Filed Pursuant to Rule 424(b)(3)
Registration No. 333-120598
PROSPECTUS
$150,000,000
PARKER DRILLING COMPANY
OFFER TO EXCHANGE
SENIOR FLOATING RATE NOTES DUE 2010
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
FOR
ALL OUTSTANDING UNREGISTERED
SENIOR FLOATING RATE NOTES DUE 2010
Parker Drilling Company is hereby offering, upon the terms and subject to
the conditions set forth in this prospectus and the accompanying letter of
transmittal, to exchange $150,000,000 aggregate principal amount of its
outstanding, unregistered Senior Floating Rate Notes due 2010 (which we refer to
as the private notes) that you now hold for an equal principal amount of Senior
Floating Rate Notes due 2010 (which we refer to as the exchange notes) with
substantially identical terms. The exchange notes are registered under the
Securities Act of 1933, as amended, and, as a result, will generally not be
subject to the transfer restrictions applicable to the private notes. This
exchange offer will expire at 5:00 p.m., New York City time, on January 3, 2005,
unless we extend the expiration date. You must tender your private notes by the
expiration date to obtain exchange notes and the liquidity benefits the exchange
notes offer.
We have agreed with the initial purchasers of the private notes to make
this exchange offer and to register the issuance of the exchange notes after the
initial sale of the private notes. This exchange offer applies to any and all
private notes tendered by the expiration date.
The exchange notes will be our general unsecured obligations and will rank
pari passu with all of our existing and future senior indebtedness. The exchange
notes will be guaranteed by substantially all of our direct and indirect
domestic subsidiaries. The guarantees will rank pari passu with all of the
existing and future senior indebtedness of our guarantor subsidiaries. The
exchange notes will effectively rank junior in right of payment to all of our
existing and future secured debt to the extent of the value of the assets
securing such debt. The exchange notes will be effectively subordinated to the
indebtedness and other liabilities of our non-guarantor subsidiaries.
We will not list the exchange notes on any securities exchange. The
exchange notes will have the same financial terms and covenants as the private
notes. This prospectus includes additional information on the terms of the
exchange notes, including, but not limited to, redemption and repurchase prices
and covenants.
INVESTING IN THE EXCHANGE NOTES INVOLVES RISKS. SEE "RISK FACTORS,"
BEGINNING ON PAGE 7, FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD
CONSIDER BEFORE DECIDING TO EXCHANGE PRIVATE NOTES FOR EXCHANGE NOTES PURSUANT
TO THIS 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.
The date of this prospectus is December 1, 2004
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, or the Exchange Act, and in accordance therewith file
annual, quarterly and special reports, proxy statements and other information
with the Securities and Exchange Commission, or the SEC, on a regular basis. You
may read and copy this information or obtain copies of this information by mail
from the Public Reference Room of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Further information on the operation of the
SEC's Public Reference Room in Washington, D.C. can be obtained by calling the
SEC at 1-800-SEC-0330.
The SEC also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers, like us, who file
electronically with the SEC. The address of that site is http://www.sec.gov.
The SEC allows us to "incorporate by reference" the documents that we file
with the SEC. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. This
information incorporated by reference is a part of this prospectus, unless we
provide you with different information in this prospectus or the information is
modified or superseded by a subsequently filed document.
This prospectus incorporates by reference:
- Our Annual Report on Form 10-K for the fiscal year ended December 31,
2003, as filed with the SEC on March 12, 2004, except Item 6, as amended
by our Annual Report on Form 10-K/A for the fiscal year ended December
31, 2003, as filed with the SEC on March 22, 2004;
- Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004,
June 30, 2004 and September 30, 2004;
- Our Proxy Statement on Schedule 14A, as filed with the SEC on March 29,
2004; and
- Our Current Reports on Form 8-K as filed with the SEC on February 3,
2004, April 27, 2004, July 15, 2004, August 3, 2004, August 13, 2004,
August 18, 2004, September 2, 2004, September 8, 2004 and November 19,
2004 (other than, in each case, information that is furnished rather than
filed in accordance with SEC rules).
