup costs and certain other damages arising from a spill, including, but
not limited to, the costs of responding to a release of oil to surface waters.
The CWA provides penalties for any discharges of petroleum products in
reportable quantities and imposes substantial liability for the costs of
removing a spill. State laws for the control of water pollution also provide
varying civil and criminal penalties and liabilities in the case of releases of
petroleum or its derivatives into surface waters or into the ground. The
Environmental Protection Agency ("EPA") is also authorized to seek preliminary
and permanent injunctive relief and, in certain cases, criminal penalties and
fines. In the event that a discharge occurs at a well site at which the
Company is conducting drilling or pressure pumping operations, the Company may
be exposed to claims that it is liable under the CWA.
Certain of the Company's facilities are also subject to regulations of
the EPA, including regulations that require the preparation and implementation
of spill prevention control and countermeasure plans relating to the possible
discharge of oil into navigable waters.
The Comprehensive Environmental Response, Compensation and Liability
Act, as amended, ("CERCLA"), also known as the "Superfund" Law, imposes
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons with respect to the release of a "hazardous
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substance" into the environment. These persons include the owner and operator
of a site and persons that disposed of or arranged for the disposal of the
hazardous substances found at the site. CERCLA currently exempts crude oil,
and the Resource Conservation and Recovery Act, as amended, currently exempts
certain drilling materials, such as drilling fluids and production waters, from
the definitions of hazardous substances. There can be no assurance that such
exemptions will be preserved in future amendments of such acts, if any, or that
more stringent laws and regulations protecting the environment will not be
adopted. In addition, the Company's operations may involve the use or handling
of acids currently classified as hazardous substances and other materials that
may in the future be classified as environmentally hazardous substances.
The operations of the Company are subject to local, state and federal
regulations for the control of emissions and air pollution. Legal and
regulatory requirements in this area are increasing, and there can be no
assurance that significant costs and liabilities will not be incurred in the
future as a result of new regulatory developments. In particular, regulations
promulgated under the Clean Air Act Amendments of 1990 may impose additional
compliance requirements that could affect the Company's operations. The
Company may in the future be subject to civil or administrative enforcement
actions for failure to comply strictly with air regulations and permits. These
enforcement actions are generally resolved by payment of monetary fines and
correction of any identified deficiencies. Alternatively, regulatory agencies
could require the Company to forego construction or operation of certain air
emission sources.
Management believes that the Company is in substantial compliance with
environmental laws and regulations.
EMPLOYEES
At March 7, 1997, the Company had approximately 1,248 full-time
employees, 1,180 of which were rig personnel, and 68 of whom were employed in
support and administrative capacities.
Increases in domestic drilling demand since mid-1995 and recent
increases in contract drilling activity have resulted in a shortage of
qualified rig personnel in the industry. To date, the Company has not
experienced material labor shortages due to these changing market conditions.
The Company believes that its compensation and organizational structure allows
it to compete favorably with its larger and smaller competitors. However,
there can be no assurance that the Company will continue to be able to retain
and attract qualified rig personnel, and any failure to do so could have a
material adverse effect on the Company's results of operations and financial
condition.
In addition to the services of its employees, the Company employs the
services of consultants as required. None of the Company's employees are
represented by labor unions. There have been no work stoppages or strikes
during the last three years which have resulted in the loss of production or
production delays. The Company believes its relations with its employees are
good.
ITEM 2. PROPERTIES
See Item 1 for information with respect to properties.
ITEM 3. LEGAL PROCEEDINGS
- 11 -
<PAGE> 12
The Company and its operating subsidiaries are sometimes named as a
defendant in litigation usually relating to personal injuries alleged to result
from negligence. The Company maintains insurance coverage against such claims
to the extent deemed prudent by management. The Company believes that there
are no existing adverse claims for which it is uninsured or has not already
provided. Except as described above, there are no material pending, or, to the
Company's knowledge, threatened lawsuits against the Company or any of its
subsidiaries.
There can be no assurance that the Company will be able to maintain
adequate insurance in the future at rates it considers reasonable, and further,
there can be no assurance that insurance will continue to be available on terms
as favorable as those for its existing arrangements. The occurrence of an
adverse claim in excess of the coverage limits maintained by the Company could
have a material adverse effect on the Company's financial condition and results
of operations.
The Company knows of no legal proceedings pending or threatened, or
judgments entered against, any director or officer of the Company in his
capacity as such.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1996.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock, constituting the only class of common
equity of the Company currently outstanding, is traded on the American Stock
Exchange under the symbol "UTI". The table below provides price information
for the Common Stock for 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
------------------------ -------------------------
Quarter Ended High Low High Low
-------------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
March 31 . . . . . . . . . . . . . $ 7 1/8 $ 5 1/4 $ 4 13/16 $ 3 1/2
June 30 . . . . . . . . . . . . . $13 3/4 $ 6 7/8 $ 5 1/4 $ 4 3/8
September 30 . . . . . . . . . . . $16 $11 1/2 $ 5 1/8 $ 4 1/2
December 31 . . . . . . . . . . . $38 5/8 $15 3/4 $ 5 7/8 $ 4
</TABLE>
At March 7, 1997, the closing price for the Company's Common Stock was
$23 3/4. At March 7, 1997, the Company's Common Stock was held of record by
approximately 45 persons, and, in management's estimation, beneficially owned
by approximately 600 persons.
During the two most recent fiscal years, the Company has not paid a
cash dividend on its Common Stock, and it is not anticipated that any cash
dividend will be paid on the Common Stock for
- 12 -
<PAGE> 13
the foreseeable future.
- 13 -
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
the Company as of and for each of the periods indicated. The selected
financial data for each of the five years in the period ended December 31,
1996, are derived from the Company's audited consolidated financial statements.
The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ----------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil field service . . . . . . . . . . . . . $ 96,628 $ 39,844 $ 35,831 $ 33,434 $ 29,662
Other . . . . . . . . . . . . . . . . . . . 673 280 444 786 927
----------- ----------- ----------- ----------- -----------
Total revenues . . . . . . . . . . . 97,301 40,124 36,275 34,220 30,589
Gross profit:
Oil field service . . . . . . . . . . . . . 18,737 7,337 8,121 7,211 5,936
Other . . . . . . . . . . . . . . . . . . . 307 102 297 668 669
----------- ----------- ----------- ----------- -----------
Total gross profit . . . . . . . . . 19,044 7,439 8,418 7,879 6,605
----------- ----------- ----------- ----------- -----------
Depreciation and amortization . . . . . . . . . . . . 4,292 2,552 2,302 2,611 3,170
Selling, general, and administrative . . . . . . . . 7,768 5,082 4,958 4,718 4,419
----------- ----------- ----------- ----------- -----------
Operating income (loss) . . . . . . . . . . . . . . . 6,984 (195) 1,158 550 (984)
Other income . . . . . . . . . . . . . . . . . . . . 1,341 293 461 318 188
Interest expense . . . . . . . . . . . . . . . . . . (1,148) (265) (260) (72) (154)
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations
before income taxes . . . . . . . . . . . . . . . . 7,177 (167) 1,359 796 (950)
Income taxes . . . . . . . . . . . . . . . . . . . . 2,324 (592) 293 155 (171)
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations . . . . . . 4,853 425 1,066 641 (779)
Preferred stock dividend . . . . . . . . . . . . . . - - - 2,330 2,461
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations
applicable to common shareholders . . . . . . . . . $ 4,853 $ 425 $ 1,066 $ (1,689) $ (3,240)
=========== =========== ============ =========== ===========
Income (loss) from continuing operations per common share
Primary . . . . . . . . . . . . . . . . . . $ 1.27 $ 0.13 $ 0.33 $ (2.37) $ (2.81)
=========== =========== =========== =========== ===========
Fully Diluted . . . . . . . . . . . . . . . $ 1.26 $ 0.13 $ 0.33 $ (2.37) $ (2.81)
=========== =========== =========== ============ ===========
Average common shares outstanding
Primary . . . . . . . . . . . . . . . . . . 3,813,062 3,299,556 3,244,000 711,704 1,153,000
Fully Diluted . . . . . . . . . . . . . . . 3,853,164 3,299,556 3,244,000 711,704 1,153,000
BALANCE SHEET DATA:
Working capital . . . . . . . . . . . . . . . . . . . $ 5,761 $ 5,427 $ 8,179 $ 7,210 $ 7,747
Total assets . . . . . . . . . . . . . . . . . . . . 61,870 33,990 22,474 22,957 25,311
Long-term debt . . . . . . . . . . . . . . . . . . . 14,658 8,701 2,211 3,342 484
Redeemable preferred stock . . . . . . . . . . . . . - - - - 24,437
Common shareholders' equity (deficiency) . . . . . . 22,696 14,990 13,745 12,588 (7,380)
</TABLE>
- 14 -
<PAGE> 15
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
UTI is a leading provider of contract drilling services in the United
States. The Company's drilling operations are currently concentrated in the
prolific oil and natural gas producing basins of Oklahoma and Texas. The
Company's rig fleet consists of 74 land drilling rigs with effective depth
capabilities ranging from 5,000 to 25,000 feet. The Company also provides
drilling and pressure pumping services in the Appalachian Basin.
Beginning in 1995, the Company made a strategic decision to focus its
efforts on the expansion of its land drilling operations to take advantage of
improving market conditions and the benefits arising from a consolidation in
the land drilling industry. To effect this strategy, the Company disposed of
its oil field distribution business in September 1995 and immediately embarked
on a directed acquisition program aimed at expanding the Company's presence in
the oil and gas producing regions in the United States.
Since November 1995, the Company has acquired 51 rigs in three
transactions. FWA was acquired in November 1995 for $12.9 million net cash,
Viersen in August 1996 for approximately $14.5 million (consisting of $6
million cash, a two-year $8.0 million note and warrants to purchase Common
Stock at $15 per share) and the contract drilling business of Quarles in
January 1997 for $16.2 million (consisting of $8.1 million cash and shares of
Common Stock having a value of $8.1 million).
The Company's results for the year ended December 31, 1996, also
reflect an improvement in market conditions in the United States land drilling
markets resulting from an increase in demand for drilling services. During
1996, the Company was able to increase the rates charged to its customers.
Fleet utilization increased to 54% from 39% in 1995. The Company has continued
to focus on streamlining operations and reducing its cost structure, which has
further increased operating margins and profitability.
The Company currently expects that its land drilling operations will
continue to benefit from improved market conditions and the effects of its
prior acquisitions. The Company intends to continue its strategy of growth
through acquisitions of rigs and equipment that can be easily integrated into
its fleet and operations and through acquisitions of other drilling contractors
that may provide opportunities for expansion of the Company's markets and
services. Although there can be no assurance as to the success of the
Company's future acquisitions, such acquisitions, if effected, could be
expected to result in further increases in revenues and earnings.
RECENT DEVELOPMENT--SOUTHLAND ACQUISITION
The Company recently entered into the Southland Agreement pursuant to
which it is proposing to acquire the contract drilling business of Southland
for $28 million cash and warrants to purchase 100,000 shares of Common Stock at
$48 per share. The Southland acquisition is intended to expand the Company's
operations in South Texas and the Gulf Coast. The acquisition will provide the
Company with an established base of operation in this market with eight fully
equipped and manned rigs having an average efficient drilling depth capacity of
12,000 to 18,000 feet. The Southland rigs operated at an average utilization
rate during 1996 of approximately 90% and at an average dayrate of
approximately $5,700. The rigs are currently operating at a utilization rate
in excess of 90% and at an average dayrate
- 15 -
<PAGE> 16
of approximately $6,500.
The Company's acquisition of Southland is subject to financing. The
Company has paid a non-refundable deposit of $500,000 towards the purchase of
the rigs and will be required to pay an additional $500,000 as liquidated
damages in the event the transaction does not close due to the Company's
inability to obtain financing. Southland may terminate the agreement if the
Company does not obtain the required financing by April 15, 1997. The Company
currently expects to finance the acquisition of the Southland rigs through a
combination of an institutional private placement of debt and bank borrowings,
which is expected to include the issuance of warrants to purchase common stock.
The Company also has the right to finance $13 million of the purchase price
through a $13 million subordinated note payable to Southland. The Company,
however, can reduce the purchase price by $750,000 if it elects to pay cash in
lieu of such note. Accordingly, the Company is currently pursuing financing
for the entire purchase price to take advantage of this discount. The
Southland acquisition is also subject to various customary conditions to
closing. Although the Company currently anticipates obtaining financing for
the Southland acquisition, there can be no assurance that the transaction will
close. If the Company is unable to obtain financing for the acquisition,
earnings will be affected by the loss of the deposit and liquidated damages.
RESULTS OF OPERATIONS
The Company views the number of rigs actively drilling in the United
States as a barometer of the overall strength of the domestic oil field service
industry. Without giving effect to acquisitions, variations in revenues and
gross margins of the Company's core business generally follow the rig count
trend.
The following table presents certain results of operations data for
the Company and the average United States rig count as reported by Baker Hughes
Inc. (1) for the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1996 1995 1994
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Operating Data:
Average U.S. land rig count . . . . . . . . . . . 673 601 637
Contract drilling:
Operating days . . . . . . . . . . . . . . . . . 11,872 4,405 3,931
Average utilization . . . . . . . . . . . . . . 54% 39% 40%
Pressure pumping:
Cement jobs . . . . . . . . . . . . . . . . . . 2,094 1,840 2,021
Stimulation jobs . . . . . . . . . . . . . . . . 905 704 706
Financial data:
Net sales . . . . . . . . . . . . . . . . . . . . $ 97,301 $ 40,124 $ 36,275
========= ========= =========
Gross profit . . . . . . . . . . . . . . . . . . . $ 19,044 $ 7,439 $ 8,418
========= ========= =========
As a percentage of sales . . . . . . . . . . . . . 19.6% 18.5% 23.2%
========= ========= =========
Operating income (loss) . . . . . . . . . . . . . $ 6,984 $ (195) $ 1,158
========= ========= =========
</TABLE>
__________________________________
(1) Baker Hughes, Inc. is an international oilfield service and equipment
company which for more than twenty years has conducted and published a
weekly census of active drilling rigs. Its active rig count is
generally regarded as an industry standard for measuring industry
activity levels.
- 16 -
<PAGE> 17
COMPARISON OF YEARS ENDED 1996 AND 1995
During the year ended December 31, 1996, the Company experienced
significant growth in its income, revenues and operating margins. This growth
reflected the successful implementation of the Company's growth strategy as
well as improvements in market conditions in the industry and a continued
emphasis on increasing operating efficiencies.
The Company's revenues for the year ended December 31, 1996, increased
by $57.2 million, or 143%, to a record $97.3 million compared to $40.1 million
for the year ended December 31, 1995. This substantial increase in revenues
reflected a $52.8 million increase in contract drilling revenue and a $3.8
million increase in pressure pumping revenue. Of the $52.8 million increase in
contract drilling revenue, $45.8 million is attributable to the FWA
acquisition, with the remainder attributable to higher day rates and rig
utilization. The Company's rig fleet was employed for 11,872 days during the
year ended December 31, 1996, compared to 4,405 days for the year ended
December 31, 1995. The Company completed 2,999 pressure pumping jobs during
the year ended December 31, 1996, up from 2,544 jobs during the year ended
December 31, 1995.
The Company's gross profit for the year ended December increased 156%
to $19.0 million for the year ended December 31, 1996, from $7.4 million for
the year ended December 31, 1995. Contract drilling gross margin as a
percentage of sales was 16.5% for the year ended 1996, up from 13.4% for the
same period in 1995. This increase in gross margin percentage was attributable
to higher day rates and rig utilization. Pressure pumping gross margin as a
percentage of revenue was 33% for the year ended 1996, up from 30% for the same
period in 1995.
The Company's depreciation and amortization expense for the year ended
December 31, 1996, increased $1.7 million from the year ended December 31,
1995, due to the FWA acquisition and, to a lesser extent, the acquisition of
Viersen. Depreciation and amortization expense will increase in future periods
as a result of the Company's acquisitions of Viersen and Quarles and the
possible acquisition of Southland.
Selling, general and administrative expenses for the year ended
December 31, 1996, increased $2.7 million from the year ended December 31,
1995. This increase was as a result of the FWA acquisition and higher
performance based bonus accruals. Selling, general and administrative expense
as a percentage of revenues, however, decreased from 12.7% to 8.0% as a result
of increased utilization and revenues.
Other income for the year ended December 31, 1996, increased $1.0
million. This increase was primarily due to a favorable resolution of a
dispute with the United States government over mineral rights owned by the
Company in Southeast New Mexico.
Interest expense for the year ended December 31, 1996, increased
$883,000 from the year ended December 31, 1995. The increase in interest
expense was due to interest on the debt associated with the Company's
acquisitions of FWA and Viersen. The interest costs associated with the debt
incurred for the Quarles acquisition will also result in an increase in
interest expense during the first quarter of 1997. Future acquisitions may
result in additional debt financing where desirable. In addition, the increase
in the Company's activity level requires a greater level of working capital,
which will be funded from time to time in part with borrowings under the
Company's working capital line of credit.
Income from continuing operations was $4.8 million for the year ended
December 31, 1996, compared to $425,000 for the same period in 1995. This
increase reflects the improved revenues and
- 17 -
<PAGE> 18
gross profit resulting from the Company's growth and improved market conditions.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenues increased 10.6% to $40.1 million in 1995 from $36.3 million
in 1994 as the revenues from the acquisition of FWA offset a 4.2% decline in
the revenues of the Company's other operations. The U.S. average land rig
count declined 5.7% from 637 to 601, primarily in response to soft natural gas
prices that prevailed during the first three quarters of 1995. Contract
drilling operating days increased 12.1% reflecting the acquisition of FWA.
Total pressure pumping jobs decreased 6.7%.
Gross profit declined 11.6% from $8.4 million in 1994 to $7.4 million
in 1995. The decline in gross margin resulted from $750,000 in losses suffered
on a footage and a turn-key well during the fourth quarter of 1995, competitive
pricing pressure in the Appalachian Basin, and lower productivity in
Appalachian drilling operations.
Depreciation and amortization expense increased $250,000 due to the
acquisition of FWA.
Selling, general and administrative expense increased $124,000
primarily as a result of the FWA acquisition.
Other income decreased $168,000 primarily because 1994 included a
one-time benefit of $200,000 from an antitrust settlement.
Interest expense was essentially flat period to period as the interest
on the debt financing associated with the purchase of FWA in 1995 was offset by
the decline in interest on short term debt. The Company had no short term debt
outstanding at any point in 1995.
Income tax declined from an expense of $293,000 in 1994 to a benefit
of $592,000 in 1995. The 1995 income tax benefit resulted from the reduction
of a valuation allowance against the Company's deferred tax asset. The
valuation was reduced based on the Company's expectation that the deferred tax
asset will more likely than not be realized from future taxable income.
Income from continuing operations was $425,000 in 1995, a $641,000
decline from 1994.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
The Company's primary cash needs are to fund working capital
requirements and to make capital expenditures to replace and expand its
drilling rig fleet and for acquisitions. The Company's ongoing operations are
funded with available cash and cash provided from operations and borrowings
under its working capital line of credit. To date, acquisitions have been
funded with available cash, borrowings and issuances of Common Stock and
warrants to purchase Common Stock.
At December 31, 1996, and December 31, 1995, the Company had cash of
$570,000 and $2.3 million, respectively, and $5.4 million and $8.0 million in
available borrowings under its working capital facility. The Company's working
capital at December 31, 1996, was $5.8 million, compared to $5.4 million at
December 31, 1995, and $8.2 million at December 31, 1994. The decline in
working capital from December 31, 1994, reflected the elimination of working
capital related to the Company's
- 18 -
<PAGE> 19
oil field distribution operations that were discontinued in September 1995, and
an increase in the current portion of the Company's long-term debt associated
with its acquisition of Viersen.
Net cash provided by continuing operations was $6.3 million, $600,000
and $3.2 million for 1996, 1995 and 1994, respectively. Such funds were
utilized to fund capital expenditures. Capital expenditures, excluding
acquisitions, for the years ended December 31, 1996, 1995 and 1994, were $4.3
million, $1.9 million and $1.3 million, respectively.
Debt Facilities
At December 31, 1996, the Company had outstanding $19.4 million in
debt and capital lease obligations. Such indebtedness included $2.6 million
outstanding under a revolving line of credit provided by Mellon Bank, N.A. (the
"Mellon Line of Credit") and $15.1 million associated with the Company's
acquisitions of FWA and Viersen described below. In January 1997, the Company
incurred an additional $8.1 million in indebtedness in connection with the
acquisition of Quarles' contract drilling business, which indebtedness
consisted of advances of $4.1 million under the Mellon Line of Credit and $4.0
million pursuant to a new term loan with Mellon (the "Mellon Term Loan").
In addition to the Company's indebtedness relating to the FWA and
Viersen acquisitions and the Mellon Line of Credit, at December 31, 1996, the
Company had outstanding $1.5 million under a promissory note issued in
conjunction with a prior preferred stock redemption by the Company. This note
requires annual principal payments of $500,000 per year plus accrued and unpaid
interest, and additional annual mandatory principal prepayments of an amount
equal to the Company's excess cash flow as defined, but not to exceed $500,000
per year. A scheduled $500,000 payment of principal was made on this note in
the fourth quarter of 1996, and a $500,000 prepayment will be made on April 1,
1997.
Mellon Bank, N.A. The Mellon Line of Credit provides for borrowings
up to $8.4 million, subject to collateral requirements. The facility is
secured by a pledge of the Company's accounts receivable and inventory and
includes financial covenants covering tangible net worth, interest coverage,
and debt service coverage. Advances under the line are limited by levels of
accounts receivable and inventory. Interest under the facility is calculated
at the lower of the prime rate or such other rate options available at the time
of borrowing, depending upon the Company's financial performance. The facility
expires on June 30, 1998. At December 31, 1996, the Company had $5.4 million
available for borrowings under this facility, $4.1 million of which was
utilized in January 1997 to fund a portion of the consideration paid by the
Company to acquire Quarles' contract drilling business.
FWA Financing. In November 1995, the Company acquired FWA for $12.9
million, net of cash. The acquisition was financed with $9.0 million in
promissory notes issued to an institutional lender and secured by the Company's
drilling rigs, a portion of the $4.3 million in net proceeds from the Company's
sale of its oil field supply business, and $1.0 million realized from the
private placement of 222,222 shares of Common Stock. The promissory notes
require equal principal payments of $150,000 per month plus interest, based on
30 day LIBOR, and are due in November 2000. The notes contain financial
covenants covering tangible net worth, debt service coverage, and leverage
ratios. The Company had outstanding $7.1 million and $8.9 million under these
promissory notes at December 31, 1996 and 1995, respectively. The Company
currently intends to repay this facility in connection with its acquisition of
Southland and consolidation of its credit facilities. Such repayment would
result in an estimated charge of $198,000 for the early retirement of this
debt.
- 19 -
<PAGE> 20
Viersen Financing. On August 14, 1996, the Company acquired Viersen.
The consideration paid for Viersen consisted of (i) $6.0 million cash (a
portion of which the Company borrowed under its revolving credit facility),
(ii) a two-year $8 million promissory note (the "Viersen Note") and (iii)
two-year warrants to purchase 200,000 shares of Common Stock at $15 per share.
The Viersen Note bears interest at the rate of 6% per annum and is payable in
full on or before August 14, 1998. The terms of the Viersen Note require the
Company to make a principal payment of $1,500,000 on or before August 14, 1997
and an additional principal payment of $1,500,000 on or before February 14,
1998. The Company has the option to prepay the Viersen Note by paying
$7,655,000 plus accrued interest on or before April 14, 1997. The Company's
obligations under the Promissory Note are guaranteed by Viersen and are secured
by a pledge of the assets of Viersen pursuant to a security agreement. The
Company intends to prepay the Viersen Note prior to April 14, 1997, and thereby
realize the discount.
Quarles Financing. In January 1997, the Company purchased the
contract drilling business of Quarles for $16.2 million, consisting of $8.1
million and 256,175 shares of Common Stock having a value at the time the
agreement was negotiated of $8.1 million, subject to adjustment as described
below. The cash portion of the purchase price was funded with advances under
the Mellon Line of Credit of $4.1 million and a $4.0 million advance pursuant
to a new Mellon Term Loan that bear interest at the bank's prime rate and are
secured by a pledge of certain of the Company's accounts receivable and
inventory.
Under the terms of the agreement relating to the Company's acquisition
of the Quarles Assets, Quarles also is entitled to receive additional shares of
Common Stock in the event the market price of the Common Stock is less than
$31.69 per share on the date a registration statement covering the resale of
the Common Stock issued to Quarles is declared effective. The number of
additional shares will be equal to a number of shares sufficient to provide
Quarles with $8.1 million of Common Stock based on the market price of the
Common Stock on such date. In the event the market price of the Common Stock
is greater than $31.69 per share on such date, Quarles is required to return a
number of shares of Common Stock having a value (at such market price) equal to
one-half of the amount by which the market price of the shares (at such market
price) initially issued is greater than $8.1 million.
Southland Financing and Refinancing of Existing Indebtedness. The
Company is currently negotiating with an institutional lender a new $25 million
four-year senior subordinated note that would be used to finance the Southland
acquisition. The Company is also negotiating a new $25 million three-year term
facility with a financial institution that would be used to consolidate into one
facility the Company's other outstanding indebtedness. It is expected that
these facilities would be negotiated and completed by April 15, 1997. It is
anticipated that the new institutional facility would be unsecured and
subordinated to the term facility and that the term facility will be secured by
various assets of the Company's subsidiaries, including its receivables and
certain rigs. Although the Company believes that it will be successful in
consummating its new credit arrangements, there can be no assurance that such
arrangements will in fact be consummated. If the Company is unable to
consummate these new arrangements, or obtain alternative financing for the
Southland acquisition by April 15, 1997, the Company will be subject to a
forfeiture of its $500,000 deposit with Southland as well as an additional
$500,000 payment for liquidated damages if Southland elects to terminate the
Southland Agreement.
Following the Southland Acquisition, it is expected that the Company
will have outstanding approximately $52 million of indebtedness and $6 million
available under the Mellon Line of Credit. Although the Company believes that
its internally generated cash will be sufficient to satisfy its working capital
and capital expenditure obligations, as well as its debt service requirements,
the ability of the Company to continue to grow through acquisitions will be
dependent upon the Company's ability to
- 20 -
<PAGE> 21
secure additional financing in the form of debt or equity for those
acquisitions. There can be no assurance that such financing will be available.
Other. The Company is continuing to review potential acquisitions of
rigs and rig contractors. These potential acquisitions are currently focused
on operating drilling companies that have between five and 15 rigs of various
depth capabilities and operations in locations in which the Company does not
currently have any significant presence. Although there can be no assurance
that such acquisitions will be completed or as to the terms thereof, such
acquisitions would further expand the Company's rig fleet and operations.
Management believes its internally generated cash and existing credit
facility will be sufficient to meet its working capital, capital expenditure,
and debt service requirements. Acquisitions are expected to be funded with
available cash and borrowings. In addition, the Company may, if desirable,
issue stock and rights to acquire stock.
INFLATION
Inflation has not had a significant impact on the Company's
comparative results of operations.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
From time to time, the Company may make certain statements that
contain "forward-looking" information (as defined in the Private Securities
Litigation Reform Act of 1995). Words such as "anticipate", "believe",
"expect", "estimate", "project" and similar expressions are intended to
identify such forward-looking statements. Forward-looking statements may be
made by management orally or in writing, including, but not limited to, in
press releases, as part of this "Management's Discussion and Analysis of
Financial Condition Results of Operation" and "Business and Properties"
contained in this Report, and in the Company's other filings with the
Securities and Exchange Commission under the Securities Act of 1933 and the
Securities Exchange Act of 1934.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Such forward-looking statements
are subject to certain risks, uncertainties and assumptions, including without
limitation those identified below. Should one or more of these risks or
uncertainties materialize, or should any of the underlying assumptions prove
incorrect, actual results of current and future operations may vary materially
from those anticipated, estimated, or projected. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as
of their dates.
Among the factors that will have a direct bearing on the Company's
results of operations and the contract drilling service industry in which it
operates are changes in the price of oil and natural gas and the volatility of
the contract drilling service industry in general; any difficulties associated
with the Company's ability to successfully integrate recent acquisitions;
contractual risk associated with turn-key and footage contracts; the presence
of competitors with greater financial resources; difficulties in arranging
financing for the Southland Acquisition; operating risks inherent in the
contract drilling service industry, such as blowouts, explosions, cratering,
well fires and spills; labor shortages; domestic and world-wide political
stability and economic growth; and other risks associated with the Company's
successful execution of internal operating plans as well as regulatory
uncertainties and legal proceedings.
- 21 -
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements of the Company meeting the requirements of
Regulation S-X (except Section 210.3-05 and Article 11 thereof) are included
herein on pages F-1 through F-19 hereof.
Other financial statements and schedules required under Regulation
S-X, if any, are filed pursuant to Item 14, Exhibits, Financial Statement
Schedules, and Reports on Form 8-K, of this Annual Report on Form 10-K.
