PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-91708
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PROSPECTUS
[PARKER DRILLING LOGO]
PARKER DRILLING COMPANY
OFFER TO EXCHANGE
10 1/8% SENIOR NOTES DUE 2009, SERIES B, FOR
OUTSTANDING 10 1/8% SENIOR NOTES DUE 2009, SERIES A
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- - We are offering to exchange the outstanding notes that we issued in a private
offering for new registered notes. The outstanding notes were issued on May 2,
2002, in exchange for $235,612,000 of our 9 3/4% Senior Notes due 2006.
- - THE EXCHANGE OFFER EXPIRES AT 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER 9,
2002, UNLESS EXTENDED.
- - Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
- - All outstanding notes that are validly tendered and not withdrawn will be
exchanged.
- - We believe that the exchange of notes will not be a taxable exchange for U.S.
federal income tax purposes.
- - The terms of the notes to be issued will be substantially identical to the
current terms of the outstanding notes, except for the transfer restrictions
and registration rights relating to the outstanding notes.
YOU SHOULD CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE 6 BEFORE
PARTICIPATING IN THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This prospectus is dated August 8, 2002
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. Our common stock is listed and traded
on the New York Stock Exchange under the trading symbol "PKD." Our reports,
proxy statements and other information filed with the SEC can also be inspected
and copied at the New York Stock Exchange, 20 Broad Street, New York, New York.
This prospectus, which constitutes a part of a registration statement on
form S-4 filed by us with the SEC under the Securities Act of 1933, omits
certain of the information set forth in the registration statement. Accordingly,
you should refer to the registration statement and its exhibits for further
information with respect to us and the exchange notes. Copies of the
registration statement and its exhibits are on file at the offices of the SEC.
Furthermore, statements contained in this prospectus concerning any document
filed as an exhibit are not necessarily complete and, in each instance, we refer
you to the copy of such document filed as an exhibit to the registration
statement.
This prospectus "incorporates by reference" the information we file with
the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus and information that we file later with
the SEC will automatically update and supersede the information in this
prospectus. We incorporate by reference the documents listed below and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 until termination of the exchange offer:
- Our Annual Report on Form 10-K for the year ended December 31, 2001,
except for the financial statements which are included in our Current
Report on Form 8-K filed on June 28, 2002.
- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002.
- Our Proxy Statement on Schedule 14A sent to shareholders in connection
with our Annual Meeting of Shareholders held April 25, 2002.
- Our Current Reports on Form 8-K filed on June 28, 2002 and April 1, 2002.
At your request, we will provide to you at no cost a copy of any other
filings, or a copy of the indenture governing the exchange notes. You may
request any of these by writing or telephoning us at the following address:
John R. Burkhalter
Director of Investor Relations
Parker Drilling Company
1401 Enclave Parkway, Suite 600
Houston, Texas 77077
(281) 406-2000
TO INSURE TIMELY DELIVERY, YOU SHOULD REQUEST THESE FILINGS NO LATER THAN
AUGUST 30, 2002.
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SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. For a more
complete understanding of this exchange offer, we encourage you to read this
entire prospectus and the documents to which we have referred you. The term
"outstanding notes" refers to the 10 1/8% Senior Notes due 2009, Series A, that
were issued in May 2002. The term "exchange notes" refers to the 10 1/8% Senior
Notes due 2009, Series B, issuable in the exchange offer. The term "notes"
collectively refers to the outstanding notes and the exchange notes.
THE COMPANY
Parker Drilling Company was incorporated in the state of Oklahoma in 1954
after having been established in 1934 by our founder, Gifford C. Parker. The
founder was the father of Robert L. Parker, our chairman and a principal
stockholder, and the grandfather of Robert L. Parker Jr., president and chief
executive officer. In March 1976, our state of incorporation was changed to
Delaware. Unless otherwise indicated, the term "Company," "we," "us," and "our,"
refer to Parker Drilling Company together with our subsidiaries and "Parker
Drilling" refers solely to our parent, Parker Drilling Company.
We are a leading worldwide provider of contract drilling and drilling
related services. Our primary operating areas are:
- the transition zones of the Gulf of Mexico, Nigeria and the Caspian Sea,
- the offshore waters of the Gulf of Mexico, and
- on land in international oil and gas producing regions.
Our current marketed rig fleet consists of:
- 27 barge drilling and workover rigs, dedicated to drilling in transition
zone waters, which are generally defined as coastal waters having depths
from five to 25 feet,
- seven offshore jackup rigs,
- four offshore platform rigs capable of drilling in water depths of 85 to
215 feet, and
- 41 land rigs, which generally consists of premium and specialized deep
drilling rigs, 37 of which are capable of drilling to depths of 10,000
feet or greater.
The diversity of our rig fleet, both in terms of geographic location and
asset class, enables us to provide a broad range of services to oil and gas
operators around the world.
THE EXCHANGE OFFER
On May 2, 2002, we issued the outstanding notes, consisting of $235,612,000
in aggregate principal amount of 10 1/8% Senior Notes due 2009, Series A, in a
private offering. The outstanding notes were issued to institutional accredited
investors in transactions exempt from the registration requirements of the
Securities Act of 1933.
When we issued the outstanding notes, we entered into a registration rights
agreement in which we agreed to use our best efforts to complete the exchange
offer.
The Exchange Offer............ Under the terms of the exchange offer, you are
entitled to exchange your outstanding notes for
registered exchange notes. You should read the
discussion under the sections "The Exchange
Offer" and "Description of the Exchange Notes"
for further information regarding the exchange
offer and exchange notes. The outstanding notes
may be tendered only in integral multiples of
$1,000.
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Resale of Exchange Notes...... We believe that the exchange notes issued in
the exchange offer may be offered for resale,
resold or otherwise transferred by you without
compliance with the registration and prospectus
delivery provisions of the Securities Act of
1933, provided that:
- you are acquiring the exchange notes in the
ordinary course of your business;
- you have no arrangement or understanding with
any person to participate in the distribution
of the exchange notes; and
- you are not an "affiliate" of ours.
If any of the these three factors are not true
and you transfer any exchange note without
delivering a prospectus meeting the
requirements of the Securities Act or without
an exemption from the registration requirements
of the Securities Act, you may incur liability
under the Securities Act. We do not assume or
indemnify you against such liability.
If you are a broker-dealer and receive exchange
notes for your own account in exchange for
outstanding notes that you acquired as a result
of market making or other trading activities,
you must acknowledge that you will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
the exchange notes. A broker-dealer may use
this prospectus for an offer to resell, resale
or other transfer of the exchange notes.
Failure to Exchange
Outstanding Notes May Affect
You Adversely................. If you do not exchange your outstanding notes
for exchange notes, you will no longer be able
to require us to register the outstanding notes
under the Securities Act. In addition, you will
not be able to offer or sell your outstanding
notes unless:
- they are registered under the Securities Act;
or
- you offer or sell them under an exemption
from the requirements of, or in a transaction
not subject to, the Securities Act.
Expiration Time............... The exchange offer will expire at 5:00 p.m.,
New York City time, on September 9, 2002. We
have the right to extend the exchange offer.
Conditions to Exchange
Offer......................... We will proceed with the exchange offer, so
long as;
- the exchange offer does not violate any
applicable law or applicable interpretation
of law of the staff of the SEC;
- no litigation materially impairs our ability
to proceed with the exchange offer; and
- we obtain all the governmental approvals we
deem necessary for the exchange offer.
Procedures for Exchanging
Outstanding Notes............. If you wish to accept the exchange offer, you
must comply with procedures for exchanging
notes described under "The Exchange
Offer -- Procedures for Exchanging Notes."
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Withdrawal Rights............. You may withdraw the tender of your outstanding
notes at any time prior to the expiration time.
To withdraw, you must send a written or
facsimile transmission notice of withdrawal to
the exchange agent at its address set forth in
this prospectus under the section "The Exchange
Offer" under the heading "Exchange Agent" by
the expiration time.
Acceptance of Outstanding
Notes and Delivery of Exchange
Notes......................... If all of the conditions to the exchange offer
are satisfied or waived, we will accept any and
all outstanding notes that are properly
tendered in the exchange offer prior to the
expiration time. We will deliver the exchange
notes promptly after the expiration time.
Use of Proceeds............... We will not receive any cash proceeds from the
issuance of the exchange notes.
Tax Considerations............ We believe that the exchange of outstanding
notes for exchange notes will not be a taxable
exchange for federal income tax purposes.
However, you should consult your tax adviser
about the tax consequences of this exchange as
they apply to your individual circumstances.
Exchange Agent................ JPMorgan Chase Bank is serving as exchange
agent for the exchange offer.
Fees and Expenses............. We will bear all expenses related to
consummating the exchange offer and complying
with the registration rights agreement.
DESCRIPTION OF THE EXCHANGE NOTES
The exchange notes will be freely tradable and otherwise substantially
identical to the outstanding notes. The exchange notes will not have
registration rights or provisions for additional interest. The exchange notes
will evidence the same debt as the outstanding notes, and the outstanding notes
are, and the exchange notes will be, governed by the same indenture.
Total Amount of Exchange Notes
Offered....................... $235,612,000 in aggregate principal amount of
10 1/8% Senior Notes due 2009, Series B.
Maturity Date................. November 15, 2009.
Interest...................... Fixed annual rate of 10 1/8%.
Interest Payment Dates........ May 15 and November 15 of each year, commencing
November 15, 2002.
Optional Redemption........... We may redeem some or all of the exchange notes
at any time on or after November 15, 2004, at
the redemption prices described under
"Description of the Exchange Notes -- Optional
Redemption."
Change of Control............. If there is a change of control of the Company,
as defined in the Indenture, each holder of
exchange notes will have the right to require
us to purchase all or a portion of that
holder's outstanding notes at a price equal to
101% of their aggregate principal amount
together with accrued and unpaid interest to
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the date of purchase. See "Description of the
Exchange Notes -- Repurchase at the Option of
Holders -- Change of Control."
Guarantees.................... The full and prompt performance of our
obligations under the indenture and the notes
will be unconditionally guaranteed on a senior
unsecured basis by each of our principal
operating subsidiaries. The subsidiary
guarantees may be released under certain
circumstances. See "Description of the Exchange
Notes -- Subsidiary Guarantees."
Ranking....................... The exchange notes will be senior unsecured
obligations, ranking equal in right of payment
with all of our other senior indebtedness and
ranking above all of our subordinated
indebtedness. The exchange notes and the
subsidiary guarantees will be effectively
subordinated to our secured indebtedness and
that of the subsidiary guarantors to the extent
of the security for the secured indebtedness,
respectively, including any indebtedness under
our senior credit facility, which is secured by
liens on certain of our accounts receivable,
inventory and certain barge rigs located in the
Gulf of Mexico. At March 31, 2002, we had
secured indebtedness outstanding (excluding
letters of credit) of $14.4 million and $46.4
million of available borrowing capacity under
the revolving credit portion of our senior
credit facility, less $16.2 million reserved to
support outstanding letters of credit. Subject
to certain limitations, we and our subsidiaries
may incur additional indebtedness in the
future. The exchange notes will also be
effectively subordinated to all indebtedness
and other liabilities of our subsidiaries that
do not guarantee payment of the exchange notes.
See "Description of Certain Indebtedness" and
"Description of the Exchange Notes -- Certain
Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock; -- Liens."
Certain Covenants............. The indenture relating to the exchange notes
contains certain covenants, including covenants
that limit:
- incurrence of indebtedness;
- restricted payments;
- issuances and sales of capital stock of
restricted subsidiaries;
- sale/leaseback transactions;
- transactions with affiliates;
- liens;
- asset sales;
- dividends and other payment restrictions
- affecting restricted subsidiaries;
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- conduct of business; and
- mergers, consolidations or sales of assets.
See "Description of the Exchange Notes -- Certain Covenants."
FORWARD LOOKING STATEMENTS
This prospectus, including the documents that we incorporate by reference,
contains statements that constitute "forward-looking statements." These
statements appear in a number of places in this prospectus and include
statements regarding our plans, beliefs or current expectations, including those
plans, beliefs and expectations of our officers and directors.
Forward-looking statements are based on certain assumptions and analyses we
have made in light of our experience and perception of historical trends,
current conditions, expected future developments and other factors we believe
are relevant. Although we believe that our assumptions are reasonable based on
current information available, they are subject to certain risks and
uncertainties, many of which are outside our control. These risks and
uncertainties include:
- worldwide economic and business conditions that adversely affect market
conditions and/or the cost of doing business,
- the pace of recovery in the U.S. economy and the demand for natural gas,
- fluctuations in the market prices of oil and gas,
- imposition of unanticipated trade restrictions,
- political instability,
- governmental regulations that adversely affect the cost of doing
business,
- adverse environmental events,
- adverse weather conditions,
- changes in concentration of customer and supplier relationships,
- unexpected cost increases for upgrade and refurbishment projects,
- changes in competition, and
- other similar factors (some of which are discussed in this prospectus and
in documents incorporated by reference into this prospectus).
Because the forward-looking statements are subject to risks and uncertainties,
the actual results of our operations and actions may differ materially from
those expressed or implied by such forward-looking statements. These risks and
uncertainties are referenced in connection with forward-looking statements that
are included from time to time in this prospectus. Each forward-looking
statement speaks only as of the date of this prospectus or the date of any
document incorporated by reference, and we undertake no obligation to publicly
update or revise any forward-looking statement.
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RISK FACTORS
You should consider carefully the following risk factors, together with all
of the other information in this prospectus and the documents that are
incorporated by reference, before you decide to exchange your outstanding notes
for exchange notes in the Exchange Offer.
RISK FACTORS RELATING TO OUR BUSINESS
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF LOWER OIL AND GAS PRICES DECREASE
DEMAND FOR OUR SERVICES.
Our business and operations depend upon exploration and development
spending by oil and gas companies. An actual decline, or the perceived risk of a
decline, in oil and gas prices could cause oil and gas companies to reduce their
overall level of spending. As a result, demand for our services may decrease and
our business may be adversely affected.
OUR HIGH LEVERAGE COULD ADVERSELY AFFECT OUR FUTURE PERFORMANCE AND OUR
ABILITY TO SATISFY OUR DEBT OBLIGATIONS.
Our business requires substantial capital. We now have, and will continue
to have in the foreseeable future, a relatively high level of debt in relation
to our stockholders' equity. As of March 31, 2001, we had $584.0 million of
long-term debt outstanding and stockholders' equity of $402.0 million.
Our ability to meet our debt service obligations depends on our future
performance. Our future performance is influenced by general economic conditions
and by financial, business and other factors affecting our operations, many of
which are beyond our control. If we are unable to service our debt, we may have
to:
- delay the acquisition of additional rigs and other assets;
- sell equity securities;
- sell assets; or
- restructure or refinance our debt.
We cannot give you any assurances that, if we are unable to service our debt, we
will be able to sell equity securities, sell assets or restructure or refinance
our debt.