This prospectus also incorporates by reference additional documents that we
may file with the SEC under Sections 13(a), 13(c), 14 and 15(d) of the Exchange
Act after the time of filing of the initial registration statement and before
effectiveness of the registration statement, and after the date of this
prospectus and before the termination of this exchange offer. These documents
include annual reports, quarterly reports and other current reports, as well as
proxy statements.
You can obtain documents incorporated by reference in this prospectus by
requesting them in writing or by telephone at the following address or telephone
number:
Parker Drilling Company
1401 Enclave Parkway, Suite 600
Houston, Texas 77077
Attention: Investor Relations
Telephone: (281) 406-2000
You will not be charged for any of these documents that you request. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE AT
LEAST FIVE DAYS PRIOR TO THE EXPIRATION DATE.
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PROSPECTUS SUMMARY
This summary highlights selected information about Parker Drilling Company,
the exchange offer and the exchange notes. This summary is not complete and does
not contain all of the information that is important to you. To understand the
exchange offer fully and for a more complete description of the legal terms of
the exchange notes, you should carefully read this entire prospectus, the
accompanying letter of transmittal and the documents incorporated herein by
reference, especially the risks of investing in the exchange notes discussed
under "Risk Factors." In this prospectus, other than in "Description of the
Exchange Notes" and unless the context requires otherwise, "Parker Drilling,"
"we," "us" and "our" refer to Parker Drilling Company and its subsidiaries and
consolidated joint ventures.
PARKER DRILLING COMPANY
We are a leading worldwide provider of contract drilling and drilling
related services. Our principal executive offices are located at 1401 Enclave
Parkway, Suite 600, Houston, Texas 77077, and our telephone number at that
location is (281) 406-2000.
SUMMARY OF THE EXCHANGE OFFER
The Exchange Offer............ We are offering to exchange
- $1,000 principal amount of our Senior
Floating Rate Notes due 2010 registered under
the Securities Act, which we refer to as
exchange notes, for
- each $1,000 principal amount of our
unregistered Senior Floating Rate Notes due
2010 issued on September 2, 2004 in a private
offering, which we refer to as private notes.
We sometimes will refer to the exchange notes
and the private notes together as the notes. As
of the date of this prospectus, there is
$150,000,000 aggregate principal amount of
private notes outstanding. See "The Exchange
Offer."
Expiration Date............... The exchange offer will expire at 5:00 p.m.,
New York City time, on January 3, 2005, unless
we extend the expiration date. In that case,
the phrase "expiration date" will mean the
latest date and time to which we extend the
exchange offer. We will issue exchange notes on
the expiration date or promptly after that
date.
Conditions to the Exchange
Offer......................... The exchange offer is subject to customary
conditions which include, among other things,
any applicable law or any applicable
interpretation of the staff of the SEC which,
in our reasonable judgment, would materially
impair our ability to proceed with the exchange
offer. The exchange offer is not conditioned
upon any minimum principal amount of private
notes being submitted for exchange. See "The
Exchange Offer -- Conditions."
Procedures for Participating
in the Exchange Offer......... If you wish to participate in the exchange
offer, you must complete, sign and date an
original or faxed letter of transmittal in
accordance with the instructions contained in
the letter of transmittal accompanying this
prospectus. Then you must mail, fax or deliver
the completed letter of transmittal, together
with the notes you wish to exchange and any
other required documentation to JPMorgan Chase
Bank, National Association, which is acting as
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exchange agent, on or before the expiration
date. By signing the letter of transmittal, you
will represent to and agree with us that,
- you are acquiring the exchange notes in the
ordinary course of your business;
- you are not participating, do not intend to
participate, and have no arrangement or
understanding with anyone to participate in a
distribution of the exchange notes; and
- you are not an "affiliate," as defined in
Rule 405 under the Securities Act, of Parker
Drilling Company, or a broker-dealer
tendering the private notes acquired directly
from Parker Drilling Company for its own
account.