- 22 -
<PAGE> 23
The Company is not required to include herein the supplementary
financial information specified in Item 302 of Regulation S-K, and has not
included such information.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
The information required by Part III, Items 10 through 13, inclusive,
of Form 10-K is hereby incorporated by reference from the Company's Definitive
Proxy Statement for the 1996 Annual Meeting of Shareholders, which shall be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the fiscal year to which this Annual Report on Form 10-K relates.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) The following Financial Statements are filed as part of this
Annual Report on Form 10-K:
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Report of Ernst & Young LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets at December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995, and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1996, 1995, and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995, and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Schedule II--Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
- 23 -
<PAGE> 24
(b) The following Exhibits are filed as part of this Annual Report
on Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE OR DESCRIPTION
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 - Restated Certificate of Incorporation of the Company (incorporated by reference to Amendment No.
1 to the Company's Registration Statement on Form S-1 (No. 33-69726).
3.2 - Amendment to Restated Certificate of Incorporation (incorporated by reference to Amendment No. 1
to the Company's Registration Statement on Form S-1 (Nol 33-69726).
3.3 - Amendment to Restated Certificate of Incorporation (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
3.4 - By-laws of the Company, as amended (incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993).
4.1 - See Exhibit Nos. 3.1 and 3.2 for provisions of the Restated Certificate of Incorporation and
amended By-laws of the Company defining the rights of the holders of Common Stock.
4.2 - Form of Common Stock Certificate (incorporated by reference to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (No. 33-69726)).
4.4 - Stock Purchase Warrant dated August 14, 1996, between the Sam K. Viersen, Jr. Trust dated
September 9, 1986, as Amended and Restated on May 11, 1994, and UTI Energy Corp. (incorporated
by reference to the Company's Current Report on Form 8-K dated August 28, 1996).
4.5 - Warrant to purchase 162,000 shares of Common Stock (incorporated by reference to Amendment No. 4
to the Company's Registration Statement on Form S-1 (No. 33-69726)).
10.1 - Amended and Restated Loan and Security Agreement dated December 7, 1995 (the "Mellon Line of
Credit"), by and among UTI Energy Corp., UTICO, Inc., FWA Drilling Company, Triad Drilling
Company, Universal Well Services, Inc., and USC, Incorporated, and Mellon Bank, N.A.
(incorporated by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.2 - First Amendment and Modification to the Mellon Line of Credit effective March 14, 1996
(incorporated by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
</TABLE>
- 24 -
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE OR DESCRIPTION
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.3 - Second Amendment and Modification to the Mellon Line of Credit effective August 14, 1996
(incorporated by reference to the Company's Current Report on Form 8-K dated January 27, 1997).
10.4 - Third Amendment and Modification to the mellon Line of Credit effective January 25, 1997
(incorporated by reference to the Company's Current Report on Form 8-K dated January 27, 1997).
10.5 - Loan and Security Agreement dated as of January 23, 1997, by and among FWA Drilling Company,
Inc., International Petroleum Service Company, Triad Drilling Company, Universal Well Services,
Inc., USC Incorporated, the Company, UTICO, Inc., Viersen & Cochran Drilling Company and Mellon
Bank, N.A. (incorporated by reference to the Company's Current Report on Form 8-K dated
January 27, 1997).
10.6 - Noted dated January 23, 1997, in the principal amount of $4.0 million, from FWA Drilling
Company, Inc., International Petroleum Service Company, Triad Drilling Company, Universal Well
Services, Inc., USC Incorporated, the Company UTICO, Inc., Viersen & Cochran Drilling Company in
favor of Mellon Bank, N.A. (incorporated by reference to the Company's Current Report on 8-K
dated January 27, 1997).
10.7 - Promissory Note of UTI Energy Corp. dated August 14, 1996, in the principal amount of $8.0
million in favor of the Sam K. Viersen, Jr. Trust dated September 9, 1986, as Amended and
Restated on May 11, 1994 (incorporated by reference to the Company's Current Report on Form 8-K
dated August 28, 1996).
10.8 - Hypothecation/Security Agreement dated August 14, 1996, by Viersen & Cochran Drilling Company in
favor of the Sam K. Viersen, Jr. Trust dated September 9, 1996, as Amended and Restated on
May 11, 1994 (incorporated by reference to the Company's Current Report on Form 8-K dated
August 28, 1996).
10.9 - Promissory Note dated December 14, 1993, from the Company in favor of UGID Holding Corporation
(incorporated by reference to Amendment No. 4 to the Company's registration statement on Form S-
1 (No. 33-69726)).
10.10 - Loan and Security Agreement dated November 20, 1995, by and among Triad Drilling Company,
International Petroleum Service Company, FWA Drilling Company, Inc., and The CIT Group/Equipment
Financing, Inc. (incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
</TABLE>
- 25 -
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE OR DESCRIPTION
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.11 - Rider A to Loan and Security Agreement dated November 20, 1995, by and among Triad Drilling
Company, International Petroleum Service Company, FWA Drilling Company, Inc., and The CIT
Group/Equipment Financing, Inc. (incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.12 - Form of Promissory Note dated November 20, 1995, between each of FWA Drilling Company, Inc.,
Triad Drilling Company, International Petroleum Service Company, and The CIT Group/Equipment
Financing, Inc. (incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.13 - Guaranty Agreement dated December 20, 1995, by FWA Drilling Company, Inc. in favor of The CIT
Group/Equipment Financing, Inc. (incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.14 - Guaranty Agreement dated December 20, 1995, by Triad Drilling Company in favor of The CIT
Group/Equipment Financing, Inc. (incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.15 - Guaranty Agreement dated December 20, 1995, by International Petroleum Service Company in favor
of The CIT Group/Equipment Financing, Inc. (incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995).
10.16 - Guaranty Agreement dated December 20, 1995, by UTICO, Inc. in favor of The CIT Group/Equipment
Financing, Inc. (incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.17 - Guaranty Agreement dated December 20, 1995, by Universal Well Services, Inc. in favor of The CIT
Group/Equipment Financing, Inc. (incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.18 - Guaranty Agreement dated December 20, 1995, by UTI Energy Corp. in favor o The CIT
Group/Equipment Financing, Inc. (incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.19 - Subscription Agreement dated September 19, 1995, by and between Shamrock Holdings of California,
Inc. and UTI Energy Corp. (incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
</TABLE>
- 26 -
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE OR DESCRIPTION
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.20 - Purchase and Sale Agreement dated September 29, 1995, between UTI Energy Corp. and Union Supply
Company as Sellers and Continental EMSCO as Buyer (incorporated by reference to the Company's
Current Report on Form 8-K dated October 13, 1995).
10.21 - Agreement for Purchase and Sale of Common Stock of FWA Drilling Company, Inc. dated November 17,
1995, between UTI Energy Corp. and USX Corporation (incorporated by reference to the Company's
Current Report on Form 8-K dated December 1, 1995).
10.22 - 1993 Restricted Stock Plan (incorporated by reference to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (No. 33-69726)).
10.23 - UTI Energy Corp. 1996 Employee Stock Option Plan (incorporated by reference to the Company's
Registration Statement on Form S-8 dated October 2, 1996).
10.24 - UTI Energy Corp. Non-Employee Director Stock Option Plan (incorporated by reference to the
Company's Registration Statement on Form S-8 dated October 2, 1996).
10.25 - 1993 Non-Qualified Incentive Stock Option Plan (incorporated by reference to Amendment No. 3 to
the Company's Registration Statement on Form S-1 (No. 33-69726)).
10.26 - Warrant Agreement dated as of December 19, 1996, between the Company and Remy Consultants
Incorporated [incorporated by reference to proxy].
10.27 - Option Agreement dated as of August 31, 1996, between the Company and Eddie L. Nowell
(incorporated by reference to the Company's Registration Statement on Form S-8 dated October 2,
1996).
10.28 - Amended and Restated Employment Agreement with Vaughn E. Drum dated December 19, 1996
(incorporated by reference to the Company's Current Report ton Form 8-K dated January 27, 1997).
10.29 - Amended and Restated Employment Agreement with Gerald J. Guz dated December 19, 1996
(incorporated by reference to the Company's Current Report on Form 8-K dated January 27, 1997).
10.30 - Amended and Restated Employment Agreement with Vincent J. Donahue dated December 19, 1996
(incorporated by reference to the Company's Current Report on Form 8-K dated January 27, 1997).
</TABLE>
- 27 -
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE OR DESCRIPTION
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.31 - Amended and Restated Employment Agreement Terry L. Pope dated December 19, 1996 (incorporated by
reference to the Company's Current Report on Form 8-K dated January 27, 1997).
10.32 - Asset Purchase Agreement dated December 21, 1996, between the Company and Quarles Drilling
Corporation (incorporated by reference to the Company's Current Report on Form 8-K dated
January 27, 1997).
*10.33 - Asset Purchase Agreement dated March 5, 1997, by and between the Company and Southland Drilling
Company, Ltd.
10.34 - Registration Rights Agreement with Bear Stearns & Co. Inc. dated March 25, 1994, as assigned to
Remy Capital Partners III, L.P. (incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
*21.1 - List of subsidiaries of the Company.
*23.1 - Consent of Ernst & Young LLP.
*27.1 - Financial Data Schedule.
</TABLE>
*Filed herewith.
As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Company
has not filed with this Registration Statement certain instruments defining the
rights of holders of long-term debt of the Company and its subsidiaries because
the total amount of securities authorized under any of such instruments does
not exceed 10% of the total assets of the Company and its subsidiaries on a
consolidated basis. The Company agrees to furnish a copy of any such agreement
to the Commission upon request.
- 28 -
<PAGE> 29
UTI ENERGY CORP.
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Changes in Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
F-1
<PAGE> 30
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
UTI Energy Corp.
We have audited the accompanying consolidated balance sheets of UTI Energy
Corp. as of December 31, 1996 and 1995, and the related consolidated statements
of income, changes in shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. Our audits also included
the financial statement schedule listed in the index at item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of UTI
Energy Corp. at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Ernst & Young, LLP
Philadelphia, Pennsylvania
February 28, 1997, except for Note 13, as to
which the date is March 24, 1997
F-2
<PAGE> 31
UTI ENERGY CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995
-------------- -------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 570 $ 2,273
Accounts receivable, net of allowance for doubtful
accounts of $305 in 1996 and $193 in 1995 . . . . . . . . . . . . . . . . . . . . 17,831 9,370
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 598 669
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 874 803
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,749 2,261
------------- ---------
21,622 15,376
PROPERTY AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 749 775
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,760 1,792
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,421 33,504
Oil and gas working interests . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,732 1,690
Construction in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338 292
------------- ---------
63,000 38,053
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . 23,149 20,269
------------- ---------
39,851 17,784
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 551
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397 279
------------- ---------
$ 61,870 $ 33,990
============= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,507 $ 2,542
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,945 4,244
Accrued payroll costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,445 1,399
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 964 1,764
------------- ---------
15,861 9,949
LONG-TERM DEBT, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . 14,658 8,701
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,305 -
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350 350
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.001 par value, 10,000,000
shares authorized, 3,602,336 shares issued
and outstanding in 1996, 3,466,222 shares
issued and outstanding in 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 4 3
Additional capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,877 15,095
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,916 63
Restricted stock plan unearned compensation . . . . . . . . . . . . . . . . . . . . (101) (171)
------------- ---------
22,696 14,990
------------- ---------
$ 61,870 $ 33,990
============= =========
</TABLE>
See accompanying notes.
F-3
<PAGE> 32
UTI ENERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES
Oilfield service . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96,628 $ 39,844 $ 35,831
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673 280 444
------------ ------------ -----------
97,301 40,124 36,275
COSTS AND EXPENSES
Cost of sales
Oilfield service . . . . . . . . . . . . . . . . . . . . . . . . . 77,891 32,507 27,710
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366 178 147
Selling, general and administrative . . . . . . . . . . . . . . . . . 7,768 5,082 4,958
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 4,292 2,552 2,302
------------ ------------ -----------
90,317 40,319 35,117
------------ ------------ -----------
OPERATING INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . 6,984 (195) 1,158
OTHER INCOME (EXPENSE)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . (1,148) (265) (260)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,341 293 461
------------ ------------ -----------
193 28 201
------------ ------------ -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . 7,177 (167) 1,359
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,324 (592) 293
------------ ------------ -----------
INCOME FROM CONTINUING OPERATIONS . . . . . . . . . . . . . . . . . . . . 4,853 425 1,066
INCOME FROM DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . . . . - 38 26
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . - (361) -
------------ ------------ -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,853 $ 102 $ 1,092
============ ============ ===========
PRIMARY EARNINGS PER COMMON SHARE:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . $ 1.27 $ 0.13 $ 0.33
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . - 0.01 0.01
Loss on disposal of discontinued operations . . . . . . . . . . . . . - (0.11) -
------------ ------------ -----------
$ 1.27 $ 0.03 $ 0.34
============ ============ ===========
FULLY DILUTED EARNINGS PER COMMON SHARE:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . $ 1.26 $ 0.13 $ 0.33
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . - 0.01 0.01
Loss on disposal of discontinued operations . . . . . . . . . . . . . - (0.11) -
------------ ------------ -----------
$ 1.26 $ 0.03 $ 0.34
============ ============ ===========
AVERAGE COMMON SHARES OUTSTANDING
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,813,062 3,299,556 3,244,000
Fully Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,853,164 3,299,556 3,244,000
</TABLE>
See accompanying notes.
F-4
<PAGE> 33
UTI ENERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RESTRICTED
-------------------------- RETAINED STOCK PLAN
NUMBER ADDITIONAL EARNINGS UNEARNED
OF SHARES PAR $.001 CAPITAL (DEFICIT) COMPENSATION Total
------------ ------------ ---------- ----------- -------------- ----------
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 . . . . 3,244,000 $ 3 $ 14,116 $ (1,131) $ (400) $ 12,588
Net income . . . . . . . . . . . - - 1,092 - 1,092
Vesting of restricted
stock plan . . . . . . . . . . - (15) - 80 65
----------- ---------- --------- --------- --------- --------
Balance at December 31, 1994 . . . . 3,244,000 3 14,101 (39) (320) 13,745
Net income . . . . . . . . . . . - - 102 - 102
Issuance of common stock . . . . 222,222 - 994 - - 994
Vesting of restricted
stock plan . . . . . . . . . . - - - 149 149
------------ ---------- --------- --------- --------- --------
Balance at December 31, 1995 . . . . 3,466,222 3 15,095 63 (171) 14,990
Net income . . . . . . . . . . . - - 4,853 - 4,853
Warrants issued . . . . . . . . . - 710 - - 710
Exercise of options . . . . . . . 136,114 1 1,838 - - 1,839
Vesting of restricted
stock plan . . . . . . . . . . - 234 - 70 304
----------- ---------- --------- --------- --------- --------
Balance at December 31, 1996 . . . . 3,602,336 $ 4 $ 17,877 $ 4,916 $ (101) $ 22,696
=========== ========== ========= ========= ========= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 34
UTI ENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations . . . . . . . . . . . . . . . . . . $ 4,853 $ 425 $ 1,066
Adjustments to reconcile income from continuing operations
to net cash provided by continuing operations:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 4,292 2,552 2,302
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 799 (650) (187)
Amortization of debt discount . . . . . . . . . . . . . . . . . . 68 - -
Stock compensation expense . . . . . . . . . . . . . . . . . . . . 304 149 65
Provision (recovery) for bad debts . . . . . . . . . . . . . . . . 112 (10) 70
Gain on disposal of fixed assets . . . . . . . . . . . . . . . . . (517) (63) (142)
Change in operating assets and liabilities, net of
effect of business acquired:
Accounts receivable and prepaids . . . . . . . . . . . . . . . (7,990) (2,316) 956
Materials and supplies . . . . . . . . . . . . . . . . . . . . (71) 35 (82)
Accounts payable, accrued expenses and accrued
payroll costs . . . . . . . . . . . . . . . . . . . . . . . 4,647 564 (824)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (174) (86) (38)
------------ ------------ ----------
Net cash provided by continuing operations . . . . . . . . . . . . . 6,323 600 3,186
Net cash provided (used) by discontinued operations . . . . . . . . . - (1,108) 1,991
------------ ------------ ----------
Net cash provided (used) by operating activities . . . . . 6,323 (508) 5,177
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . (4,311) (1,910) (1,343)
Acquisitions of businesses . . . . . . . . . . . . . . . . . . . . . (6,000) (12,946) -
Proceeds from sale of discontinued operations . . . . . . . . . . . . - 4,870 -
Proceeds from sale of property and equipment . . . . . . . . . . . . 1,113 304 350
------------ ------------ ----------
Net cash used by investing activities . . . . . . . . . . . (9,198) (9,682) (993)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . 2,600 9,264 264
Repayments of long-term debt . . . . . . . . . . . . . . . . . . . . (2,467) (1,580) (892)
Proceeds from issuance of common stock . . . . . . . . . . . . . . . 1,039 994 -
------------ ------------ ----------
Net cash provided (used) by financing activities . . . . . 1,172 8,678 (628)
------------ ------------ ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,703) (1,512) 3,556
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,273 3,785 229
------------ ------------ ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . $ 570 $ 2,273 $ 3,785
============ ============ ==========
</TABLE>
See accompanying notes.
F-6
<PAGE> 35
UTI ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
UTI Energy Corp. (the "Company") is engaged in the businesses of
contract drilling, providing oil and gas well stimulation, and
cementing and completion services. The primary market for the
Company's services is the onshore oil and gas industry, and the
customers consist primarily of major oil companies, and independent
oil and gas producers.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned.
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 amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Inventories
Materials and supplies are stated at the lower of cost (first-in,
first-out method) or market.
Property and Equipment
Property and equipment are stated on the basis of cost. Improvements
are capitalized and depreciated over the period of benefit.
Amortization of assets acquired under capital leases are included in
depreciation expense. The provision for depreciation was determined
by the straight-line method over the estimated useful lives of the
related assets which are as follows: buildings--30 years, building
improvements--7-10 years, machinery and equipment--2-15 years.
F-7
<PAGE> 36
UTI ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Working Interests in Oil and Gas Wells
The Company accounts for its oil and gas operations under the
successful efforts method of accounting.
The Company recognizes oil and gas revenue from its working interests
based upon the sales method. Working interests in wells are included
in property and equipment and are stated at cost less accumulated
amortization. Amortization is based on the units of production method
utilizing estimated reserves and sales of oil and gas from the wells.
Revenue Recognition
Revenues are recognized when services have been performed. Revenues
from footage and turnkey drilling contracts are recognized using the
percentage of completion method of accounting. Losses, if any, are
provided for in the period in which the loss is determined.
Earnings Per Share
Earnings (loss) per common share is calculated by dividing net income
by the aggregate of the weighted average shares outstanding during the
period and the dilutive effect, if any, of common stock equivalents
that are outstanding.
Stock-Based Compensation
The Company follows the method of accounting for employee stock
compensation plans prescribed by APB No. 25, which is permitted by
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123"). In accordance with APB No.
25, the Company has not recognized compensation expense for stock
options because the exercise price of the options equals the market
price of the underlying stock on the date of grant, which is the
measurement date.
Changes in Accounting Principles
Effective January 1, 1996, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. This statement requires companies to write down to
estimated fair value long-lived assets that are impaired. This change
did not have a significant effect on the Company's financial
statements.
Reclassifications
Certain items in the prior years' financial statements have been
reclassified to conform with the presentation in the current year.
F-8
<PAGE> 37
UTI ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS
Effective November 1, 1995, the Company purchased all of the capital
stock of FWA Drilling Company, Inc. (FWA) for $14,000,000 in cash.
FWA is engaged in contract drilling in Texas. The acquisition was
accounted for using the purchase method, and FWA's operating results
since November 1, 1995, have been consolidated with the operating
results of the Company. The estimated fair market value of the assets
acquired exceeded the purchase price by $4.9 million, which reduced
long-term assets acquired.
On August 14, 1996, the Company purchased all of the capital stock of
the Viersen & Cochran Drilling Company ("Viersen"). Viersen was
engaged in contract drilling in Oklahoma but had suspended its
operations prior to the closing date. The consideration paid for
Viersen consisted of (i) $6,000,000 in cash paid on August 14, 1996;
(ii) a two-year $8,000,000 promissory note executed by the Company in
favor of the Seller; and (iii) stock warrants with a two-year term to
purchase 200,000 shares of the Company's common stock, $.001 par value
at $15 per share. The acquisition was accounted for using the
purchase method, and Viersen's operating results since August 14,
1996, have been consolidated with the operating results of the
Company.
The following pro forma operating results reflect the inclusion of FWA
for 1994 and 1995, and the inclusion of Viersen for 1995 and 1996:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------
1996 1995 1994
----------------- -------------- ------------
(in thousands)
<S> <C> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . . . $ 99,027 $ 77,405 $ 72,715
============= ============= ============
Income from continuing
operations . . . . . . . . . . . . . . . . . . . . . . $ 3,935 $ 151 $ 2,343
============= ============= ============
Earnings per share from
continuing operations . . . . . . . . . . . . . . . . $ 1.02 $ 0.05 $ .68
============= ============= =============
</TABLE>
3. DISCONTINUED OPERATIONS
On September 29, 1995, the Company sold its oil field supply business
for cash of $4,870,000. The net results of the oil field supply
business for all periods presented are reported separately in the
Consolidated Statement of Income as "Income from discontinued
operations." Prior period financial statements have been restated to
report the oil field supply business as a discontinued operation.
F-9
<PAGE> 38
UTI ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of the results of operations of the
Company's oil field supply business:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1995 1994
-------------- -------------
(in thousands)
<S> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . $ 13,407 $ 18,617
============= ============
Income from operations (net of income
taxes of $14, and $13) . . . . . . . . . $ 38 $ 26
Loss on disposal (net of income tax
benefit of $129) . . . . . . . . . . . . (361) -
------------- ------------
Income (loss) from discontinued
operations . . . . . . . . . . . . . . . $ (323) $ 26
============= ============
</TABLE>
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax
liabilities and assets as of December 31, 1996 and 1995, are as
follows:
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax credits . . . . $ 675 $ 1,056
Investment tax credits . . . . . . . . . 232 531
Fuel tax credit . . . . . . . . . . . . - 73
Accrued liabilities . . . . . . . . . . 780 646
Valuation allowance . . . . . . . . . . (232) (636)
------------- ------------
Total deferred tax asset . . . . . . 1,455 1,670
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . (9,760) (1,119)
-------------- ------------
Net deferred tax asset (liability) . . . . $ (8,305) $ 551
============= ============
</TABLE>
SFAS No. 109 requires that deferred tax assets be reduced by a
valuation allowance if it is more likely than not that some or all of
the deferred tax asset will not be realized. During 1996 and 1995,
the Company decreased its valuation allowance since management
believes that it is more likely than not that the deferred tax asset
will be realized primarily from future taxable income over the next
several years. Management assesses the realizability of the Company's
deferred tax asset on a continuous basis and adjusts the valuation
allowance in the event that circumstances affecting the realization of
the deferred tax asset change.
F-10
<PAGE> 39
UTI ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1996, the Company has available approximately $232,000
of investment tax credit carryforwards for which a valuation allowance
has been provided in as much as it is the Company's opinion that these
credits will not be available to reduce future tax payments. The
credits expire between 1998 and 2001. The Company utilizes the
flow-through method for recognizing investment tax credits.
The components of the provision for income taxes from continuing
operations are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1996 1995 1994
------------- -------------- --------------
(in thousands)
<S> <C> <C> <C>
Income taxes:
Current:
Federal . . . . . . . . . . . . . . $ 1,372 $ 57 $ 442
State . . . . . . . . . . . . . . . 153 1 38
------------ ------------ -------------
1,525 58 480
Deferred:
Federal . . . . . . . . . . . . . . 740 (622) (95)
State . . . . . . . . . . . . . . . 59 (28) (92)
------------ ------------- -------------
799 (650) (187)
------------ ------------ -------------
$ 2,324 $ (592) $ 293
============ ============ =============
</TABLE>
The difference between tax expense on continuing operations computed
at the federal income tax rate of 34% and actual tax expense is as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1996 1995 1994
------------- -------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Taxes at 34% applied to pre-tax
income (loss) . . . . . . . . . . . . . $ 2,440 $ (57) $ 462
State income tax . . . . . . . . . . . . 141 (17) (36)
Permanent differences, principally
nondeductible expenses . . . . . . . . 123 81 125
Change in valuation allowance and
realization of tax credit carryforwards (404) (577) (217)
Other . . . . . . . . . . . . . . . . 24 (22) (41)
------------ ------------- -------------
$ 2,324 $ (592) $ 293
============ ============= =============
</TABLE>
F-11
<PAGE> 40
UTI ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. WARRANTS
As part of the consideration for redemption of its Series A Preferred
Stock in December 1993, the Company issued warrants to purchase up to
162,000 shares of Common Stock at an exercise price of $8.00 per
share. The warrants are exercisable in whole or in part for three
years beginning December 14, 1995.
As part of the consideration paid to acquire Viersen & Cochran
Drilling Company, the Company issued warrants to purchase up to
200,000 shares of Common Stock at an exercise price of $15 per share.
The warrants are exercisable in whole or part for two years beginning
August 14, 1996.
6. LEASES
Future minimum payments, for each year and in the aggregate, under
capital leases and noncancelable operating leases with initial or
remaining terms of one year or more consist of the following at
December 31, 1996:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
1997 . . . . . . . . . . . . . . . . . . . $ 225 $ 297
1998 . . . . . . . . . . . . . . . . . . . 54 236
1999 . . . . . . . . . . . . . . . . . . . 2 116
2000 . . . . . . . . . . . . . . . . . . . - 90
2001 and thereafter . . . . . . . . . . . . - 83
------------- ------------
Total minimum lease payments . . . . . . . 281 $ 822
Amounts representing interest . . . . . . . 22 ============
-------------
Present value of net minimum lease
payments . . . . . . . . . . . . . . . . $ 259
=============
</TABLE>
Rental expense for all operating leases was approximately $448,000,
$181,000 and $221,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
F-12
<PAGE> 41
UTI ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SUPPLEMENTAL CASH FLOW INFORMATION
On August 14, 1996, the Company purchased all of the capital stock of
the Viersen & Cochran Drilling Company. In connection with the
acquisition, the Company incurred deferred tax liabilities, assumed
certain other liabilities and issued debt and stock warrants to the
seller as follows (in thousands):
<TABLE>
<S> <C>
Cash paid for the capital stock . . . . . . . . . . . . . . . . $ 6,000
Long-term debt issued . . . . . . . . . . . . . . . . . . . . . 8,000
Less: discount . . . . . . . . . . . . . . . . . . . . . . . (312)
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . 8,057
Other directly related liabilities . . . . . . . . . . . . . . 100
Stock warrants issued . . . . . . . . . . . . . . . . . . . . . 710
------------
Fair Value of Assets Acquired . . . . . . . . . . . . . . . . . $ 22,555
============
</TABLE>
Other non-cash investing and financing activities for 1996 are as
follows (in thousands):
<TABLE>
<S> <C> <C>
Tax benefit of exercised options reflected as
additional capital . . . . . . . . . . . . . . . . . . . . . $ 800
Long-term debt issued for equipment acquisitions . . . . . . . 34
</TABLE>
Interest paid amounted to approximately $893,000, $427,000 and
$388,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Income taxes of approximately $1,389,000, $339,000 and $329,000 were
paid in the years ended December 31, 1996, 1995 and 1994,
respectively.
F-13
<PAGE> 42
UTI ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT
The Company's long-term debt at December 31, 1996 and 1995, consisted
of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1995
-------------- ------------
(in thousands)
<S> <C> <C>
Promissory note, other, dated August 14, 1996, fixed
rate (6.0%), due in two installments of $1,500,000
due August 1997 and February 1998, with the final
installment of $5,000,000 due August 1998 . . . . . . . . . . . . . . . . . $ 8,000 $ -
Promissory notes, financial institution, dated November 20,
1995, variable rate (7.975% at December 31, 1996) due
in $150,000 monthly installments through 2000 . . . . . . . . . . . . . . . 7,050 8,850
Revolving credit agreement,bank, effective December 7, 1995,
up to $8,400,000 through June 30, 1998, at the lower of
the prime rate or other rate options available at the time
of borrowing (8.25% at December 31, 1996). . . . . . . . . . . . . . . . . . 2,600 -
Promissory note, other, dated December 15, 1993,
fixed rate (5.75%), due in minimum annual
installments of $500,000 through 1999 . . . . . . . . . . . . . . . . . . . 1,500 2,000
Capital lease obligations, interest at fixed
(ranging from 5.5% to 9.5%) and variable (8.25%
at December 31, 1996) rates, due in varying
amounts through February 1999 . . . . . . . . . . . . . . . . . . . . . . . 259 393
------------- ------------
19,409 11,243
Less unamortized discount . . . . . . . . . . . . . . . . . . . . . . . . . . 244 -
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,507 2,542
------------- ------------
$ 14,658 $ 8,701
============= =============
</TABLE>
F-14
<PAGE> 43
UTI ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Maturities of long-term debt, excluding unamortized discount, for the
succeeding five years as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Long-Term Capital
Debt Leases Total
----------------- -------------- ---------
(in thousands)
<S> <C> <C> <C> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,300 $ 207 $ 4,507
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 11,400 50 11,450
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800 2 1,802
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,650 - 1,650
</TABLE>
The promissory note dated August 14, 1996, is guaranteed by a
subsidiary Company and is secured by certain assets of that
subsidiary.