Our substantial debt could have important consequences to you. For example,
it could:
- make it more difficult for us to obtain additional financing in the
future for our acquisitions and operations;
- require us to dedicate a substantial portion of our cash flows from
operations to the repayment of our debt and the interest associated with
our debt;
- limit our operating flexibility due to financial and other restrictive
covenants, including restrictions on incurring additional debt, creating
liens on our properties and paying dividends on our equity securities;
- place us at a competitive disadvantage compared with our competitors that
have relatively less debt; and
- make us more vulnerable in the event of a downturn in our business.
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UNPREDICTABLE CHANGES IN GOVERNMENTAL REGULATIONS COULD INCREASE OUR OPERATING
COSTS AND REDUCE DEMAND FOR OUR SERVICES.
Our operations are affected by a variety of laws and regulations, including
laws and regulations relating to:
- the protection of the environment;
- safety; and
- permitting or licensing requirements for drilling activities and for oil
and gas exploration and development activities.
We and our customers are required to invest financial and managerial resources
to comply with these laws and regulations. Because these laws and our business
change from time to time, we cannot predict the future costs of complying with
these laws, and our expenditures could be material in the future. Modification
of existing laws or regulations or adoption of new laws or regulations limiting
exploration or production activities by oil and gas companies or imposing more
stringent restrictions on drilling operations could adversely affect us by
reducing the demand for, or increasing the cost of, our services.
WE OPERATE IN INTERNATIONAL MARKETS, SO WE HAVE EXPOSURE TO RISKS INHERENT IN
DOING BUSINESS ABROAD.
A significant portion of our revenue is derived from operations outside the
United States and is subject in varying degrees to risks inherent in doing
business abroad. These risks include:
- the possibility of unfavorable changes in tax or other laws;
- partial or total expropriation;
- currency exchange rate fluctuations, devaluations and restrictions on
currency repatriation;
- the disruption of operations from labor and political disturbances;
- insurrection or war;
- disruption or delay of licensing or permitting activities; and
- requirements of partial local ownership of operations.
WE ARE SUBJECT TO HAZARDS CUSTOMARY FOR DRILLING OPERATIONS.
Substantially all of our operations are subject to hazards that are
customary for oil and gas drilling operations, including blowouts, reservoir
damage, loss of well control, cratering and oil and gas well fires. Our offshore
operations also are subject to hazards inherent in marine operations, such as
capsizing, grounding, collision and damage from severe weather conditions. Any
of these risks could result in damage to or destruction of drilling equipment,
personal injury and property damage, suspension of operations or environmental
damage.
BECAUSE WE DO NOT HAVE CUSTOMER INDEMNITIES OR INSURANCE TO COVER SOME
OPERATING RISKS, OUR RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED IF ONE
OF THOSE RISKS OCCURRED.
We cannot always obtain customer indemnities or insurance for our operating
risks. Although we carry insurance against the destruction of or damage to our
drilling equipment in amounts that we consider adequate, such insurance may not
always be available at acceptable rates in the future for all risks and all
geographic areas.
IF WE CANNOT KEEP OUR RIGS UTILIZED, OUR OPERATING RESULTS WILL BE ADVERSELY
IMPACTED.
Our business is capital intensive and generally requires significant
investments in drilling equipment. As a result, we incur relatively high fixed
costs in our operations. If we cannot keep our rigs utilized, our operating
results will be adversely impacted.
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OUR DEBT AGREEMENTS MAY LIMIT OUR FLEXIBILITY IN RESPONDING TO CHANGING MARKET
CONDITIONS OR IN PURSUING BUSINESS OPPORTUNITIES.
Our debt agreements contain restrictions and requirements relating to,
among other things:
- the issuance of additional indebtedness;
- the maintenance of financial ratios;
- the encumbrance of assets;
- the sale of assets;
- the amount of our capital expenditures;
- the payment of dividends on our equity securities; and
- mergers.
These restrictions and requirements may limit our flexibility in responding to
changing market conditions or in pursuing business opportunities that we believe
would have a positive effect on our business.
DESPITE OUR CURRENT LEVELS OF INDEBTEDNESS, WE STILL MAY BE ABLE TO INCUR
SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER INCREASE THE RISKS DESCRIBED
ABOVE.
We may be able to incur substantial additional indebtedness in the future.
The terms of the indenture relating to the notes do not fully prohibit us from
doing so. Those borrowings may be effectively senior to the notes and any note
guarantees to the extent of the security for the borrowings. If new debt is
added to our current debt levels, the related risks that we now face could
intensify.
TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on our indebtedness, including the notes, and
to fund planned capital expenditures will depend on our ability to generate cash
in the future. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control. We cannot assure you that our business will generate
sufficient cash flow from operations, that we will realize operating
improvements or that future borrowings will be available to us in an amount
sufficient to enable us to pay our indebtedness, including the notes, or to fund
our other liquidity needs. We may need to refinance all or a portion of our
indebtedness, including the notes, on or before maturity. We might not be able
to refinance any of our indebtedness on commercially reasonable terms or at all.
ANY FAILURE TO MEET OUR DEBT OBLIGATIONS COULD HARM OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
If our cash flow and capital resources are insufficient to fund our debt
obligations, we may be forced to sell assets, seek additional equity or debt
capital or restructure our debt. In addition, any failure to make scheduled
payments of interest and principal on our outstanding indebtedness would likely
result in a reduction of our credit rating, which could harm our ability to
incur additional indebtedness on acceptable terms. Our cash flow and capital
resources may be insufficient for payment of interest on and principal of our
debt in the future, including payments on the notes, and any alternative
measures may be unsuccessful or may not permit us to meet scheduled debt service
obligations, which could cause us to default on our obligations and impair our
liquidity.
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RISK FACTORS RELATING TO OUR DEBT SECURITIES
WE ARE A HOLDING COMPANY AND DEPEND ON OUR SUBSIDIARIES FOR FUNDS.
Our subsidiary companies conduct substantially all of our business. Our
holding company structure results in two principal risks:
- our subsidiaries may be restricted by contractual provisions or
applicable laws from providing us the cash that we need to pay parent
company debt service obligations, including payments on the notes; and
- in any liquidation, reorganization or insolvency proceeding involving us,
your claim as a holder of the notes will be effectively junior to the
claims of holders of any indebtedness or preferred stock of our
subsidiaries who are not Subsidiary Guarantors.
THERE MAY BE NO PUBLIC MARKET FOR EXCHANGE NOTES.
The exchange notes will constitute a new issue of securities with no
established trading market. Jeffries & Company, Inc., the dealer manager engaged
in connection with the issuance of the outstanding notes, has informed us that,
following completion of the registered exchange offer of outstanding notes for
the exchange notes, it intends to make a market in the exchange notes. However,
it is not obligated to do this, and any market making which is undertaken may be
discontinued at any time without notice. In addition, any market making activity
will be subject to the limits imposed by the Securities Act of 1933 and the
Securities Exchange Act of 1934 and may be limited during this exchange offer or
the pendency of the shelf registration statement. See "Description of the
Exchange Notes -- Registration Rights; Liquidated Damages." Accordingly, no
assurance can be given that an active public or other market will develop for
the exchange notes or as to the liquidity of or the trading market for the
exchange notes. If an active market does not develop, the market price and
liquidity of the exchange notes may be adversely affected. In addition, we do
not intend to apply (and are not obligated to apply) for listing or quotation of
the exchange notes on any securities exchange or stock market.
ALTHOUGH THE OCCURRENCE OF SPECIFIC CHANGE OF CONTROL EVENTS AFFECTING US WILL
PERMIT YOU TO REQUIRE US TO REPURCHASE THE NOTES, WE MAY NOT BE ABLE TO
REPURCHASE THE NOTES.
Upon the occurrence of specific change of control events affecting us, you
will have the right to require us to repurchase the notes at 101% of their
principal amount, plus accrued and unpaid interest. Our ability to repurchase
the notes upon such a change of control event would be limited by our access to
funds at the time of the repurchase and the terms of our other debt agreements.
Upon a change of control event, we may be required immediately to repay the
outstanding principal, any accrued interest on and any other amounts owed by us
under our senior credit facilities, the notes and other outstanding
indebtedness. The source of funds for these repayments would be our available
cash or cash generated from other sources. However, we cannot assure you that we
will have sufficient funds available upon a change of control to make any
required repurchases of this outstanding indebtedness.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE HOLDERS OF THE NOTES TO RETURN PAYMENTS RECEIVED FROM
GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to all other debts of that guarantor, if, among
other things, the guarantor, at the time it incurred the indebtedness evidenced
by its guarantee:
- received less than reasonably equivalent value or fair consideration for
the incurrence of the guarantee;
- was insolvent or rendered insolvent by reason of the incurrence;
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- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay the debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor or to a fund for the
benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets;
- if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute
and mature; or
- it could not pay its debts as they become due.
We believe that any guarantor of the notes, after giving effect to its
guarantee of the notes, would not be insolvent, would not have unreasonably
small capital for the business in which it would be engaged and would not have
incurred debts beyond its ability to pay such debts as they mature. We cannot
assure you, however, as to what standard a court would apply in making these
determinations or that a court would agree with our conclusions in this regard.
THE EXCHANGE OFFER
The outstanding notes were issued to selected institutional accredited
investors who were holders of our outstanding 9 3/4% Senior Notes due 2006 (the
"2006 Notes") in exchange for $235,612,000 of outstanding principal amount of
the 2006 Notes.
In connection with the issuance of the outstanding notes, we entered into a
Registration Rights Agreement dated May 2, 2002, with Jefferies & Company, Inc.
on behalf of the holders of the outstanding notes. Pursuant to the Registration
Rights Agreement, we have agreed to file a registration statement (the "Exchange
Offer Registration Statement"), of which this prospectus is a part, with the SEC
with respect to a registered offer to exchange the outstanding notes for
exchange notes having terms substantially identical in all material respects to
the outstanding notes, except that the exchange notes will not contain terms
with respect to transfer restrictions and additional interest.
Under the Registration Rights Agreement, we will, at our cost:
- file the Exchange Offer Registration Statement not later than 60 days of
the date of original issuance of the outstanding notes;
- use our best efforts to cause the Exchange Offer Registration Statement
to be declared effective under the Securities Act not later than 120 days
after the date of original issuance of the outstanding notes; and
- keep the exchange offer open for a period of not less than the minimum
period required under applicable federal and state securities laws but in
no event less than 20 business days nor more than 45 business days (or
longer if required by applicable law).
The exchange offer being made by this prospectus, if commenced and
consummated within the time periods described in this paragraph, will satisfy
our obligations under the Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, all outstanding notes validly tendered and not
withdrawn prior to the expiration time will be
10
accepted for exchange. Exchange notes of the same class will be issued in
exchange for an equal principal amount of outstanding notes accepted in the
exchange offer. Outstanding notes may be tendered only in integral multiples of
$1,000.00. This prospectus, together with the letter of transmittal, is being
sent to all registered holders of outstanding notes. The exchange offer is not
conditioned upon any minimum principal amount of outstanding notes being
tendered in exchange.
You will not be required to pay brokerage commissions or fees or, subject
to the instructions in the letter of transmittal, transfer taxes with respect to
the exchange. We will pay all charges, expenses and transfer taxes in connection
with the exchange offer, other than certain transfer taxes described in the
letter of transmittal.
EXPIRATION TIME; EXTENSIONS; TERMINATION; AMENDMENTS
The exchange offer will terminate at the expiration time. If you do not
tender your outstanding notes by the expiration time, we will not accept your
outstanding notes for exchange. The expiration time is 5:00 p.m., New York City
time, on September 9, 2002. We may extend the exchange offer to a later
expiration time. If we do, the expiration time shall mean the latest time to
which the exchange offer is extended. If we extend the exchange offer, we will
notify the exchange agent of the extension.
We have the right to amend the exchange offer at any time. If we make an
amendment which we determine is material, we will disclose the amendment in a
manner which we determine is reasonably calculated to inform the holders of
outstanding notes. We also have the right to terminate the exchange offer at any
time for any reason. If we terminate the exchange offer, we will promptly return
to you any outstanding notes which you have previously tendered for exchange.
PROCEDURES FOR EXCHANGING NOTES
In order to participate in the exchange offer, you must properly tender
your outstanding notes to the exchange agent as described below. It is your
responsibility to properly tender your notes. We have the right to waive any
defects. However, we are not required to waive defects and are not required to
notify you of defects in your exchange.
If you have any questions or need help in exchanging your notes, please
call the exchange agent whose address and phone number are under the section of
this prospectus captioned, "The Exchange Offer -- The Exchange Agent."
All of the outstanding notes were issued in book-entry form, and all of the
outstanding notes are currently represented by global certificates held for the
account of DTC. We have confirmed with DTC that the outstanding notes may be
tendered using the Automated Tender Offer Program ("ATOP") instituted by DTC.
DTC participants may electronically transmit their acceptance of the exchange
offer by causing DTC to transfer their outstanding notes to the exchange agent
using the ATOP procedures. In connection with the transfer, DTC will send an
"agent's message" to the exchange agent. The agent's message will state that DTC
has received instructions from the participant to tender outstanding notes and
that the participant agrees to be bound by the terms of the letter of
transmittal.
By using the ATOP procedures to exchange outstanding notes, you will not be
required to deliver a letter of transmittal to the exchange agent. However, you
will be bound by its terms just as if you had signed it.
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions in the exchange offer,
all outstanding notes properly tendered will be accepted, promptly after the
expiration time, and the exchange notes will be issued promptly after the
acceptance of the outstanding notes. For purposes of the exchange offer,
outstanding notes shall be deemed to have been accepted as validly tendered for
exchange when, as and if we have given oral (promptly confirmed in writing) or
written notice thereof to the exchange agent.
11
In all cases, issuance of exchange notes for outstanding notes that are
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of certificates for such outstanding notes
or a timely Book-Entry Confirmation of such outstanding notes into the exchange
agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed letter of transmittal and all other required documents or an
agent's message in lieu thereof. If any tendered outstanding notes are not
accepted for any reason set forth in the terms and conditions of the exchange
offer or if outstanding notes are submitted for greater principal amount than
the holder desires to exchange, such unaccepted or non-exchanged outstanding
notes will be returned without expense to the tendering holder as promptly as
practicable after the expiration or termination of the exchange offer. In the
case of outstanding notes tendered by the book-entry transfer procedures
described below, the non-exchanged outstanding notes will be credited to an
account maintained with the Book-Entry Transfer Facility.
We will not be responsible for any mistakes or delays made by the exchange
agent in distributing the exchange notes or interest on the outstanding notes.
WITHDRAWAL RIGHTS
You may withdraw outstanding notes which you have tendered for exchange at
any time before the expiration time.
In order to withdraw outstanding notes you have tendered for exchange, you
must submit to the exchange agent a notice of withdrawal, using the ATOP
procedures, prior to the date the withdrawal right expires.