If you are a broker-dealer who will receive
exchange notes for your own account in exchange
for private notes that you acquired as a result
of your market-making or other trading
activities, you will be required to acknowledge
in the letter of transmittal that you will
deliver a prospectus in connection with any
resale of such exchange notes.
Resale of Exchange Notes...... We believe that you may offer for resale,
resell and transfer your exchange notes without
registering them under the Securities Act and
delivering a prospectus, if you can make the
same three representations that appear above
under the heading "Procedures for Participating
in the Exchange Offer." Our belief is based on
interpretations of the SEC staff for other
exchange offers that the SEC staff expressed in
some of the SEC's no-action letters to other
issuers in exchange offers like ours.
We cannot guarantee that the SEC would make a
similar decision about this exchange offer. If
our belief is wrong, or if you cannot
truthfully make the representations mentioned
above, and you transfer any exchange note
issued to you in the exchange offer without
meeting the registration and prospectus
delivery requirements of the Securities Act, or
without an exemption from such requirements,
you could incur liability under the Securities
Act. We are not indemnifying you for any such
liability and we will not protect you against
any loss incurred as a result of any such
liability under the Securities Act.
If you are a broker-dealer that has received
exchange notes for your own account in exchange
for private notes that were acquired as a
result of market-making or other trading
activities, you must acknowledge in the letter
of transmittal that you will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
the exchange notes. We have agreed that for a
period of up to one year after the registration
statement is declared effective, we will make
this prospectus, as amended or supplemented,
available to any such broker-dealer that
requests copies of this prospectus in the
letter of transmittal for use in connection
with any such resale.
Special Procedures for
Beneficial Owners............. If your private notes are held through a
broker, dealer, commercial bank, trust company
or other nominee and you wish to surrender
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such private notes, you should contact your
intermediary promptly and instruct it to
surrender your private notes on your behalf.
If you wish to tender on your own behalf, you
must, before completing and executing the
letter of transmittal for the exchange offer
and delivering your private notes, either
arrange to have your private notes registered
in your name or obtain a properly completed
bond power from the registered holder. The
transfer of registered ownership may take a
long time.
Guaranteed Delivery
Procedures.................... If you wish to tender your private notes and
you cannot meet the expiration date deadline,
or you cannot deliver your private notes, the
letter of transmittal or any other
documentation on time, then you must surrender
your private notes according to the guaranteed
delivery procedures appearing below under "The
Exchange Offer -- Guaranteed Delivery
Procedures."
Acceptance of Private Notes
and Delivery of Exchange
Notes......................... We will accept for exchange any and all private
notes that are properly surrendered in the
exchange offer and not withdrawn prior to the
expiration date, if you comply with the
procedures of the exchange offer. The exchange
notes will be delivered promptly after the
expiration date.
Withdrawal Rights............. You may withdraw the surrender of your private
notes at any time prior to the expiration date,
by complying with the procedures for withdrawal
described in "The Exchange Offer -- Withdrawal
of Tenders."
Accounting Treatment.......... We will not recognize a gain or loss for
accounting purposes as a result of the
exchange.
Material Federal Income Tax
Considerations................ The exchange of private notes for exchange
notes should not be a taxable transaction for
United States Federal income tax purposes. You
should not have to pay federal income tax as a
result of your participation in the exchange
offer. See "Material United States Federal
Income Tax Considerations."
Exchange Agent................ JPMorgan Chase Bank, National Association is
serving as the exchange agent in connection
with the exchange offer. JPMorgan Chase Bank,
National Association also serves as trustee
under the indenture governing the notes. The
address, telephone number and facsimile number
of the exchange agent are listed under the
heading "The Exchange Offer -- Exchange Agent."