The promissory notes dated November 20, 1995, are secured by certain
drilling equipment owned by subsidiaries of the Company and the
Company is a guarantor of these notes. The notes also include certain
financial covenants covering tangible net worth, debt service coverage
and leverage ratios.
The revolving credit agreement, which is to be used for working
capital and general corporate purposes, is secured by the pledge of
Company accounts receivable and inventory. Maximum borrowings under
this facility in 1996 were $6,000,000, with average borrowings during
the year of $1,116,308 and a weighted average interest rate on
borrowings during the year of 8.32%. A standby letter of credit of
$400,000 is issued under this agreement. The agreement also includes
certain financial covenants covering tangible net worth, debt service
coverage and leverage ratios. The entire outstanding balance at
December 31, 1996 has been treated as long- term, as it is the
Company's intention not to pay this amount down until June 1998.
The promissory note dated December 15, 1993, requires annual mandatory
prepayments not exceeding $500,000 per year of principal, commencing
on April 1, 1995, until the note is fully repaid in an amount equal to
the Company's excess cash flow as defined. Excess cash flow is
generally net income adjusted for noncash expenditures, less the
Company's $500,000 required annual redemption and the lesser of
$1,750,000 or actual capital expenditures. The Company will make a
mandatory prepayment of $500,000 on April 1, 1997.
9. STOCK PLANS
In December 1993, the Company established a Restricted Stock Plan and
a Non-Qualified Stock Option Plan.
Under the Restricted Plan, 50,000 shares of Common Stock were awarded
to certain full-time employees of the Company. Common Stock awarded
under the Restricted Stock Plan vests in five equal annual
installments contingent upon the beneficiaries' continued employment
by the Company. As of December 31, 1996, 12,670 shares were unvested.
F-15
<PAGE> 44
UTI ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Under the Non-Qualified Stock Option Plan, the Company awarded options
to senior management to purchase 486,600 shares of Common Stock with
an exercise price of $8 per share. The options vest in five equal
annual installments contingent upon continued employment by the
Company. On December 15, 1995, the options were repriced from $8 to
prices ranging from $5 5/16 (the fair market value on December 15,
1995) to $6 3/8, depending upon the individual as well as the vesting
date of the option. In addition, the term of each option was reduced
from ten years from the original date of grant to five years from date
of repricing. As of December 31, 1996, options to purchase 180,174
shares were exercisable and options to purchase 116,786 shares were
unvested.
In July 1996, the Company's shareholders approved the award of options
to purchase 120,000 shares of the Company's common stock at a price
equal to the fair market value of the stock at the date of grant to
REMY Investors and Consultants, Inc., general partner of REMY Capital
Partners III, L.P. an owner of 48.2% of the Company's common stock.
These options expire five years from the date of grant. The options
were awarded in December of 1995 as a result of the services REMY
Investors and Consultants, Inc. rendered in connection with the
acquisition and related financing of FWA Drilling Company, Inc. and
the Company's sale of the assets of Union Supply Company.
In July 1996, the Company's shareholders approved the Non-Employee
Director Stock Option Plan (Director Plan), a non qualified stock
option plan. Under the Director Plan, options to purchase up to an
aggregate of 100,000 shares of Common Stock of the Company may be
granted to non-employee directors of the Company. The Director Plan
provides for the grant of an option to purchase 2,500 shares of Common
Stock to each non-employee director as of December 19, 1995 and to
each future non-employee director as of the date he is first elected.
Options granted pursuant to the Director Plan stipulate that the
purchase price per share be equal to the fair market value of the
Common Stock as of the date of grant. Commencing on December 31,
1996, each non-employee director who has served for a period of at
least one year will automatically be granted on December 31 an option
to purchase 1,250 shares of Common Stock at a purchase price equal to
the fair market value of the Common Stock as of the date of grant. At
December 31, 1996, 88,750 shares were available for granting of such
options. No options under this plan will be granted after December
18, 2005. All options issued expire five years from the date of
grant.
In July 1996, the Company's shareholders approved the UTI Energy Corp.
1996 Employee Stock Option Plan. Under the plan, the Company can
award options on up to 300,000 shares of Common Stock to certain
full-time employees at a price equal to the fair market value of the
stock at the date the option is granted. During 1996, the Company
awarded options to purchase 95,000 shares of Common Stock at an
exercise price of $13.75 per share. The options vest over one to five
years, with no options being exercisable at December 31, 1996.
FASB Statement 123 requires that pro forma information regarding net
income and earnings per share be determined as if the Company had
accounted for its employee stock options under the fair value method
as defined in that Statement for options granted or modified after
December 31, 1994. The fair value for applicable options was
estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1995 and
1996, respectively: risk-free interest rates of 5.38% and 6.70%;
dividend yield of 0%; volatility factors of the expected market price
of the Company's common stock of .307 and .438 and a weighted average
expected life of the option of 2.64 and 3.52 years.
F-16
<PAGE> 45
UTI ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands except for
earnings per share information):
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
Proforma net income (loss) . . . . . . . . $ 4,739 $ (107)
Pro forma earnings (loss)
per share:
Primary . . . . . . . . . . . . . . . . $ 1.24 $ (.03)
Fully diluted . . . . . . . . . . . . . $ 1.23 $ (.03)
</TABLE>
A summary of the Company's stock option activity and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
Weighted-
Shares Average
Under Exercise
Option Price
-------------- -------------
<S> <C> <C>
Outstanding, December 31,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . 486,600 $ 8.00
Granted . . . . . . . . . . . . . . . . . . . . . . . . 434,460 $ 5.55
Cancelled . . . . . . . . . . . . . . . . . . . . . . . (306,960) $ 8.00
-------------
Outstanding, December 31, 1995 . . . . . . . . . . . . . . . 614,100 $ 6.27
Granted . . . . . . . . . . . . . . . . . . . . . . . . 98,750 $ 14.57
Exercised . . . . . . . . . . . . . . . . . . . . . . . (136,114) $ 7.63
Cancelled . . . . . . . . . . . . . . . . . . . . . . . (53,526) $ 8.00
-------------
Outstanding, December 31, 1996 . . . . . . . . . . . . . . . 523,210 $ 7.30
=============
Exercisable, December 31,
1994 . . . . . . . . . . . . . . . . . . . . . . . . . 97,320 $ 8.00
1995 . . . . . . . . . . . . . . . . . . . . . . . . . 377,900 $ 6.37
1996 . . . . . . . . . . . . . . . . . . . . . . . . . 307,680 $ 5.64
</TABLE>
Weighted-average fair value of options granted during 1996 and 1995
were $5.59 per share and $1.32 per share, respectively.
Exercise price for options outstanding as of December 31, 1996, ranged
from $5.69 per share to $35.38 per share. The weighted-average
remaining contractual life of those options is 4.25 years.
F-17
<PAGE> 46
UTI ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. DEFINED CONTRIBUTION PLANS
The Company maintains two defined contribution plans. Employees who
have completed one year of service (1,000 active work hours) and are
age 21 or older are eligible to participate. Company matching
provisions and vesting schedules vary by plan. For the years ended
December 31, 1996, 1995 and 1994, the Company made matching
contributions totaling approximately $406,000, $156,000 and $189,000
respectively. Effective January 1, 1997, the two plans were combined.
11. CONTINGENCIES
The Company is involved in several claims arising in the ordinary
course of business. In the opinion of management, all of these claims
are covered by insurance and these matters will not have a material
adverse effect on the Company's financial position.
The Company is partially self-insured for employee health insurance
claims and for workers' compensation. The Company incurs a maximum of
$75,000 per employee under medical claims and a maximum of $250,000
per event for workers' compensation claims. Although the Company
believes that adequate reserves have been provided for expected
liabilities arising from its self-insured obligations, it is
reasonably possible that management's estimates of these liabilities
will change over the near term as circumstances develop.
12. FINANCIAL INSTRUMENTS
Concentrations of credit risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
balances and trade accounts receivable.
In 1996, one customer accounted for approximately 25% of the revenue
and approximately 20% of accounts receivable at December 31, 1996.
The Company performs ongoing credit evaluations of its customers and
generally does not require material collateral. The Company provides
allowances for potential credit losses when necessary.
The Company maintains cash balances with various financial
institutions. These financial institutions are located throughout the
country and Company policy is designed to limit exposure to any one
institution. However, at December 31, 1996, the Company had cash in
one institution in excess of insured limits. The Company performs
periodic evaluations of the relative credit standing of those
financial institutions that are considered in the Company's investment
strategy to ensure high credit quality.
Cash and cash equivalents, accounts receivable and accounts payable:
The carrying amounts reported in the balance sheets approximate fair
value.
Long and short-term debt: The carrying amounts of the Company's
borrowings under its short-term revolving credit arrangements and all
promissory notes approximate their fair value. The fair value of debt
was estimated by management based upon current interest rates
available to the Company at the respective balance sheet dates for
similar issues.
F-18
<PAGE> 47
UTI ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SUBSEQUENT EVENTS
On January 27, 1997, the Company acquired the contract drilling
division of Quarles Drilling, Inc. (Quarles) for $16.2 million,
consisting of $8.1 million and 256,175 shares of Common Stock having a
value at the time the agreement was negotiated of $8.1 million. The
cash portion of the purchase price was funded with advances under the
line of credit of $4.1 million and a $4.0 million advance pursuant to
a new bank term loan. The term loan bears interest at the bank's
prime rate and is secured by a pledge of certain of the Company's
accounts receivable and inventory. Under the terms of the acquisition
agreement, Quarles is entitled to receive additional shares of Common
Stock in the event the market price of the Common Stock on the
effective date of resale is less than $31.69 per share. The number of
additional shares will be equal to the number of shares sufficient to
provide Quarles with $8.1 million of Common Stock based on the market
price of the Common Stock on such date. In the event the market price
of the Common Stock is greater than $31.69 per share on such date,
Quarles is required to return a number of shares of Common Stock
having a value (at such market price) equal to one-half of the amount
by which the market price of the shares (at such market price)
initially issued is greater than $8.1 million.
On February 13, 1997, the Company exercised its option to purchase a
leased facility for $485,000.
On March 5, 1997, the Company entered into an agreement to purchase
eight rigs and the contract drilling business of Southland Drilling
Company, Ltd. ("Southland") for $28 million and warrants to purchase
100,000 shares of Common Stock. The Company's acquisition of
Southland is subject to financing. The Company has paid a
non-refundable deposit of $500,000 towards the purchase of the rigs
and will be required to pay an additional $500,000 as liquidated
damages in the event the transaction does not close due to the
Company's inability to obtain financing. Southland may terminate the
agreement if the Company does not obtain the required financing by
April 15, 1997. The Company currently expects to finance the
acquisition of the Southland rigs through a combination of an
institutional private placement of debt and bank borrowings, which is
expected to include the issuance of warrants to purchase common stock.
The Company also has the right to finance $13 million of the purchase
price through a $13 million subordinated note payable to Southland.
The Company, however, can reduce the purchase price by $750,000 if it
elects to pay cash in lieu of such note. Accordingly, the Company is
currently pursuing financing for the entire purchase price to take
advantage of this discount. The Southland acquisition is also subject
to various customary conditions to closing. Although the Company
currently anticipates obtaining financing for the Southland
acquisition, there can be no assurance that the transaction will
close. If the Company is unable to obtain financing for the
acquisition, earnings will be affected by the loss of the deposit and
liquidated damages.
F-19
<PAGE> 48
UTI ENERGY CORP.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Charges- Balance
Beginning Costs and Other at End
Description of Period Expenses (1) Accounts Deductions of Period
- ----------- ------------- ------------ ---------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Deducted from asset accounts:
Allowance for doubtful
accounts . . . . . . . . . . . . . . $ 193 $ 141 $ - $ 29 (2) $ 305
Reserve for inventory . . . . . . . . 1 7 - 7 (3) 1
--------- --------- --------- --------- --------
Totals . . . . . . . . . . . . . . $ 194 $ 148 $ - $ 36 $ 306
========= ========= ========= ========= ========
Year Ended December 31, 1995
Deducted from asset accounts:
Allowance for doubtful
accounts . . . . . . . . . . . . . . $ 203 $ (10) $ - $ - $ 193
Reserve for inventory . . . . . . . . 2 (1) - - 1
--------- --------- --------- --------- --------
Totals . . . . . . . . . . . . . . $ 205 $ (11) $ - $ - $ 194
========= ========= ========= ========= ========
Year Ended December 31, 1994
Deducted from asset accounts:
Allowance for doubtful
accounts . . . . . . . . . . . . . . $ 136 $ 70 $ - $ 3 (2) $ 203
Reserve for inventory . . . . . . . . 10 (8) - - 2
--------- --------- --------- --------- --------
Totals . . . . . . . . . . . . . . $ 146 $ 62 $ - $ - $ 205
========= ========= ========= ========= ========
</TABLE>
(1) Net of recoveries.
(2) Uncollectible accounts written off.
(3) Inventory Adjustment.
S-1
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 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.
UTI ENERGY CORP.
By: /s/ Vaughn E. Drum
------------------------------------
Vaughn E. Drum, President,
Chief Executive Officer and Director
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 the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------- --------------------------------------------- --------------
<S> <C> <C>
/s/ Vaughn E. Drum President, Chief Executive Officer March 25, 1997
- --------------------------------------------------- and Director
Vaughn E. Drum
/s/ Mark S. Siegel Chairman and Director March 25, 1997
- ---------------------------------------------------
Mark S. Siegel
/s/ Kenneth N. Berns Director March 25, 1997
- ---------------------------------------------------
Kenneth N. Berns
/s/ Terry H. Hunt Director March 25, 1997
- ---------------------------------------------------
Terry H. Hunt
/s/ P. Blake Dupuis Vice President, Treasurer and March 25, 1997
- --------------------------------------------------- Chief Financial Officer
P. Blake Dupuis
/s/ Nadine C. Smith Director March 25, 1997
- ---------------------------------------------------
Nadine C. Smith
/s/ Robert B. Spears Director March 25, 1997
- ---------------------------------------------------
Robert B. Spears
</TABLE>
<PAGE> 50
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 - Restated Certificate of Incorporation of the Company (incorporated by reference to Amendment No.
1 to the Company's Registration Statement on Form S-1 (No. 33-69726).
3.2 - Amendment to Restated Certificate of Incorporation (incorporated by reference to Amendment No. 1
to the Company's Registration Statement on Form S-1 (No. 33-69726).
3.3 - Amendment to Restated Certificate of Incorporation (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
3.4 - By-laws of the Company, as amended (incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993).
4.1 - See Exhibit Nos. 3.1 and 3.2 for provisions of the Restated Certificate of Incorporation and
amended By-laws of the Company defining the rights of the holders of Common Stock.
4.2 - Form of Common Stock Certificate (incorporated by reference to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (No. 33-69726)).
4.4 - Stock Purchase Warrant dated August 14, 1996, between the Sam K. Viersen, Jr. Trust dated
September 9, 1986, as Amended and Restated on May 11, 1994, and UTI Energy Corp. (incorporated
by reference to the Company's Current Report on Form 8-K dated August 28, 1996).
4.5 - Warrant to purchase 162,000 shares of Common Stock (incorporated by reference to Amendment No. 4
to the Company's Registration Statement on Form S-1 (No. 33-69726)).
10.1 - Amended and Restated Loan and Security Agreement dated December 7, 1995 (the "Mellon Line of
Credit"), by and among UTI Energy Corp., UTICO, Inc., FWA Drilling Company, Triad Drilling
Company, Universal Well Services, Inc., and USC, Incorporated, and Mellon Bank, N.A.
(incorporated by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.2 - First Amendment and Modification to the Mellon Line of Credit effective March 14, 1996
(incorporated by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.3 - Second Amendment and Modification to the Mellon Line of Credit effective August 14, 1996
(incorporated by reference to the Company's Current Report on Form 8-K dated January 27, 1997).
10.4 - Third Amendment and Modification to the mellon Line of Credit effective January 25, 1997
(incorporated by reference to the Company's Current Report on Form 8-K dated January 27, 1997).
10.5 - Loan and Security Agreement dated as of January 23, 1997, by and among FWA Drilling Company,
Inc., International Petroleum Service Company, Triad Drilling Company, Universal Well Services,
Inc., USC Incorporated, the Company, UTICO, Inc., Viersen & Cochran Drilling Company and Mellon
Bank, N.A. (incorporated by reference to the Company's Current Report on Form 8-K dated
January 27, 1997).
10.6 - Noted dated January 23, 1997, in the principal amount of $4.0 million, from FWA Drilling
Company, Inc., International Petroleum Service Company, Triad Drilling Company, Universal Well
Services, Inc., USC Incorporated, the Company UTICO, Inc., Viersen & Cochran Drilling Company in
favor of Mellon Bank, N.A. (incorporated by reference to the Company's Current Report on Form 8-K
dated January 27, 1997).
10.7 - Promissory Note of UTI Energy Corp. dated August 14, 1996, in the principal amount of $8.0
million in favor of the Sam K. Viersen, Jr. Trust dated September 9, 1986, as Amended and
Restated on May 11, 1994 (incorporated by reference to the Company's Current Report on Form 8-K
dated August 28, 1996).
10.8 - Hypothecation/Security Agreement dated August 14, 1996, by Viersen & Cochran Drilling Company in
favor of the Sam K. Viersen, Jr. Trust dated September 9, 1996, as Amended and Restated on
May 11, 1994 (incorporated by reference to the Company's Current Report on Form 8-K dated
August 28, 1996).
10.9 - Promissory Note dated December 14, 1993, from the Company in favor of UGID Holding Corporation
(incorporated by reference to Amendment No. 4 to the Company's registration statement on Form S-
1 (No. 33-69726)).
10.10 - Loan and Security Agreement dated November 20, 1995, by and among Triad Drilling Company,
International Petroleum Service Company, FWA Drilling Company, Inc., and The CIT Group/Equipment
Financing, Inc. (incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.11 - Rider A to Loan and Security Agreement dated November 20, 1995, by and among Triad Drilling
Company, International Petroleum Service Company, FWA Drilling Company, Inc., and The CIT
Group/Equipment Financing, Inc. (incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.12 - Form of Promissory Note dated November 20, 1995, between each of FWA Drilling Company, Inc.,
Triad Drilling Company, International Petroleum Service Company, and The CIT Group/Equipment
Financing, Inc. (incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.13 - Guaranty Agreement dated December 20, 1995, by FWA Drilling Company, Inc. in favor of The CIT
Group/Equipment Financing, Inc. (incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.14 - Guaranty Agreement dated December 20, 1995, by Triad Drilling Company in favor of The CIT
Group/Equipment Financing, Inc. (incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.15 - Guaranty Agreement dated December 20, 1995, by International Petroleum Service Company in favor
of The CIT Group/Equipment Financing, Inc. (incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995).
10.16 - Guaranty Agreement dated December 20, 1995, by UTICO, Inc. in favor of The CIT Group/Equipment
Financing, Inc. (incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.17 - Guaranty Agreement dated December 20, 1995, by Universal Well Services, Inc. in favor of The CIT
Group/Equipment Financing, Inc. (incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.18 - Guaranty Agreement dated December 20, 1995, by UTI Energy Corp. in favor o The CIT
Group/Equipment Financing, Inc. (incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.19 - Subscription Agreement dated September 19, 1995, by and between Shamrock Holdings of California,
Inc. and UTI Energy Corp. (incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.20 - Purchase and Sale Agreement dated September 29, 1995, between UTI Energy Corp. and Union Supply
Company as Sellers and Continental EMSCO as Buyer (incorporated by reference to the Company's
Current Report on Form 8-K dated October 13, 1995).
10.21 - Agreement for Purchase and Sale of Common Stock of FWA Drilling Company, Inc. dated November 17,
1995, between UTI Energy Corp. and USX Corporation (incorporated by reference to the Company's
Current Report on Form 8-K dated December 1, 1995).
10.22 - 1993 Restricted Stock Plan (incorporated by reference to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (No. 33-69726)).
10.23 - UTI Energy Corp. 1996 Employee Stock Option Plan (incorporated by reference to the Company's
Registration Statement on Form S-8 dated October 2, 1996).
10.24 - UTI Energy Corp. Non-Employee Director Stock Option Plan (incorporated by reference to the
Company's Registration Statement on Form S-8 dated October 2, 1996).
10.25 - 1993 Non-Qualified Incentive Stock Option Plan (incorporated by reference to Amendment No. 3 to
the Company's Registration Statement on Form S-1 (No. 33-69726)).
10.26 - Warrant Agreement dated as of December 19, 1996, between the Company and Remy Consultants
Incorporated [incorporated by reference to proxy].
10.27 - Option Agreement dated as of August 31, 1996, between the Company and Eddie L. Nowell
(incorporated by reference to the Company's Registration Statement on Form S-8 dated October 2,
1996).
10.28 - Amended and Restated Employment Agreement with Vaughn E. Drum dated December 19, 1996
(incorporated by reference to the Company's Current Report ton Form 8-K dated January 27, 1997).
10.29 - Amended and Restated Employment Agreement with Gerald J. Guz dated December 19, 1996
(incorporated by reference to the Company's Current Report on Form 8-K dated January 27, 1997).
10.30 - Amended and Restated Employment Agreement with Vincent J. Donahue dated December 19, 1996
(incorporated by reference to the Company's Current Report on Form 8-K dated January 27, 1997).
10.31 - Amended and Restated Employment Agreement Terry L. Pope dated December 19, 1996 (incorporated by
reference to the Company's Current Report on Form 8-K dated January 27, 1997).
10.32 - Asset Purchase Agreement dated December 21, 1996, between the Company and Quarles Drilling
Corporation (incorporated by reference to the Company's Current Report on Form 8-K dated
January 27, 1997).
*10.33 - Asset Purchase Agreement dated March 5, 1997, by and between the Company and Southland Drilling
Company, Ltd.
10.34 - Registration Rights Agreement with Bear Stearns & Co. Inc. dated March 25, 1994, as assigned to
Remy Capital Partners III, L.P. (incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
*21.1 - List of subsidiaries of the Company.
*23.1 - Consent of Ernst & Young LLP.
*27.1 - Financial Data Schedule.
</TABLE>
*Filed herewith.
<PAGE> 1
EXHIBIT 10.33
================================================================================
ASSET PURCHASE AGREEMENT
by and between
UTI ENERGY CORP.
and
SOUTHLAND DRILLING COMPANY, LTD.
March 5, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
PURCHASE AND SALE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Assets to be Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.4 Limitation of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Limitation on Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.6 Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.7 Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III
PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1 Consideration for the Purchased Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Purchase Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV
THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2 Deliveries by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3 Deliveries by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1 Organization and Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 Authority; Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.4 Ownership of Rigs and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.5 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.6 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.8 Governmental Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.9 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.10 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.11 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.12 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.13 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.14 Decrees, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.15 Performance Bonds; Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1 Organization and Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Authority; Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.3 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 Governmental Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.7 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.8 Buyer M.A.E. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.9 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.1 Accuracy of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.2 Covenants and Agreements Performed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.3 Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.4 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.5 Secured Note, Warrant and Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 Accuracy of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.2 Covenants and Agreements Performed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.4 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.5 Drilling Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.6 No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.7 Financing by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.8 Partner Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IX
COVENANTS AND AGREEMENTS OF THE PARTIES BEFORE
RELATING TO AND SUBSEQUENT TO THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
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<PAGE> 4
<TABLE>
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<S> <C>
9.3 Conduct of Business and Preservation of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.4 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.5 Certain Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.6 Actions with Respect to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.7 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.8 Continued Effectiveness of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . 24
9.9 Performance Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.10 Action of Buyer Regarding Financing and Financial Statements . . . . . . . . . . . . . . . . . . . . 24
9.11 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE X
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.3 Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.4 Return of Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE XI
EXTENT AND SURVIVAL OF REPRESENTATIONS,
WARRANTIES, COVENANTS AND AGREEMENTS; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.1 Scope of Representations of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.2 Indemnification by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.3 Indemnification by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.4 Indemnification Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.5 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.6 Limitation of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.7 Applicability of Indemnification Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.8 Exclusive Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE XII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
12.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
12.2 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
12.3 Amendments and Waiver; Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
12.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.5 Binding Effect; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.7 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.8 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.9 Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.10 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
(iii)
<PAGE> 5
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is dated as of March
5, 1997, by and between UTI Energy Corp., a Delaware corporation ("Buyer"), and
Southland Drilling Company, Ltd., a Texas limited partnership ("Seller");
WITNESSETH:
WHEREAS, Buyer desires to purchase the Purchased Assets (as
hereinafter defined) from Seller; and
WHEREAS, Seller desires to sell the Purchased Assets to Buyer in
exchange for the payment by Buyer of the Purchase Price (as hereinafter
defined) and the assumption by Buyer of the Assumed Liabilities (as hereinafter
defined);
NOW, THEREFORE, in consideration of the premises and the mutual terms,
covenants and conditions herein contained, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms have the following
respective meanings:
"Affiliate" means, as to the person specified, any person controlling,
controlled by or under common control with such person, with the concept of
control in such context meaning the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of
another, whether through the ownership of voting securities, by contract or
otherwise.
"Accounts Receivable" has the meaning specified in Section 2.1(e).
"Agreement" has the meaning specified in the preamble.
"Applicable Environmental Laws" has the meaning specified in Section
5.12(j).
"Applicable Laws" has the meaning specified in Section 5.9.
"Assumed Liabilities" has the meaning specified in Section 2.3.
"Best Efforts" means a party's best efforts in accordance with
reasonable commercial practice and without the incurrence of unreasonable
expense.
"Business Day" means a day on which national banks are generally open
for the transaction of business in Houston, Texas.
<PAGE> 6
"Buyer" has the meaning specified in the preamble.
"Buyer Basket" has the meaning specified in Section 11.2.
"Buyer Designee" has the meaning specified in Section 12.5(b).
"Buyer MAE" shall have the meaning specified in Section 6.8.
"Cash Purchase Price" shall have the meaning specified in Section
3.1(a)(i).
"Claims" has the meaning specified in Section 11.2.
"Closing" means the consummation of the transactions contemplated
by this Agreement.
"Closing Date" has the meaning specified in Section 4.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consent Required Contract" has the meaning specified in Section 2.5.
"Deeds" has the meaning specified in Section 4.2(b).
"Drilling Contracts" has the meaning specified in Section 2.1(g)(i).
"Encumbrances" means liens, charges, pledges, options, mortgages,
security interests, claims, easements, rights-of-way, servitudes, title
defects, rights of third parties and other encumbrances of every type and
description, whether imposed by law, agreement, understanding or otherwise.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" has the meaning specified in Section 6.3.
"Excluded Assets" has the meaning specified in Section 2.2.
"GAAP" means U.S. generally accepted accounting principles applied on
a consistent basis by Seller.
"General Assignment" has the meaning specified in Section 4.2(a).
"Governmental Entity" means any court or tribunal in any jurisdiction
(domestic or foreign) or any public, governmental or regulatory body, agency,
department, commission, board, bureau or other authority or instrumentality
(domestic or foreign).
"Guaranty" has the meaning specified in Section 8.8.
"hazardous material" has the meaning specified in Section 5.12(j).
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<PAGE> 7
"Indemnified Party" has the meaning specified in Section 11.4.
"Indemnifying Party" has the meaning specified in Section 11.4.
"Inventory" has the meaning specified in Section 2.1(c).
"Nonassigned Contract" has the meaning specified in Section 2.5.
"Other Contracts" has the meaning specified in Section 2.1(g)(ii).
"Permitted Encumbrances" means (i) Encumbrances for taxes, assessments
and governmental charges not yet due and payable or the validity of which are
being contested in good faith by appropriate proceedings; (ii) statutory liens
arising in the ordinary course of business relating to obligations as to which
there is no default on the part of Seller, excluding any mortgage; and (iii)
the express terms of the Drilling Contracts and Other Contracts; provided,
however, that at the Closing "Permitted Encumbrances" shall not include any
Encumbrances for taxes, assessments or governmental charges filed of record
against the Purchased Assets, or statutory liens filed of record against the
Purchased Assets.
"Permits" has the meaning specified in Section 2.1(f)(ii).
"Permitted Real Property Encumbrances" means (i) Encumbrances for
taxes, assessments and governmental charges not yet due and payable; (ii)
statutory liens arising in the ordinary course of business relating to
obligations as to which there is no default on the part of Seller, excluding
any mortgage; (iii) zoning laws and ordinances and similar governmental
regulations; (iv) minor imperfections of title or easements that do not
materially detract from the value of the property or impair the Seller's use
thereof; and (v) rights reserved to any municipality or governmental, statutory
or public authority to regulate such property; provided, however, that at the
Closing "Permitted Real Property Encumbrances" shall not include any
Encumbrance for taxes, assessments or governmental charges filed of record
against the Real Estate Assets, or statutory liens filed of record against the
Real Estate Assets, unless any such Encumbrances are being diligently contested
in good faith by appropriate proceedings.