If you withdraw outstanding notes, you will have the right to re-tender
them prior to the expiration of the withdrawal rights in accordance with the
procedures described above for exchanging outstanding notes.
DETERMINATION OF WHETHER AN EXCHANGE OF OUTSTANDING NOTES IS PROPER
We will not be required to issue exchange notes for outstanding notes
pursuant to the exchange offer unless those outstanding notes are properly
tendered. Similarly, we will be able to retain notes which have been tendered if
you do not properly comply with the procedures to withdraw the outstanding
notes. We will have the right to decide whether an exchange or withdrawal was
made properly and our decision will be final. You should note the following with
respect to the exchange offer.
- If we determine you have not properly tendered your outstanding notes, or
have not properly complied with the procedures to withdraw notes
previously tendered, you will have to correct the problem in the time
period we determine.
- We are not under any obligation to advise you of any defect in your
exchange or withdrawal; neither is the exchange agent.
- We have the right to waive any defect in the exchange or withdrawal of
outstanding notes, and may waive a defect with respect to one note holder
and not another.
- If we determine you have not properly tendered your outstanding notes,
they will be promptly returned to you following the exchange offer via a
credit to the appropriate DTC account.
We have no obligation to, and will not knowingly, permit acceptance of
tenders of outstanding notes:
- from affiliates of ours within the meaning of Rule 405 under the
Securities Act of 1933;
- from any other holder or holders who are not eligible to participate in
the exchange offer under applicable law or interpretations by the SEC;
and
- if the exchange notes to be received by such holder or holders of
outstanding notes in the exchange offer, upon receipt, will not be
tradable by such holder without restriction under the Securities Act of
1933 and the Securities Exchange Act of 1934 and without material
restrictions under the "blue sky" or securities laws of substantially all
of the states of the United States.
12
NO APPRAISAL OR SIMILAR RIGHTS
The indenture under which the outstanding notes were issued and applicable
law do not give the holders of outstanding notes any appraisal or similar rights
to request a court or other person to value their outstanding notes in
connection with the exchange offer.
THE EXCHANGE AGENT
JPMorgan Chase Bank, the trustee under the indenture covering the
outstanding notes, will act as exchange agent. In this capacity, JPMorgan Chase
Bank will have no fiduciary or similar duties and will be acting solely on the
basis of our instructions. You may request assistance in tendering your
outstanding notes and may get additional copies of this prospectus and the
letter of transmittal by writing or calling the exchange agent as follows:
<Table>
<Caption>
By Overnight Courier,
Registered/Certified Mail or Hand By Facsimile
JPMorgan Chase Bank JPMorgan Chase Bank
600 Travis Street Facsimile: (713) 577-5200
Suite 1150 Attention: Rebecca A. Newman
Houston, Texas 77002
Attention: Rebecca A. Newman
</Table>
As discussed above, it is your obligation to properly tender your
outstanding notes for exchange in a timely fashion.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same principal amount as the
outstanding notes as of the date of the exchange. For accounting purposes, the
exchange of the notes will be treated as a modification of debt instruments. As
a result, transaction fees and other third party fees associated with the
exchange such as legal and accounting fees will be charged to expense. In
addition, the remaining unamortized debt issue costs relating to the outstanding
notes will be amortized over the term of the exchange notes.
SHELF REGISTRATION STATEMENT
In the event that:
- any change in law or applicable interpretations of the staff of the SEC
do not permit us to effect the exchange offer;
- the exchange offer is not consummated within 45 business days after the
date of this prospectus;
- under certain circumstances if the holders so request with respect to
outstanding notes not eligible to be exchanged for exchange notes in this
exchange offer;
- under certain circumstances any holder of outstanding notes is not
eligible to participate in this exchange offer or does not receive freely
tradable exchange notes in exchange for outstanding notes constituting
any portion of an unsold allotment (it being understood that the
requirement that a participating broker-dealer deliver this prospectus in
connection with sales of exchange notes shall not result in such exchange
notes being not "freely tradable");
we will, at our cost,
- cause to be filed a shelf registration statement pursuant to Rule 415
under the Act, on or prior to the later to occur of (1) the 30th day
after the occurrence of one of the events described above, and (2) the
90th day after the date of issuance of the exchange notes pursuant to
this exchange offer (such earliest date being the "Shelf Filing
Deadline");
13
- use our best efforts to cause the shelf registration statement to be
declared effective under the Securities Act of 1933 on or before the 90th
day after the event giving rise to the obligation to file it; and
- use our best efforts to keep the shelf registration statement effective
until two years after its effective date.
We will, in the event a shelf registration statement is filed, among other
things;
- provide to each holder for whom the shelf registration statement was
filed copies of the prospectus which is a part of the shelf registration
statement;
- notify each such holder when the shelf registration statement has become
effective; and
- take certain other actions as are required to permit unrestricted resales
of the outstanding notes or the exchange notes, as the case may be.
A holder selling outstanding notes or exchange notes pursuant to the shelf
registration statement generally would be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act of 1933 in connection with sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such
holder (including certain indemnification obligations).
FEDERAL INCOME TAX CONSEQUENCES
We have described the tax consequences of the exchange offer under "Certain
U.S. Federal Income Tax Considerations."
CONSEQUENCES OF FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER
The liquidity of the outstanding notes may be reduced as a result of the
exchange offer. Upon the consummation of the exchange offer, subject to certain
exceptions, if you do not exchange your outstanding notes for exchange notes in
the exchange offer, you will no longer be entitled to registration rights and
will not be able to offer or sell your outstanding notes, unless the outstanding
notes are subsequently registered under the Securities Act of 1933 (which,
subject to certain limited exceptions, we will have no obligation to do), except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act of 1933 (including Rule 144A) and applicable state securities
laws.
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes. In consideration for issuing the exchange notes, we will receive in
exchange a like principal amount of outstanding notes. The outstanding notes
surrendered in exchange for the exchange notes will be retired and canceled and
cannot be reissued. Accordingly, the issuance of the exchange notes will not
result in any change in our capitalization.
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITY
On October 22, 1999, we entered into a $50.0 million loan and security
agreement with Bank of America, N.A., as Administrative Agent, Congress
Financial Corporation, and Bank of Oklahoma, N.A. The loan agreement is
available for working capital requirements, general corporate purposes and to
support letters of credit and will terminate on October 22, 2003.
14
The loan agreement has a combined total commitment for both loans and
letters of credit support of $50.0 million. Loan amounts outstanding under the
loan agreement bear interest at our option at either:
- prime plus 0.50%, or
- LIBOR plus 2.50%.
The prime rate loans can vary between prime plus 0.25% and prime plus 0.75% and
the LIBOR rates can vary between LIBOR plus 2.00% and LIBOR plus 2.75% based on
a leverage ratio calculation which takes into consideration our total amount of
indebtedness outstanding minus cash and cash equivalents plus the unfunded
amount of letters of credit divided by EBITDA.
The loan agreement contains covenants which require minimum adjusted
tangible net worth, fixed charge coverage ratio and limits annual capital
expenditures. The revolving loan facility prohibits payment of dividends.
At March 31, 2002, no amounts had been drawn down against the loan
agreement but $16.2 million of availability had been used to support letters of
credit that have been issued.
The repayment of loans under the loan agreement is secured by the
following:
- accounts receivable,
- inventory,
- certain contract rights,
- certain intangible rights, e.g. patents and copyrights,
- certain barge drilling rigs located in the Gulf of Mexico,
- stock of subsidiaries,
- all money and securities held by the Administrative Agent, and
- books and records relating to the above.
Borrowings under the loan agreement can be used for:
- general corporate purposes, including capital expenditures for rig
refurbishments and upgrades,
- working capital, and
- letters of credit.
The amounts of money we can borrow and letters of credit we can issue under the
loan agreement are subject to a borrowing base formula which limits the amount
of loans and letters of credit based on:
- eligible accounts receivable,
- 50% of rig materials and supplies, and
- the value of certain barge drilling rigs located in the Gulf of Mexico.
We are obligated to pay the lenders certain fees on the average daily
unadvanced portion of the lenders' loan commitments, and certain fees for
issuance of letters of credit.
Future advances under the loan agreement are conditioned on, among other
things:
- the representations and warranties contained in the loan agreement being
true and correct on the date of the loan,
- the delivery of certain opinions and certificates,
- environmental and insurance reviews, and
- no material changes having occurred in our financial condition,
operations or properties.
15
9 3/4% SENIOR NOTES DUE 2006
We currently have outstanding approximately $214.2 million of our 9 3/4%
Senior Notes due 2006. We are obligated to make certain payments on these
outstanding notes and may be called to repurchase these notes if certain change
of control events occur.
5 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2004
We currently have outstanding approximately $124.5 million of our 5 1/2%
Convertible Subordinated Notes due 2004. The principal and accrued interest due
on these notes will be payable in full in July of 2004. This indebtedness is
subordinated to the indebtedness represented by the 9 3/4% Senior Notes due 2006
and the outstanding notes.
DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The exchange notes will be issued pursuant to the indenture dated May 2,
2002, entered into between the Company and JPMorgan Chase Bank, as trustee (the
"Trustee"). The terms of the exchange notes include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The exchange
notes are subject to all such terms, and holders of exchange notes are referred
to the indenture and the Trust Indenture Act for a statement of those terms.
We have summarized below certain provisions of the indenture. However, you
should realize that this summary does not purport to be complete and is
qualified in its entirety by reference to the indenture, including the
definitions of certain terms used below. A copy of each of the indenture and the
Registration Rights Agreement have been filed as exhibits to the registration
statement of which this prospectus is a part and are available from us upon
request. See "Where You Can Find Additional Information." The definitions of
certain terms used in the following summary are set forth below under
"-- Certain Definitions."
As used below in this "Description of the Exchange Notes," references to
"we," "ours," "us" and the "Company" mean Parker Drilling Company, but not any
of its Subsidiaries.
The exchange notes will be issued in exchange for the outstanding notes
pursuant to the Registration Rights Agreement, as further described in "The
Exchange Offer." The terms of the exchange notes are substantially identical to
the terms of the outstanding notes, except the exchange notes will have been
registered under the Securities Act of 1933 and, therefore, will not contain
terms with respect to restrictions on their transfer and will not contain
provisions providing for an increase in the interest rate thereon under
circumstances described below under "-- Registration Rights; Liquidated
Damages."
The indenture provides for the issuance of up to $250 million in aggregate
principal amount of 10 1/8% Senior Notes due 2009. As a result, the indenture
will allow us to issue approximately $14.4 million in principal amount of
additional notes in the future; however, any issuance of any additional notes
would be subject to the covenant described under "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock."
References to the exchange notes include (unless the context otherwise requires)
any additional notes.
The exchange notes will rank senior in right of payment to all of our
subordinated indebtedness. The exchange notes will rank pari passu in right of
payment with all of our other senior indebtedness, including the outstanding
notes. However, the exchange notes will be unsecured obligations of the Company
and the borrowings under the senior credit facility are secured by liens on our
accounts receivable, inventory and certain barge rigs located in the Gulf of
Mexico. As a result, the indebtedness under the senior credit facility will
effectively rank senior to the exchange notes to the extent of the security
therefor. The exchange notes will be fully and unconditionally guaranteed on a
senior unsecured basis by the Subsidiary Guarantors. See "-- Subsidiary
Guarantees."
As of the date of the indenture, all of our Significant Subsidiaries were
Restricted Subsidiaries. However, certain of our other Subsidiaries were
designated as Unrestricted Subsidiaries at the time the
16
indenture was executed. At March 31, 2002, the Unrestricted Subsidiaries had
total assets of approximately $31.2 million. In addition, subject to the
requirements of the indenture, we will be able to designate other current or
future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will
not be subject to the restrictive covenants set forth in the indenture.
Any outstanding notes not tendered in the exchange offer and the exchange
notes will be treated as a single class of debt securities under the indenture.
PRINCIPAL, MATURITY AND INTEREST
The exchange notes will be limited in aggregate principal amount to $250
million and will mature on November 15, 2009. The indenture permits the issuance
of additional exchange notes as described above under "-- General." Interest on
the exchange notes will accrue at the rate of 10 1/8% per annum and will be
payable semi-annually in arrears on May 15 and November 15 commencing on
November 15, 2002, to holders of record on the immediately preceding May 1 and
November 1. Interest on the exchange notes will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from the issue
date. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Principal, premium, if any, and interest and Liquidated
Damages (as defined below under "-- Registration Rights; Liquidated Damages") on
the exchange notes will be payable at the office or agency of the Company
maintained for such purpose within the United States or, in the case of exchange
notes not in book-entry form, at the option of the Company, payment of interest
and Liquidated Damages may be made by check mailed to the holders of the
exchange notes at their respective addresses set forth in the register of
holders of exchange notes; provided that all payments with respect to exchange
notes in book-entry form, and with respect to exchange notes in certificated
form, the holders of which have given wire transfer instructions to the Company,
will be required to be made by wire transfer of immediately available funds to
the accounts specified by the holders thereof. See "-- Book-Entry, Delivery and
Form." Until otherwise designated by the Company, the Company's office or agency
in New York will be the office of the Trustee maintained for such purpose. The
exchange notes will be issued in denominations of $1,000 and integral multiples
thereof.
OPTIONAL REDEMPTION
The exchange notes will not be redeemable at the Company's option prior to
November 15, 2004. Thereafter, the exchange notes will be subject to redemption
at the option of the Company, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on November 15, of the years indicated below:
<Table>
<Caption>
YEAR PERCENTAGE
- ---- ----------
2004........................................................ 105.0625%
2005........................................................ 103.3750%
2006........................................................ 101.6875%
2007 and thereafter......................................... 100.0000%
</Table>
SELECTION AND NOTICE
If less than all of the exchange notes are to be redeemed at any time,
selection of exchange notes for redemption will be made by the Trustee on a pro
rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided that no exchange notes of $1,000 or less shall be redeemed
in part. Notices of redemption shall be mailed by first class mail at least 30
but not more than 60 days before the redemption date to each holder of exchange
notes to be redeemed at its registered address. If any exchange note is to be
redeemed in part only, the notice of redemption that relates to such exchange
note shall state the portion of the principal amount thereof to be redeemed. A
exchange note in principal amount equal to the unredeemed portion thereof will
be issued in the name of the holder thereof upon cancellation of the original
exchange note. On and after the redemption date, interest ceases to accrue on
exchange notes or portions of them called for redemption.
17
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
we are not required to make mandatory redemption or sinking fund payments with
respect to the exchange notes.
SUBSIDIARY GUARANTEES
Each of our Significant Subsidiaries (other than any Exempt Foreign
Subsidiary, as designated by the Company) on the Issue Date and each other
Restricted Subsidiary that provides a guarantee under the senior credit facility
is a Subsidiary Guarantor under the indenture. Each Subsidiary Guarantor has
unconditionally guaranteed on a senior basis, jointly and severally, the full
and prompt performance of our obligations under the indenture and the exchange
notes, including the payment of principal and interest on the exchange notes.