Failure to Exchange Private
Notes Will Adversely Affect
You........................... If you are eligible to participate in this
exchange offer and you do not surrender your
private notes as described in this prospectus,
you will not have any further registration or
exchange rights. In that event, your private
notes will continue to accrue interest until
maturity in accordance with the terms of the
private notes but will continue to be subject
to restrictions on transfer. As a result of
such restrictions and the availability of
registered exchange notes, your private notes
are likely to be a much less liquid security
than before.
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THE EXCHANGE NOTES
The exchange notes have the same financial terms and covenants as the
private notes. In this prospectus we sometimes refer to the private notes and
the exchange notes together as the "notes." The exchange notes will evidence the
same debt as the outstanding private notes which they replace. The private notes
are, and the exchange notes will be, governed by the same indenture. The brief
summary below describes the principal terms of the exchange notes. Some of the
terms and conditions described below are subject to important limitations and
exceptions. The "Description of the Exchange Notes" section of this prospectus
contains a more detailed description of the terms and conditions of the exchange
notes.
Issuer........................ Parker Drilling Company
Notes Offered................. $150,000,000 in aggregate principal amount of
senior floating rate notes due 2010.
Maturity Date................. September 1, 2010.
Interest Rate................. The exchange notes will bear interest at a
floating rate equal to LIBOR plus 4.75%.
Interest on the exchange notes will be reset
quarterly.
Interest Payment Dates........ March 1, June 1, September 1 and December 1 of
each year, beginning on December 1, 2004.
Interest will accrue from September 1, 2004.
Change of Control............. If we experience specified kinds of changes of
control, we must offer to repurchase the notes
at 101% of the principal amount of the notes,
plus accrued and unpaid interest, if any, to
the date of repurchase. See "Description of the
Exchange Notes -- Repurchase at the Option of
Holders -- Change of Control."
Ranking....................... The exchange notes will be our general
unsecured obligations. The exchange notes will
rank equal in right of payment with all of our
existing and future senior unsecured
indebtedness. However, the exchange notes will
effectively rank junior to all of our existing
and future secured indebtedness to the extent
of the value of the assets securing that
indebtedness. As of September 30, 2004, we had
approximately $481.1 million of indebtedness
outstanding on a consolidated basis (including
the notes), none of which would have been
secured indebtedness.
Subsidiary Guarantees......... The exchange notes will be jointly and
severally guaranteed by substantially all of
our domestic subsidiaries. The subsidiary
guarantees will rank:
- equal in right of payment with all of the
existing and future senior unsecured
indebtedness of our guarantor subsidiaries
including the guarantees of our senior
unsecured indebtedness;
- effectively subordinated to all existing and
future secured indebtedness of our
subsidiaries and all existing and future
indebtedness and other liabilities of our
non-guarantor subsidiaries (other than
indebtedness and other liabilities owed to
us, if any); and
- senior in right of payment to any future
subordinated indebtedness of our guarantor
subsidiaries.
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As of September 30, 2004, the subsidiary
guarantees ranked:
- equal in right of payment to approximately
$481.4 million of senior indebtedness of our
guarantor subsidiaries, consisting of
guarantees of our other unsecured senior
indebtedness; and
- effectively subordinated to future secured
indebtedness of our subsidiaries and all
existing and future indebtedness of our non-
guarantor subsidiaries (excluding
indebtedness and other liabilities owed to
us, if any).
Mandatory Redemption.......... We will not be required to make mandatory
redemption or sinking fund payments with
respect to the exchange notes.
Optional Redemption........... On and after September 1, 2006, we may redeem
some or all of the exchange notes at the
redemption price set forth under "Description
of the Exchange Notes -- Optional Redemption."
Before September 1, 2006, we may redeem up to
35% of the notes with the proceeds of certain
equity offerings at the redemption prices set
forth under "Description of the Exchange
Notes -- Optional Redemption."