"Prepaid" has the meaning specified in Section 2.1(e).
"Proceedings" means all proceedings, actions, claims, suits,
investigations and inquiries by or before any arbitrator or Governmental
Entity.
"Purchased Assets" has the meaning specified in Section 2.1.
"Purchase Price" shall mean $28,000,000 plus the value of the Warrant
less any adjustment pursuant to Sections 3.1(c) and/or 3.2.
"Real Estate Assets" has the meaning specified in Section 2.1(d).
"Real Property" has the meaning specified in Section 2.1(d).
3
<PAGE> 8
"Retained Liabilities" has the meaning specified in Section 2.4.
"Rigs" has the meaning specified in Section 2.1(a).
"Securities Act" has the meaning specified in Section 9.11(b).
"Seller" has the meaning specified in the preamble.
"Seller Basket" has the meaning specified in Section 11.3.
"Seller MAE" means a single event, occurrence or fact that, together
with all other events, occurrences and facts that (i) would have, or might
reasonably be expected to have, (x) a material adverse effect on the condition,
business, prospects or operations of the Rigs, taken as a whole, or (y) a
material adverse effect on the ability of the Buyer to operate the Rigs, taken
as a whole, after the date of Closing, (ii) would create an Encumbrance on any
of the Purchased Assets except for a Permitted Encumbrance or Permitted Real
Property Encumbrance, (iii) results in a loss or damage to the Rigs (whether or
not covered by insurance) in an amount in excess of $500,000 or (iv) would
constitute a criminal violation of law by Seller involving a felony; provided
however, that market fluctuations in the price of crude oil or natural gas, day
rates or other industry-wide market fluctuations shall not constitute a Seller
MAE.
"Taxes" means all federal, state, local, foreign and other taxes,
charges, fees, duties, levies, imposts, customs or other assessments,
including, without limitation, all net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, profit sharing, license,
lease, service, service use, value added, withholding, payroll, employment,
excise, estimated, severance, stamp, recording, occupation, premium, property,
windfall profits, or other taxes, fees, assessments, customs, duties, levies,
imposts, or charges of any kind whatsoever, together with any interest,
penalties, additions to tax, fines or other additional amounts imposed thereon
or related thereto, and the term "Tax" means any one of the foregoing Taxes.
"Trade Payables" means those obligations of the Seller relating to the
operation or maintenance of the Rigs or the other Purchased Assets in the
ordinary course of business of the Seller and that are classified as trade
payables in accordance with GAAP.
"UTI Common Stock" means the common stock, $0.001 par value, of Buyer.
"Warrant" has the meaning specified in Section 3.1(a)(iii).
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.1 Assets to be Purchased. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing, Seller shall sell,
assign, transfer, deliver and convey to Buyer, and Buyer shall purchase, free
and clear of any Encumbrances other
4
<PAGE> 9
than Permitted Encumbrances, all of the assets used or useful in connection
with the land drilling rig business of Seller, including the following assets
(collectively, the "Purchased Assets"):
(a) the eight land drilling rigs, all of which are
currently marketed by Seller, described on Schedule 2.1(a) and all such
drilling units' respective drilling machinery and equipment (including, without
limitation, floor tools and blow-out preventers), engines, machinery, rigging,
apparel, furniture, computers and computer equipment on such units, fittings
and equipment, pumps and pumping equipment, spare components and parts, drill
pipe, case barrels, drill collars, heavy-weight drill pipe, racking, supporting
inventory and stores and all appurtenances thereto appertaining or belonging
thereto (collectively, the "Rigs" and each a "Rig");
(b) the other equipment and assets described on Schedule
2.1(b), (the "Other Equipment");
(c) the stocks owned by Seller or any of its Affiliates
described on Schedule 2.1(c) (collectively "Inventory"), as such Inventory may
be reduced through consumption thereof, or increased through replacement
thereof or addition thereto, in the ordinary course of the maintenance and
operation of the Rigs through the Closing Date;
(d) the real property fee ownership described on Schedule
2.1(d) (the "Real Property"), together with all buildings, fixtures and other
improvements upon the Real Property and all rights, easements, rights-of-way
and other interests incidental thereto that are used or held for use by Seller
in connection with the ownership, maintenance or operation of the Purchased
Assets (the "Real Estate Assets");
(e) all trade accounts receivable (the "Accounts
Receivable"), including the Accounts Receivable set forth in Schedule 2.1(e)
and any goods and services Tax receivables, and all prepaid expenses and
deposits made by the Seller relating to the Purchased Assets ("Prepaids");
(f) the following tangible and intangible assets used or
held for use in connection with the ownership, maintenance and operation of the
Rigs, to the extent assignable by law and Seller or its Affiliates have the
right to assign and transfer such assets:
(i) all records to be delivered to Buyer pursuant to
Section 2.6;
(ii) all insurance proceeds or rights to insurance
proceeds relating to any damage, destruction or other loss to the
Purchased Assets; and
(iii) the certificates, licenses, permits, consents,
operating authorities, orders, exemptions, franchises, approvals,
registrations and other authorizations and applications therefor
specifically associated with the maintenance and operation of a Rig
("Permits"); and
(g) the benefit and burden subsequent to the Closing Date
of:
5
<PAGE> 10
(i) all drilling contracts and any amendments thereto for
the employment of the Rigs existing on the Closing Date (the "Drilling
Contracts"), including without limitation the Drilling Contracts
identified on Schedule 2.1(g)(i) hereto existing on the Closing Date;
provided, however, if the Drilling Contract is a turnkey or footage
contract, Buyer will not assume such Drilling Contracts and Buyer and
Seller agree that Buyer will provide drilling services, on a dayrate
basis (using the dayrates set forth on Schedule 2.1(g)(ii), to Seller
to enable Seller to satisfy its obligations under such unassigned
Drilling Contracts; and
(ii) all other contracts to which Seller or any of its
Affiliates is a party relating to the ownership, maintenance and
operation of the Rigs or the Real Estate Assets existing on the
Closing Date to the extent described on Schedule 2.1(g)(iii) (the
"Other Contracts").
2.2 Excluded Assets. The Purchased Assets to be transferred by
Seller hereunder shall include only those described or referred to in Section
2.1, and no other assets or properties of Seller shall be transferred
hereunder. Without limiting the generality of the preceding sentence, the
Purchased Assets shall not include any cash or claims and rights under
contracts not assigned to and assumed by Buyer hereunder (collectively, the
"Excluded Assets"). Notwithstanding the foregoing, any claims or rights of
Seller or any of its Affiliates under warranties relating to the Purchased
Assets given by third parties shall be considered a Purchased Asset, to the
extent transferrable.
2.3 Assumed Liabilities. As of the Closing Date, subject to
Section 2.5, Buyer shall assume (A) the payment obligations of the Seller with
respect to all Trade Payables as of the Closing, including any goods and
services Tax payable, and (B) the obligations of Seller under the express
written terms of the Drilling Contracts and Other Contracts being assumed by
Buyer to the extent and only to the extent such obligations relate to the
ownership, operation and maintenance of the Rigs or the Real Estate Assets
after the Closing, excluding any Retained Liabilities (collectively, the
"Assumed Liabilities").
2.4 Limitation of Liabilities. Buyer shall not assume or in any
way be liable or responsible for any liabilities or obligations of Seller or
its Affiliates except as specifically provided herein, it being expressly
acknowledged that it is the intention of the parties hereto that all
liabilities that Seller or its Affiliates has or may have in the future,
whether fixed or contingent, and whether known or unknown, not expressly
described in the definition of Assumed Liabilities shall be "Retained
Liabilities" and remain the liabilities of Seller and its Affiliates. Without
limiting the generality of the foregoing, except to the extent specifically
provided in Section 2.3, Buyer shall not assume, or take title to the Purchased
Assets subject to:
(a) any obligation or liability, including
indemnification, relating to the ownership, operation or maintenance of the
Rigs, the Real Estate Assets or the performance of the Drilling Contracts,
Other Contracts and Leases prior to the Closing;
6
<PAGE> 11
(b) Taxes relating to the ownership, operation or
maintenance of the Rigs, and the Real Estate Assets for any period ending on or
prior to the Closing, any income (or similar) Taxes of any Seller or its
Affiliates on the sale of the Purchased Assets and any Taxes or payments
payable of Seller in connection with the sale of the Purchased Assets to Buyer
as contemplated hereby;
(c) any liability or obligation of Seller or any of its
Affiliates under any note, bond or other instrument secured by the Purchased
Assets;
(d) any liability or obligation of Seller or any of its
Affiliates in respect of any express or implied representation, warranty,
agreement or guaranty made (or claimed to have been made) by Seller or any of
its Affiliates or imposed or asserted to be imposed by operation of law (except
obligations or liabilities imposed on Buyer by operation of law after the
Closing);
(e) any statutory liens accrued (except for Permitted
Encumbrances) or existing at the time of Closing on the Closing Date against
the Purchased Assets;
(f) any violation by Seller or any of its Affiliates of
or default by Seller or any such Affiliate under any Applicable Laws,
including, without limitation, Applicable Environmental Laws, which affects the
ownership or operation of the Purchased Assets or results in any change in the
Assumed Liabilities, or any remedial obligation under any Applicable
Environmental Law arising out of or related to the ownership or operation of
the Purchased Assets prior to Closing; or
(g) any liability resulting from or relating to the
employment relationship between Seller or its Affiliates and any of their
present or former employees or the termination of any such employment
relationship with any Seller or any of its Affiliates, including, without
limitation, accrued severance pay and other similar benefits, if any, and any
claim filed on or prior to the Closing Date or which may thereafter be filed by
or on behalf of any employee or former employee of Seller or its Affiliates
relating to the employment or termination of employment of any such employee by
Seller or its Affiliates on or prior to the Closing Date, including, but not
limited to, any claim for wrongful discharge, breach of contract, unfair labor
practice, employment discrimination, unemployment compensation or workers'
compensation.
2.5 Limitation on Assignments. Notwithstanding any other
provision hereof, this Agreement shall not constitute nor require an assignment
to Buyer of any Drilling Contract, Other Contract, Lease, Permit, license or
other right if an attempted assignment of the same without the consent of any
party would constitute a breach thereof or a violation of any law or any
judgment, decree, order, writ, injunction, rule or regulation of any
Governmental Entity unless and until such consent shall have been obtained. In
the case of any such Drilling Contract, Other Contract, Permit, license or
other right that cannot be effectively transferred to Buyer without such
consent (a "Consent Required Contract"), Seller agrees that between the date
hereof and the Closing Date it will use its Best Efforts to obtain or cause to
be obtained the necessary consents to the transfer of any Consent Required
Contract. Buyer agrees to cooperate and to cause any Buyer Designee to
cooperate with Seller in obtaining such consents and to enter into such
arrangement of assumption as may be reasonably requested by
7
<PAGE> 12
the other contracting party under a Consent Required Contract. In the event
that Seller shall have failed prior to the Closing Date to obtain consents to
the transfer of any Consent Required Contract and Buyer shall have waived the
conditions set forth in Section 8.6, the terms of this Section 2.5 shall govern
the transfer of the benefits of each such contract. Seller and Buyer shall use
their Best Efforts after the Closing Date to obtain any required consent to the
assignment to, and assumption by, Buyer of each Consent Required Contract that
is not transferred to Buyer at the Closing (a "Nonassigned Contract"). With
respect to the Nonassigned Contracts and any of the Purchased Assets that are
not assignable by the terms thereof or consents to the assignment thereof
cannot be obtained as provided herein, the Purchased Assets shall be held by
the Seller in trust for the Buyer and shall be performed by the Buyer in the
name of the Seller and all benefits and obligations derived thereunder shall be
for the account of the Buyer; provided, however, that where entitlement of the
Buyer to such Purchased Assets hereunder is not recognized by any third party,
the Seller shall, at the request of the Buyer, enforce in a reasonable manner,
at the cost of and for the account of the Buyer, any and all rights of the
Seller against such third party. Buyer shall indemnify Seller in respect of
Buyer's performance or failure to perform any obligation, duty or liability in
connection with such Purchased Assets.
2.6 Delivery.
(a) Buyer shall be entitled to the records physically
located on the Rigs or at the location thereof on the Closing Date and relevant
to the Rigs.
(b) As promptly following the Closing as practicable,
Seller shall deliver or cause to be delivered to Buyer at the offices where
such records are located or such other location as mutually agreed, (i) a copy
of the operational and accident records, (ii) engineering drawings, designs,
schematics, blueprints, instruction manuals, flowsheets, models, maintenance
schedules and similar technical records, (iii) all regulatory certification and
documentation, all pertinent correspondence relating thereto, all technical
manuals relating to equipment on the Rigs and all equipment history files and
preventive maintenance data, (iv) all Drilling Contracts, Other Contracts, and
all material correspondence and other records relating thereto and to the
Accounts Receivable and the Trade Payables, and (v) property records, including
environmental reports and assessments relating to the Real Estate Assets in the
possession or control of Seller or its Affiliates related to the Purchased
Assets.
(c) Seller shall be entitled to retain all originals of
its corporate, financial, accounting, legal, tax and audit records. For a
period of three years following the Closing Date, Buyer shall give Seller
reasonable access to (and the right to make copies at the sole expense of
Seller) the records delivered by Seller pursuant to the terms of this
Agreement, but any access pursuant to this Section 2.6(c) shall be conducted in
such manner as not to interfere unreasonably with the operations of Buyer
following the Closing Date. Following such three-year period, Buyer may
destroy such records, provided Seller is given notice and a reasonable
opportunity to take or make copies of such records at Seller's sole cost and
expense.
(d) The Rigs shall be delivered on the Closing Date at
such locations as may be agreed upon by the parties as is, where is at the time
of delivery.
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2.7 Deposit. Contemporaneously with the execution of this
Agreement, Buyer hereby pays in immediately available funds to Seller $500,000
as a deposit (the "Deposit") towards the Purchase Price. Seller shall hold the
Deposit until it is released by Buyer to Seller pursuant to Sections 4.3(e) and
10.3 hereof or until it is returned to Buyer pursuant to Section 10.4 hereof.
ARTICLE III
PURCHASE PRICE
3.1 Consideration for the Purchased Assets.
(a) At the Closing, Buyer shall pay to Seller the
Purchase Price by delivering to Seller:
(i) the amount of $14,500,000 in immediately available funds
by confirmed wire transfer to a bank account to be designated by
Seller (such designation to occur no later than the second business
day prior to the Closing Date) plus $500,000 in cash by releasing the
Deposit to Seller (such funds together with the Deposit, the "Cash
Purchase Price");
(ii) a promissory note in the principal amount of
$13,000,000, subject to reduction pursuant to Section 3.2(b), in the
form set forth on Exhibit A hereto executed by Buyer (or its permitted
designee in accordance with Section 12.5(b) hereof) (the "Secured
Note"), which shall be secured by a lien on the Rigs, subordinated to
Buyer's senior debt, bear interest at the rate of 10% per annum and be
payable in full on or before one year from the Closing Date. If Buyer
completes a public offering of UTI Common Stock for its own account
(other than an offering pursuant to a registration statement filed on
Forms S-4 or S-8 or their successor forms) prior to the maturity date
of the Secured Note, Buyer (or such designee) will be required to
prepay the principal amount of the Secured Note, together with all
accrued interest thereon, to the extent the net proceeds received by
Buyer pursuant to such offering exceed the aggregate amount of such
principal and accrued interest. The security interest shall be
evidenced by a security agreement in the form set forth on Exhibit B
hereto executed by the Buyer (or such designee) (the "Security
Agreement"), and
(iii) delivering to Seller a warrant entitling Seller, at its
sole option, to purchase up to 100,000 shares of UTI Common Stock at
the initial exercise price of $48.00 per share at any time within five
years after the Closing Date and having such additional terms and
conditions as are set forth in Exhibit C hereto (the "Warrant").
(b) As additional consideration for the Purchased Assets,
the Buyer shall assume at Closing and shall thereafter perform the Assumed
Liabilities.
(c) In lieu of the Secured Note, Buyer, in its sole
discretion, may elect to reduce the Purchase Price by $750,000 by paying to
Seller at the Closing $12,250,000
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in immediately available funds to the account designated in Section 3.1(a)(i)
in lieu of the Secured Note.
3.2 Purchase Price Adjustment.
(a) Within 45 calendar days following the Closing, Buyer
shall prepare and deliver to Seller a statement (the "Statement") reflecting
the Trade Payables, Accounts Receivable and Prepaids as of the Closing Date and
the calculation of the adjustment to the Purchase Price pursuant to this
Section 3.2 (the "Negative Working Capital Adjustment"). The calculation of
the Trade Payables, Account Receivables and Prepaids shall be prepared in
accordance with GAAP. The Negative Working Capital Adjustment shall equal the
amount, if any, that the Trade Payables exceed the Accounts Receivable and
Prepaids. Buyer shall provide Seller with access to copies of all work papers
and other relevant documents to permit Seller to verify the accuracy of the
amounts reflected in the Statement. Seller shall have a period of 30 calendar
days after delivery of the Closing Date Balance Sheet and the Statement (the
"Review Period") to review it and make any objections it may have in writing to
Buyer. If written objections to the Statement are delivered to Buyer by Seller
within 10 days after the Review Period (the "Objection Period"), then Seller
and Buyer shall attempt to resolve the matter or matters in dispute. If no
written objections are made by Seller within the Objection Period, then the
Statement shall be final and binding on the parties hereto. If disputes with
respect to the Closing Date Balance Sheet or the Statement cannot be resolved
by Seller and Buyer within 30 calendar days after the Objection Period, then,
at the request of Buyer or Seller, the specific matters in dispute shall be
submitted to Ernst & Young L.L.P. or such other independent accounting firm as
may be approved by Seller and Buyer, which firm shall render its opinion as to
such matters. Based on such opinion, such independent accounting firm will then
send to Seller and Buyer its determination on the specified matters in dispute,
which determination shall be final and binding on the parties hereto. The fees
and expenses of such independent accounting firm shall be borne one-half by
Seller and one-half by Buyer.
(b) Following the determination of the Negative Working
Capital Adjustment, if any, in accordance with Section 3.2(a), the Seller shall
pay to the Buyer one half of the amount of the Negative Working Capital
Adjustment in cash within 30 days of such final determination date. The
principal amount of the Secured Note shall be reduced by the remaining one half
of the amount of the Negative Working Capital Adjustment; provided that such
amount shall be paid in cash if Seller has elected to pay cash in lieu of the
Secured Note pursuant to Section 3.1(c).
3.3 Allocation of Purchase Price. The Purchase Price shall be
allocated among the Purchased Assets in a manner to be agreed upon by Seller
and Buyer prior to the Closing. After the Closing, Seller and Buyer shall
cooperate with each other in the preparation, execution and filing of (i) all
information returns and supplements thereto required to be filed with the
Internal Revenue Service by the parties under Section 1060 of the Code and the
Treasury Regulations promulgated thereunder relating to the allocation of the
Purchase Price and (ii) all similar filings required to be filed with respect
to the transactions contemplated by this Agreement with the Internal Revenue
Service and other appropriate taxing authorities.
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ARTICLE IV
THE CLOSING
4.1 Time and Place of Closing. The Closing shall take place at
the offices of Fulbright & Jaworski L.L.P., 1301 McKinney Street, Houston,
Texas at 9:00 a.m., local time, on the third Business Day after the later to
occur of (i) the satisfaction of the conditions to the obligations of the
parties set forth in Articles VII and VIII and (ii) receipt by Buyer of funds
by Buyer sufficient to pay the Cash Purchase Price, or at such other place,
date or time as the parties may agree in writing; provided, that unless
otherwise agreed by the Seller and the Buyer, the Closing shall not take place
later than April 15, 1997. The date on which the Closing is required to take
place is herein referred to as the "Closing Date."
4.2 Deliveries by Seller. At the Closing, Seller shall deliver
the following to Buyer:
(a) a duly executed General Conveyance, Assignment and
Bill of Sale and Transfer and Assumption of Liabilities (the "General
Assignment") in a form mutually acceptable to the Buyer and Seller, together
with such other bills of sale, assignments and other instruments of transfer,
assignment and conveyance as Buyer shall reasonably request to vest in Buyer or
a Buyer Designee good and marketable title to the Purchased Assets other than
the Real Property;
(b) special warranty deeds in a form of mutually
acceptable to the Buyer and Seller, with such modifications as are necessary to
comply with applicable local law in the jurisdictions in which the Real
Property is located (the "Deeds"), sufficient to transfer to Buyer good and
indefeasible title to the Real Property, free and clear of all Encumbrances
except for Permitted Real Property Encumbrances;
(c) the Guaranties referred to in Section 8.10;
(d) copies of any consents obtained as contemplated
by Section 2.5; and
(e) the certificate and opinion of counsel contemplated
by Sections 8.3 and 8.4, respectively.
4.3 Deliveries by Buyer. At the Closing, Buyer shall deliver th
following to Seller:
(a) the Cash Purchase Price;
(b) a duly executed General Assignment and such other
instruments of transfer and assumption as Seller shall reasonably request in
order to cause an effective assignment to and assumption by Buyer of the
Drilling Contracts and Other Contracts as contemplated herein; and
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(c) the Secured Note, the Security Agreement and the
Warrant; however, if Buyer exercises its right pursuant to Section 3.1(c)
hereof with respect to payment of the Purchase Price, Buyer shall deliver only
the Warrant;
(d) the certificate and opinion of counsel contemplated
by Sections 7.3 and 7.4, respectively; and
(e) written instructions to Seller that the Deposit has
been released in full to Seller.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
5.1 Organization and Existence. Seller is a limited partnership
duly formed, validly existing and in good standing under the laws of the State
of Texas, with all necessary power and authority to own and lease the Purchased
Assets and to carry on its business as such business is currently conducted.
Seller is duly qualified or licensed to transact business as a foreign limited
partnership and is in good standing in all jurisdictions in which the character
of the Purchased Assets or the nature of the business currently conducted by it
requires it so to be qualified or licensed unless the failure so to qualify or
be licensed would not reasonably be expected to have a Seller MAE.
5.2 Authority; Etc. Seller has all necessary limited partnership
power and authority to execute and deliver this Agreement and all agreements,
instruments and documents to be executed and delivered hereunder by Seller, to
consummate the transactions contemplated hereby and to perform all terms and
conditions hereof to be performed by it. The execution and delivery of this
Agreement by Seller and all agreements, instruments and documents to be
executed and delivered by Seller hereunder, the performance by Seller of all
the terms and conditions hereof to be performed by it and the consummation of
the transactions contemplated hereby have been duly authorized and approved by
the partners of Seller in accordance with the Seller's partnership agreement,
and no other partnership proceedings of Seller are necessary with respect
thereto. All corporate actions required on behalf of the partners of the
Seller in connection with this Agreement and the transactions contemplated
hereby have been duly taken. All persons who have executed and delivered this
Agreement, and all persons who will execute and deliver the other agreements,
documents and instruments to be executed and delivered by Seller hereunder,
have been duly authorized to do so by all necessary actions on the part of
Seller. This Agreement constitutes, and each other agreement or instrument to
be executed by Seller hereunder, when executed and delivered by Seller, will
constitute, the legal, valid and binding obligation of Seller, enforceable
against it in accordance with its terms, except to the extent the
enforceability hereof and thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization or other laws relating to or affecting creditors'
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rights generally or by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
5.3 No Violations. The execution and delivery of this Agreement
by Seller, the fulfillment of and compliance by it with the terms and
conditions hereof and the consummation by it of the transactions contemplated
hereby will not:
(a) violate any of the terms of the partnership agreement
of Seller or the charter or bylaws of any partner of Seller;
(b) (i) result in a breach of or constitute a default
under (whether with notice or the lapse of time or both) any note, bond,
mortgage, loan agreement, indenture or other instrument evidencing borrowed
money to which Seller or any partner of Seller is a party or by which Seller or
any of its partners is bound or to which any of the Purchased Assets is subject
which breach or default would reasonably be expected to have a Seller MAE or
(ii) result in the creation of any Encumbrance on any of the Purchased Assets,
or otherwise give any person the right to terminate any Drilling Contract,
Permit or Other Contract assumed by Buyer; or
(c) to Seller's knowledge, violate any provision of any
law, statute, rule or administrative regulation or any judgment, order,
injunction or decree of any Governmental Entity applicable to or binding upon
Seller, or its assets, which violation with respect to the matters specified in
paragraphs (b) and (c) of this Section 5.3 would reasonably be expected to have
a Seller MAE.
5.4 Ownership of Rigs and Equipment. Seller owns and, upon
Seller's execution and delivery of the General Assignment, Buyer will own good
and indefeasible title to the Rigs and Other Equipment, free and clear of all
Encumbrances except for Permitted Encumbrances and Encumbrances, if any,
created or permitted to be imposed by Buyer.
5.5 Inventory. Seller owns and, upon Seller's execution and
delivery of the General Assignment, Buyer will own good and marketable title to
the Inventory on Schedule 2.1(c), as such Inventory may be reduced through the
consumption thereof, or increased through replacement thereof or additions
thereto, in the ordinary course of the maintenance and operation of the Rigs
through the Closing Date, free and clear of all Encumbrances except for
Permitted Encumbrances and Encumbrances, if any, created or permitted to be
imposed by Buyer or a Buyer Designee.
5.6 Contracts. Seller has made available to Buyer for review
complete and correct copies of all Drilling Contracts and Other Contracts.
Except as expressly identified on Schedule 2.1(g)(i) or (iii), each of the
Drilling Contracts and Other Contracts may be transferred to Buyer without the
consent of any Person. All the Drilling Contracts and Other Contracts are
valid, binding and in full force and effect against Seller, and, to Seller's
knowledge, are valid, binding and in full force and effect against the other
parties thereto. As of the Closing Date, none of the Rigs will be subject to
any material agreement, contract or commitment of Seller or any of its
Affiliates other than the Drilling Contracts and Other Contracts. Neither
Seller nor any of its Affiliates is in default in any material respect, and no
notice of alleged default
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has been received by Seller or any of its Affiliates, under any of the Drilling
Contracts and Other Contracts, no other party thereto is, to the knowledge of
Seller or its Affiliates, in default thereunder in any material respect, and,
to the knowledge of Seller or its Affiliates, there exists no condition or
event which, with or without notice or lapse of time or both, would constitute
a material default under any of the Drilling Contracts and Other Contracts by
Seller, any of its Affiliates or any other party thereto.
5.7 Litigation.
(a) Except as described on Schedule 5.7 hereto, there is
no litigation and there are no Proceedings, suits or investigations pending,
instituted or, to the knowledge of Seller, overtly threatened against any of
the Purchased Assets or against the Seller or any of its Affiliates and
relating to the ownership, operation or maintenance of any of the Purchased
Assets before any Governmental Entity applicable to or binding upon Seller or
any of the Purchased Assets that (i) seeks injunctive relief, (ii) if adversely
determined would delay or prevent the consummation of the transactions
contemplated by this Agreement or (iii) would reasonably be expected to have a
Seller MAE.
(b) None of Seller or any of its Affiliates nor any of
its respective properties or assets is subject to any judicial or
administrative judgment, order, decree or restraint currently affecting the
ownership, maintenance and operation of the Purchased Assets in a manner that
is material and adverse to the ownership, maintenance and operation of the
Purchased Assets taken as a whole. Except as referred to on Schedule 5.7(b),
Seller has not received any notifications or charges in writing from any
Governmental Entity involving alleged violations of or alleged obligations to
remediate under occupational safety and health or water quality or other
environmental matters that materially and adversely affect the conduct by
Seller of the ownership, maintenance and operation of the Purchased Assets
taken as a whole or that have not been finally dismissed or otherwise disposed
of.
5.8 Governmental Approval. Except as set forth on Schedule 5.8,
no consent, approval, waiver, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required to be obtained
or made in connection with the execution and delivery of this Agreement by
Seller or the consummation by Seller of the transactions contemplated hereby.
5.9 Compliance With Laws. Seller is not in violation of or in
default under any applicable law, rule, regulation, code, governmental
determination, order, governmental certification requirement or other public
limitation that is not an Applicable Environmental Law (collectively,
"Applicable Laws") relating to the ownership, maintenance or operation of the
Purchased Assets, which violation or default materially and adversely affects
Seller's ownership, maintenance or operation (as presently conducted) of the
Purchased Assets, and no claim is pending or, to Seller's knowledge, overtly
threatened with respect to any such matters which if determined adversely to
Seller would have such effect.
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5.10 Employee Matters.
(a) There are no collective bargaining or other labor
union agreements to which the Seller is a party or by which it is bound. To
the knowledge of the Seller, the Seller has not encountered any labor union
organizing activity or had any actual or threatened employee strikes, work
stoppages, slowdowns or walkouts.
(b) The Seller does not contribute to or have an
obligation to contribute to, and has not at any time within six years prior to
the Closing Date contributed to or had an obligation to contribute to, a
multi-employer plan within the meaning of Section 3(37) of ERISA.