The obligations of each Subsidiary Guarantor under its Subsidiary Guarantee is
limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Subsidiary Guarantor in respect of the obligations of such other Subsidiary
Guarantor under its Subsidiary Guarantee or pursuant to its contribution
obligations under the indenture, result in the obligations of such Subsidiary
Guarantor under the Subsidiary Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. The terms of the
Subsidiary Guarantees provide that, for purposes of such limitations and the
applicable fraudulent conveyance laws, any indebtedness of a Subsidiary
Guarantor incurred from time to time pursuant to the senior credit facility and
secured by a perfected Lien on the assets of such Subsidiary Guarantor
(assuming, for purposes of such determination, that the incurrence of any such
indebtedness and the granting of any such security interest did not violate any
such fraudulent conveyance laws) shall be deemed, to the extent of the value of
the assets subject to such Lien, to have been incurred prior to the incurrence
by such Subsidiary Guarantor of liability under its Subsidiary Guarantee. See
"Risk Factors -- Federal and state statutes allow courts under specific
circumstances, to void guarantees and require holders of the notes to return
payments received from guarantors."
The indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person) another Person (other than the Company or another Subsidiary Guarantor),
whether or not affiliated with such Subsidiary Guarantor, unless (i) subject to
the provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Subsidiary Guarantor) shall
execute a Subsidiary Guarantee in accordance with the terms of the indenture;
(ii) immediately after giving effect to such transaction, no Default or Event of
Default exists; (iii) such Subsidiary Guarantor, or any Person formed by or
surviving any such consolidation or merger, would have Consolidated Net Worth
(immediately after giving effect to such transaction), equal to or greater than
the Consolidated Net Worth of such Subsidiary Guarantor immediately preceding
the transaction; (iv) the Company would be permitted by virtue of the Company's
pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the covenant described above under
the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock"; and (v) such transaction does not violate any of the covenants
described under "-- Certain Covenants."
The indenture provides that in the event of (i) the designation of any
Subsidiary Guarantor as an Unrestricted Subsidiary or (ii) a sale or other
disposition of all of the Capital Stock or all or substantially all of the
properties or assets of any Subsidiary Guarantor to a third party or an
Unrestricted Subsidiary, by way of merger, consolidation or otherwise, in any
case, in a transaction or manner that does not violate any of the covenants in
the indenture, then such Subsidiary Guarantor will be released from and relieved
of any obligations under its Subsidiary Guarantee, provided that any Net
Proceeds of such sale or other disposition are applied in accordance with the
covenant described under the caption "-- Repurchase at the Option of
Holders -- Asset Sales," and provided, further, however, that any such
termination shall occur only to the extent that all obligations of such
Subsidiary Guarantor under all of its guarantees of, and
18
under all of its pledges of assets or other security interests that secure, any
other Indebtedness of the Company or its Restricted Subsidiaries shall also
terminate upon such release, sale or disposition.
The indenture provides that (a) if the Company or any of its Restricted
Subsidiaries shall (i) transfer or cause to be transferred, any assets,
businesses, divisions, real property or equipment having an aggregate fair
market or book value in excess of $1 million to any Restricted Subsidiary that
is not a Subsidiary Guarantor or (ii) make any Investment having an aggregate
fair market or book value in excess of $1 million in any Restricted Subsidiary
that is not a Subsidiary Guarantor, or (b) if any Restricted Subsidiary that is
not a Subsidiary Guarantor shall provide a guarantee under the senior credit
facility or own any assets or properties having an aggregate fair market or book
value in excess of $1 million, then the Company shall cause such Restricted
Subsidiary (other than any Exempt Foreign Subsidiary) to execute a Subsidiary
Guarantee, in accordance with the terms of the indenture. In addition, the
Company shall not permit any of its Restricted Subsidiaries, other than a
Subsidiary Guarantor, directly or indirectly, to (i) incur, guarantee or secure
through the granting of Liens the payment of any Indebtedness of the Company or
(ii) pledge any intercompany notes representing obligations of any of its
Restricted Subsidiaries to secure the payment of any Indebtedness of the
Company, in each case, unless the Company shall cause such Restricted Subsidiary
to execute a Subsidiary Guarantee in accordance with the terms of the indenture.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of exchange notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such holder's exchange notes on a
Business Day (the "Change of Control Payment Date") not more than 60 nor less
than 30 days following such Change of Control, pursuant to the offer described
below (the "Change of Control Offer") at an offer price in cash equal to 101% of
the aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon to the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, the Company will mail
a notice to each holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase all of the exchange
notes then outstanding pursuant to the procedures required by the indenture and
described in such notice. The Company will comply with the requirements of Rule
14e-1 under the Securities Exchange Act of 1934 and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the exchange notes as a result
of a Change of Control. The Change of Control Offer is required to remain open
for at least 20 Business Days and until the close of business on the fifth
Business Day prior to the Change of Control Payment Date.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all exchange notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all
exchange notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the exchange notes so accepted, together with an
Officers' Certificate stating the aggregate principal amount of exchange notes
or portions thereof being purchased by the Company. The Paying Agent will
promptly mail or otherwise deliver to each holder of exchange notes so tendered
the Change of Control Payment for such exchange notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each holder a exchange note equal in principal amount to any unpurchased portion
of the exchange notes surrendered, if any; provided that each such exchange note
will be in a principal amount of $1,000 or an integral multiple thereof. The
Company will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the indenture are applicable. Except as described
above with respect to a Change of Control, the indenture does not contain
provisions that permit the holders of the exchange notes to require that the
19
Company repurchase or redeem the exchange notes in the event of a takeover,
recapitalization or similar transaction.
The occurrence of a Change of Control may result in a default under the
senior credit facility and give the Lenders the right to require the Company to
repay all Indebtedness outstanding thereunder. There can be no assurance that
the Company will have available funds sufficient to repay all Indebtedness owing
under the senior credit facility or to fund the purchase of the exchange notes
upon a Change of Control. In the event a Change of Control occurs at a time when
the Company does not have available funds sufficient to pay for all of the
exchange notes delivered by holders seeking to accept the Company's repurchase
offer, an Event of Default would occur under the indenture.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by the Company and
purchases all exchange notes validly tendered and not withdrawn under such
Change of Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any person (as such term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934); (ii) the Company consolidates with or merges
into another Person or any Person consolidates with, or merges into, the
Company, in any such event pursuant to a transaction in which the outstanding
voting stock of the Company is changed into or exchanged for cash, securities or
other property, other than any such transaction where (a) the outstanding voting
stock of the Company is changed into or exchanged for voting stock of the
surviving or resulting Person that is Qualified Capital Stock and (b) the
holders of the voting stock of the Company immediately prior to such transaction
own, directly or indirectly, not less than a majority of the voting stock of the
surviving or resulting Person immediately after such transaction; (iii) the
adoption of a plan relating to the liquidation or dissolution of the Company;
(iv) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any person (as defined
above) becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and
Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of
the voting stock of the Company; or (v) the first day on which a majority of the
members of the Board of Directors of the Company are not Continuing Directors.
For purposes of this definition, any transfer of an equity interest of an entity
that was formed for the purpose of acquiring voting stock of the Company will be
deemed to be a transfer of such portion of such voting stock as corresponds to
the portion of the equity of such entity that has been so transferred.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the issue date of the Series D Notes, March 11, 1998, or (ii) was
nominated for election or elected to such Board of Directors with the approval
of a majority of the Continuing Directors who were members of such Board at the
time of such nomination or election.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a holder of exchange notes to require the
Company to repurchase such exchange notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of the
Company and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
ASSET SALES
The indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case
20
may be) receives consideration at the time of such Asset Sale at least equal to
the fair market value (evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee) of the assets or
Equity Interests issued or sold or otherwise disposed of and (ii) at least 75%
of the consideration therefor received by the Company or such Restricted
Subsidiary is in the form of cash or Cash Equivalents; provided that the amount
of (x) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are
Subordinated Indebtedness or otherwise by their terms subordinated to the
exchange notes or the Subsidiary Guarantees) that are assumed by the transferee
of any such assets pursuant to a customary novation agreement that releases the
Company or such Restricted Subsidiary from further liability, and (y) any notes
or other obligations received by the Company or any such Restricted Subsidiary
from such transferee that are converted by the Company or such Restricted
Subsidiary into cash within 180 days of closing such Asset Sale (to the extent
of the cash received), shall be deemed to be cash for purposes of this
provision, and provided further, that the Company may engage in the sale or
transfer of properties or assets, including two drilling rigs and related
inventories and equipment and a contract with Tengizchevroil, to AralParker CJSC
in consideration of a note payable by AralParker CJSC in a principal amount of
up to $50 million.
Within 365 days after the receipt of any Net Proceeds from any Asset Sale,
the Company may (i) apply all or any of the Net Proceeds therefrom to repay
Indebtedness (other than Subordinated Indebtedness) of the Company or any
Restricted Subsidiary, provided, in each case, that the related loan commitment
of any revolving credit facility or other borrowing (if any) is thereby
permanently reduced by the amount of such Indebtedness so repaid, or (ii) invest
all or any part of the Net Proceeds thereof in properties and other capital
assets that replace the properties or other capital assets that were the subject
of such Asset Sale or in other properties or other capital assets that will be
used in the business of the Company and its Restricted Subsidiaries. Pending the
final application of any such Net Proceeds, the Company may temporarily reduce
borrowings under any revolving credit facility or otherwise invest such Net
Proceeds in any manner that is not prohibited by the indenture. Any Net Proceeds
from Asset Sales that are not applied or invested as provided in the first
sentence of this paragraph will be deemed to constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds equals or exceeds $15 million, the
Company will be required to (i) make an offer to purchase (the "Series D Asset
Sale Offer") the Series D Notes, if any are then outstanding, at a price equal
to 100% of the principal amount of the Series D Notes, plus accrued and unpaid
interest and (ii) in the event that any Excess Proceeds are not applied to a
Series D Asset Sale Offer, to make an offer to all holders of exchange notes (an
"Asset Sale Offer") to purchase the maximum principal amount of exchange notes
that may be purchased out of any Excess Proceeds, at an offer price in cash in
an amount equal to 100% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages thereon to the date of purchase, in accordance
with the procedures set forth in the indenture for the exchange notes. To the
extent that the aggregate amount of outstanding notes and exchange notes
tendered pursuant to a Series D Asset Sale Offer and an Asset Sale Offer,
respectively, is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of exchange notes tendered by holders thereof exceeds the
amount of Excess Proceeds not applied to a Series D Asset Sale Offer, the
Trustee shall select the exchange notes to be purchased on a pro rata basis.
Upon completion of such offer to purchase, the amount of Excess Proceeds shall
be reset at zero.
The Company will not permit any Restricted Subsidiary to enter into or
suffer to exist any agreement (other than the Series D indenture) that would
place any restriction of any kind (other than pursuant to law or regulation) on
the ability of the Company to make an Asset Sale Offer following any Asset Sale.
The Company will comply with Rule 14e-1 under the Securities Exchange Act of
1934, and any other securities laws and regulations thereunder, if applicable,
in the event that an Asset Sale occurs and the Company is required to purchase
exchange notes as described above.
21
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company) or to the direct or indirect holders of the Company's
Equity Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company or dividends or distributions payable to the Company or any Wholly Owned
Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of the Company or any Affiliate
of the Company (other than (A) any such Equity Interests owned by the Company or
any Wholly Owned Restricted Subsidiary of the Company that is a Subsidiary
Guarantor and (B) Employee Stock Repurchases); (iii) make any principal payment
on, or purchase, redeem, defease or otherwise acquire or retire for value any
Subordinated Indebtedness, except in accordance with the mandatory redemption or
repayment provisions set forth in the original documentation governing such
Indebtedness or as otherwise permitted below; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant described below under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock";
and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the Series A/B Issue Date (excluding Restricted Payments permitted by
clauses (w), (y) and (z) of the next succeeding paragraph) is less than the
sum of (i) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the Series A/B Issue Date to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate Net Equity Proceeds (A)
received by the Company from the issue or sale, subsequent to the Series
A/B Issue Date, of Qualified Capital Stock of the Company or (B) of any
other Equity Interests or debt securities of the Company that have been
issued subsequent to the Series A/B Issue Date and that have been converted
into such Qualified Capital Stock (other than any Qualified Capital Stock
sold to a Restricted Subsidiary of the Company or issued upon conversion of
the Convertible Preferred Stock), plus (iii) to the extent not otherwise
included in Consolidated Net Income, the net reduction in Investments in
Unrestricted Subsidiaries and Affiliates resulting from dividends,
repayments of loans or advances, or other transfers of assets (including
reductions in guarantees), in each case to the Company or a Restricted
Subsidiary after the Series A/B Issue Date from any Unrestricted Subsidiary
or Affiliate or from the redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary (valued as provided below), plus (iv) $15 million.
The foregoing provisions will not prohibit any of the following: (w) any
purchase, redemption or other acquisition or retirement, in each case at a price
less than par, of up to $75 million in aggregate principal amount of the
Company's 5 1/2% Convertible Subordinated Notes due 2004, prior to their stated
maturity; (x) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the indenture; (y) the redemption,
22
repurchase, retirement or other acquisition of any Equity Interests of the
Company in exchange for, or out of the Net Equity Proceeds of, the substantially
concurrent sale (other than to a Restricted Subsidiary of the Company) of
Qualified Capital Stock of the Company (other than any Disqualified Stock);
provided that the amount of any such Net Equity Proceeds that are utilized for
any such redemption, repurchase, retirement or other acquisition shall be
excluded from clause (c)(ii) of the preceding paragraph; and (z) the defeasance,
redemption or repurchase of Subordinated Indebtedness with the net cash proceeds
from an incurrence of Permitted Refinancing Indebtedness or the substantially
concurrent sale (other than to a Restricted Subsidiary of the Company) of
Qualified Capital Stock of the Company; provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase, retirement
or other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph.
For purposes of the foregoing provisions, the amount of any Restricted
Payment (other than cash) shall be the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) on the date of the Restricted Payment of the asset(s)
proposed to be transferred by the Company or such Restricted Subsidiary, as the
case may be, pursuant to the Restricted Payment. Not later than the date of
making any Restricted Payment, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this "Restricted
Payments" covenant were computed, which calculations may be based upon the
Company's latest available financial statements.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would be permitted by the provisions
of this "Restricted Payments" covenant and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. For purposes of
making such determination, all outstanding Investments by the Company and its
Restricted Subsidiaries (except to the extent repaid in cash prior to such
designation) in the Restricted Subsidiary so designated will be deemed to be
Restricted Payments at the time of such designation and will reduce the amount
available for Restricted Payments under paragraph (c) of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the Fair Market Value of such Investments at the time of such
designation.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Indebtedness but excluding any Permitted
Indebtedness) and that the Company will not issue any Disqualified Stock and
will not permit any of its Restricted Subsidiaries to issue any shares of
preferred stock; provided, however, that the Company may incur Indebtedness
(including Acquired Indebtedness) or issue shares of Disqualified Stock, and any
Restricted Subsidiary may incur Indebtedness (including Acquired Indebtedness),
if the Fixed Charge Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 2.0 to 1.0,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The indenture also provides that neither the Company nor any Subsidiary
Guarantor will, directly or indirectly, in any event incur any Indebtedness that
by its terms (or by the terms of any agreement governing such Indebtedness) is
subordinated to any other Indebtedness of the Company or such Subsidiary
Guarantor, as the case may be, unless such Indebtedness is also by its terms (or
by the terms of any agreement governing such Indebtedness) made expressly
subordinate to the exchange notes or the Subsidiary Guarantee of such Subsidiary
Guarantor, as the case may be, to the same extent and in the same manner as such
Indebtedness is subordinated pursuant to subordination provisions that are most
favorable to the holders of any other Indebtedness of the Company or such
Subsidiary Guarantor, as the case may be.
23
LIENS
The indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume, affirm
or suffer to exist or become effective any Lien of any kind, except for
Permitted Liens, upon any of their respective property or assets, whether owned
on or acquired after the Issue Date, or any income, profits or proceeds
therefrom, to secure (a) any Indebtedness of the Company or such Restricted
Subsidiary (if it is not also a Subsidiary Guarantor), unless prior to, or
contemporaneously therewith, the exchange notes are equally and ratably secured,
or (b) any Indebtedness of any Subsidiary Guarantor, unless prior to, or
contemporaneously therewith, the Subsidiary Guarantees are equally and ratably
secured; provided, however, that if such Indebtedness is expressly subordinated
to the exchange notes or the Subsidiary Guarantees, the Lien securing such
Indebtedness will be subordinated and junior to the Lien securing the exchange
notes or the Subsidiary Guarantees, as the case may be, with the same relative
priority as such Indebtedness has with respect to the exchange notes or the
Subsidiary Guarantees. The foregoing covenant will not apply to any Lien
securing Acquired Indebtedness, provided that any such Lien extends only to the
property or assets that were subject to such Lien prior to the related
acquisition by the Company or such Restricted Subsidiary and was not created,
incurred or assumed in contemplation of such transaction. The incurrence of
additional secured Indebtedness by the Company and its Restricted Subsidiaries
is subject to further limitations on the incurrence of Indebtedness as described
under "-- Incurrence of Indebtedness and Issuance of Preferred Stock."
SALE-AND-LEASEBACK TRANSACTIONS
The indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale-and-leaseback
transaction; provided that the Company or any Restricted Subsidiary, as
applicable, may enter into a sale-and-leaseback transaction if (i) the Company
could have (a) incurred Indebtedness in an amount equal to the Attributable
Indebtedness relating to such sale-and-leaseback transaction pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "-- Incurrence of Additional
Indebtedness and Issuance of Preferred Stock" and (b) incurred a Lien to secure
such Indebtedness pursuant to the covenant described above under the caption
"-- Liens," (ii) the gross cash proceeds of such sale-and-leaseback transaction
are at least equal to the fair market value (as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to the
Trustee) of the property that is the subject of such sale-and-leaseback
transaction and (iii) the transfer of assets in such sale-and-leaseback
transaction is permitted by, and the Company applies the proceeds of such
transaction in compliance with, the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales."
TRANSACTIONS WITH AFFILIATES
The indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, (a) sell, lease, transfer or otherwise
dispose of any of its properties, assets or securities to, (b) purchase or lease
any property, assets or securities from, (c) make any Investment in, or (d)
enter into or suffer to exist any other transaction or series of related
transactions with, or for the benefit of, any Affiliate of the Company unless
(i) such transaction or series of transactions is on terms that are no less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
those that would be available in a comparable arm's length transaction with an
unrelated third party, (ii) with respect to any one transaction or series of
related transactions involving aggregate payments in excess of $1 million, the
Company delivers an Officers' Certificate to the Trustee certifying that such
transaction or series of related transactions complies with clause (i) above,
and (iii) with respect to a transaction or series of related transactions
involving payments in excess of $5 million, the Company delivers an Officers'
Certificate to the Trustee certifying that (A) such transaction or series of
related transactions complies with clause (i) above and (B) such transaction or
series of related transactions has been approved by a majority of the
Disinterested Directors of the Company; provided, however, that the foregoing
restriction shall not apply to (u) any arrangements in effect on the Series A/B
Issue Date, (v) transactions between or among the
24
Company and its Wholly Owned Restricted Subsidiaries, (w) loans or advances to
officers, directors and employees of the Company or any Restricted Subsidiary
made in the ordinary course of business and consistent with past practices of
the Company and its Restricted Subsidiaries in an aggregate amount not to exceed
$1 million outstanding at any one time, (x) indemnities of officers, directors
and employees of the Company or any Restricted Subsidiary permitted by bylaw or
statutory provisions, (y) the payment of reasonable and customary regular fees
to directors of the Company or any of its Restricted Subsidiaries who are not
employees of the Company or any Affiliate and (z) the Company's employee
compensation and other benefit arrangements.
ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED SUBSIDIARIES
The indenture provides that the Company (i) will not, and will not permit
any Wholly Owned Restricted Subsidiary of the Company to, transfer, convey,
sell, or otherwise dispose of any Capital Stock of any Wholly Owned Restricted
Subsidiary of the Company to any Person (other than the Company or a Wholly
Owned Restricted Subsidiary of the Company), unless (a) such transfer,
conveyance, sale, or other disposition is of all the Capital Stock of such
Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, or other disposition are applied in accordance with
the covenant described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales," and (ii) will not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests to any Person
other than to the Company or a Wholly Owned Restricted Subsidiary of the
Company; except, in the case of both clauses (i) and (ii) above, with respect to
dispositions or issuances by a Wholly Owned Restricted Subsidiary of the Company
as contemplated in clauses (i) and (ii) of the definition of "Wholly Owned
Restricted Subsidiary."
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (r) Existing
Indebtedness as in effect on the Series A/B Issue Date, (s) the senior credit
facility as in effect as of the Series A/B Issue Date, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the senior
credit facility as in effect on the Series A/B Issue Date, (t) the indenture,
the exchange notes, the Series D indenture, and the Series D Notes, (u)
applicable law, (v) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Series D indenture and the
indenture to be incurred, (w) by reason of customary nonassignment provisions in
leases entered into in the ordinary course of business and customary provisions
in other agreements that restrict assignment of such agreements or rights
thereunder, (x) customary restrictions contained in asset sale agreements
limiting the transfer of such assets pending the closing of such sale, (y)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired, or (z) Permitted Refinancing Indebtedness with
respect to any indebtedness referred to in clauses (r), (t) and (v) above,
provided that the restrictions contained in the agreements governing
25
such Permitted Refinancing Indebtedness are no more restrictive than those
contained in the agreements governing the Indebtedness being refinanced.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
Person unless (i) the Company is the surviving corporation or the Person formed
by or surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the Person to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all the obligations
of the Company under the exchange notes and the indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
except in the case of a merger of the Company with or into a Wholly Owned
Subsidiary of the Company, immediately after such transaction no Default or
Event of Default exists; and (iv) except in the case of a merger of the Company
with or into a Wholly Owned Subsidiary of the Company, the Company or the Person
formed by or surviving any such consolidation or merger (if other than the
Company), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made (A) will have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated Net
Worth of the Company immediately preceding the transaction and (B) will, at the
time of such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter period,
be permitted to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock."
BUSINESS ACTIVITIES
The indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, engage in any business other than (i) the Drilling
Business, (ii) such other businesses as the Company or its Restricted
Subsidiaries are engaged in on the Series A/B Issue Date and (iii) such other
business activities as are reasonably related or incidental thereto.
REPORTS
The indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any exchange notes are outstanding,
the Company will furnish to the holders of exchange notes (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Company were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the consolidated financial
condition and results of operations of the Company and, with respect to the
annual information only, a report thereon by the Company's certified independent
accountants and (ii) all information that would be required to be contained in a
filing with the Commission on Form 8-K if the Company were required to file such
Form. In addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request. In addition, the Company has agreed
that, for so long as any exchange notes remain outstanding, it will furnish to
the holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
26
EVENTS OF DEFAULT AND REMEDIES
The indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the exchange notes; (ii) default in payment
when due of the principal of or premium, if any, on the exchange notes; (iii)
failure by the Company to comply with the provisions described under the caption
"-- Repurchase at the Option of Holders" or "-- Certain Covenants -- Merger,
Consolidation or Sale of Assets"; (iv) failure by the Company for 45 days after
notice to comply with any of its other agreements in the indenture or the
exchange notes; (v) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or
is created after the date of the indenture, which default (A) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (B) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $7.5 million or more; (vi) failure
by the Company or any of its Subsidiaries to pay final judgments aggregating in
excess of $10.0 million, which judgments are not paid, discharged or stayed for
a period of 60 days; (vii) any Subsidiary Guarantee shall for any reason cease
to be, or be asserted by the Company or any Subsidiary Guarantor, as applicable,
not to be, in full force and effect (except pursuant to the release of any
Subsidiary Guarantee in accordance with the indenture); and (viii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Restricted Subsidiaries that constitute a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in aggregate principal amount of the then outstanding
exchange notes may declare all the exchange notes to be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, with respect to the
Company, any Restricted Subsidiary that constitutes a Significant Subsidiary or
any group of Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding exchange notes will become due and
payable without further action or notice. Holders of the exchange notes may not
enforce the indenture or the exchange notes except as provided in the indenture.
Subject to certain limitations, holders of a majority in aggregate principal
amount of the then outstanding exchange notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
exchange notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the exchange
notes then outstanding by notice to the Trustee may on behalf of the holders of
all of the exchange notes waive any existing Default or Event of Default and its
consequences under the indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the exchange notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
exchange notes, the indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each holder of exchange notes by
accepting a note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the exchange notes. Such waiver
may not be effective to waive liabilities
27
under the federal securities laws and it is the view of the Commission that such
a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of the
obligations of itself and the Subsidiary Guarantors discharged with respect to
the outstanding exchange notes ("Legal Defeasance") except for (i) the rights of
holders of outstanding exchange notes to receive payments in respect of the
principal of, premium, if any, and interest and Liquidated Damages on such
exchange notes when such payments are due from the trust referred to below, (ii)
the Company's obligations with respect to the exchange notes concerning issuing
temporary exchange notes, registration of exchange notes, mutilated, destroyed,
lost or stolen exchange notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the exchange notes. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under the caption "-- Events of
Default and Remedies" will no longer constitute an Event of Default with respect
to the exchange notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the exchange notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages on the outstanding exchange notes on the stated maturity or
on the applicable redemption date, as the case may be, and the Company must
specify whether the exchange notes are being defeased to maturity or to a
particular redemption date; (ii) in the case of Legal Defeasance, the Company
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the holders of the
outstanding exchange notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the holders of the outstanding exchange notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied
to such deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than the indenture or the Series D Indenture) to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound; (vi) the Company must have delivered to the
Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of exchange notes over the other creditors of the
Company with the intent of
28
defeating, hindering, delaying or defrauding creditors of the Company or others;
and (viii) the Company must deliver to the Trustee an Officers' Certificate and
an opinion of counsel, which, taken together, state that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange the exchange notes in accordance with the
indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the indenture. The Company is not required to transfer or exchange
any exchange note selected for redemption. Also, the Company is not required to
transfer or exchange any exchange note for a period of 15 days before a
selection of exchange notes to be redeemed.
The registered holder of a exchange note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the indenture or
the exchange notes may be amended or supplemented with the consent of the
holders of at least a majority in aggregate principal amount of the exchange
notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, exchange
notes), and any existing default or compliance with any provision of the
indenture or the exchange notes may be waived with the consent of the holders of
a majority in aggregate principal amount of the then outstanding exchange notes
(including consents obtained in connection with a tender offer or exchange offer
for exchange notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any exchange notes held by a non-consenting holder): (i) reduce
the principal amount of exchange notes whose holders must consent to an
amendment, supplement or waiver; (ii) reduce the principal of or change the
fixed maturity of any exchange note or alter the provisions with respect to the
redemption of the exchange notes (other than provisions relating to the
covenants described above under the caption "-- Repurchase at the Option of
Holders"); (iii) reduce the rate of or change the time for payment of interest
on any exchange note; (iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the exchange notes (except a
rescission of acceleration of the exchange notes by the holders of at least a
majority in aggregate principal amount of the exchange notes and a waiver of the
payment default that resulted from such acceleration); (v) make any exchange
note payable in money other than that stated in the exchange notes; (vi) make
any change in the provisions of the indenture relating to waivers of past
Defaults or the rights of holders of exchange notes to receive payments of
principal of or premium, if any, or interest on the exchange notes; (vii) waive
a redemption payment with respect to any exchange note (other than a payment
required by one of the covenants described above under the caption
"-- Repurchase at the Option of Holders"); (viii) alter the ranking of the
exchange notes relative to other Indebtedness of the Company; or (ix) make any
change in the foregoing amendment and waiver provisions. In addition, without
the consent of holders of not less than 66 2/3% in aggregate principal amount of
the exchange notes then outstanding, no such amendment, supplement or waiver may
amend, change or modify the obligation of the Company to make and consummate a
Change of Control Offer in the event of a Change of Control or make and
consummate an Asset Sale Offer with respect to any Asset Sale or modify any of
the provisions or definitions with respect thereto.
Notwithstanding the foregoing, without the consent of any holder of
exchange notes, the Company and the Trustee may amend or supplement the
indenture or the exchange notes to cure any ambiguity, defect or inconsistency,
to provide for uncertificated exchange notes in addition to or in place of
certificated exchange notes, to provide for the assumption of the Company's
obligations to holders of exchange notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the holders of exchange notes or that does not adversely affect the
legal
29
rights under the indenture of any such holder, to secure the exchange notes
pursuant to the requirements of the "Liens" covenant or otherwise or to comply
with requirements of the Commission in order to effect or maintain the
qualification of the indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The holders of a majority in aggregate principal amount of the then
outstanding exchange notes will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee, subject to certain exceptions. The indenture provides that in case an
Event of Default shall occur (which shall not be cured), the Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to such provisions, the Trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request of any holder of exchange notes, unless such holder
shall have offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
JPMorgan Chase Bank acts as trustee under the indentures pursuant to which
the Series A/B Notes and the Series D Notes were issued. The occurrence of a
default with respect to any of the exchange notes, the Series A/B Notes or the
Series D Notes could create a conflicting interest for JPMorgan Chase Bank under
the Trust Indenture Act. If the default is not cured or waived after JPMorgan
Chase Bank acquires a conflicting interest, it generally would be required by
the Trust Indenture Act to eliminate the conflicting interest or resign as
trustee under the indenture for the notes or the indentures for the Series A/B
Notes and Series D Notes.