(c) With respect to any employee benefit plan, within the
meaning of Section 3(3) of ERISA, which is sponsored, maintained or contributed
to, or has been sponsored, maintained or contributed to within six years prior
to the Closing Date, by the Seller or any corporation, trade, business or
entity under common control with the Seller, within the meaning of Section
414(b), (c) or (m) of the Code or Section 4001 of ERISA ("Commonly Controlled
Entity"), (i) no withdrawal liability, within the meaning of Section 4201 of
ERISA, has been incurred, which withdrawal liability has not been satisfied,
(ii) no liability to the Pension Benefit Guaranty Corporation has been incurred
by the Seller or any Commonly Controlled Entity, which liability has not been
satisfied, (iii) no accumulated funding deficiency, whether waived or not
waived, within the meaning of Section 302 of ERISA or Section 412 of the Code
has been incurred and (iv) all contributions, including installments, to such
plan required by Section 302 of ERISA and Section 412 of the Code have been
timely made.
(d) Buyer will not be obligated or liable with respect to
any employee benefit plan or agreement relating to the employees of Seller by
virtue of its employment of any of the employees of the Seller.
5.11 Real Property. Seller owns, and upon execution and delivery
by Seller of the Deeds, Buyer will own, good and indefeasible title to the Real
Property described on Schedule 2.1(d), free and clear of all Encumbrances
except Permitted Real Property Encumbrances.
5.12 Environmental Matters.
(a) Seller has received no written notice of any
investigation or inquiry by any Governmental Entity under any Applicable
Environmental Laws (as defined below) relating to the ownership or operation of
the Purchased Assets. To the actual current knowledge of Seller, Seller has
not disposed of any hazardous material (as defined below) on any of the
Purchased Assets and no condition exists on any of the Purchased Assets which
would subject Seller or the Purchased Assets to any remedial obligations under
any Applicable Environmental Laws.
(b) Except where the failure to do so would not have a
Seller MAE, Seller and its Affiliates have complied with all Applicable
Environmental Laws relating to the Real Estate Assets, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against it alleging any
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failure so to comply. Without limiting the generality of the preceding
sentence, except where the failure to do so would not have a Seller MAE, Seller
and its Affiliates have obtained and been in compliance with all of the terms
and conditions of all permits, licenses, and other authorizations which are
required under, and has complied with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in all Applicable Environmental Laws relating to
the Purchased Assets.
(c) Neither Seller or any of its Affiliates nor, to the
knowledge of Seller, any prior owner or operator of the Purchased Assets, has
caused or allowed the generation, use, treatment, storage or disposal of
Hazardous Materials at any site or facility owned, leased or operated by any
Seller or its Affiliates or used in connection with the Purchased Assets except
in accordance with all Applicable Environmental Laws or except to the extent
the same would not have a Seller MAE.
(d) None of the Purchased Assets have been subject to the
release of any Hazardous Materials except to the extent that the same would not
have a Seller MAE.
(e) Seller has secured all environmental Permits
necessary to the operation of the Rigs and Seller is in compliance with such
permits, except to the extent any such noncompliance does not impose liability
on Buyer or its Affiliates.
(f) Seller has not received any notice, nor is it aware,
of any proposal to amend, revoke or replace any environmental Permit, or
requiring the issuance of any additional environmental Permit, necessary to
operate the Rigs.
(g) Seller has not received inquiry or notice nor does
Seller have any reason to suspect or believe that it will receive inquiry or
notice of any actual or potential proceedings, claims, lawsuits or losses
related to or arising under any Applicable Environmental Law and related to the
Purchased Assets.
(h) Seller is not currently operating or required to be
operating any of the Purchased Assets under any compliance order, schedule,
decree or agreement, any consent decree, order or agreement, or corrective
action decree, order or agreement issued or entered into under any Applicable
Environmental Law.
(i) Each of Seller and the Purchased Assets is to the
best of Seller's knowledge in compliance with all applicable limitations,
restrictions, conditions, standards, prohibitions, requirements and obligations
established under Applicable Environmental Laws except to the extent any such
noncompliance would not have a Seller MAE.
(j) For purposes of this Agreement, "Applicable
Environmental Laws" means any and all Applicable Laws pertaining to (x) the
control of any potential pollutant or protection of the air, water or land, (y)
solid, gaseous or liquid waste generation, handling, treatment, storage,
disposal or transportation or (z) exposure to hazardous, toxic or other
substances alleged to be harmful. "Environmental Laws" shall include all such
laws in effect in any and all jurisdictions in which the Purchased Assets
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are located or in which any Seller or its Affiliates has conducted operations
using any of the Purchased Assets, including, without limitation, the Clean Air
Act, as amended, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Rivers and Harbors Act of 1899, as
amended, the Federal Water Pollution Control Act, as amended, the Resource
Conservation and Recovery Act of 1976, as amended, the Safe Drinking Water Act,
as amended, the Toxic Substances Control Act, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials
Transportation Act, as amended, the Texas Water Code, the Texas Solid Waste
Disposal Act, and other environmental conservation or protection laws. For
purposes of this Agreement, the term "hazardous material" means (i) any
substance which is listed or defined as a hazardous substance, hazardous
constituent, or solid waste pursuant to any Applicable Environmental Laws and
(ii) petroleum (including crude oil and any fraction thereof), natural gas and
natural gas liquids.
5.13 No Brokers. Except for Simmons & Co., Inc., whose fees shall
be paid by, and be the sole responsibility of, Seller, Seller has not employed
or authorized anyone to represent it as a broker or finder in connection with
the transactions contemplated by this Agreement, and no broker or other person
is entitled to any commission or finder's fee from Seller in connection with
such transactions. Seller agrees to indemnify and hold harmless Buyer from and
against any and all losses, claims, demands, damages, costs and expenses,
including, without limitation, reasonable attorneys' fees and expenses, Buyer
may sustain or incur as a result of any claim for a commission or fee by a
broker or finder acting on behalf of Seller.
5.14 Decrees, Etc. No order, writ, injunction, decree, judgment,
award or determination of any court or Governmental Entity has been issued or
entered against Seller or any of its Affiliates which continues to be in effect
and affects the ownership or operation of the Purchased Assets.
5.15 Performance Bonds; Letters of Credit. Except as set forth on
Schedule 5.15 hereto, there are no performance or similar bonds or letters of
credit currently posted by Seller or any of its Affiliates for the purpose of
operating the Rigs.
5.16 Certain Property on Rigs. Since the date of completion of
Buyer's inspection of the Rigs, subject to normal wear and tear and consumption
in the ordinary course of business, Seller has not removed or permitted to be
removed any tangible property from any Rig, except for any such tangible
property relocated from one Rig to another Rig or transferred to Inventory.
5.17 Accredited Investor; Investment Purpose. Seller (i) is an
accredited investor as that term is defined in Regulation D promulgated under
the Securities Act, and (ii) is acquiring the Warrant (and the shares UTI
Common Stock that may be issuable upon the exercise thereof) for its own
account, for investment purposes and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act. Seller acknowledges that the issuance to Seller of the
Warrant (and the shares UTI Common Stock that may be issuable upon the exercise
thereof) have not been registered under the Securities Act or the securities
laws of any state and will contain an appropriate restrictive legend.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
6.1 Organization and Existence. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation, with all necessary corporate power and authority to own
and lease the assets it currently owns and leases and to carry on its business
as such business is currently conducted. Buyer is duly qualified or licensed
to transact business as a foreign corporation and is in good standing in all
jurisdictions in which the character of the assets currently owned or leased by
it or the nature of the business currently conducted by it requires it so to be
qualified or licensed unless the failure so to qualify or be licensed would not
reasonably be expected to have a material adverse effect on the business or
financial condition of Buyer and its subsidiaries taken as a whole. Buyer has
heretofore furnished to Seller a complete and correct copy of its charter and
bylaws, as amended or restated. Buyer is not in violation of any of the
provisions of its charter or any material provisions of its bylaws.
6.2 Authority; Etc.
(a) Except for approval by the Board of Directors of
Buyer of this Agreement and the transactions contemplated hereby, Buyer has all
necessary corporate power and authority to execute and deliver this Agreement
and all agreements, instruments and documents to be executed and delivered
hereunder by Buyer, to consummate the transactions contemplated hereby and to
perform all terms and conditions hereof to be performed by it. Except for the
approval of the Board of Directors of Buyer of such matters, no corporate
proceedings of Buyer are necessary on the part of Buyer with respect to the
execution, delivery and performance of this Agreement, the Secured Note, and
the Security Agreement by Buyer. Upon approval of this Agreement by the Board
of Directors of Buyer, all persons who have executed and delivered this
Agreement, and all persons who will execute and deliver the other agreements,
documents and instruments to be executed and delivered by Buyer hereunder, will
have been duly authorized to do so by all necessary actions on the part of
Buyer. This Agreement, the Secured Note and the Security Agreement constitute,
and each other agreement or instrument to be executed by Buyer hereunder, when
executed and delivered by Buyer, will constitute, legal, valid and binding
obligations of Buyer, enforceable against it in accordance with their
respective terms, except to the extent the enforceability hereof and thereof
may be limited by bankruptcy, insolvency, moratorium, reorganization or other
laws relating to or affecting creditors' rights generally or by general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
(b) Buyer has taken all necessary corporate action to
permit it to issue the Warrant and has reserved for issuance, upon the exercise
of the Warrant, such number of shares of UTI Common Stock as may be issuable
thereunder. Such shares of UTI Common Stock will, when issued against payment
of the exercise price of the
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Warrant, be validly issued, fully paid and nonassessable and not subject to
preemptive rights and will, when issued, be duly listed for trading on any
stock exchange on which the UTI Common Stock is then listed for trading or on
the Nasdaq National Market if the UTI Common Stock is listed thereon.
6.3 SEC Documents. Buyer has provided to Seller its Annual Report
on Form 10-K for the year ended December 31, 1995, Quarterly Reports on Form
10-Q for the quarters ended March 31, 1996, June 30, 1996, and September 30,
1996, its current reports on Form 8-K dated August 28, 1996, as amended by
Amendment No. 1 thereto dated October 28, 1996, and January 27, 1997, and its
proxy statement with respect to its Annual Meeting of Stockholders for 1996
(such documents collectively referred to herein as the "SEC Documents"). As of
their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission promulgated
thereunder applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of Buyer included in the
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto) and
fairly present the consolidated financial position of Buyer and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended. Since September
30, 1996, other than as discussed in the SEC Documents, there has been no
material adverse change in the business of Buyer and its subsidiaries, taken as
a whole.
6.4 No Violations. The execution and delivery of this Agreement,
the Secured Note and the Security Agreement by Buyer, the fulfillment of and
compliance by it with the terms and conditions hereof and the consummation by
it of the transactions contemplated hereby will not:
(a) violate any of the terms of the certificate of
incorporation or bylaws of Buyer;
(b) result in a breach of or constitute a default under
(whether with notice or the lapse of time or both) any note, bond, mortgage,
loan agreement, indenture or other instrument evidencing borrowed money to
which Buyer is a party or by which Buyer is bound or to which any of its assets
is subject or result in the creation of any Encumbrance on any of its assets,
which breach or default would reasonably be expected to have a material adverse
effect on Buyer's business or financial condition or the results of its
operations or on its ability to perform its obligations hereunder; or
(c) to Buyer's knowledge, violate any provision of any
law, statute, rule or administrative regulation or any judgment, order,
injunction or decree of any Governmental Entity applicable to or binding upon
Buyer or any of its subsidiaries,
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except that no representation is made as to the application of any United
States antitrust law or regulation to the transactions contemplated by this
Agreement, which violation with respect to the matters specified in clauses (b)
and (c) of this Section 6.4 would reasonably be expected to have a material
adverse effect on Buyer's business or financial condition or the results of its
operations or on its ability to perform its obligations hereunder.
6.5 Governmental Approval. Except as set forth on Schedule 6.5,
no consent, approval, waiver, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required to be obtained
or made in connection with the execution and delivery, of this Agreement by
Buyer or the consummation by Buyer of the transactions contemplated hereby.
6.6 Litigation. There is no litigation and there are no
Proceedings, suits or investigations pending, instituted or, to the knowledge
of Buyer overtly threatened against Buyer or its subsidiaries that could
reasonably be expected to have a material adverse effect on the business or
financial condition of Buyer and its subsidiaries taken as a whole or that, if
adversely determined, would delay or prevent the consummation of the
transactions contemplated by this Agreement.
6.7 No Brokers. Buyer has not employed or authorized anyone to
represent it as a broker or finder in connection with the transactions
contemplated by this Agreement, and no broker or other person is entitled to
any commission or finder's fee from Buyer in connection with such transactions.
Buyer will indemnify and hold harmless Seller from and against any and all
losses, claims, demands, damages, costs and expenses, including, without
limitation, reasonable attorneys' fees and expenses, Seller may sustain or
incur as a result of any claim for a commission or fee by a broker or finder
acting on behalf of Buyer.
6.8 Buyer M.A.E. There has been no material adverse change in the
business, operations or financial condition of Buyer since September 30, 1996
(a "Buyer MAE").
6.9 Capitalization. The authorized capital stock of Buyer
consists of 10,000,000 shares of UTI Common Stock, of which as of March 5,
1997, (i) 3,602,336 shares were issued and outstanding, (ii) 0 shares were held
in treasury by Buyer, (iii) 933,636 shares were reserved for issuance pursuant
to outstanding options and warrants and (iv) 195,350 shares were reserved for
issuance pursuant to employee benefit plans (excluding unissued shares
underlying outstanding options issued pursuant to such plans). There are no
voting trusts, proxies or other agreements or understandings to which Buyer is
bound with respect to the voting of any shares at capital stock of Buyer.
Except as set forth in this Section 6.9, there are no options, warrants or
other rights, agreements, arrangements or commitments to which Buyer is a party
obligating Buyer to grant, issue or sell any shares of the capital stock of
Buyer. Except as set forth on Schedule 6.9 hereto, there currently are no
registration rights or similar rights outstanding with respect to the Common
Stock.
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ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF SELLER
The obligations of Seller to proceed with the Closing contemplated by
this Agreement are subject to the satisfaction, on or before the Closing Date,
of all the following conditions, any one or more of which may be waived, in
whole or in part, by Seller:
7.1 Accuracy of Representations and Warranties. Each
representation and warranty of Buyer contained in this Agreement shall be true
and correct as of the Closing Date with the same effect as though made on the
Closing Date, except as otherwise specifically contemplated by this Agreement.
7.2 Covenants and Agreements Performed. Buyer shall have complied
on or before the Closing Date in all material respects with each of its
covenants or agreements contained in this Agreement to be performed on or
before the Closing Date.
7.3 Officer's Certificate. Seller shall have received a
certificate, dated as of the Closing Date, of the President or a Vice President
of Buyer certifying as to the matters specified in Sections 7.1 and 7.2.
7.4 Legal Opinion. Seller shall have received from Fulbright &
Jaworski L.L.P., counsel for Buyer, an opinion dated the Closing Date, with
respect to the due authorization, execution, delivery and enforceability of
this Agreement, the Secured Note, the Warrant and the Security Agreement in
customary form for such an opinion.
7.5 Secured Note, Warrant and Security Agreement. Buyer (or its
permitted designee, as the case may be) shall have executed and delivered to
Seller the Secured Note, Warrant and Security Agreement.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF BUYER
The obligations of Buyer to proceed with the Closing contemplated by
this Agreement are subject to the satisfaction, on or before the Closing Date,
of all the following conditions, any one or more of which may be waived, in
whole or in part, by Buyer:
8.1 Accuracy of Representations and Warranties. Each
representation and warranty of Seller contained in this Agreement shall be true
and correct as of the Closing Date with the same effect as though made on the
Closing Date, except as otherwise specifically contemplated by this Agreement.
8.2 Covenants and Agreements Performed. Seller shall have
complied on or before the Closing Date in all material respects with each of
the covenants or
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agreements of Seller contained in this Agreement to be performed on or before
the Closing Date.
8.3 Officer's Certificate. Buyer shall have received a
certificate, dated as of the Closing Date, of the President or a Vice President
of the general partner of Seller certifying as to the matters specified in
Sections 8.1 and 8.2.
8.4 Legal Opinion. Buyer shall have received from Haynes and
Boone, L.L.P., counsel for Seller, an opinion dated the Closing Date, with
respect to the due authorization, execution, delivery and enforceability of
this Agreement and the Security Agreement and the Guaranty in customary form
for such an opinion.
8.5 Drilling Contracts. Seller shall have obtained the consents
to the assignment of the Drilling Contracts, Other Contracts and Leases
identified as "Consent Required Contracts" on Schedule 2.1(g)(i) and
2.1(g)(iii) on terms reasonably acceptable to Buyer.
8.6 No Adverse Change. There shall not have occurred any Seller
MAE.
8.7 Financing by Buyer. Buyer shall have obtained financing
acceptable to it in its sole discretion for the purchase of the Purchased
Assets in an amount not less than the Cash Purchase Price and obtained approval
of this Agreement by its Board of Directors.
8.8 Partner Guaranty. Buyer shall have received from each of the
partners of Seller an unconditional and continuing guaranty ("Guaranty") of the
obligations of Seller hereunder in the form set forth on Exhibit D hereto.
ARTICLE IX
COVENANTS AND AGREEMENTS OF THE PARTIES BEFORE
RELATING TO AND SUBSEQUENT TO THE CLOSING
Seller and Buyer hereby covenant and agree as follows:
9.1 Expenses. Except as otherwise expressly provided in this
Agreement, each of the parties hereto shall assume and bear all expenses, costs
and fees incurred or assumed by such party in the preparation and execution of
this Agreement and in compliance with and performance of the agreements and
covenants contained in this Agreement, regardless of whether the transactions
contemplated hereby are consummated.
9.2 Access. Between the date hereof and the Closing, Seller shall
give Buyer and its authorized representatives reasonable access, during regular
business hours and upon reasonable advance notice, to the representatives and
personnel of Seller and to all Purchased Assets, including those books and
records to be delivered at Closing to Buyer pursuant to Section 2.6; provided
that Seller shall have the right to have a representative present at all times
during any inspections, interviews and examinations
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conducted at or on the offices, facilities or properties of Seller or its
Affiliates or representatives.
9.3 Conduct of Business and Preservation of Assets. Until the
Closing, Buyer and Seller agree to cooperate with each other to effect an
orderly transition of the ongoing operation of the Purchased Assets and Seller
shall use its Best Efforts to preserve, maintain and protect the Purchased
Assets and to assist in Buyer's retention of Seller's employees. From and
after the date of this Agreement and until the Closing Date, without the prior
express written consent of Buyer, which consent shall not be unreasonably
withheld or delayed, Seller will not, and Seller will not permit any of its
Affiliates to: (i) make any material change in the conduct of the ongoing
operation of the Rigs taken as a whole, (ii) enter into any new drilling
contracts with respect to the Rigs or enter into any other contracts or
agreements with respect to the Rigs other than in the ordinary course of
business, or amend, in any respect adverse to Seller or Buyer, any Drilling
Contract, Other Contract or Lease, (iii) transfer, sell or otherwise convey or
dispose of any of the Rigs or Inventory (other than the utilization of the
Inventory in the ordinary course of operating the Rigs consistent with past
practice), (iv) enter into any Other Contract that would obligate the Buyer in
any respect after the Closing, (v) waive any material rights under any Drilling
Contract or Other Contract, (vi) move any Rig to a different geographic region
or (vii) commit itself to do any of the foregoing.
9.4 Litigation. Until the Closing, Seller will promptly notify
Buyer of any action, suit, proceeding, claim or investigation which is overtly
threatened or commenced against Seller which relates to or affects the
Purchased Assets or this Agreement or the transactions contemplated hereby, and
Buyer will promptly notify Seller of any action, suit, proceeding, claim or
investigation which is overtly threatened or commenced against Buyer which
relates to and materially and adversely affects this Agreement or the
transactions contemplated hereby.
9.5 Certain Taxes. Buyer shall be liable for and shall pay all
sales, use, transfer, stamp, recording, value added or similar Taxes and
assessments resulting from the consummation of the transactions contemplated
hereby, and Buyer and Seller agree to cooperate to obtain all available
exemptions from such Taxes. All ad valorem taxes, property and similar Taxes
("Property Taxes") for all periods up to and including the Closing Date shall
be the obligations of Seller and for all periods following the Closing Date
shall be the obligation of Buyer. All Property Taxes relating to periods prior
to the Closing that have been assessed prior to Closing and that are not then
being diligently contested in good faith by appropriate proceedings shall be
paid by Seller prior to the Closing. Seller shall promptly pay from time to
time its share of all Property Taxes to Buyer upon Buyer's request accompanied
by appropriate documentation that such Property Taxes are due and payable,
prorated as of the Closing Date at the value of the property as of December 31,
1996. Buyer agrees to pay such amounts on behalf of Seller and to indemnify
Seller with respect to any Claims (as defined in Section 11.2) for such
Property Taxes if Seller shall have paid to Buyer Seller's pro rata share
thereof, if any. Seller and Buyer agree to cooperate with each other in order
to reduce the amount of Taxes or other assessments imposed on or charged to
Seller or Buyer as a result of the consummation of the transactions
contemplated by this Agreement; provided, that neither Seller nor Buyer shall
be
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obligated to take any action that it determines in its sole discretion may
subject it to additional Taxes, liabilities or expenses.
9.6 Actions with Respect to Closing. Seller will use its Best
Efforts to obtain the satisfaction of the conditions to Closing applicable to
Seller set forth in Article VIII as soon as practicable. Buyer will use its
Best Efforts to obtain and to cause each Buyer Designee to obtain the
satisfaction of the conditions to Closing applicable to Buyer set forth in
Article VII as soon as practicable.
9.7 Public Statements. Prior to making any news release or other
announcement concerning the transactions contemplated hereby, Buyer and Seller
shall consult with each other regarding the proposed contents thereof (but no
approval thereof shall be required).
9.8 Continued Effectiveness of Representations and Warranties.
Seller and Buyer shall each use its Best Efforts to cause the representations
and warranties made by it herein to continue to be true and correct on and as
of the Closing Date as if made on and as of the Closing Date. Seller and Buyer
shall each advise the other promptly in writing of any condition or
circumstance occurring from the date hereof up to and including the Closing
Date that would cause the representations and warranties made by it herein to
become untrue in any material respect. Nothing contained in this Section 9.9
shall be construed as being inconsistent with or in derogation of Sections 11.1
or 11.5.
9.9 Performance Bonds. If Seller has posted a performance or
other similar bond or letter of credit in connection with Seller's ownership or
operation of the Rigs or its performance under a Drilling Contract, Buyer and
Seller shall cooperate with each other in order (i) for Seller to obtain the
release of any such bond and (ii) to the extent required, for Buyer to obtain
at Buyer's sole cost a substitute bond or letter of credit or to assume
Seller's existing bond. Buyer shall reimburse Seller for all costs incurred by
Seller as a result of Seller's leaving a performance or similar bond or letter
of credit in place after the Closing Date in order to permit Buyer to operate
the Purchased Assets after the Closing Date.
9.10 Action of Buyer Regarding Financing and Financial Statements.
(a) Buyer agrees to use reasonable efforts to secure
financing for the payment of the Cash Purchase Price.
(b) Seller agrees to cooperate with Buyer and to assist
Buyer's outside auditors in the preparation of any financial statements
relating to the Purchased Assets and Seller that may be reasonably requested by
Buyer for filing with the United States Securities and Exchange Commission in
connection with any filings that may be made by Buyer under the Securities Act
of 1933 (the "Securities Act") or the Exchange Act. Such financial statements
shall consist of (i) such audited balance sheets and audited statements of
operations, cash flows and changes in equity together with the notes thereon
and (ii) such unaudited interim balance sheet and unaudited interim statements
of operations, cash flows and changes in equity, if any, in each case as Buyer
shall reasonably deem to be required by Buyer. Buyer will reimburse Seller,
within 30 days
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of receipt of an invoice presented by Seller, for any additional cash
out-of-pocket expenses incurred as a result of Seller's performance of its
obligations under this Section 9.11(b).
9.11 Employee Matters.
(a) Buyer agrees to offer employment to all of Seller's
employees whose work is primarily associated with the Purchased Assets (other
than those set forth on Exhibit E). In that regard, Buyer shall have the right
to interview Seller's employees at any time after the execution of this
Agreement. Notwithstanding any other provision of this Agreement, the parties
hereto do not intend to create any third-party beneficiary rights respecting
any of Seller's employees or further employees as a result of the provisions
herein and specifically hereby negate any such intention. With respect to
those employees who accept employment with the Buyer after the Closing Date,
(i) Buyer agrees to offer such employees substantially similar benefits as
those offered by Buyer to its existing employees employed in substantially
similar capacities, (ii) service with Seller shall be counted for purposes of
determining eligibility for participation and vesting in all health and welfare
rights provided under benefit programs of Buyer, (iii) any amounts previously
expended by such employees for purposes of satisfying deductibles, co-payments
and out-of- pocket expenses under the Seller's medical or dental plans in the
current plan year shall be credited for purposes of satisfying any such
requirements under Buyer's similar plans, if any; (iv) service with the Seller
shall be counted for purposes of determining continuous service and eligibility
for safety awards and for purposes of determining priorities with respect to
any reduction-in-force, layoff and recall rights whenever Buyer would normally
consider such service for other employees of Buyer; (v) Buyer shall credit to
such employees all accrued vacation and sick time as of the Closing Date; and
(vi) any life, medical and disability plans maintained by Buyer immediately
after the Closing shall not exclude any former employee of Seller transferred
thereto, from eligibility, or deny or reject benefits from such employee, due
to any pre-existing condition (except for such persons who have been or would
have been denied eligibility, or denied or rejected benefits, under any
corresponding plan maintained by the Seller prior to the Closing Date).
(b) Buyer shall provide, with respect to any Seller
employee who is hired by Buyer in connection with the transactions contemplated
hereby and is subsequently terminated by Buyer for any reason, health plan
continuation coverage in accordance with the requirements of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, and Section 601 through
608 of ERISA.
(c) With respect to any Seller employees who are
terminated by Buyer within six months of the Closing Date, Buyer shall be
solely responsible for any and all termination or severance payments, benefits
or settlements with respect to such termination, and shall indemnify and defend
Seller from any claim or litigation brought by such employees.
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ARTICLE X
TERMINATION
10.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) by mutual written consent of Buyer and Seller;
(b) by Buyer, if there shall be any statute, rule or
regulation that makes consummation of the transactions contemplated hereby
illegal or otherwise prohibited or a Governmental Entity shall have issued an
order, decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the consummation of the transactions
contemplated hereby, and such order, decree, ruling or other action shall have
become final and nonappealable;
(c) by Buyer, if
(i) the Closing shall not have occurred by April 15, 1997
(provided that the right to terminate this Agreement under this clause
(i) shall not be available to Buyer if Buyer's failure to fulfill any
of its obligations under this Agreement or its misrepresentation or
breach of any warranty hereunder has been the sole cause thereof); or
(ii) there has been a material breach by Seller of any
covenant or agreement, or a material inaccuracy of any representation
or warranty of Seller, contained in this Agreement which has rendered
the satisfaction of any condition to the obligations of Buyer
impossible and such breach or inaccuracy has not been cured by Seller
within ten Business Days after Seller's receipt of notice thereof from
Buyer, or waived by Buyer; or
(iii) there shall occur an event which results in or would
reasonably be expected to result in a Seller MAE.
(d) by Seller, if
(i) the Closing shall not have occurred by April 15, 1997
(provided that the right to terminate this Agreement under this clause
(i) shall not be available to Seller if Seller's failure to fulfill
any of its obligations under this Agreement or its misrepresentation
or breach of any warranty hereunder has been the sole cause thereof);
(ii) there has been a material breach by Buyer of any
covenant or agreement, or a material inaccuracy of any representation
or warranty of Buyer, contained in this Agreement which has rendered
the satisfaction of any condition to the obligations of Seller
impossible and such breach or inaccuracy has not been cured by Buyer
within ten Business Days after Buyer's receipt of notice thereof from
any Seller, or waived by Seller; or
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(iii) there shall occur an event which results in or would
be reasonably expected to result in a Buyer MAE.
10.2 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 10.1 by Buyer or Seller, written notice
thereof shall forthwith be given to the other party specifying the provision
hereof pursuant to which such termination is made, and this Agreement shall
become void and have no effect, and there shall be no liability hereunder on
the part of Buyer or Seller or any of their respective directors, officers,
employees, stockholders or representatives, except that the agreements
contained in this Section 10.2 and in Article XI and Sections 5.13, 6.7, 9.1,
10.3 and 10.4 shall survive the termination hereof. Nothing contained in this
Section 10.2 shall relieve any party from liability for damages actually
incurred (excluding consequential damages) for breach of any covenant or
agreement, or for the inaccuracy of any representation or warranty, contained
herein.