GOVERNING LAW
The indenture and the Subsidiary Guarantees are, and the exchange notes
will be, governed by the laws of the State of New York.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the exchange notes will initially be issued in
the form of one or more fully registered global exchange notes (collectively,
the "Global Note"). The Global Note will be deposited with, or on behalf of, The
Depository Trust Company (the "Depository") and registered in the name of Cede &
Co., as nominee of the Depository (such nominee being referred to herein as the
"Global Note holder").
The Depository is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depository's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depository's
Participants include securities brokers and dealers (including the dealer
manager), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depository's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depository's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depository only thorough the Depository's
Participants or the Depository's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Note, the Depository will credit the
accounts of Participants designated by the dealer manager
30
with portions of the principal amount of the Global Note and (ii) ownership of
the exchange notes evidenced by the Global Note will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the Depository (with respect to the interests of the Depository's
Participants), the Depository's Participants and the Depository's Indirect
Participants. Prospective purchasers are advised that the laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own ("Certificated Securities"). Consequently, the ability
to transfer exchange notes evidenced by the Global Note will be limited to such
extent.
So long as the Global Note holder is the registered owner of all exchange
notes, the Global Note holder will be considered the sole holder under the
indenture of all exchange notes evidenced by the Global Note. Beneficial owners
of exchange notes evidenced by the Global Note will not be considered the owners
or holders thereof under the indenture for any purpose, including with respect
to the giving of any directions, instructions or approvals to the Trustee
thereunder. Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records of the Depository or for maintaining,
supervising or reviewing any records of the Depository relating to the exchange
notes.
Payments in respect of the principal of, premium, if any, interest, if any,
on any exchange notes registered in the name of the Global Note holder on the
applicable record date will be made by the Company through the paying agent to
or at the direction of the Global Note holder in its capacity as the registered
holder under the indenture. Under the terms of the indenture, the Company and
the Trustee may treat the persons in whose names exchange notes, including the
Global Note, are registered as the owners thereof for the purpose of receiving
such payments. Consequently, neither the Company nor the Trustee has or will
have any responsibility or liability for the payment of such amounts to
beneficial owners of exchange notes. The Company believes, however, that it is
currently the policy of the Depository to immediately credit the accounts of the
relevant Participants with such payments, in amounts proportionate to their
respective holdings of beneficial interests in the relevant security as shown on
the records of the Depository. Payments by the Depository's Participants and the
Depository's Indirect Participants to the beneficial owners of exchange notes
will be governed by standing instructions and customary practice and will be the
responsibility of the Depository's Participants or the Depository's Indirect
Participants.
As long as the exchange notes are represented by a Global Note, the
Depository's nominee will be the holder of the exchange notes and therefore will
be the only entity that can exercise a right to require repurchase of the
exchange notes. See "-- Certain Covenants" and "-- Repurchase at the Option of
Holders." Notice by Participants or Indirect Participants or by owners of
beneficial interests in a Global Note held through such Participants or Indirect
Participants of the exercise of the option to elect repurchase of beneficial
interests in exchange notes represented by Global Note must be transmitted to
the Depository in accordance with its procedures on a form required by the
Depository and provided to Participants. In order to ensure that the
Depository's nominee will timely exercise a right to require repurchase with
respect to a particular exchange note, the beneficial owner of such exchange
note must instruct the broker or other Participant or Indirect Participant
through which it holds an interest in such exchange note to notify the
Depository of its desire to exercise a right to require repurchase. Different
firms have different cut-off times for accepting instructions from their
customers and, accordingly, each beneficial owner should consult the broker or
other Participant or Indirect Participant through which it holds an interest in
a exchange note in order to ascertain the cut-off time by which such an
instruction must be given in order for timely notice to be delivered to the
Depository. The Company will not be liable for any delay in delivery to the
paying agent of notices of the exercise of any option to elect repurchase.
If (i) the Company notifies the Trustee in writing that the Depository is
no longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of exchange
notes in the form of Certificated Securities under the indenture, then, upon
surrender by the Global Note holder of its Global Note, exchange notes in such
form will be issued to each person that the Global Note holder and the
Depository identify as being the beneficial owner of the related exchange notes.
31
Neither the Company nor the Trustee will be liable for any delay by the
Global Note holder or the Depository in identifying the beneficial owners of
exchange notes and the Company and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the Global Note holder or the
Depository for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The indenture requires that payments in respect of the exchange notes
represented by the Global Note (including principal, premium, if any, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Note holder. With
respect to Certificated Securities, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the holders
thereof or, if no such account is specified, by mailing a check to each such
holder's registered address. The exchange notes represented by the Global Note
are expected to be eligible to trade in the PORTAL Market and to trade in the
Depository's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such exchange notes will, therefore, be required by
the Depository to be settled in immediately available funds. The Company expects
that secondary trading in the Certificated Securities will also be settled in
immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company, the Subsidiary Guarantors and the dealer manager entered into
the Registration Rights Agreement on May 2, 2002. Pursuant to the Registration
Rights Agreement, the Company agreed to make this registered exchange offer.
Under existing SEC interpretations, the exchange notes will, in general, be
freely transferable without further registration under the Securities Act;
provided, however, that in the case of broker-dealers participating in the
Registered Exchange Offer, a prospectus meeting the requirements of the
Securities Act will be delivered upon resale by such broker-dealers in
connection with resales of the exchange notes. If (i) the Company is not
permitted to consummate this exchange offer because this exchange offer is not
permitted by applicable law or Commission policy or (ii) any holder of Transfer
Restricted Securities notifies the Company within the specified time period that
(A) it is prohibited by law or Commission policy from participating in this
Exchange Offer or (B) that it may not resell the exchange notes acquired by it
in this exchange offer to the public without delivering a prospectus and this
prospectus is not appropriate or available for such resales or (C) that it is a
broker-dealer and owns new notes acquired directly from the Company or an
affiliate of the Company, the Company will file with the Commission a shelf
registration statement to cover resales of the affected notes by the holders
thereof who satisfy certain conditions relating to the provision of information
in connection with the shelf registration statement. The Company will use its
reasonable best efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the Commission. For purposes of
the foregoing, "Transfer Restricted Securities" means each exchange note until
(i) the date on which such exchange note has been exchanged by a person other
than a broker-dealer for an outstanding note in the Registered Exchange Offer,
(ii) following the exchange by a broker-dealer in the Registered Exchange Offer
of an exchange note for an outstanding note, the date on which such exchange
note is sold to a purchaser who receives from such broker-dealer on or prior to
the date of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such exchange note has been
effectively registered under the Securities Act of 1933 and disposed of in
accordance with the shelf registration statement or (iv) the date on which such
exchange note is distributed to the public pursuant to Rule 144 under the
Securities Act of 1933.
If we become obligated to file it, we will use our reasonable best efforts
to file it with the Commission on or prior to 30 days after such filing
obligation arises (and in any event within 90 days after May 2, 2002) and to
cause the Shelf Registration to be declared effective by the Commission on or
prior to 90 days after such obligation arises. If (a) we fail to file any of the
Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of the Registration
Statements is not declared effective by the Commission on or prior to the date
specified for
32
such effectiveness (the "Effectiveness Target Date"), (c) the Company fails to
consummate the Registered Exchange Offer within 45 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement, or (d) the shelf registration statement or the Registration Statement
of which this Prospectus is a part is declared effective but thereafter ceases
to be effective or usable in connection with this Exchange Offer or resales of
Transfer Restricted Securities, as the case may be, during the periods specified
in the Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the interest rate on the
Transfer Restricted Securities, with respect to the first 90-day period
immediately following the occurrence of such Registration Default will increase
("Liquidated Damages") by 0.50% per annum and will increase by an additional
0.50% per annum with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of 2% per annum with respect to all Registration Defaults. All accrued
Liquidated Damages will be paid by the Company on each interest payment date to
the Global Note holder by wire transfer of immediately available funds and to
holders of Certificated Securities by wire transfer to the accounts specified by
them or by mailing checks to their registered addresses if no such accounts have
been specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Each holder of the outstanding notes who wishes to exchange such
outstanding notes for exchange notes in this Exchange Offer will be required to
make certain representations, including representations that (i) any exchange
notes to be received by it will be acquired in the ordinary course of business,
(ii) it is not participating in, and it has no arrangement with any person to
participate in the distribution (within the meaning of the Securities Act) of
the exchange notes and (iii) it is neither an affiliate of the Company, as
defined in Rule 405 of the Securities Act, nor a broker-dealer tendering notes
acquired directly from the Company for its own account. If the holder is a
broker-dealer that will receive exchange notes for its own account in exchange
for outstanding notes that were acquired as a result of market-making activities
or other trading activities, it will be required to acknowledge that it will
deliver a prospectus in connection with any resale of such exchange notes. The
Company agreed, for a period of 180 days after consummation of this Exchange
Offer, to make available a prospectus meeting the requirements of the Securities
Act to any such broker-dealer for use in connection with any resale of any
exchange notes acquired in the Registered Exchange Offer. Holders of outstanding
notes will also be required to deliver information to be used in connection with
the shelf registration statement and to provide comments on the shelf
registration statement within the time periods set forth in this Registration
Rights Agreement in order to have their outstanding notes included in the shelf
registration statement and benefit from the provisions regarding Liquidated
Damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
The term "additional notes" means any new Series A notes originally issued
after the Issue Date.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person,
33
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition to any Person other than the Company or any of its Restricted
Subsidiaries (including, without limitation, by means of a sale-and- leaseback
transaction or a merger or consolidation) (collectively, for purposes of this
definition, a "transfer"), directly or indirectly, in one or a series of related
transactions, of (a) any Capital Stock of any Restricted Subsidiary held by the
Company or any other Restricted Subsidiary, (b) all or substantially all of the
properties and assets of any division or line of business of the Company or any
of its Restricted Subsidiaries, (c) any Event of Loss or (d) any other
properties or assets of the Company or any of its Restricted Subsidiaries other
than transfers of cash, Cash Equivalents, accounts receivable, or properties or
assets in the ordinary course of business; provided that the sale, lease,
conveyance or other disposition of all or substantially all of the properties or
assets of the Company and its Restricted Subsidiaries, taken as a whole, will be
governed by the provisions of the indenture described above under the caption
"-- Repurchase at the Option of Holders -- Change of Control" and/or the
provisions described above under the caption "-- Certain Covenants -- Merger,
Consolidation or Sale of Assets" and not by the provisions of the "Asset Sales"
covenant. For the purposes of this definition, the term "Asset Sale" also shall
not include any of the following: (i) any transfer of properties or assets to an
Unrestricted Subsidiary, if such transfer is permitted under the "Restricted
Payments" covenant described above; (ii) sales of damaged, worn-out or obsolete
equipment or assets that, in the Company's reasonable judgment, are either (A)
no longer used or (B) no longer useful in the business of the Company or its
Restricted Subsidiaries; (iii) any lease of any property entered into in the
ordinary course of business and with respect to which the Company or any
Restricted Subsidiary is the lessor, except any such lease that provides for the
acquisition of such property by the lessee during or at the end of the term
thereof for an amount that is less than the fair market value thereof at the
time the right to acquire such property is granted; (iv) any trade or exchange
by the Company or any Restricted Subsidiary of one or more drilling rigs for one
or more other drilling rigs owned or held by another Person, provided that (A)
the Fair Market Value of the drilling rig or rigs traded or exchanged by the
Company or such Restricted Subsidiary (including any cash or Cash Equivalents to
be delivered by the Company or such Restricted Subsidiary) is reasonably
equivalent to the Fair Market Value of the drilling rig or rigs (together with
any cash or Cash Equivalents) to be received by the Company or such Restricted
Subsidiary and (B) such exchange is approved by a majority of the Disinterested
Directors of the Company; (v) any transfer by the Company or any Restricted
Subsidiary to its customers of drill pipe, tools and associated drilling
equipment utilized in connection with a drilling contract for the employment of
a drilling rig in the ordinary course of business and consistent with past
practice; and (vi) any transfers that, but for this clause (vi), would be Asset
Sales, if (A) the Company elects to designate such transfers as not constituting
Asset Sales and (B) after giving effect to such transfers, the aggregate Fair
Market Value of the properties or assets transferred in such transaction or any
such series of related transactions so designated by the Company does not exceed
$500,000.
"Attributable Indebtedness" in respect of a sale-and-leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale-and-leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended). As used in the preceding sentence, the "net rental
payments" under any lease for any such period shall mean the sum of rental and
other payments required to be paid with respect to such period by the lessee
thereunder, excluding any amounts required to be paid by such lessee on account
of maintenance and repairs, insurance, taxes, assessments, water rates or
similar charges. In the case of any lease that is terminable by the lessee upon
payment of penalty, such net rental payment shall also include the amount of
such penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated.
34
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited), (iv) in the case of a limited liability
corporation or similar entity, any membership or other similar interests
therein; and (v) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity
of 365 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (ii) demand and time deposits and certificates of deposit or
acceptances with a maturity of 365 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500 million; (iii) commercial
paper with a maturity of 270 days or less issued by a corporation that is not an
Affiliate of the Company and is organized under the laws of any state of the
United States or the District of Columbia and rated at least A-2 by Standard and
Poor's Ratings Group (or its successors) or at least P-2 by Moody's Investors
Service, Inc. (or its successors); (iv) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clause (i) above entered into with any commercial bank meeting the
specifications of clause (ii) above; (v) overnight bank deposits and bankers'
acceptances at any commercial bank meeting the qualifications specified in
clause (ii) above; (vi) deposits available for withdrawal on demand with any
commercial bank not meeting the qualifications specified in clause (ii) above,
provided all such deposits do not exceed $5 million in the aggregate at any one
time; (vii) demand and time deposits and certificates of deposit with any
commercial bank organized in the United States not meeting the qualifications
specified in clause (ii) above, provided that such deposits and certificates
support bond, letter of credit and other similar types of obligations incurred
in the ordinary course of business; and (viii) investments in money market or
other mutual funds substantially all of whose assets comprise securities of the
types described in clauses (i) through (v) above. "Consolidated Cash Flow"
means, with respect to any Person for any period, the Consolidated Net Income of
such Person for such period plus (i) an amount equal to any extraordinary loss
plus any net loss realized in connection with an Asset Sale (to the extent such
losses were deducted in computing such Consolidated Net Income), plus (ii)
provision for taxes based on income or profits of such Person and its Restricted
Subsidiaries for such period, to the extent that such provision for taxes was
included in computing such Consolidated Net Income, plus (iii) consolidated net
interest expense of such Person and its Restricted Subsidiaries for such period,
whether paid or accrued and whether or not capitalized (including, without
limitation, amortization of original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations, imputed
interest with respect to Attributable Indebtedness, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Interest Rate
Protection Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill, debt issuance costs and other intangibles
but excluding amortization of prepaid cash expenses that were paid in a prior
period) and other non-cash charges (including any provision for the reduction in
the carrying value of assets recorded in accordance with GAAP but excluding any
such non-cash charge to the extent that it represents an accrual of or reserve
for cash charges in any future period or amortization of a prepaid cash expense
that was paid in a prior period) of such Person and its Restricted Subsidiaries
for such period to the extent that such depreciation, amortization and other
non-cash charges were deducted in computing such Consolidated Net Income, minus
(v) any non-cash items increasing the Consolidated Net Income of such Person and
its Restricted Subsidiaries during such period (excluding any such items that
represent the reversal of any accrual of, or cash reserve for, anticipated cash
charges in any prior period commencing subsequent to the Series A/B Issue Date),
in each case, on a consolidated
35
basis and determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Restricted Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in same proportion) that the Net
Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount would
be permitted at the date of determination to be dividended to the Company by
such Restricted Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Restricted
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof that is a Subsidiary Guarantor; (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders; (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded; and (iv) the cumulative effect of a
change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Restricted Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the Series A/B Issue Date in the book value of
any asset owned by such Person or a consolidated Restricted Subsidiary of such
Person, (y) all investments as of such date in unconsolidated Subsidiaries and
in Persons that are not Subsidiaries (except, in each case, Permitted
Investments), and (z) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in accordance
with GAAP.
"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time that were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or futures contract or other similar agreement or arrangement designed to
protect against or manage such Person's or any of its Subsidiaries exposure to
fluctuations in foreign currency exchange rates.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors of the Company is
required to deliver a resolution of the Board of Directors under the indenture,
a member of the Board of Directors of the Company who does not have any material
direct or indirect financial interest (other than an interest arising solely
from the beneficial ownership of Capital Stock of the Company) in or with
respect to such transaction or series of transactions.
36
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
on which the new notes mature.
"Drilling Business" means (i) the drilling for oil, gas or other
hydrocarbons, whether offshore or onshore, and whether as an agent or principal,
and (ii) any business relating to or arising from drilling for oil, gas or other
hydrocarbons, including, without limitation, the rental of drill pipe, tools or
other equipment.
"Employee Stock Repurchases" means purchases by the Company of any of its
Capital Stock from employees for the purpose of permitting such employees to pay
personal income tax obligations with the proceeds, provided that the aggregate
amount of all such purchases shall not exceed $500,000 during any fiscal year of
the Company.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Loss" means, with respect to any drilling rig or similar or
related property or asset of the Company or any Restricted Subsidiary, (i) any
damage to such drilling rig or similar or related property or asset that results
in an insurance settlement with respect thereto on the basis of a total loss or
a constructive or compromised total loss or (ii) the confiscation, condemnation
or requisition of title to such drilling rig or similar or related property or
asset by any government or instrumentality or agency thereof. An Event of Loss
shall be deemed to occur as of the date of the insurance settlement,
confiscation, condemnation or requisition of title, as applicable.
The term "exchange notes" means the Company's 10 1/8% Senior Notes due 2009
issued in exchange for the new notes and any additional new notes.
"Exempt Foreign Subsidiary" means (i) any Restricted Subsidiary engaged in
the Drilling Business exclusively outside the United States of America,
irrespective of its jurisdiction of incorporation and (ii) any other Restricted
Subsidiary whose assets (excluding any cash and Cash Equivalents) consist
exclusively of Capital Stock or Indebtedness of one or more Restricted
Subsidiaries described in clause (i) of this definition, that, in any case, is
so designated by the Company in an Officers' Certificate delivered to the
Trustee and (a) is not a guarantor of, and has not granted any Lien to secure,
the senior credit facility or any other Indebtedness of the Company or any
Restricted Subsidiary other than another Exempt Foreign Subsidiary and (b) does
not have total assets that, when aggregated with the total assets of any other
Exempt Foreign Subsidiary, exceed 10% of the Company's consolidated total
assets, as determined in accordance with GAAP, as reflected on the Company's
most recent quarterly or annual balance sheet. The Company may revoke the
designation of any Exempt Foreign Subsidiary by notice to the Trustee.
"Existing Indebtedness" means up to $8 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the senior credit facility) in existence on the Series A/B
Issue Date, until such amounts are repaid.
"Fair Market Value" means, with respect to any asset or Investment, the
fair market value of such asset or Investment at the time of the event requiring
such determination, and, with respect to any assets or Investment in excess of
$5 million (other than cash or Cash Equivalents) as determined by a reputable
appraisal firm that is, in the reasonable judgment of the Board of Directors of
the Company, qualified to perform the task for which such firm has been engaged
and independent with respect to the Company.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense (net of any interest income) of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued
(excluding amortization of debt issuance costs and including, without
limitation, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Indebtedness, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
37
bankers' acceptance financings, and net payments (if any) pursuant to Interest
Rate Protection Obligations); (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such period;
(iii) any interest expense on Indebtedness of another Person that is guaranteed
by such Person or one of its Restricted Subsidiaries or secured by a Lien on
assets of such Person or one of its Restricted Subsidiaries (whether or not such
guarantee or Lien is called upon); and (iv) the product of (A) all cash dividend
payments (and non-cash dividend payments in the case of a Person that is a
Restricted Subsidiary) on any series of preferred stock of such Person, to the
extent such preferred stock is owned by Persons other than such Person or its
Restricted Subsidiaries, times (B) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person for
such period. In the event that the Company or any of its Restricted Subsidiaries
incurs, assumes, guarantees or redeems any Indebtedness (other than revolving
credit borrowings) or issues preferred stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions of businesses that
have been made by the referent Person or any of its Restricted Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period; (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded; and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
The term "guarantee" means, as applied to any obligation, (i) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of all or any
part of such obligation, including, without limiting the foregoing, the payment
of amounts drawn down under letters of credit. When used as a verb, "guarantee"
has a corresponding meaning.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any obligations in respect of
Currency Hedge Obligations or Interest Rate Protection Obligations, except any
such balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing indebtedness (other than letters of credit, Currency
Hedge
38
Obligations and Interest Rate Protection Obligations) would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
as well as all indebtedness of others secured by a Lien on any asset of such
Person (whether or not such indebtedness is assumed by such Person) and, to the
extent not otherwise included, the guarantee by such Person of any Indebtedness
of any other Person.
"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements or arrangements designed to protect
against or manage such Person's or any of its Subsidiaries' exposure to
fluctuations in interest rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that the following shall not constitute Investments: (i) an acquisition
of assets, Equity Interests or other securities by the Company for consideration
consisting of common equity securities of the Company, (ii) extensions of trade
credit or other advances to customers on commercially reasonable terms in
accordance with normal trade practices or otherwise in the ordinary course of
business, (iii) Interest Rate Protection Obligations and Currency Hedge
Obligations, but only to the extent that the same constitute Permitted
Indebtedness, and (iv) endorsements of negotiable instruments and documents in
the ordinary course of business. If the Company or any Subsidiary of the Company
sells or otherwise disposes of any Equity Interests of any direct or indirect
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of.
"Issue Date" means the date on which the outstanding notes were first
issued under the indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other
than a precautionary financing statement respecting a lease not intended as a
security agreement).
"Net Equity Proceeds" means (i) in the case of any sale by the Company of
Qualified Capital Stock of the Company, the aggregate net proceeds received by
the Company, after payment of expenses, commissions and the like incurred in
connection therewith, whether such proceeds are in cash or in other property
(valued as determined reasonably and in good faith by the Board of Directors of
the Company, as evidenced by a written resolution of said Board of Directors, at
the fair market value thereof at the time of receipt) and (ii) in the case of
any exchange, exercise, conversion or surrender of any outstanding Indebtedness
of the Company or any Restricted Subsidiary for or into shares of Qualified
Capital Stock of the Company, the amount of such Indebtedness (or, if such
Indebtedness was issued at an amount less than the stated principal amount
thereof, the accrued amount thereof as determined in accordance with GAAP) as
reflected in the consolidated financial statements of the Company prepared in
accordance with GAAP as of the most recent date next preceding the date of such
exchange, exercise, conversion or surrender (plus any additional amount required
to be paid by the holders of such Indebtedness to the Company or to any Wholly
Owned Restricted Subsidiary of the Company upon such exchange, exercise,
conversion or surrender and less any and all payments made to the holders of
such Indebtedness, and all
39
other expenses incurred by the Company in connection therewith), in the case of
each of clauses (i) and (ii) to the extent consummated after the Series A/B
Issue Date.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), other than any gains associated with reimbursements for lost or damaged
rental tools in the ordinary course of business, together with any related
provision for taxes on such gain (but not loss), realized in connection with (a)
any Asset Sale (including, without limitation, dispositions pursuant to sale and
leaseback transactions) or other sale of assets or (b) the disposition of any
securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries; and (ii) any extraordinary or nonrecurring gain (but not loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Indebtedness under the senior credit facility) secured by a Lien on
the asset or assets that were the subject of such Asset Sale, amounts required
to be paid to any Person (other than the Company or any Restricted Subsidiary)
owning a beneficial interest in the asset or assets that were the subject of
such Asset Sale, and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Non-Recourse Indebtedness" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (A) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (B) is directly or indirectly liable (as a Subsidiary
Guarantor or otherwise), or (C) constitutes the lender; (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Non-Recourse Purchase Money Indebtedness" means Indebtedness or that
portion of Indebtedness of the Company or any Restricted Subsidiary incurred in
connection with the acquisition by the Company or such Restricted Subsidiary,
subsequent to the Series A/B Issue Date, of any property or assets and as to
which (i) the holders of such Indebtedness agree that they will look solely to
the property or assets so acquired (or, in the case of the acquisition of all of
the outstanding Capital Stock of a Person, the underlying properties and assets
of such Person at the time of such acquisition, including proceeds thereof) and
securing such Indebtedness for payment on or in respect of such Indebtedness,
and neither the Company nor any Restricted Subsidiary (a) provides credit
support, including any undertaking, agreement or instrument which would
constitute Indebtedness or (b) is directly or indirectly liable for such
Indebtedness, and (ii) no default with respect to such Indebtedness would permit
(after notice or passage of time or both), according to the terms thereof, any
holder of any Indebtedness of the Company or a Restricted Subsidiary to declare
a default on such Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity; provided, however, that any portion of the
purchase price of such property or assets that is not financed through the
incurrence of such Indebtedness, shall be deemed to be a "Restricted Investment"
under the indenture, and shall only be permitted to be expended by the Company
or any Restricted Subsidiary to the extent that the Company would be permitted
to make
40
a Restricted Payment in such amount under the terms of the covenant described
above under "-- Certain Covenants -- Restricted Payments."
"Permitted Indebtedness" means any of the following:
(i) Indebtedness (and any guarantee thereof) under the Revolving
Credit Facility in an aggregate principal amount at any one time
outstanding not to exceed the greater of (A) $50 million, less any amounts
derived from Asset Sales and applied to the permanent reduction of the
Indebtedness thereunder as contemplated by the covenant described above
under the caption "Repurchase at the Option of Holders -- Asset Sales" or
(B) the sum of (1) 80% of the Company's Eligible Accounts Receivable (as
defined in for purposes of the Revolving Credit Facility) and (2) 50% of
the rig materials and supplies of the Company and its Restricted
Subsidiaries determined in accordance with GAAP (the "Maximum Bank Facility
Amount"), and any renewals, amendments, extensions, supplements,
modifications, deferrals, refinancing or replacements (each, for purposes
of this clause (i), a "refinancing") thereof, including any successive
refinancing thereof, so long as the aggregate principal amount of any such
new Indebtedness, together with the aggregate principal amount of all other
Indebtedness outstanding pursuant to this clause (i), shall not at any one
time exceed the Maximum Bank Facility Amount;
(ii) Indebtedness under the Series A/B Notes, the Series D Notes, the
outstanding notes (excluding any additional notes) and the exchange notes;
(iii) Indebtedness under the Term Credit Facility, any Existing
Indebtedness, and any Indebtedness under Letters of Credit existing on the
Series A/B Issue Date;
(iv) Indebtedness under Interest Rate Protection Obligations, provided
that (A) such Interest Rate Protection Obligations are related to payment
obligations on Permitted Indebtedness or Indebtedness otherwise permitted
by the initial paragraph of the "Incurrence of Indebtedness and Issuance of
Preferred Stock" covenant, and (B) the notional principal amount of such
Interest Rate Protection Obligations does not exceed the principal amount
of such Indebtedness to which such Interest Rate Protection Obligations
relate;
(v) Indebtedness under Currency Hedge Obligations, provided that (A)
such Currency Hedge Obligations are related to payment obligations on
Permitted Indebtedness or Indebtedness otherwise permitted by the initial
paragraph of the "Incurrence of Indebtedness and Issuance of Preferred
Stock" covenant or to the foreign currency cash flows reasonably expected
to be generated by the Company and its Restricted Subsidiaries, and (B) the
notional principal amount of such Currency Hedge Obligations does not
exceed the principal amount of such Indebtedness and the amount of such
foreign currency cash flows to which such Currency Hedge Obligations
relate;
(vi) the Subsidiary Guarantees of the Series A/B Notes, the Series D
Notes and the outstanding notes, and any additional notes subsequently
issued, but only to the extent that the Indebtedness represented by such
additional notes is otherwise permitted under the indenture, and the
exchange notes (and any assumption of the obligations guaranteed thereby);
(vii) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary of the Company to
the Company or a Wholly Owned Restricted Subsidiary, provided, however,
that upon any subsequent issuance or transfer of any Capital Stock or any
other event which results in any such Wholly Owned Restricted Subsidiary
ceasing to be a Wholly Owned Restricted Subsidiary or any other subsequent
transfer of any such Indebtedness (except to the Company or a Wholly Owned
Restricted Subsidiary), such Indebtedness shall be deemed, in each case, to
be incurred and shall be treated as an incurrence for purposes of the
initial paragraph of the "Incurrence of Indebtedness and Issuance of
Preferred Stock" covenant at the time the Wholly Owned Restricted
Subsidiary in question ceased to be a Wholly Owned Restricted Subsidiary or
the time such subsequent transfer occurred;
41
(viii) Indebtedness in respect of bid, performance or surety bonds
issued for the account of the Company or any Restricted Subsidiary thereof
in the ordinary course of business, including guarantees or obligations of
the Company or any Restricted Subsidiary thereof with respect to letters of
credit supporting such bid, performance or surety obligations (in each case
other than for an obligation for money borrowed);
(ix) the incurrence by the Company or its Restricted Subsidiaries of
Non-Recourse Purchase Money Indebtedness;
(x) any Permitted Refinancing Indebtedness incurred by the Company or
a Restricted Subsidiary of any Indebtedness incurred pursuant to clause
(ii) or (iii) of this definition, including any successive refinancing by
the Company or such Restricted Subsidiary; and
(xi) any additional Indebtedness in an aggregate principal amount not
in excess of $30 million at any one time outstanding and any guarantee
thereof.