10.3 Liquidated Damages. Notwithstanding any other provision of
this Agreement, if Buyer has not satisfied the condition set forth in Section
8.7 and, as a result thereof, this Agreement is terminated by Seller pursuant
to Section 10.1(d)(i), then, unless Buyer is then entitled to terminate this
Agreement pursuant to Sections 10.1(c)(ii) or 10.1(c)(iii), Seller shall be
entitled to keep the Deposit and to receive an additional $500,000 in
immediately available funds as liquidated damages and not as a penalty. Upon
payment of such liquidated damages to Seller, Buyer shall have no other
liability whatsoever to Seller under this Agreement, except for liability based
on the breach by Buyer of any covenant or agreement contained herein or the
inaccuracy of any representation or warranty made by Buyer herein, which breach
or inaccuracy is unrelated to the inability of Buyer to obtain the financing
contemplated by Section 8.7.
10.4 Return of Deposit. In the event this Agreement is terminated
by Buyer pursuant to Sections 10.1(a), 10.1(c)(ii) or 10.1(c)(iii), Seller
shall immediately return to Buyer within two business days following such
termination in immediate available funds the full amount of the Deposit.
ARTICLE XI
EXTENT AND SURVIVAL OF REPRESENTATIONS,
WARRANTIES, COVENANTS AND AGREEMENTS; INDEMNIFICATION
11.1 Scope of Representations of Seller. Except as and to the
extent set forth in this Agreement, the Deeds and the other documents,
agreements and instruments delivered in connection with the Agreement, Seller
makes no other representations or warranties, and disclaims all liability and
responsibility for any representation, warranty, statement or information made
or communicated (orally or in writing) to Buyer. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, EXCEPT AS AND TO THE EXTENT SET FORTH IN THIS
AGREEMENT, THE DEEDS AND THE OTHER DOCUMENTS, AGREEMENTS AND INSTRUMENTS
DELIVERED IN CONNECTION WITH THIS AGREEMENT, SELLER MAKES NO REPRESENTATION OR
WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO
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THE MAINTENANCE, REPAIR, CONDITION, DESIGN, WORKMANSHIP, SUITABILITY, UTILITY
OR MARKETABILITY OF THE RIGS OR OTHER PURCHASED ASSETS OR ANY PORTION THEREOF
OR PROPERTY THEREON OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR
PATENT, OR ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE
OR COMMUNICATED TO BUYER OR ITS AGENTS, CONSULTANTS OR REPRESENTATIVES IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY
DISCUSSION OR PRESENTATION RELATING THERETO, INCLUDING, WITHOUT LIMITATION, ANY
IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, IT BEING THE EXPRESS AGREEMENT OF BUYER AND SELLER THAT EXCEPT AS
EXPRESSLY SET FORTH IN THIS AGREEMENT, BUYER WILL OBTAIN RIGHTS IN THE
PURCHASED ASSETS IN THEIR PRESENT CONDITION AND STATE OF REPAIR, "AS IS" AND
"WHERE IS" AND "WITH ALL FAULTS."
11.2 Indemnification by Seller. Seller agrees to indemnify, defend
and hold Buyer and its Affiliates harmless from and against any and all losses,
liabilities, claims, demands, damages, costs and expenses (including reasonable
attorneys' fees and disbursements) of every kind, nature and description
(collectively, "Claims") sustained by Buyer or any of its Affiliates based
upon, arising out of or otherwise in respect of (i) the inaccuracy of any
representation or warranty, or the breach of any covenant or agreement, of
Seller contained in this Agreement or in any certificate, agreement, document
or instrument delivered pursuant to this Agreement, (ii) the ownership,
management or use of the Purchased Assets prior to the Closing or (iii) any
Retained Liabilities; except, that Seller shall have no liability pursuant to
this Section 11.2 for the first $150,000 of aggregate Claims in respect of
breaches of representations or warranties by Seller (the "Buyer Basket") and
Seller shall be responsible only for such amounts of such Claims as exceed the
Buyer Basket; provided however, (i) such limitation shall not apply if such
claims arise from a breach of any representations and warranties set forth in
Sections 5.2, 5.4, 5.5, 5.11, 5.13 and (ii) except for claims that arise from a
breach of any representations and warranties set forth in Sections 5.2, 5.4,
5.5, 5.11, 5.13, which shall not be limited, the liability of Seller for its
representations and warranties shall not exceed $9,000,000 in the aggregate.
For purposes of the above indemnity, any representation or warranty given
subject to a materiality qualifier shall be deemed to have been given without
such qualifier.
11.3 Indemnification by Buyer. Buyer agrees to indemnify, defend
and hold Seller and its Affiliates harmless from and against any and all
losses, liabilities, Claims sustained by Seller or any of its Affiliates based
upon, arising out of or otherwise in respect of (i) the inaccuracy of any
representation or warranty, or the breach of any covenant or agreement, of
Buyer contained in this Agreement or in any certificate, agreement, document or
instrument delivered pursuant to this Agreement, or (ii) the ownership,
management or use of the Purchased Assets after the Closing (including the
matters referred to in the last sentence of Section 2.5), unless and to the
extent that such Claim arises solely from any action of Seller or any of its
Affiliates after the Closing; provided, however, that Buyer shall have no
liability pursuant to this Section 11.3 for the first $150,000 of aggregate
Claims in respect of breaches of representations and warranties of Buyer (the
"Seller Basket") and Buyer shall be
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responsible only for such amounts of such Claims as exceed the Seller Basket.
For purposes of the above indemnity, any representation or warranty given
subject to a materiality qualifier, including an exception for those matters
that would not have a Seller MAE, shall be deemed to have been given without
such qualifier.
11.4 Indemnification Procedure. Any party seeking information or
reimbursement for Claims hereunder (the "Indemnified Party") shall as promptly
as practicable notify the party from which such indemnification is sought (the
"Indemnifying Party") upon which the Indemnified Party intends to base a claim
for indemnification or reimbursement hereunder; provided, however, that the
failure of an Indemnified Party so to notify the Indemnifying Party shall not
relieve the Indemnifying Party from any liability under this Agreement to the
Indemnified Party with respect to such Claim except to the extent the
Indemnifying Party is actually prejudiced or damaged by the failure to receive
timely notice. In the event of any claims for indemnification or reimbursement,
the Indemnifying Party, at its option, may assume (with legal counsel
reasonably acceptable to the Indemnified Party) the defense of any claim,
demand, lawsuit or other proceeding brought against the Indemnified Party,
which claim, demand, lawsuit or other proceeding may give rise to the indemnity
or reimbursement obligation of the Indemnifying Party hereunder, and may assert
any defense of any party; provided, however, that the Indemnified Party shall
have the right at its own expense to participate jointly with the Indemnifying
Party in the defense of any claim, demand, lawsuit or other proceeding in
connection with which the Indemnified Party claims indemnification or
reimbursement hereunder. Notwithstanding the right of an Indemnified Party so
to participate, the Indemnifying Party shall have the sole right to settle or
otherwise dispose of such claim, demand, lawsuit or other proceeding on such
terms as the Indemnifying Party, in its sole discretion, shall deem appropriate
with respect to any issue involved in such claim, demand, lawsuit or other
proceeding as to which (i) the Indemnifying Party shall have acknowledged the
obligation to indemnify the Indemnified Party hereunder and the settlement is
solely for cash or (ii) the Indemnifying Party shall have declined so to
participate.
11.5 Survival. The representations and warranties of the parties
to this Agreement shall survive the Closing Date and shall remain in full force
and effect for a period of three years following the Closing Date (except that
the representations and warranties set forth in Sections 5.2, 5.4, 5.5, 5.11
and 5.13 shall survive the Closing Date without limitation) (the period during
which the representations and warranties shall survive being referred to herein
with respect to such representations and warranties as the "Survival Period"),
and shall be effective with respect to any inaccuracy therein or breach thereof
(and a claim for indemnification under Article 11 hereof may be made thereon)
if a written notice asserting the claim shall have been duly given in
accordance with Article 11 hereof within the Survival Period with respect to
such matter. All covenants and agreements contained herein shall survive
without limitation. Any claim for indemnification made during the Survival
Period shall be valid and the representations and warranties relating thereto
shall remain in effect for purposes of such indemnification notwithstanding
that such claim may not be resolved within the Survival Period. All
representations, warranties and covenants and agreements made by the parties
shall not be affected by any investigation heretofore or hereafter made by and
on behalf of any of them and shall not be deemed merged into
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any instruments or agreements delivered in connection with this Agreement or
otherwise in connection with the transactions contemplated hereby.
11.6 Limitation of Remedies. The indemnification obligations of
Buyer and Seller set forth in this Agreement, including in this Article XI,
shall be limited to indemnification for actual damages suffered and shall not
include incidental, consequential, special or indirect damages; provided,
however, that any such incidental, consequential, special or indirect damages
recovered by a third party against a party entitled to indemnity under this
Agreement shall be included in the damages recoverable pursuant to the
indemnities herein.
11.7 Applicability of Indemnification Obligation. EACH OF THE
AGREEMENTS TO INDEMNIFY, DEFEND OR HOLD HARMLESS CONTAINED IN SECTION 11.2 OR
11.3 SHALL APPLY IRRESPECTIVE OF WHETHER THE SUBJECT CLAIM IS BASED IN WHOLE OR
IN PART UPON THE SOLE OR CONTRIBUTORY NEGLIGENCE (WHETHER ACTIVE, PASSIVE OR
GROSS), BREACH OF WARRANTY, OR BREACH OR VIOLATION OF ANY DUTY IMPOSED BY ANY
LAW OR REGULATION, ON THE PART OF THE BENEFICIARY OF THE AGREEMENT, EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT.
11.8 Exclusive Rights and Remedies. The rights and remedies
provided in this Article XI shall be the exclusive rights and remedies,
contractual or otherwise, of the indemnified persons with respect to breaches
of the representations, warranties, covenants and agreements contained in this
Agreement.
ARTICLE XII
MISCELLANEOUS
12.1 Notices. All notices and other communications required or
permitted to be given or made hereunder by either party hereto shall be in
writing and shall be deemed to have been duly given if delivered personally or
transmitted by first class registered or certified mail, postage prepaid,
return receipt requested, or sent by prepaid overnight delivery service, or
sent by cable, telegram, telefax or telex, to the parties at the following
addresses (or at such other addresses as shall be specified by the parties by
like notice):
If to Buyer:
UTI Energy Corp.
485 Devon Park Drive, Suite 112
Wayne, PA 19087
Telephone: 610-971-9600
Facsimile: 610-964-0141
Attention: President
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with a copy to:
Curtis W. Huff
Fulbright & Jaworski L.L.P.
1301 McKinney Street, Suite 5100
Houston, Texas 77010-3095
Facsimile: 713-651-5246
If to Seller to:
Southland Drilling Company, Ltd.
2925 Briarpark
Houston, Texas 77042
Facsimile: 713-706-4351
Attention: Mr. Neil E. Hanson
with a copy to:
Marc Folladori
Haynes and Boone, L.L.P.
1000 Louisiana, Suite 4300
Houston, Texas 77002
Facsimile: 713-547-2300
Such notices, demands and other communications shall be effective (i)
if delivered personally or sent by courier service, upon actual receipt by the
intended receipt, (ii) if mailed, upon the earlier of five days after deposit
in the mail or the date of delivery as shown by the return receipt therefor, or
(iii) if sent by telecopy or facsimile transmission, when confirmation of
receipt is received.
12.2 Entire Agreement. This Agreement, including the Schedules,
Exhibits, Annexes and other writings referred to herein or delivered pursuant
hereto, constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
12.3 Amendments and Waiver; Rights and Remedies. This Agreement
may be amended, superseded, canceled, renewed or extended, and the terms hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part of
either party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of either party
of any such right, power or privilege, or any single or partial exercise of any
such right, power or privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege. The rights and remedies
herein provided are cumulative and are not exclusive of any rights or remedies
that any party may otherwise have at law or in equity. The rights and remedies
of either party based upon, arising out of or otherwise in respect of any
inaccuracy in or breach of any representation, warranty, covenant or agreement
contained in this
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<PAGE> 36
Agreement shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which any claim of any such inaccuracy
or breach is based may also be the subject matter of any other representation,
warranty, covenant or agreement contained in this Agreement (or in any other
agreement between the parties) as to which there is no inaccuracy or breach.
12.4 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Texas,
without regard to the principles of conflicts of laws thereof.
12.5 Binding Effect; Assignment.
(a) This Agreement and all the provisions hereof shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns.
(b) Buyer may upon notice to Seller direct that title to
all or part of the Purchased Assets be taken in one or more of Buyer's
wholly-owned subsidiaries (direct or indirect) (a "Buyer Designee") and that
the Buyer Designee execute and deliver to Seller the Secured Note (which also
shall be executed by Buyer) and the Security Agreement; provided, no such
designation shall relieve Buyer of any of its other duties, liabilities or
obligations hereunder.
12.6 Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same agreement.
12.7 References. All references in this Agreement to Articles,
Sections and other subdivisions refer to the Articles, Sections and other
subdivisions of this Agreement unless expressly provided otherwise. The words
"this Agreement," "herein," "hereof," "hereby," "hereunder" and words of
similar import refer to this Agreement as a whole and not to any particular
subdivision unless expressly so limited.
12.8 Severability of Provisions. If any provision of this
Agreement is held to be unenforceable, this Agreement shall be considered
divisible and such provision shall be deemed inoperative to the extent it is
deemed unenforceable, and in all other respects this Agreement shall remain in
full force and effect; provided, however, that if any such provision may be
made enforceable by limitation thereof, then such provision shall be deemed to
be so limited and shall be enforceable to the maximum extent permitted by
applicable law.
12.9 Gender. Pronouns in masculine, feminine and neuter genders
shall be construed to include any other gender, and words in the singular form
shall be construed to include the plural and vice versa, unless the context
otherwise requires.
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12.10 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only, do not constitute a part of this
Agreement, and shall not affect in any manner the meaning or interpretation of
this Agreement.
(SIGNATURES ON FOLLOWING PAGE)
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<PAGE> 38
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers hereunto duly authorized as of the date
first above written.
UTI ENERGY CORP.
By /s/ Vaughn E. Drum
----------------------------------------
Name: Vaughn E. Drum
Title: President
SOUTHLAND DRILLING COMPANY
BY: Southland Minerals Company, its
General Partner
By /s/ Neil Hanson
----------------------------------------
Name: Neil Hanson
Title: President
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<PAGE> 39
EXHIBIT A
THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO THE PRIOR
PAYMENT IN FULL OF THE PRINCIPAL AMOUNT OF, AND ACCRUED INTEREST ON (INCLUDING,
WITHOUT LIMITATION, ANY INTEREST WHICH ACCRUES AFTER THE COMMENCEMENT OF ANY
CAUSE, PROCEEDING OR OTHER ACTION RELATING TO THE BANKRUPTCY, INSOLVENCY OR
REORGANIZATION OF THE MAKER (HEREINAFTER DEFINED)), ANY PROMISSORY NOTE OR
NOTES OR GUARANTEES OF THE MAKER OUTSTANDING FROM TIME TO TIME UNDER MAKER'S
SENIOR CREDIT FACILITIES (AS DEFINED IN THAT CERTAIN SECURITY AGREEMENT DATED
OF EVEN DATE HEREWITH BY AND BETWEEN PAYEE AND MAKER).
SUBORDINATED PROMISSORY NOTE
$13,000,000.00 Houston, Texas _____________, 1997
FOR VALUE RECEIVED, the undersigned, UTI Energy Corp., a Delaware
corporation ("Maker"), hereby promises to pay to the order of Southland
Drilling Company, Ltd. (the "Payee"), at ______________________, Houston, Texas
______, on or before ____________, 1998 (the "Maturity Date"), in lawful money
of the United States of America, the principal amount of THIRTEEN MILLION AND
NO/100 DOLLARS ($13,000,000.00), which principal amount shall be reduced by an
amount equal to 50% of any Negative Working Capital Adjustment pursuant to
Section 3.2(b) of the above-referenced Asset Purchase Agreement, together with
interest on the unpaid balance of said principal amount from time to time
remaining outstanding, from the date hereof until maturity (howsoever such
maturity shall occur), in like money, at said office, at a rate per annum equal
to 10%.
All past due principal of and interest on this Note shall bear interest
from the due date thereof (whether by acceleration or otherwise) until paid at
a per annum rate equal to 12%.
The outstanding principal balance of this Note, together with the
accrued and unpaid interest thereon, shall be due and payable on the Maturity
Date (or, if not a Business Day, the first Business Day thereafter). If the
Maker completes a registered public offering of its common stock, $.001 par
value (other than an offering pursuant to an employee benefit plan or in
connection with a merger or acquisition), Maker will, within five Business
Days, apply the net proceeds received therefrom to prepay the principal amount
outstanding hereunder, together with all unpaid accrued interest thereon prior
to application of any net proceeds of such offering (i.e. after payment of
expenses related to the offering and underwriter's discounts and commissions)
toward any other obligation for any other purposes.
The foregoing notwithstanding, all unpaid accrued interest on this
Note, and the outstanding unpaid principal balance hereof, shall be immediately
due and payable in full upon the maturity of the principal of this Note,
whether by acceleration or
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otherwise. "Business Day" shall mean any day on which banks are open for
general banking business in the State of Texas, other than on Saturday, Sunday,
a legal holiday or any other day on which banks in the State of Texas are
required or authorized by law or executive order to close.
Maker shall have the right and privilege of prepaying this Note, in
whole or in part, at any time or from time to time without premium or penalty
or notice to the holder hereof. All amounts prepaid shall be applied first to
earned, accrued and unpaid interest and the balance, if any, shall be applied
to the payment of principal.
If any one of the following events shall occur and be continuing (an
"Event of Default"):
(a) Maker shall fail to pay timely when due, the principal
of, or accrued unpaid interest on, this Note; or
(b)(i) Default shall be made in the due observance or
performance of, or compliance with, any of the covenants or agreements
contained herein or (ii) the occurrence of any event or circumstance
which constitutes an "event of default" under any security agreement or
other instrument securing payment hereof, which shall remain uncured
for 20 days after notice to Maker; or
(c) Maker shall (i) apply for or consent to the
appointment of a receiver, trustee, custodian or liquidator of it or of
all or a substantial part of its property, or (ii) generally fail to
pay its debts as they come due in the ordinary course of business, or
(iii) commence, or file an answer admitting the material allegations of
or consenting to, or default in a petition filed against it in, any
case, proceeding or other action under any existing or future law of
any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, or seeking to have an
order for relief entered with respect to it under the federal
Bankruptcy Code 11 USC Section 101 et. seq., or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or the similar relief with respect to it or
its debt; or
(d) A receiver, conservator, liquidator, custodian or
trustee of Maker or any of its property is appointed by the order or
decree of any court or agency or supervisory authority having
jurisdiction; or Maker obtains an order for relief under the federal
Bankruptcy Code 11 USC Section 101 et. seq.; or any of the property of
Maker is sequestered by court order; or a petition is filed or a
proceeding is commenced against Maker under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or
hereafter in effect, which remains unstayed and in effect for 60
consecutive days,
then the Payee, at its option, may declare the unpaid principal portion of this
Note to be forthwith due and payable, whereupon the said portion of this Note
and all accrued,
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earned and unpaid interest shall become immediately due and payable by Maker
without demand, presentment for payment, notice of non-payment, protest, notice
of protest, notice of intent to accelerate maturity, notice of acceleration of
maturity or any other notice of any kind to Maker, or any other person liable
hereon or with respect hereto, all of which are hereby expressly waived by
Maker and each other person liable hereon or with respect hereto, anything
contained herein or in any other documents or instruments to the contrary
notwithstanding; and upon the happening of any Event of Default referred to in
paragraphs (c) or (d), the unpaid principal portion of this Note and all other
interest on this Note then accrued, earned and unpaid shall become
automatically due and payable by Maker without demand, presentment for payment,
notice of nonpayment, protest, notice of protest, notice of intent to
accelerate maturity, notice of acceleration of maturity or any other notice of
any kind to Maker or any other person liable hereon or with respect hereto, all
of which are expressly waived by Maker and each other Person liable hereon or
with respect hereto, anything contained herein or in any document or instrument
to the contrary notwithstanding.
This Note is secured by all security agreements, collateral assignments
and lien instruments executed by the Maker in favor of Payee, or executed by
any other party as security for this Note, including without limitation, that
certain security agreement(s) of even date herewith by Maker in favor of Payee.
THIS NOTE IS EXPRESSLY SUBJECT TO AND IN THE EVENT OF CONFLICT WITH,
SHALL BE GOVERNED BY, ARTICLE VI OF THAT CERTAIN SECURITY AGREEMENT DATED OF
EVEN DATE HEREWITH ("Article VI") AMONG MAKER AND PAYEE AS THE SAME SHALL BE
AMENDED, MODIFIED AND/OR SUPPLEMENTED FROM TIME TO TIME.
This Note shall be governed by and construed in accordance with the
internal laws of the State of Texas and applicable federal laws of the United
States of America. This Note has been delivered and accepted and is payable at
Houston, Texas.
EXECUTED AND EFFECTIVE as of the day and year first above written.
MAKER:
-----
UTI ENERGY CORP.
By:
-------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
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EXHIBIT B
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and entered into as of this ___ day of
___________, 1997, by UTI Energy Corp., a Delaware corporation, with its chief
place of business office located at 485 Devon Park Drive, Suite 112, Wayne,
Pennsylvania 19087 (hereinafter called "Debtor"), in favor of Southland
Drilling Company, Ltd., a Texas limited partnership, located at
_________________ (hereinafter called "Secured Party").
WITNESSETH:
WHEREAS, pursuant to the terms and conditions of an Asset Purchase
Agreement dated ____________, 1997, by and between Debtor and Secured Party
(the "Purchase Agreement"), Debtor executed a Subordinated Promissory Note in
favor of Secured Party dated of even date herewith (as the same may be amended,
renewed, extended, supplemented or replaced from time to time, the
"Subordinated Note");
WHEREAS, Secured Party has conditioned its obligations under the
Purchase Agreement upon the execution and delivery by Debtor of this Security
Agreement, and Debtor has agreed to enter into this Security Agreement;
WHEREAS, Secured Party is indebted to the Senior Lenders (as such term
is hereinafter defined) for the payment of Senior Obligations (as such term is
hereinafter defined); and
WHEREAS, Secured Party agrees that the liens granted hereunder and
Secured Party's rights under this Security Agreement shall be subordinate to
the rights of the Senior Lenders with respect to the Senior Obligations;
NOW, THEREFORE, in consideration of the premises and the agreements
herein contained, and for other good and valuable consideration, the receipt
and sufficiency of all of which is hereby acknowledged, Debtor hereby agrees
with Secured Party as follows:
ARTICLE I
GENERAL TERMS
Section 1.01 Certain Definitions. As used in this Security
Agreement, the following terms shall have the following meanings, unless the
context otherwise requires:
"Borrower" shall mean FWA Drilling Company, Inc.,
International Petroleum Service Company, Triad Drilling Company,
Universal Well Services, Inc. and USC Incorporated.
"Code" shall mean the Uniform Commercial Code as presently in
effect in the State of Texas.
"Collateral" shall mean all property, including without
limitation cash or other proceeds, in which Secured Party shall have a
security interest pursuant to this Security Agreement.
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"Default" shall mean the occurrence of any of the events
specified herein or in the Subordinated Note, whether or not any
requirement for notice or lapse of time or other condition precedent
has been satisfied.
"Event of Default" shall mean the occurrence of any of the
events specified herein or in the Note, provided that any requirement
for notice or lapse of time or other condition precedent has been
satisfied.
"Guarantors" shall mean Utico, Inc. and Debtor.
"Indebtedness" shall mean all obligations and liabilities of
any kind owed or to be owed, whether now or hereafter arising and
however evidenced, by Debtor to Secured Party.
"Obligors" shall mean the Borrowers and the Guarantors.
"Security Agreement" shall mean this Security Agreement, as
the same may from time to time be amended or supplemented.
"Security Instruments" shall mean the Subordinated Note and
all documents executed in connection therewith.
"Senior Credit Agreements" shall mean those agreements
entered into between Debtor and the Secured Lenders pursuant to which
Debtor finances the purchase of the Collateral from Secured Party.
"Senior Lenders" shall mean those persons, financial
institutions or other entities who provide purchase money financing to
Debtor to purchase the Collateral from Secured Party.
"Senior Obligations" shall mean (i) the principal amount of,
and accrued interest on (including, without limitation, any interest
which accrues after the commencement of any cause, proceeding or other
action relating to the bankruptcy, insolvency or reorganization of the
Borrower), any promissory note or notes or guarantees of the Debtor or
any Borrower outstanding from time to time under the Senior Credit
Agreements and (ii) all other indebtedness and liabilities of the
Debtor or any Borrower to any Senior Lender now existing or hereafter
incurred or created under the Senior Credit Agreements or in connection
with any letter of credit issued pursuant to the Senior Credit
Agreements, and (iii) all other indebtedness, obligations and
liabilities of the Debtor or any Borrower to any Senior Lender or any
of its affiliates now existing or hereafter incurred or created.
"Subordinated Obligations" shall mean (i) the principal
amount of, and accrued interest on (including, without limitation, any
interest which accrues after the commencement of any case, proceeding
or other action relating to the bankruptcy, insolvency or
reorganization of any Borrower), the Subordinated Note, including any
and all renewals, extensions for any period or rearrangements thereof,
any out-of-pocket costs, expenses and reasonable attorney's fees and
collection expenses in accordance with this Security Agreement and/or
the Subordinated Note, and (ii) all other indebtedness, obligations and
liabilities of the Debtor to the Secured Party now existing or
hereafter incurred or created under the Subordinated Note.
Section 1.02 Terms Defined in Code. All terms used herein which
are defined in the Code shall have the same meaning herein unless the context
otherwise requires.
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ARTICLE II
SECURITY INTEREST
Section 2.01 Grant of Security Interest. Debtor hereby grants to
Secured Party a security interest in, and a general lien upon, all of the
property described more fully on Exhibit A attached hereto ("Equipment")
including the proceeds, products, additions to, substitutions for and
accessions of any and all of said Equipment (collectively the "Collateral").
Section 2.02 Obligations Secured. The security interest in and
general lien upon the Collateral is granted to secure the performance of
Subordinated Obligations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
In order to induce Secured Party to accept this Security Agreement,
Debtor represents and warrants to Secured Party (which representations and
warranties will survive the creation of the Indebtedness and any extension of
credit thereunder) that:
Section 3.01 Ownership and Liens. Except for the security
interest of Secured Party granted in this Security Agreement and the security
interests in favor of the Senior Lenders, Debtor owns the Collateral, free and
clear of any other liens or security interests other than liens which arise by
operation of law or with respect to taxes, assessments or other governmental
charges and which, in any case, are not yet due or are being contested by
Debtor in good faith by appropriate proceedings diligently pursued. Debtor has
full right, power and authority to grant to Secured Party a security interest
in and to the Collateral in the manner provided herein, free and clear of any
other liens, security interests, adverse claims, and options (other than as
provided for above or as described herein). Debtor has the right to grant the
security interest purported to be granted under this Security Agreement. The
Collateral is not subject to the interest of any third person, except in favor
of the Senior Lenders, and Debtor will defend the Collateral and its proceeds
against the claims and demands of all third persons except as otherwise
permitted hereby.
Section 3.02 Secured Party's Security Interest. This Security
Agreement creates a valid and binding security interest in the Collateral
securing the Subordinated Obligations, except as limited by bankruptcy,
insolvency or other laws of general application relating to the enforcement of
creditors' rights generally.
ARTICLE IV
COVENANTS AND AGREEMENTS
Without the prior written consent of Secured Party, Debtor will at all
times comply with the covenants contained in this Article IV, from the date
hereof and for so long as any part of the Indebtedness is outstanding.
Section 4.01 Title; Prohibited Liens and Filings. Except as
otherwise permitted herein, Debtor agrees to protect the title to the
Collateral and to defend the same against all claims and demands of all persons
or entities claiming any interest therein adverse to Secured Party. Except
with respect to the liens and security interests of Senior Lenders permitted
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hereby, Debtor will not pledge, mortgage, encumber, create, or suffer a lien to
exist on any of the Collateral, or sell, assign or otherwise transfer or
dispose of (collectively called "Transfer") any of the Collateral to or in
favor of any person or entity other than Secured Party, except that Debtor may
sell, assign or transfer any Collateral to any affiliate of Borrower provided
that (i) Secured Party's security interest in the Collateral continues as a
first priority security interest therein, (ii) such affiliate agrees, in
writing, to be bound by the terms of this Security Agreement with respect to
such Collateral and evidence of such agreement is provided to Secured Party and
(iii) Debtor and such assignee execute all financing statement amendments and
other documents or filings required by Secured Party to evidence the continued
perfection of Secured Party's security interests in the Collateral. Debtor
will not file or execute or permit to be filed or recorded any financing
statement or other security instrument with respect to the Collateral other
than in favor of Secured Party and any Senior Lender. All filings and other
actions now or hereafter necessary or reasonably desirable by Secured Party on
the part of Debtor to perfect or protect such security interest will be taken
by Debtor upon request of Secured Party.
Section 4.02 Taxes. Debtor agrees to pay prior to delinquency all
taxes, charges, liens and assessments against the Collateral.