"Permitted Investments" means any of the following: (i) Investments in Cash
Equivalents; (ii) Investments in the Company or any of its Wholly Owned
Restricted Subsidiaries; (iii) Investments by the Company or any of its
Restricted Subsidiaries in another Person, if as a result of such Investment (A)
such other Person becomes a Wholly Owned Restricted Subsidiary or (B) such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all of its properties and assets to, the Company or a Wholly Owned
Restricted Subsidiary; (iv) Investments permitted under the covenant described
above under the caption "-- Repurchase at the Option of Holders -- Asset Sales";
(v) Investments made in the ordinary course of business in prepaid expenses,
lease, utility, workers' compensation, performance and other similar deposits;
(vi) Investments in stock, obligations or securities received in settlement of
debts owing to the Company or any Restricted Subsidiary as a result of
bankruptcy or insolvency proceedings or upon the foreclosure, perfection or
enforcement of any Lien in favor of the Company or any Restricted Subsidiary, in
each case as to debt owing to the Company or any Restricted Subsidiary that
arose in the ordinary course of business of the Company or any such Restricted
Subsidiary, provided that any stocks, obligations or securities received in
settlement of debts that arose in the ordinary course of business (and received
other than as a result of bankruptcy or insolvency proceedings or upon
foreclosure, perfection or enforcement of any Lien) that are, within 30 days of
receipt, converted into cash or Cash Equivalents shall be treated as having been
cash or Cash Equivalents at the time received; (vii) other Investments in joint
ventures, corporations, limited liability companies or partnerships formed with
or organized by third Persons, which joint ventures, corporations, limited
liability companies or partnerships, engage in the Drilling Business and are not
Unrestricted Subsidiaries at the time of such Investment, provided such
Investments do not, in the aggregate, exceed $35 million; and (viii) Investments
in AralParker CJSC represented by its note payable in a principal amount of up
to $50 million.
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the Series A/B Issue Date;
(b) Liens securing the Series D Notes, the outstanding notes, any
additional notes subsequently issued, the exchange notes or the Subsidiary
Guarantees;
(c) Liens in favor of the Company;
(d) Liens securing Indebtedness that constitutes Permitted
Indebtedness pursuant to clause (i) or (iii) of the definition of Permitted
Indebtedness;
(e) Liens for taxes, assessments and governmental charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(f) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business
42
for sums not delinquent or being contested in good faith, if such reserve
or other appropriate provision, if any, as shall be required by GAAP shall
have been made in respect thereof;
(g) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the payment or performance of
tenders, statutory or regulatory obligations, surety and appeal bonds,
bids, government contracts and leases, performance and return of money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(h) judgment Liens not giving rise to an Event of Default so long as
any appropriate legal proceedings which may have been duly initiated for
the review of such judgment shall not have been finally terminated or the
period within which such proceeding may be initiated shall not have
expired;
(i) any interest or title of a lessor under any Capital Lease
Obligation or operating lease;
(j) Liens securing Non-Recourse Purchase Money Indebtedness and other
purchase money Liens; provided, however, that (i) the related Non-Recourse
Purchase Money Indebtedness or other purchase money Indebtedness shall not
be secured by any property or assets of the Company or any Restricted
Subsidiary other than the property or assets so acquired (or, in the case
of the acquisition of all of the outstanding Capital Stock of a Person, the
underlying properties and assets of such Person at the time of such
acquisition, including proceeds thereof) and any proceeds therefrom and
(ii) the Lien securing any such Indebtedness shall be created within 90
days of such acquisition;
(k) Liens securing obligations under or in respect of either Currency
Hedge Obligations or Interest Rate Protection Obligations;
(l) Liens upon specific items of inventory or other goods of any
Person securing such Person's obligations in respect of bankers acceptances
issued or created for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other goods;
(m) Liens securing reimbursement obligations with respect to
commercial letters of credit that encumber documents and other property or
assets relating to such letters of credit and products and proceeds
thereof;
(n) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off; and
(o) Liens on, or related to, properties or assets to secure all or
part of the costs incurred in the ordinary course of business for the
exploration, drilling, development or operation thereof.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the new notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the new notes on terms at least as favorable to the holders
of new notes as those contained in the documentation governing the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; and (iv)
with respect to any such Indebtedness of the Company being extended, refinanced,
renewed, replaced, defeased or refunded, such Permitted Refinancing Indebtedness
shall not be incurred by any Restricted Subsidiary.
43
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Disqualified Stock.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Restricted Investment" means (without duplication) (i) the designation of
a Subsidiary as an Unrestricted Subsidiary in the manner described in the
definition of Unrestricted Subsidiary, (ii) any Investment other than a
Permitted Investment and (iii) any amount constituting a "Restricted Investment"
as contemplated in the definition of "Non-Recourse Purchase Money Indebtedness."
"Revolving Credit Facility" means the revolving loan facility under the
senior credit facility.
The term "senior credit facility" means, collectively, the Revolving Credit
Agreement and the Term Loan Agreement, each dated as of November 8, 1996, among
the Company, ING (U.S.) Capital Corporation ("ING") and the other lenders
identified therein, and ING, as agent, each as amended, modified, supplemented,
extended, restated, or renewed from time to time.
"Series A/B indenture" means the indenture dated as of November 12, 1996
between the Company and JPMorgan Chase Bank (formerly Texas Commerce Bank,
National Association), as Trustee, providing for the issuance of the Series A/B
Notes in the aggregate principal amount of $300 million, as such may be amended
and supplemented from time to time.
"Series A/B Issue Date" means November 12, 1996, the date on which the
Series A/B Notes were originally issued under the Series A/B indenture.
"Series A/B Notes" means the Company's 9 3/4% Senior Notes due 2006, issued
pursuant to the Series A/B indenture, as such may be amended or supplemented
from time to time.
"Series D Notes" means the Company's 9 3/4% Senior Notes due 2006, Series D
issued pursuant to the Series D indenture, as such may be amended or
supplemented from time to time.
"Series D indenture" means the indenture dated as of March 11, 1998 between
the Company and JPMorgan Chase Bank (formerly Chase Bank of Texas National
Association), as Trustee, providing for the issuance of the Series D Notes in
the aggregate principal amount of up to $450 million, as such may be amended and
supplemented from time to time.
"Significant Subsidiary" means any (a) Subsidiary that would be a
significant subsidiary as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof and (b) any other Subsidiary that contributed more than 10% of
the Company's Consolidated Cash Flow for the most recent four fiscal quarters
for which financial statements are available.
"Subordinated Indebtedness" means any Indebtedness of the Company or a
Subsidiary Guarantor that is expressly subordinated in right of payment to the
new notes or the Subsidiary Guarantees, as the case may be, including, without
limitation, the 5 1/2% Convertible Subordinated Notes due 2004 of the Company.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (A) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (B)
the
44
only general partners of which are such Person or of one or more Subsidiaries of
such Person (or any combination thereof).
"Subsidiary Guarantee" means any guarantee of the new notes by any
Subsidiary Guarantor in accordance with the provisions described under
"-- Subsidiary Guarantees."
"Subsidiary Guarantors" means each of (i) the Company's Significant
Subsidiaries on the Issue Date (other than any Exempt Foreign Subsidiary, as
designated by the Company) or any other Restricted Subsidiary that provides a
guarantee under the senior credit facility, (ii) any other Subsidiary that
executes a Subsidiary Guarantee in accordance with the provisions of the
indenture, and (iii) their respective successors and assigns, as required under
the indenture.
"Term Credit Facility" means the term loans under the senior credit
facility in an aggregate amount not to exceed $100 million, less any amounts
derived from Asset Sales and applied to the permanent reduction of Indebtedness
thereunder as contemplated by the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales."
"Unrestricted Subsidiary" means any Subsidiary (or any successor to any of
them) that is designated by the Board of Directors as an Unrestricted Subsidiary
pursuant to a resolution of the Board of Directors; but only to the extent that
such Subsidiary (i) has no Indebtedness other than Non-Recourse Indebtedness;
(ii) is not party to any agreement, contract, arrangement or understanding with
the Company or any Restricted Subsidiary of the Company unless the terms of any
such agreement, contract, arrangement or understanding are no less favorable to
the Company or such Restricted Subsidiary than those that might be obtained at
the time from Persons who are not Affiliates of the Company; (iii) is a Person
with respect to which neither the Company nor any of its Restricted Subsidiaries
has any direct or indirect obligation (A) to subscribe for additional Equity
Interests or (B) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results; and (iv)
has not guaranteed or otherwise directly or indirectly provided credit support
for any Indebtedness of the Company or any of its Restricted Subsidiaries. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of the Company as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock," the Company shall be in default of such
covenant). The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock," and
(ii) no Default or Event of Default would be in existence following such
designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (A) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (B) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to the
extent (i) all of the Capital Stock or other ownership interests in such
Restricted Subsidiary, other than any directors' qualifying shares mandated by
applicable law, is owned directly or indirectly by the Company or (ii) such
45
Restricted Subsidiary is organized in a foreign jurisdiction and is required by
the applicable laws and regulations of such foreign jurisdiction to be partially
owned by the government of such foreign jurisdiction or individual or corporate
citizens of such foreign jurisdiction in order for such Restricted Subsidiary to
transact business in such foreign jurisdiction, provided that the Company,
directly or indirectly, owns the remaining Capital Stock or ownership interests
in such Restricted Subsidiary and, by contract or otherwise, controls the
management and business of such Restricted Subsidiary and derives the economic
benefits of ownership of such Restricted Subsidiary to substantially the same
extent as if such Restricted Subsidiary were a wholly owned Subsidiary.
"Wholly Owned Subsidiary" means any Subsidiary to the extent (i) all of the
Capital Stock or other ownership interests in such Subsidiary, other than any
directors' qualifying shares mandated by applicable law, is owned directly or
indirectly by the Company or (ii) such Subsidiary is organized in a foreign
jurisdiction and is required by the applicable laws and regulations of such
foreign jurisdiction to be partially owned by the government of such foreign
jurisdiction or individual or corporate citizens of such foreign jurisdiction in
order for such Subsidiary to transact business in such foreign jurisdiction,
provided that the Company, directly or indirectly, owns the remaining Capital
Stock or ownership interests in such Subsidiary and, by contract or otherwise,
controls the management and business of such Subsidiary and derives the economic
benefits of ownership of such Subsidiary to substantially the same extent as if
such Subsidiary were a wholly owned Subsidiary.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material United States federal income
tax consequences of the exchange of the outstanding notes for exchange notes
that may be relevant to a beneficial owner of notes that is a citizen or
resident of the United States or a U.S. domestic corporation or that otherwise
is subject to United States federal income taxation on a net income basis in
respect of such notes (a "U.S. holder"). This summary is based on laws,
regulations, rulings and decisions now in effect, all of which are subject to
change. This summary deals only with U.S. holders that hold the outstanding
notes as capital assets, and does not address tax considerations applicable to
holders that may be subject to special tax rules, such as, but not limited to,
banks, tax-exempt entities, insurance companies or dealers in securities or
currencies, traders in securities electing to mark to market, persons that hold
the outstanding notes as a position in a "straddle" or conversion transaction,
or as part of a "synthetic security" or other integrated financial transaction
or persons that have a "functional currency" other than the U.S. dollar.
We believe that the exchange of outstanding notes for exchange notes
pursuant to the exchange offer will not be treated as an "exchange" for federal
income tax purposes because the exchange notes will not be considered to differ
materially in kind or extent from the outstanding notes. Rather, the exchange
notes received by a holder will be treated as a continuation of the outstanding
notes in the hands of such holder. As a result, there will be no federal income
tax consequences to holders exchanging outstanding notes for exchange notes
pursuant to the exchange offer, the holding period of an exchange note will
include the holding period of the outstanding note and the basis of an exchange
note will be the same as the basis for the outstanding note immediately before
the exchange. Interest received on the outstanding notes through the date of the
closing of the exchange will be includible as ordinary income by holders who
exchange outstanding notes for exchange notes.
There can be no assurance that the Internal Revenue Service will not
conclude that the exchange of the outstanding notes for exchange notes should be
treated differently than we expressed in the foregoing paragraph. No rulings
from the Internal Revenue Service have been or will be sought on the United
States federal income tax treatment of the exchange of notes. Holders should
consult their own tax advisors in determining the tax consequences to them, as a
result of their individual circumstances, of the exchange of the outstanding
notes for the exchange notes and of the ownership and disposition of exchange
notes received in the exchange offer, including the application of state, local,
foreign or other tax laws.
46
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for outstanding notes where such outstanding notes were acquired as a
result of market-making activities or other trading activities. We have agreed
that, starting on the expiration date and ending on the close of business 180
days after the expiration date, we will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from ay such
broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act of 1933 and any profit
resulting from any such resale of exchange notes and any commission or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act of 1933. The letter of transmittal states
that by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act of 1933.
For a period of 180 days after the expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal. We have agreed to pay all expenses incident to the exchange offer,
including the expenses of one counsel for the holders of the outstanding notes,
other than commissions or concessions of any brokers or dealers. We will
indemnify the holders of the outstanding notes, including any broker-dealers,
against certain liabilities, including liabilities under the Securities Act of
1933.
LEGAL MATTERS
The validity of the exchange notes will be passed upon for us by Conner &
Winters, P.C., Tulsa, Oklahoma.
47
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Parker Drilling Company and
subsidiaries incorporated in this Prospectus by reference to Parker Drilling
Company's Current Report on Form 8-K dated June 28, 2002 have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
With respect to the unaudited financial information of Parker Drilling
Company and subsidiaries for the three-month periods ended March 31, 2002 and
2001, incorporated in the Prospectus by reference, PricewaterhouseCoopers LLP
reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their separate
report dated April 22, 2002 incorporated by reference herein, states that they
did not audit and they do not express an opinion on that unaudited financial
information. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. PricewaterhouseCoopers LLP is not subject to the liability
provisions of Section 11 of the Securities Act of 1933 for their report on the
unaudited financial information because that report is not a "report" or a
"part" of the registration statement prepared or certified by
PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the
Securities Act of 1933.
48
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED OR INCORPORATED
BY REFERENCE HEREIN IS CORRECT AS OF ANY DATE OTHER THAN THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Where You Can Find More Information... i
Summary............................... 1
Forward-Looking Statements............ 5
Risk Factors.......................... 6
The Exchange Offer.................... 10
Use of Proceeds....................... 14
Description of Certain Indebtedness... 14
Description of the Exchange Notes..... 16
Certain U.S. Federal Income Tax
Considerations...................... 46
Plan of Distribution.................. 47
Legal Matters......................... 47
Independent Accountants............... 48
</Table>
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PARKER DRILLING COMPANY
[PARKER DRILLING LOGO]
OFFER TO EXCHANGE
UP TO $235,612,000 OF
10 1/8% SENIOR NOTES DUE 2009,
SERIES B, FOR OUTSTANDING
10 1/8% SENIOR NOTES DUE 2009,
SERIES A
-------------------------
PROSPECTUS
-------------------------
August 8, 2002
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