Section 4.03 Inspection of Collateral. Secured Party may from
time to time, upon request and during regular business hours, inspect the
Collateral.
Section 4.04 Expenses. Debtor agrees to pay to Secured Party at
Secured Party's offices, all reasonable out-of-pocket costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by Secured
Party in connection with protecting Secured Party against the claims or
interests of any person against the Collateral (except claims or interests of
the Senior Lenders and except to the extent such claims or interests relate to
events occurring prior to the consummation of the transactions contemplated by
the Purchase Agreement), and in exercising any right, power or remedy conferred
by this Security Agreement or by law or in equity. The amount of all such
costs and expenses shall be due and payable by Debtor to Secured Party upon
submission of documentation evidencing such payment or incurrence by Secured
Party.
Section 4.05 Transfer of Location. No part of the Collateral
shall be moved outside the states of Texas, Louisiana, New Mexico or Oklahoma
unless Debtor gives written notice of such move, and no part of the Collateral
shall be moved outside the 48 contiguous states of the United States without
the prior written consent of Secured Party. Each such notice shall include
specific legal descriptions to enable the parties to maintain the Secured
Party's security interest in such Collateral following such move and shall
identify the approximate date upon which the move will occur and the method of
transportation. Debtor shall be responsible to ensure that the Collateral that
is being moved is insured from any loss during transportation and at the new
location. Debtor agrees to timely execute and deliver additional UCC financing
statements or other documents that Secured Party may reasonably request as to
any of the Collateral which is moved during the term of this Security Agreement
to ensure continued perfection of Secured Party's security interest in such
Collateral.
Section 4.06 Maintenance of Collateral Generally. Debtor will
maintain the Collateral in good repair, condition and working order and shall
use reasonable care to prevent the Collateral from being damaged or
depreciated, ordinary wear and tear excepted. Should the Collateral, or any
part thereof, ever be converted in any manner into another type of property,
then all such property shall become part of the Collateral. Debtor shall keep
the Collateral free from any lien, attachment, security interest,
sequestration, encumbrance or any other legal or equitable process, or any
encumbrance of any encumbrance of any kind or character, except only for the
liens created in favor of the Senior Lenders and except for liens for taxes,
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assessments and other governmental charges or levies or the claims or demands
of landlords, carriers, warehousemen, mechanics, laborers, materialmen and
other like persons or entities arising by operation of law in the ordinary
course of business for sums that are not yet due and payable, and liens the
enforcement of which are, at all times, effectively and fully stayed and are
being contested in good faith by appropriate proceedings diligently conducted,
and so long as the collateral is not subject to forfeiture or foreclosure and
Secured Party's lien is not subject to loss of priority. Debtor shall promptly
notify Secured Party of any lien, claim, action or proceeding affecting title
to the Collateral, or any part thereof, or the security interests therein or
priority of the Secured Party's security interest therein.
Section 4.07 Further Assurances. Debtor will, from time to time,
sign, execute, deliver and file, alone or with the Secured Party, any financing
statements, security agreements or other documents and take all further action
that may be reasonably requested by Secured Party by way of further assurance
to Secured Party of the matters and things herein provided for.
ARTICLE V
RIGHTS, REMEDIES AND DEFAULT
Section 5.01 With Respect to Collateral. Notwithstanding any
provision contained in this Article V, all obligations and requirements of
Debtor and all rights of Debtor set forth herein, are subject to, subordinate
and inferior to, but only to, the liens created in favor of the Senior Lenders.
Subject to Article VI hereof, during the continuance of any Event of Default as
hereinafter defined, Secured Party is hereby fully authorized and empowered
(without the necessity of any further consent or authorization from Debtor) and
the right is expressly granted to Secured Party, and Debtor hereby constitutes,
appoints and makes Secured Party as Debtor's true and lawful attorney-in- fact
and agent for Debtor and in Debtor's name, place and stead with full power of
substitution, in Secured Party's name or Debtor's name or otherwise, for
Secured Party's sole use and benefit, but at Debtor's cost and expenses, to
exercise, without notice, all or any of the following powers at any time with
respect to all or any of the Collateral:
(a) to demand, sue for, collect, receive and give
acquittance for any and all monies due or to become due by virtue
thereof and otherwise deal with proceeds;
(b) to receive, take, endorse, assign and deliver any and
all checks, notes, drafts, documents and other negotiable and
non-negotiable instruments and chattel paper taken or received by
Secured Party in connection therewith;
(c) to settle, compromise, compound, prosecute or defend
any action or proceeding with respect thereto;
(d) to deal in or with the Collateral or the proceeds or
avails thereof or the relative goods, as fully and effectively as if
Secured Party were the absolute owner thereof; and
(e) to extend the time of payment of any or all thereof
and to grant waivers and make any allowance or other adjustment with
reference thereto;
provided, however, Secured Party shall be under no obligation or duty to
exercise any of the powers hereby conferred upon it and shall be without
liability for any act or failure to act in
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connection with the protection of, or the preservation of any rights under, any
of the Collateral.
Section 5.02 Default, Events. Any of the following events shall
be considered an "Event of Default" under this Security Agreement:
(a) default is made in the payment when due of any of the
Subordinated Obligations;
(b) any representation or warranty of Debtor herein is
determined to be false or misleading;
(c) an "event of default" as defined in the Subordinated
Note; or
(d) a default under the Senior Credit Agreements.
Section 5.03 Default Remedies. Subject to Article VI hereof, and
upon the happening and during the continuance of any Event of Default, Secured
Party may then, or at any time thereafter and from time to time, apply,
collect, sell in one or more sales, lease, or otherwise dispose of, any or all
of the Collateral, in its then condition or following any commercially
reasonable preparation or processing, in such order as Secured Party may elect,
and any such sale may be made either at public or private sale at its place of
business or elsewhere, or at any brokers' board or securities exchange, either
for cash or upon credit or for future delivery, at such price as Secured Party
may deem fair, and Secured Party may be the purchaser of any or all Collateral
so sold and may hold the same thereafter in its own right free from any claim
of Debtor or right of redemption. No such purchase or holding by Secured Party
shall be deemed a retention by Secured Party in satisfaction of the
Subordinated Obligations. All demands, notices and advertisements, and the
presentment of property at sale are hereby waived. If, notwithstanding the
foregoing provisions, any applicable provision of the Code or other law
requires Secured Party to give reasonable notice of any such sale or
disposition or other action, Debtor hereby agrees ten days' prior written
notice shall constitute reasonable notice. Secured Party may require Debtor to
assemble the Collateral and make it available to Secured Party at a place
designated by Secured Party which is reasonably convenient to Secured Party and
Debtor. Any sale hereunder may be conducted by an auctioneer or any officer or
agent of Secured Party.
Section 5.04 Proceeds. Subject to Article VI hereof, after the
happening of any Event of Default, the proceeds of any sale or other
disposition of the Collateral and all sums received or collected by Secured
Party from or on account of the Collateral shall be applied by Secured Party in
the manner set forth in Section 9.504 of the Code.
Section 5.05 Deficiency. Except in a case where under applicable
law Secured Party is deemed to have accepted the Collateral in satisfaction of
the Subordinated Obligations, Debtor shall remain liable to Secured Party for
any unpaid Indebtedness, advances, costs, charges and expenses, together with
interest thereon and shall pay the same immediately to Secured Party at Secured
Party's offices.
Section 5.06 Secured Party's Duties. The powers conferred upon
Secured Party by this Security Agreement are solely to protect its interest in
the Collateral and shall not impose any duty upon Secured Party to exercise any
such powers. Secured Party shall be under no duty whatsoever to make or give
any presentment, demand for performance, notice of nonperformance, protest,
notice of protest, notice of dishonor, or other notice or demand in connection
with any Collateral or the Subordinated Obligations, or to take any steps
necessary to preserve any rights against prior parties. Secured Party shall
not be liable for failure to
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collect or realize upon any or all of the Subordinated Obligations or
Collateral, or for any delay in so doing, nor shall Secured Party be under any
duty to take any action whatsoever with regard thereto. Secured Party shall
use reasonable care in the custody and preservation of any Collateral in its
possession but need not take any steps to keep the Collateral identifiable.
Secured Party shall have no duty to comply with any recording, filing, or other
legal requirements necessary to establish or maintain the validity, priority or
enforceability of, or Secured Party's rights in or to, any of the Collateral.
Section 5.07 Secured Party's Actions. Debtor waives any right to
require Secured Party to proceed against any person, exhaust any Collateral, or
pursue any other remedy in Secured Party's power; waives any and all notice of
acceptance of this Security Agreement or of creation, modification,
rearrangement, renewal or extension for any period of any of the Subordinated
Obligations from time to time.
Section 5.08 Transfer of Indebtedness and Collateral. Upon any
transfer of the Subordinated Obligations, Secured Party may transfer any or all
of the Collateral and shall be fully discharged thereafter from all liability
with respect to the Collateral so transferred, and the transferee shall be
vested with all rights, powers and remedies of Secured Party hereunder with
respect to Collateral so transferred; but with respect to any Collateral not so
transferred Secured Party shall retain all rights, powers and remedies hereby
given. Secured Party may at any time deliver any or all of the Collateral to
Debtor whose receipt shall be a complete and full acquittance for the
Collateral so delivered, and Secured Party shall thereafter be discharged from
any liability therefor.
Section 5.09 Cumulative Security. The execution and delivery of
this Security Agreement in no manner shall impair or affect any other security
(by endorsement or otherwise) for the Subordinated Obligations. No security
taken hereafter as security for the Subordinated Obligations shall impair in
any manner or affect this Security Agreement. All such present and future
additional security is to be considered as cumulative security.
Section 5.10 Continuing Agreement. This is a continuing Security
Agreement and the grant of a security interest hereunder shall remain in full
force and effect and all the rights, powers and remedies of Secured Party
hereunder shall continue to exist until the Subordinated Obligations are paid
in full.
Section 5.11 Cumulative Rights. The rights, powers and remedies
of Secured Party hereunder shall be in addition to all rights, powers and
remedies given by statute or rule of law and are cumulative. The exercise of
any one or more of the rights, powers and remedies provided herein shall not be
construed as a waiver of any other rights, powers and remedies of Secured
Party. Furthermore, regardless of whether or not the Code is in effect in the
jurisdiction where such rights, powers and remedies are asserted, Secured Party
shall have the rights, powers and remedies of a secured party under the Code.
Section 5.12 Exercise of Rights, Etc. Time shall be of the
essence for the performance of any act under this Security Agreement or the
Subordinated Obligations by Debtor, but neither Secured Party's acceptance of
partial or delinquent payments nor any forbearance, failure or delay by Secured
Party in exercising any right, power or remedy shall be deemed a waiver of any
obligation of Debtor or of any right, power or remedy of Secured Party or
preclude any other or further exercise thereof; and no single or partial
exercise of any right, power or remedy shall preclude any other or further
exercise thereof, or the exercise of any other right, power or remedy.
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Section 5.13 Remedy and Waiver. Secured Party may remedy any
Default without waiving the Default remedied and may waive any Default without
waiving any prior or subsequent Default.
Section 5.14 Non-Judicial Remedies. Secured Party may enforce its
rights hereunder without prior judicial process or judicial hearing, and Debtor
expressly waives, renounces and knowingly relinquishes any and all legal rights
which might otherwise require Secured Party to enforce its rights by judicial
process. In so providing for non-judicial remedies, Debtor recognizes and
concedes that such remedies are consistent with the usage of the trade, are
responsive to commercial necessity, and are the result of bargain at arm's
length. Nothing herein is intended to prevent Secured Party or Debtor from
resorting to judicial process at either party's option.
ARTICLE VI
SUBORDINATION PROVISIONS
Section 6.1 (a) Subordinate to Senior Obligations. Secured
Party agrees that the Subordinated Obligations are expressly subordinate and
junior in right of payment to all Senior Obligations. "Subordinate and junior
in right of payment" shall mean that:
(i) No part of the Subordinated Obligations shall have
any claim to the assets of the Debtor on a parity with or prior to the
claim of the Senior Obligations. Unless and until the Senior
Obligations shall have been fully paid and satisfied, Secured Party
will not, without the express prior written consent of the Senior
Lenders, take, demand or receive, and the Debtor will not make, give or
permit, directly or indirectly, by set- off, redemption, purchase or in
any other manner, any payment or security for the whole or any part of
the Subordinated Obligations, provided, that, so long as a Default or
Event of Default shall not have occurred and then be continuing and
would not occur as a result of, or after giving effect to, such
payment, the Debtor may make, and Secured Party may receive, the
scheduled payment of principal and accrued interest on the Maturity
Date or upon the earlier completion of the public offering in
accordance with the terms of the Subordinated Note;
(ii) (A) In the event of any distribution, division or
application, partial or complete, voluntary or involuntary, by
operation of law or otherwise, of all or any substantial part of the
property, assets or business of the Debtor or the proceeds thereof, to
any creditor or creditors of the Debtor or (B) upon any indebtedness of
the Debtor becoming due and payable by reason of any liquidation,
dissolution or other winding- up of the Debtor or its business or by
reason of any sale, receivership, insolvency, reorganization or
bankruptcy proceedings, assignment for the benefit of creditors,
arrangement or any proceeding by or against the Debtor for any relief
under any bankruptcy, reorganization or insolvency law or laws, Federal
or state, or any law, Federal or state, relating to the relief of
debtors, readjustment of indebtedness, reorganization, composition, or
extension, or (C) in the event that any Subordinated Obligation is
declared due and payable prior to its stated maturity (under
circumstances when the preceding clause (A) or (B) shall not be
applicable), or (D) in the event that any amounts owing under the
Senior Obligations have become, or have been declared to be, due and
payable (and have not been paid in accordance with their terms), then
and in any such event, any payment or distribution of any kind or
character, whether in cash, property or securities which, but for the
subordination provisions contained herein, would otherwise be payable
or deliverable to the Subordinated Obligations, shall instead be paid
over or delivered to the Senior Lenders, for the benefit of the Senior
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Lenders, and shall promptly (subject to applicable law) as a payment or
prepayment on account of the Senior Obligations and to the extent that
any letters of credit have been issued and remain outstanding, shall be
held by the Senior Lenders, for the benefit of the Senior Lenders as
collateral to secure the payment of any amount that may thereafter
become due in connection with any letters of credit and Secured Party
shall not receive any such payment or distribution or any benefit
therefrom unless and until the Senior Obligations shall have been fully
paid and satisfied and any letters of credit shall have expired or
otherwise terminated.
Section 6.2 Authorization of Senior Lenders. Secured Party
irrevocably authorizes and empowers the Senior Lenders, under the circumstances
set forth in clause (A) or (B) of subsection 6.1(a), to demand, sue for,
collect and receive every such payment or distribution referred to in such
subsection and give acquittance therefor, and file claims and proofs of claim
in any statutory or non-statutory proceeding and take such other proceedings,
in the name of the Senior Lenders or in the name of Secured Party or otherwise,
as the Senior Lenders may deem necessary or advisable for the enforcement of
the provisions of this agreement. Secured Party hereby agrees, under the
circumstances set forth in clause (A) or (B) of subsection 6.1(a)(ii), duly and
promptly to take such action as may be requested at any time and from time to
time by the Senior Lenders to file appropriate proofs of claim in respect of
the Subordinated Obligations, and to execute and deliver such powers of
attorney, assignments or proofs of claim or other instruments as may be
requested by the Senior Lenders in order to enable the Senior Lenders, on
behalf of the Senior Lenders, to enforce any and all claims upon or in respect
of the Subordinated Obligations and to collect and receive any and all payments
or distributions which may be payable or deliverable at any time upon or in
respect of the Subordinated Obligations.
Section 6.3 Repayment of Unauthorized Amounts. Should any
payment or distribution or security, or the proceeds of any thereof, be
collected or received by Secured Party in respect of the Subordinated
Obligations, and such collection or receipt is not expressly permitted
hereunder, Secured Party will forthwith turn over the same to the Senior
Lenders, for the benefit of the Senior Lenders, in the form received (except
for the indorsement of the assignment of Secured Party when necessary) and,
until so turned over, the same shall be held in trust by Secured Party as the
property of the Senior Lenders.
Section 6.4 Subrogation. Once all Senior Obligations have been
fully paid, Secured Party shall be subrogated to the rights of the Senior
Lenders to receive payments or distributions of assets of the Debtor made on
the Senior Obligations until the Subordinated Obligations shall be paid in
full; and, for the purposes of such subrogation, payments or distributions to
the Senior Lenders of any cash, property or securities to which Secured Party
would be entitled except for the subordination provisions of this Agreement
shall, as between the Debtor and its creditors other than the Senior Lenders
and Secured Party, be deemed to be a payment by the Debtor to or on account of
Subordinated Obligations, it being understood that the provisions of this
Agreement are, and are intended solely, for the purpose of defining the
relative rights of Secured Party and the Senior Lenders.
Section 6.5 Relative Rights. This Article VI defines the
relative rights of Secured Party and the Senior Lenders. Nothing in this
Article VI shall:
(a) impair, as between the Debtor and the Secured Party,
the Obligation of the Debtor, which is absolute and unconditional, to
pay principal of and interest on the Subordinated Obligations in
accordance with their terms;
(b) affect the relative rights of the Secured Party and
creditors of the Debtor other than the Senior Lenders; or
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(c) prevent the Secured Party from exercising available
remedies upon any Event of Default not in violation of any
subordination or related agreement between the Secured Party and the
Senior Lenders.
If the Debtor fails because of this Article VI to pay principal of or
interest on the Subordinated Note on any due date, the failure is still an
event of default thereunder.
ARTICLE VII
MISCELLANEOUS
Section 7.01 Construction. This Security Agreement has been made
in and the security interest granted hereby is granted in and each shall be
governed by the laws of the State of Texas and of the United States of America,
as applicable, in all respects, including matters of construction, validity,
enforcement and performance.
Section 7.02 Amendment and Waiver. This Security Agreement may
not be amended (nor may any of its terms be waived) except in the manner
provided in Section 7.06 hereof.
Section 7.03 Invalidity. If any provision of this Security
Agreement is rendered or declared invalid, illegal or unenforceable by reason
of any existing or subsequently enacted legislation or by a judicial decision
which shall have become final, Debtor and Secured Party shall promptly meet and
negotiate substitute provisions for those rendered invalid, illegal or
unenforceable, but all of the remaining provisions shall remain in full force
and effect.
Section 7.04 Survival of Agreements. All representations and
warranties of Debtor herein, and all covenants and agreements herein not fully
performed before the effective date of this Security Agreement, shall survive
such date.
Section 7.05 Successors and Assigns. The covenants and agreements
herein contained by or on behalf of Debtor shall bind Debtor, and Debtor's
successors and assigns and shall inure to the benefit of Secured Party, and its
successors and assigns.
Section 7.06 Benefit. The subordination provisions contained
herein and all other provisions hereof are of a continuing nature and are for
the benefit of the Senior Lenders and their successors and assigns as holders
from time to time of Senior Obligations. This Security Agreement may not be
revoked, rescinded, canceled or modified in any way by Secured Party or
released or diminished on the occurrence of any act, event or circumstance and
shall continue to be effective or be reinstated, as the case may be, with
respect to the Senior Obligations arising or created after any such attempted
revocation, rescission, cancellation, modification or other act, event or
circumstance, or if at any time any payment of, or with respect to, any of the
Senior Obligations is rescinded or must otherwise be returned by the Senior
Lenders upon the insolvency, bankruptcy, reorganization or otherwise of any or
all of Debtor, Secured Party or otherwise, all as though such payment had not
been made. No provision of this Security Agreement may be changed or waived
without the express prior written consent of the parties hereto and the Senior
Lenders (or the Senior Lenders' successors or assigns), and if so changed or
waived, shall be so affected to the limited extent and circumstances as
expressly set forth in such written consent.
Section 7.07 Titles of Articles, Sections and Subsections. All
titles or headings to articles, sections, subsections or other divisions of
this Security Agreement are only for the convenience of the parties and shall
not be construed to have any effect or meaning with
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respect to the other content of such articles, sections, subsections or other
divisions, such other content being controlling as to the agreement between the
parties hereto.
Section 7.08 Counterparts. This Security Agreement may be
executed in two or more counterparts, and it shall not be necessary that the
signatures of all parties hereto be contained on any one counterpart hereof;
each counterpart shall be deemed an original, but all of which together shall
constitute one and the same instrument.
Section 7.09 Notices. All notices, requests, consents and other
communications under this Security Agreement shall be in writing and shall be
deemed to have been delivered on the date personally delivered or on the date
mailed, postage prepaid, by certified mail, return receipt requested, if
addressed to the respective parties as set forth in the opening paragraph of
this Security Agreement. Either party hereto may designate a different address
by providing written notice of such new address to the other party hereto.
IN WITNESS HEREOF, Debtor has caused this instrument to be duly
executed as of the date first above written.
DEBTOR
(DEBTOR NAME)
By______________________________________
Name:___________________________________
Title:__________________________________
__________________________________
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EXHIBIT C
FOR THE PURCHASE OF 100,000 SHARES
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR THE LAWS OF ANY STATE AND IS NOT TRANSFERRABLE.
STOCK PURCHASE WARRANT TO PURCHASE SHARES OF
COMMON STOCK OF UTI ENERGY CORP.
This certifies that, for value received, Southland Drilling Company,
Ltd., a Texas limited partnership or its permitted assigns (the "Holder"), is
entitled, subject to the terms and conditions of this Warrant, at any time or
from time to time during the Exercise Period (as hereinafter defined), to
purchase up to 100,000 shares (subject to adjustment pursuant to Section 9
below) of common stock, $.001 par value ("Common Stock"), of UTI Energy Corp.,
a Delaware corporation (the "Company") (the shares of Common Stock issuable
upon exercise of this Warrant, as adjusted under Section 9, being referred to
herein as the "Warrant Shares").
1. FORM OF ELECTION.
The form of election to purchase shares of Common Stock (the
"Form of Election") shall be substantially as set forth in Exhibit A attached
hereto. The price per Warrant Share and the number of Warrant Shares issuable
upon exercise of this Warrant are subject to adjustment upon the occurrence of
certain events, all as hereinafter provided.
2. EXERCISE PERIOD; EXERCISE OF WARRANT.
2.1 Exercise Period. Subject to the terms of this
Warrant, the Holder shall have the right, which may be exercised at any
time or from time to time during the Exercise Period, to purchase from
the Company the number of fully paid and nonassessable Warrant Shares
this Warrant at the time represents the right to purchase, and, in the
event that this Warrant is exercised in respect of fewer than all of
the Warrant Shares purchasable on such exercise, a new warrant
evidencing the remaining Warrant Shares that may be purchased shall be
promptly signed, issued and delivered by the Company to the Holder
pursuant to the provisions of this Section 2. The term "Exercise
Period" shall mean the period commencing on ______________, 1997, and
terminating on _____________, 2002.
2.2 Exercise of Warrant. This Warrant may be exercised
upon surrender to the Company at its principal office (as designated in
Section 12) of this Warrant, together with the Form of Election duly
completed and signed, and upon payment to the Company of the Warrant
Price (as defined in and determined in accordance with the provisions
of Sections 3 and 9 hereof) for the number of Warrant Shares in respect
of which this Warrant is then exercised. Payment of the aggregate
Warrant Price with respect to the portion of this Warrant being
exercised shall be made in cash or by certified or official bank check,
payable to the order of the Company.
Subject to Section 6 hereof, upon the surrender of this
Warrant and payment of the Warrant Price as set forth above, the
Company shall issue and cause to be delivered to the Holder
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or, upon the written order of the Holder, to and in such name or names
as the Holder may designate, a certificate or certificates for the
number of full Warrant Shares so purchased upon the exercise of this
Warrant. Such certificate or certificates shall be deemed to have been
issued and any person so designated to be named therein shall be deemed
to have become a holder of record of such Warrant Shares as of the date
of the surrender of this Warrant and payment of the Warrant Price, as
aforesaid.
3. WARRANT PRICE.
The price per share at which Warrant Shares shall be
purchasable upon exercise of this Warrant initially shall be $48.00 and shall
be subject to adjustment pursuant to Section 9 hereof (such price as so
adjusted is referred to herein as the "Warrant Price").
4. EXCHANGE OF WARRANT.
This Warrant may be exchanged at the option of the Holder
when surrendered at the principal office of the Company for another warrant, or
other warrants of different denominations, of like tenor and representing in
the aggregate the right to purchase a like number of Warrant Shares as this
Warrant then entitles the Holder to purchase. Any Holder desiring to exchange
this Warrant shall make such request in writing delivered to the Company, and
shall surrender this Warrant for exchange. Thereupon, the Company shall
promptly sign and deliver to the person entitled thereto a new warrant or
warrants, as the case may be, as so requested.
5. NO REGISTRATION OF WARRANT.
This Warrant has not been registered under the Securities Act
of 1933, as amended (the "Securities Act"), or any applicable state securities
laws. The Holder represents and agrees that this Warrant and, upon exercise
hereof, any Warrant Shares have been acquired for investment and not with a
view to distribution or resale. The Holder further acknowledges and agrees
that this Warrant may not be transferred, and the Warrant Shares, upon exercise
of this Warrant, may not be transferred without an effective registration
statement therefor under the Securities Act and applicable state securities
laws or an opinion of counsel satisfactory to the Company that registration is
not required thereunder. Unless registered, any Warrant Shares shall bear the
following legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933 or the laws of any state and may not
be transferred in the absence of an effective registration statement
for the securities under the Securities Act of 1933 and applicable
state laws or an opinion of counsel reasonably satisfactory to the
Company that such registration is not required.
6. PAYMENT OF TAXES.
The Company will pay when due and payable any and all U.S.
federal and state transfer taxes and charges that may be payable in respect of
the issuance or delivery of this Warrant or of any Warrant Shares upon the
exercise of this Warrant. The Company shall not, however, be required to (i)
pay any transfer tax that may be payable in respect of any transfer involved in
the issuance or delivery of certificates for Warrant Shares in the name other
than that of the Holder or (ii) to issue or deliver any certificates for
Warrant Shares upon the exercise of this Warrant until such transfer tax shall
have been paid (any such tax being payable by the Holder at the time of
surrender) or until it has been established to the Company's satisfaction that
no such tax is due.
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7. MUTILATED OR MISSING WARRANT.
In case this Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall execute, issue and deliver in exchange and
substitution for and upon cancellation of the mutilated Warrant, or in lieu of
and substitution for the Warrant lost, stolen or destroyed, a new warrant of
like tenor and representing an equivalent right or interest; but only upon
receipt of evidence satisfactory to the Company of such loss, theft or
destruction of this Warrant and indemnity, if requested, satisfactory to the
Company. The Holder requesting such a substitute warrant shall also comply
with such other reasonable regulations and pay such other reasonable charges as
the Company may prescribe.
8. RESERVATION OF WARRANT SHARES; PURCHASE OF WARRANT BY THE
COMPANY.
8.1 Reservation of Warrant Shares. The Company shall at
all times reserve for issuance from its authorized and unissued shares
of Common Stock the number of shares of Common Stock needed for
issuance upon the exercise of this Warrant. The Company covenants that
all shares of Common Stock issuable as herein provided shall, when so
issued, be duly and validly issued, fully paid and nonassessable.
8.2 Purchase of Warrant by the Company. The Company
shall not be prohibited, except as limited by law, any other agreement
or herein, from offering to purchase, purchasing or otherwise acquiring
this Warrant from any holder thereof at such times, in such manner and
for such consideration as the Company and such holder may agree to.
8.3 Cancellation of Purchased or Acquired Warrant. In
the event the Company shall purchase or otherwise acquire this Warrant,
the same shall thereupon be canceled and retired.
9. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF WARRANT SHARES.
9.1 Mechanical Adjustments. The existence of this
Warrant shall not affect in any way the right or power of the Company
or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's
capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale
or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or
otherwise.
If the Company shall effect a subdivision (by stock split,
stock dividend, recapitalization or otherwise) or consolidation (by
reverse stock split or otherwise) of shares or other capital adjustment
of, or the payment of a dividend in capital stock or other equity
securities of the Company on, its Common Stock, or other increase or
reduction of the number of shares of the Common Stock without receiving
consideration therefor in money, services, or property, or the
reclassification of its Common Stock, in whole or in part, into other
equity securities of the Company, then the number, class and per share
price of Warrant Shares shall be appropriately adjusted (or in the case
of the issuance of equity securities as a dividend on, or in a
reclassification of, the Common Stock, this Warrant shall extend to
such other securities) in such a manner as to entitle the Holder to
receive, upon exercise of this Warrant, for the same aggregate cash
compensation, the same total number and class or classes of shares (or
in the case of a dividend of, or reclassification into, other equity
securities, such other securities) it would have held after such
adjustment if the Holder had exercised this Warrant in full immediately
prior
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to the event requiring the adjustment. Comparable rights shall accrue
in the event of successive subdivisions, consolidations, capital
adjustments, dividends or reclassifications of the character described
above.
If the Company shall distribute to all holders of its shares
of Common Stock (including any such distribution made to non-dissenting
stockholders in connection with a consolidation or merger in which the
Company is the surviving corporation and in which holders of shares of
Common Stock continue to hold shares of Common Stock after such merger
or consolidation) evidences of indebtedness or cash or other assets
(other than cash dividends payable out of consolidated retained
earnings not in excess of, in any one year period, the greater of (a)
$.10 per share of Common Stock and (b) two times the aggregate amount
of dividends per share paid during the preceding calendar year and
dividends or distributions payable in shares of Common Stock or other
equity securities of the Company described in the immediately preceding
paragraph), then in each case the Warrant Price shall be adjusted by
reducing the Warrant Price in effect immediately prior to the record
date for the determination of stockholders entitled to receive such
distribution by the fair market value, as determined in good faith by
the Board of Directors of the Company (whose determination shall be
described in a statement filed in the Company's corporate records and
be available for inspection by the Holder) of the portion of the
evidence of indebtedness or cash or other assets so to be distributed
applicable to one share of Common Stock; provided that in no event
shall the Warrant Price be less than the par value of a share of Common
Stock. Such adjustment shall be made whenever any such distribution is
made, and shall become effective on the date of the distribution
retroactive to the record date for the determination of the
stockholders entitled to receive such distribution. Comparable
adjustments shall be made in the event of successive distributions of
the character described above.
After the Company shall make a tender offer for, or grant to
all of its holders of its shares of Common Stock the right to require
the Company to acquire from such stockholders shares of, Common Stock,
at a price in excess of the Current Market Price (a "Put Right") or the
Company shall grant to all of its holders of its shares of Common Stock
the right to acquire shares of Common Stock for less than the Warrant
Price (the "Exercise Right") then, in the case of a Put Right, the
Warrant Price shall be adjusted by multiplying the Warrant Price in
effect immediately prior to the record date for the determination of
stockholders entitled to receive such Put Right by a fraction, the
numerator of which shall be the number of shares of Common Stock then
outstanding minus the number of shares of Common Stock which could be
purchased at the Current Market Price for the aggregate amount which
would be paid if all Put Rights are exercised and the denominator of
which is the number of shares of Common Stock which would be
outstanding if all Put Rights are exercised; and, in the case of a
Purchase Right, the Warrant Price shall be adjusted by multiplying the
Warrant Price in effect immediately prior to the record date for the
determination of the stockholders entitled to receive such Purchase
Right by a fraction, the numerator of which shall be the number of
shares of Common Stock then outstanding plus the number of shares of
Common Stock which could be purchased at the Current Market Price for
the aggregate amount which would be paid if all Purchase Rights are
exercised and the denominator of which is the number of shares of
Common Stock which would be outstanding if all Purchase Rights are
exercised. In addition, the number of shares subject to this Warrant
shall be adjusted by multiplying the number of shares then subject to
this Warrant by a fraction which is the inverse of the fraction used to
adjust the Warrant Price. Notwithstanding the foregoing if any such
Put Rights or Purchase Rights shall terminate without being exercised,
the Warrant Price and number of shares subject to this Warrant shall be
appropriately readjusted to reflect the Warrant Price and number of
shares subject to this Warrant which would have been in effect if
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such unexercised Rights had never existed. Comparable adjustments
shall be made in the event of successive transactions of the character
described above.
After the merger of one or more corporations with or into the
Company, after any consolidation of the Company and one or more
corporations, or after any other corporate transaction described in
Section 424(a) of the Internal Revenue Code of 1986, as amended, the
Holder, at no additional cost, shall be entitled to receive, upon any
exercise of this Warrant, in lieu of the number of shares as to which
this Warrant may then be so exercised, the number and class of shares
of stock or other equity securities to which the Holder would have been
entitled pursuant to the terms of the agreement of merger or
consolidation if at the time of such merger or consolidation the Holder
had been a holder of a number of shares of Common Stock equal to the
number of shares as to which this Warrant may then be so exercised and,
if as a result of such merger, consolidation or other transaction, the
holders of Common Stock are not entitled to receive any shares of
Common Stock pursuant to the terms thereof, the Holder, at no
additional cost, shall be entitled to receive, upon exercise of this
Warrant, such other assets and property, including cash, to which the
Holder would have been entitled if at the time of such merger,
consolidation or other transaction the Holder had been the holder of
the number of shares of Common Stock equal to the number of shares as
to which this Warrant shall then be so exercised. Comparable rights
shall accrue in the event of successive mergers or consolidations of
the character described above.
For purposes of this Section 9.1, "Current Market Price per
share of Common Stock" shall mean the closing price of a share of
Common Stock on the principal national securities exchange on which the
Common Stock is listed or, if the Common Stock is not so listed, the
average bid and asked price of a share of Common Stock as reported in
the NASDAQ System, in each case on the trading day immediately
preceding the first trading day on which, as a result of the
establishment of a record date or otherwise, the trading price reflects
that an acquiror of Common Stock in the public market will not
participate in or receive the payment of any applicable dividend or
distribution.
Except as hereinbefore expressly provided, (i) the issue by
the Company of shares of Common Stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or
for labor or services either upon direct sale or upon the exercise of
rights or warrants to subscribe therefor, or upon conversion of shares
or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
then subject to this Warrant and (ii) no adjustment in respect of any
dividends shall be made during the term of this Warrant or upon the
exercise of this Warrant.
9.2 Voluntary Adjustment by the Company. The Company may
at its option, at any time during the term of this Warrant, reduce the
then current Warrant Price to any amount deemed appropriate by the
Board of Directors of the Company.
9.3 Statement on Warrant. Irrespective of any
adjustments in the Warrant Price with respect to this Warrant or the
number or kind of shares purchasable upon the exercise of this Warrant,
warrants theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in this Warrant.
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10. REGISTRATION RIGHTS.
10.1 Demand Rights. Subject to the provisions of Section
14(d), on one occasion after the earlier to occur of (a) 120 days
following the completion of a registered public offering of Common
Stock by the Company (other than an offering pursuant to an employee
benefit plan or in connection with a merger or acquisition) and (b)
January 1, 1998, the Holder may request, pursuant to this Section 10.1,
that the Company register under the Securities Act the Warrant Shares
(as adjusted under Section 9) issued to the Holder upon exercise of
this Warrant pursuant to a non-underwritten offering having a period of
distribution not to exceed 120 days; provided, however, the Company
shall not be obligated to prepare and file any registration statement
pursuant to this Section 10.1, or prepare or file any amendment or
supplement thereto, at any time when the Company, in the good faith
judgment of its Board of Directors, expressed by resolution specifying
the reason therefor, reasonably believes that the filing thereof at the
time requested, or the offering of securities pursuant thereto, would
materially and adversely affect a pending or proposed public offering
of securities of the Company, an acquisition, merger, recapitalization,
consolidation, reorganization or similar transaction relating to the
Company or negotiations, discussions or pending proposals with respect
thereto or require premature disclosure of information not otherwise
required to be disclosed to the potential detriment of the Company.
Notwithstanding anything to the contrary contained in this Section
10.1, the Company shall be permitted to suspend the period of sale or
distribution of shares of Common Stock subject to a registration
pursuant to this Section 10.1 at any time when the Company reasonably
believes that the sale or distribution thereof at the time requested
would materially and adversely affect a pending or proposed public
offering of securities of the Company, an acquisition, merger,
recapitalization, consolidation, reorganization or similar transaction
relating to the Company or negotiations, discussions or pending
proposals with respect thereto or require premature disclosure of
information not otherwise required to be disclosed to the potential
detriment of the Company; provided, however, that such period of sale
or distribution shall resume after any such suspension for a number of
days necessary to keep such registration effective for permitted sales
thereunder for a term of 120 days. The filing of a registration
statement, or any amendment or supplement thereto, by the Company may
not be deferred, and the sale and distribution of shares may not be
suspended, in each case pursuant to the foregoing provisions, for more
than 60 days after the abandonment or consummation (or the completion
of the distribution of securities in the case of a public offering) of
any of the proposals or transactions described therein or, in any
event, for more than 120 days, and there may be only two such
suspensions in any one-year period.
10.2 Piggyback Rights. Subject to the provisions of
Section 14(d), if, at any time after the date hereof, the Company
proposes to register under the Securities Act any shares of Common
Stock for sale by it pursuant to an underwritten public offering of the
Common Stock (except with respect to registration statements filed on
Form S-4 or such other forms as shall be prescribed under the
Securities Act for the same purposes as such form), it will at each
such time, prior to the filing of any such registration statement, give
written notice to the Holder of its intention so to do, regardless of
whether the Holder has previously exercised piggyback registration
rights or demand rights as to any other shares of stock hold by it,
and, upon the written request (which must specify the number of shares
of Common Stock to participate in such underwritten offering) of the
Holder delivered to the Company within five days of receipt of the
Company's notice, the Company will use its best efforts to cause any
Warrant Shares as to which registration shall have been so requested to
be included in the shares to be sold pursuant to such underwritten
public offering as covered by the registration statement proposed to be
filed by the Company. Nothing contained in this Section 10.2 shall,
however, limit the Company's right to cancel, postpone or withdraw any
such proposed registration for any reason. Any request by the Holder
pursuant to
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this Section 10.2 to register Warrant Shares for sale in the
underwriting shall be on the same terms and conditions as the shares of
Common Stock to be registered and sold through underwriters under such
registration; provided, however, that as a condition to such inclusion
the Holder shall execute an underwriting agreement acceptable to the
underwriters and, if requested, a custody agreement having such
customary terms as the underwriters shall request, including
indemnification, and if the managing underwriter determines and advises
in writing that the inclusion in the underwriting of all Warrant Shares
proposed to be included by the Holder and any other shares of Common
Stock sought to be registered by any other stockholder of the Company
exercising rights comparable to those of the Holder under this Warrant
(the "Other Common Stock") would, in its reasonable and good faith
judgment, interfere with the successful marketing of the securities
proposed to be registered for underwriting by the Company or by any
holder of Common Stock having the right to require the Company to file
a registration statement to register such Common Stock, then the number
of Warrant Shares and Other Common Stock requested to be included in
the underwriting shall be reduced pro rata (based upon the number of
shares requested to be included in such underwriting) among the Holder
and the holders of Other Common Stock requesting such registration and
inclusion in the underwriting and may, in the determination of such
managing underwriter and consistent with pro rata reduction, be reduced
to zero.
10.3 Procedure. If and whenever the Company is required
by the provisions of this Warrant to use its best efforts to effect the
registration of any Warrant Shares under the Securities Act, the
Company will, subject to the other provisions of this Section 10:
(a) as expeditiously as reasonably practicable,
prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement on the
appropriate form with respect to such Warrant Shares and use
reasonable efforts to cause such registration statement to
become and remain effective;
(b) as expeditiously as reasonably practicable,
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 and to comply with the
provisions of the Securities Act with respect to the
disposition of such Warrant Shares covered by such
registration statement in accordance with the intended method
of distribution set forth in such registration statement;
(c) as expeditiously as reasonably practicable,
furnish to the Holder such number of copies of prospectuses
and preliminary prospectuses in conformity with the
requirements of the Securities Act, and such other documents
as the Holder may reasonably request, in order to facilitate
the public sale or other disposition of such Warrant Shares;
provided, however, that the obligation of the Company to
deliver copies of prospectuses or preliminary prospectuses to
the Holder shall be subject to the receipt by the Company of
reasonable assurances from the Holder that it will comply
with the applicable provisions of the Securities Act and of
such other securities laws as may be applicable in connection
with any use by it of any prospectuses or preliminary
prospectuses;
(d) as expeditiously as reasonably practicable,
furnish, at the request of the Holder, on the date that
Warrant Shares are to be delivered to the underwriters for
sale pursuant to such registration or, if such Warrant Shares
are not being sold through
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underwriters, on the date the registration statement with respect to
such Warrant Shares becomes effective (i) an opinion, dated such date,
of the independent counsel representing the Company for the purposes of
such registration, addressed to the underwriters, if any, and to the
Holder, stating that such registration statement has become effective
under the Securities Act and that (A) to the knowledge of such counsel,
no stop order suspending the effectiveness of such registration
statement has been instituted or is pending or contemplated under the
Securities Act; (B) the registration statement, the related prospectus,
and each amendment or supplement thereto, including all documents
incorporated by reference therein, comply as to form in all material
respects with the requirements of the Securities Act and the applicable
rules and regulations of the Commission thereunder (except that such
counsel need express no opinion as to financial statements or other
financial or statistical or reserve data contained or incorporated by
reference therein); and (C) no facts have come to the attention of such
counsel that caused such counsel to believe (with customary
qualifications) that either the registration statement or the final
prospectus, or any amendment or supplement thereto, including all
documents incorporated by reference therein, in light of the
circumstances under which they were made, contains any untrue statement
of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading (except that such counsel need express no belief as to
financial statements or other financial or statistical or reserve data
contained or incorporated by reference therein or as to any information
provided by the stockholders of the Company or any underwriter for
inclusion therein); and (ii) a letter, dated such date, from the
independent certified public accountants of the Company, addressed to
the underwriters, stating that they are independent certified public
accountants within the meaning of the Securities Act and that in the
opinion of such accountants, the financial statements and other
financial data of the Company included in the registration statement or
the prospectus, or any amendment or supplement thereto, including all
documents incorporated by reference therein, comply as to form in all
material respects with the applicable accounting requirements of the
Securities Act. Such letter from the independent certified public
accountants shall additionally cover such other customary financial
matters (including information as to the period ending not more than
five business days prior to the date of such letter) with respect to
the registration in respect of which such letter is being given as such
underwriters, if any, or the stockholders of the Company making such
request may reasonably request;
(e) as expeditiously as practicable, use its best
efforts to register or qualify Warrant Shares covered by such
registration statement under such other securities laws of
such United States jurisdictions as the Holder shall
reasonably request (considering the nature and size of the
offering) and do any and all other acts and things which may
be necessary or desirable to enable the Holder to consummate
the public sale or other disposition in such jurisdictions of
Warrant Shares; provided, however, that the Company shall not
be required to qualify to transact business as a foreign
corporation in any jurisdiction in which it would otherwise
not be required to be so qualified or to take any action
which would subject it to general service of process in any
jurisdiction in which it is not then so subject;
(f) bear all Registration Expenses (as defined
below) in connection with all registrations hereunder;
provided, however, that all Selling Expenses (as defined
below) of Warrant Shares and all fees and disbursements of
counsel for the Holder in connection with each registration
pursuant to this Warrant shall be borne by the Holder.
Expenses
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<PAGE> 61
incurred by the Company in complying with this Warrant, including,
without limitation: (i) all registration, listing and filing fees;
(ii) all printing expenses; (iii) all fees and disbursements of counsel
for the Company; (iv) all blue sky fees and expenses; and (v) all fees
and expenses of accountants for the Company are herein referred to as
"Registration Expenses". All underwriting fees and discounts and
brokerage and selling commissions relating to Warrant Shares to be
registered for sale by the Holder and fees and expenses of the counsel
for the Holder and any underwriter's counsel applicable to the sales by
the Holder in connection with any such registration are herein referred
to as "Selling Expenses"; and
(g) keep each registration pursuant to Section
10.1 hereof effective for a period of up to 90 days or such
shorter period of time until the transfer or sale of all
Warrant Shares so registered has been completed.
10.4 Indemnification.
(a) In the event of a registration of any Warrant
Shares under the Securities Act pursuant to this Warrant, the
Company will indemnify and hold harmless the Holder and any
other Person, if any, who controls the Holder within the
meaning of Section 15 of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to
which such selling stockholder of the Company or such
controlling Person may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or
liabilities or actions in respect thereof arise out of or are
based upon any untrue statement or alleged untrue statement
of any material fact contained, on the effective date
thereof, in any registration statement under which such
Warrant Shares were registered under the Securities Act, any
preliminary prospectus distributed with the consent of the
Company or final prospectus contained therein, or any
amendment thereof or supplement thereto, including all
documents incorporated by reference therein, or arise out of
or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and
will reimburse the Holder and each such controlling Person
for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such
registration statement, such preliminary prospectus, such
final prospectus or such amendment or supplement, including
all documents incorporated by reference therein, in reliance
upon and in conformity with written information furnished to
the Company by or on behalf of the Holder or a controlling
Person of the Holder specifically for use in the preparation
thereof.
(b) In the event of any registration of any
Warrant Shares under the Securities Act pursuant to this
Warrant, Holder will indemnify and hold harmless the Company
and each Person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act, each officer of
the Company who signs the registration statement, each
director of the Company and each underwriter (if any) and
each Person who controls any underwriter (if any) within the
meaning of Section 15 of the Securities Act, against any and
all such losses, claims, damages, liabilities or actions
which the Company or such officer, director, underwriter (if
any) or controlling Person may
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become subject under the Securities Act or otherwise, and will
reimburse the Company, each such officer, director, underwriter (if
any) and controlling Person for any legal or any other expenses
reasonably incurred by such party in connection with investigating or
defending any such loss, claim, damage, liability or action, if (a)
such loss, claim, damage, liability or action in respect thereof arises
out of or is based upon any untrue statement or alleged untrue
statement of any material fact contained in any such registration
statement or any such prospectus, or any amendment thereof or
supplement thereto, or arises out of or is based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading and
(b) any such statement or omission of a material fact was made in
reliance upon and in conformity with written information furnished to
the Company by or on behalf of the Holder specifically for use in
connection with the preparation of such registration statement or
prospectus. In connection with any transaction contemplated by Section
10.2 hereof, the Holder also agrees to indemnify each such underwriter
and each Person who controls any such underwriter within the meaning of
Section 15 of the Securities Act as may reasonably and customarily be
requested by the underwriters in connection with any underwritten
offering of such Warrant Shares.
(c) Promptly after receipt by any indemnified
Person of notice of any claim or commencement of any action in respect
of which indemnity is to be sought against an indemnifying Person
pursuant to this Warrant, such indemnified Person shall notify the
indemnifying Person in writing of such claim or of the commencement of
such action, and, subject to provisions hereinafter stated, in case any
such action shall be brought against an indemnified Person and such
indemnifying Person shall have been notified of the same, such
indemnifying Person shall be entitled to participate therein, and, to
the extent it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified Person, and after notice
from the indemnifying Person to such indemnified Person of its election
to assume the defense thereof, such indemnifying Person shall not be
liable to such indemnified Person in connection with the defense
thereof; provided, however, if there exists or will exist a conflict of
interest which would make it inappropriate in the reasonable judgment of
the indemnified Person for the same counsel to represent both the
indemnified Person and such indemnifying Person then such indemnified
Person shall be entitled to retain its own counsel at the expense of
such indemnifying Person; provided further, however, the indemnifying
Person shall not be required to pay for more than one separate counsel
for all of the indemnified Persons in addition to any local counsel.
10.5 Termination. If Rule 144 or Rule 145 as promulgated
under the Securities Act or any successor or similar rule or statute
shall permit the sale of Warrant Shares in compliance with the
conditions thereof and the provisions thereof, the rights of the Holder
as to registration provided for in this Warrant as to such Warrant
Shares shall terminate immediately.
11. FRACTIONAL INTERESTS.
The Company shall not be required to issue fractional Warrant
Shares on the exercise of this Warrant and the number of Warrant Shares
issuable upon such exercise shall be rounded down to the nearest whole share.
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12. NO RIGHTS AS STOCKHOLDERS.
Nothing contained in this Warrant shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent to or receive notice as a stockholder in respect of any meeting of
stockholders for the election of directors of the Company or any other matter,
or any rights whatsoever as a stockholder of the Company. If, however, at any
time during the Exercise Period:
(a) the Company shall declare any dividend payable in any
securities upon its shares of Common Stock or make any distribution
(other than a cash dividend or a dividend payable in additional shares
of Common Stock) to the holders of its shares of Common Stock;
(b) the Company shall offer to the holders of its shares
of Common Stock any additional shares of Common Stock or securities
convertible into shares of Common Stock or any right to subscribe to
shares of Common Stock or securities convertible or exchangeable into
shares of Common Stock; or
(c) a dissolution or winding up of the Company (other
than in connection with a consolidation, merger or sale of all or
substantially all of its property, assets and business as an entirety)
shall be proposed;
then in any one or more of such events, the Company shall give notice in
writing of such event to the Holder as provided in Section 13 hereof at least
10 days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the stockholders entitled to such
dividend, distribution or subscription rights, or for the determination of
stockholders entitled to vote on such proposed dissolution, liquidation or
winding up. Such notice shall specify such record date or date of the closing
of the transfer books, as the case may be. Failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of any
action taken in connection with such dividend, distribution or subscription
rights, or proposed dissolution, liquidation or winding up.
13. NOTICES.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first class, postage prepaid:
(i) if to the Holder at:
Southland Drilling Company, Ltd.
Attn: Neil E. Hanson
2925 Briarpark
Houston, Texas 77042
(ii) if to the Company at:
UTI Energy Corp.
Attn: President
485 Devon Park Drive, #112
Wayne, Pennsylvania 19087
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or to such other address or addresses as the Holder or the Company may
designate from time to time for itself by a notice pursuant hereto.
14. SUCCESSORS.
No party hereto may assign its rights or obligations
hereunder without the prior written consent of the other party, except for
transfers of this Warrant in whole or in part, to:
(a) any person or entity who, on the date of such
transfer, is a general or limited partner of Southland Drilling
Company, Ltd.;
(b) the executor, administrator or personal
representative of any individual referred to in paragraph (a) of this
Section 14, in the event of the death or incapacity of such person;
(c) with regard to any entity referred to in paragraph
(a) of this Section 14, any successor in a merger or consolidation
involving such entity, a purchaser of all or substantially all of such
entity's assets, or the stockholders of such an entity in the event of
such entity's liquidation or dissolution; or
(d) any other person or entity not included in (a), (b)
or (c) above; provided however, that upon the assignment or transfer to such
other person or entity, the rights of the Holder of this Warrant (or any
succeeding Warrant pursuant to Sections 4 or 7 or this Section 14) to
registration rights pursuant to Section 10 of this Agreement shall immediately
terminate and become null and void;
provided that there is delivered to Buyer an opinion of counsel, in form
reasonably satisfactory to Buyer, that such transfer is exempt from
registration under the Securities Act of 1933, as amended (the "33 Act"), and a
certificate from such transferee representing that such transferee is an
Accredited Investor under the 33 Act. All the covenants and provisions of this
Warrant by or for the benefit of the Company or the Holder shall bind and inure
to the benefit of their respective permitted successors and assigns hereunder.
15. APPLICABLE LAW.
This Warrant shall be governed by and construed in accordance
with the laws of the State of Delaware.
16. BENEFITS OF WARRANT.
Nothing in this Warrant shall give or be construed to give
any person or corporation other than the Company and the Holder any legal or
equitable right, remedy or claim under this Warrant. This Warrant shall be for
the sole and exclusive benefit of the Company and the Holder.
17. CAPTIONS.
The captions of the sections of this Warrant have been
inserted for convenience only and shall have no substantive effect.
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<PAGE> 65
IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be
duly executed as of the _______ day of ____________, 1997.
UTI ENERGY CORP.
By:
------------------------------
Vaughn E. Drum
President
ATTEST:
- -------------------------------------
SECRETARY
SOUTHLAND DRILLING COMPANY, LTD.
By
-------------------------------
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<PAGE> 66
EXHIBIT A
SUBSCRIPTION FORM
To be Executed by the Holder
to Exercise Warrant
UTI Energy Corporation
The undersigned hereby exercises the right to purchase _____________
shares of common stock covered by this Warrant according to the conditions
thereof and herewith makes payment of the Warrant Price of such shares in full.
<TABLE>
<CAPTION>
<S> <C>
[INDIVIDUAL]
Signature
----------------------------------------
Name:
----------------------------------------
Address
----------------------------------------
----------------------------------------
----------------------------------------
Dated: , .
--------------- --------
[CORPORATION OR PARTNERSHIP]
----------------------------------------
(Name of Entity)
By:
---------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
Address
----------------------------------------
----------------------------------------
----------------------------------------
Dated: , .
--------------- --------
</TABLE>
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EXHIBIT D
GUARANTY AGREEMENT
March ___, 1997
UTI Energy Corp.
485 Devon Park Drive, Suite 112
Wayne, Pennsylvania 19087
Ladies and Gentlemen:
Reference is hereby made to the Asset Purchase Agreement dated as of
March 5, 1997 (the "Asset Purchase Agreement"), between UTI Energy Corp., a
Delaware corporation ("Buyer"), and Southland Drilling Company, Ltd., a Texas
limited partnership ("Seller"). This Guaranty (this "Agreement") is being
executed pursuant to Section 8.8 of the Asset Purchase Agreement. All
capitalized terms used and not otherwise defined herein shall have the meanings
set forth in the Asset Purchase Agreement. The undersigned, as a limited
and/or general partner of Seller (the "Guarantor") hereby makes the following
representations, warranties, covenants and agreements:
1. Guaranty. The Guarantor hereby unconditionally guarantees
the due and punctual payment and performance of all of Seller's obligations set
forth in Article XI of the Asset Purchase Agreement. Such guaranty is an
irrevocable guaranty of payment (and not just of collection) and shall continue
in effect notwithstanding any extension or modification of the terms of the
Asset Purchase Agreement, any assumption of any such guaranteed obligation by
any other party or any other act or event which might otherwise operate as a
legal or equitable discharge of the Guarantor hereunder. The Guarantor hereby
waives all special suretyship defenses and notice requirements. This guaranty
is in no way conditioned upon any requirement that UTI first attempt to collect
or enforce any guaranteed obligation from or against Seller. So long as any
obligation of Seller to Buyer remains unpaid or discharged, the Guarantor
hereby waives all rights to subrogation arising out of any payment by the
Guarantor hereunder. Notwithstanding any provision contained herein to the
contrary, in no event shall the aggregate amount paid by Guarantor pursuant to
any demands by Buyer hereunder for all or any portion of the Claims sustained
by Buyer exceed $_________ (the Guarantor's partnership sharing ratio
percentage amount times $9,000,000); provided that, notwithstanding this
limitation, Guarantor shall be liable for ___% of any Claim relating to any
breach of a representation or warranty contained in Sections 5.2, 5.4, 5.5,
5.11 or 5.13 of the Asset Purchase Agreement.
2. Dissolution of Seller. Notwithstanding Section 1 of this
Agreement, if Seller voluntarily or involuntarily dissolves, or is otherwise
liquidated or terminated, prior to the time all of Seller's obligations under
the Asset Purchase Agreement have been satisfied, the Guarantor shall be deemed
to have assumed and be primarily liable for all of such obligations until they
are duly satisfied, subject to the provisions of the last sentence of Section 1
hereinabove.
3. Enforcement Expenses. Guarantor agrees to pay to UTI any and
all reasonable costs and expenses (including reasonable attorney and other
legal fees) incurred by UTI in enforcing its rights under this Agreement,
subject to the provisions of the last sentence of Section 1 above.
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<PAGE> 68
4. Miscellaneous. This Agreement shall inure to the benefit of
UTI and its affiliates and their respective successors and assigns. The
headings of the Sections of this Agreement have been inserted for convenience
of reference only and shall in no way restrict or otherwise modify any of the
terms or provisions hereof or affect in any way the meaning or interpretation
of this Agreement. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Texas without giving
effect to choice of law principles.
IN WITNESS WHEREOF, the Guarantor hereby executes this Agreement as of
the day first written above.
GUARANTOR: _______________________________
Print Name:_______________________________
D-2
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF THE COMPANY
Name Jurisdiction of Incorporation
- ---- -----------------------------
UTICO, Inc. Delaware
USC, Incorporated Delaware
Triad Drilling Company Delaware
FWA Drilling Company, Inc. Delaware
International Petroleum Service
Company Pennsylvania
Viersen & Cochran Drilling Company Oklahoma
Universal Well Services, Inc. Delaware
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-13261) pertaining to the UTI Energy Corp. 1993 Non-qualified
Stock Option Plan, the First Amendment to Termination Agreement and Release, the
UTI Energy Corp. 1996 Employee Stock Option Plan and the UTI Energy Corp.
Non-Employee Director Stock Option Plan of our report dated February 28, 1997
(except Note 13, as to which the date is March 24, 1997), with respect to the
consolidated financial statements and schedule of UTI Energy Corp. included in
its Annual Report (Form 10-K) for the year ended December 31, 1996.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
CONTAINED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 570
<SECURITIES> 0
<RECEIVABLES> 18,136
<ALLOWANCES> 305
<INVENTORY> 0
<CURRENT-ASSETS> 21,622
<PP&E> 63,000
<DEPRECIATION> 23,149
<TOTAL-ASSETS> 61,870
<CURRENT-LIABILITIES> 15,861
<BONDS> 0
<COMMON> 4
0
0
<OTHER-SE> 22,692
<TOTAL-LIABILITY-AND-EQUITY> 61,870
<SALES> 0
<TOTAL-REVENUES> 97,301
<CGS> 78,257
<TOTAL-COSTS> 90,317
<OTHER-EXPENSES> (1,341)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,148
<INCOME-PRETAX> 7,177
<INCOME-TAX> 2,324
<INCOME-CONTINUING> 4,853
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,853
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.26
</TABLE>