Certain Covenants............. The private notes were, and the exchange notes
will be, issued under an indenture between us
and JPMorgan Chase Bank, National Association,
as trustee. The indenture will, among other
things, restrict our ability and the ability of
our restricted subsidiaries to:
- sell assets;
- pay dividends or make other distributions on
capital stock or redeem or repurchase capital
stock or subordinated indebtedness;
- make investments;
- incur or guarantee additional indebtedness;
- create or incur liens;
- enter into sale and leaseback transactions;
- incur dividend or other payment restrictions
affecting subsidiaries;
- merge or consolidate with other entities;
- enter into transactions with affiliates; and
- engage in certain business activities.
These covenants are subject to a number of
important exceptions and qualifications.
Absence of Established Market
for the Notes................. The exchange notes will be new securities for
which there is currently no market. Although
Lehman Brothers Inc. and Banc of America
Securities LLC have informed us that they
intend to make a market in the exchange notes,
they are not obligated to do so and may
discontinue market-making at any time without
notice. Accordingly, we cannot assure you that
a liquid market for the exchange notes will
develop or be maintained.
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Use of Proceeds............... We will not receive any proceeds from the
issuance of the exchange notes.
RISK FACTORS
For a discussion of certain risks that should be considered in connection
with an investment in the exchange notes, see "Risk Factors" beginning on page 7
of this prospectus.
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RISK FACTORS
An investment in the exchange notes involves a high degree of risk. You
should consider carefully the risks and uncertainties described below and the
other information included in or incorporated by reference into this prospectus,
including the financial statements and related notes incorporated by reference
into this prospectus, before deciding to exchange your private notes for
exchange notes pursuant to this exchange offer. While these are the risks and
uncertainties we believe are most important for you to consider, you should know
that they are not the only risks or uncertainties facing us or which may
adversely affect our business. If any of the following risks or uncertainties
actually occur, our business, financial condition or results of operations would
likely suffer.
RISK FACTORS RELATED TO OUR BUSINESS
WE HAVE SUBSTANTIAL INDEBTEDNESS. OUR ABILITY TO SERVICE OUR DEBT OBLIGATIONS
IS PRIMARILY DEPENDENT UPON OUR FUTURE FINANCIAL PERFORMANCE.
We have substantial indebtedness in relation to our stockholders' equity.
As of September 30, 2004, we had stockholders' equity of approximately $153.0
million compared to approximately:
- $481.1 million of long-term debt, including the current portion and
capital lease obligations;
- $17.3 million of operating lease commitments; and
- $15.3 million of standby letters of credit.
Our ability to meet our debt service obligations depends on our ability to
generate positive cash flows from operations. We also are marketing for sale
nine land rigs located in South America and one shallow water jackup rig located
in the U.S. Gulf of Mexico. We may not be successful in selling these assets and
it is possible that we will sell these assets for less than their carrying
value.
We realized positive cash flows from operating activities of $18.3 million
for the first nine months of 2004, $62.5 million in 2003, $33.2 million in 2002
and $116.0 million in 2001. However, we have in the past, and may in the future,
incur negative cash flows from operating activities. Our future cash flows from
operating activities will be influenced by the demand for our drilling services,
the utilization of our rigs, the dayrates that we receive for our rigs, 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 obligations, we may have to:
- delay spending on maintenance projects and other capital projects,
including the acquisition of additional rigs and other assets;
- sell equity securities;
- sell additional assets; or
- restructure or refinance our debt.
Our substantial debt could have important consequences to you. For example,
it could:
- result in a reduction of our credit rating, which would make it more
difficult for us to obtain additional financing on acceptable terms;
- require us to dedicate a substantial portion of our cash flows from
operating activities 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 and
creating liens on our properties;
- place us at a competitive disadvantage compared with our competitors that
have relatively less debt;
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- expose us to interest rate risk because certain of our borrowings,
primarily under our senior secured credit facility and the notes offered
hereby, or interest rate swaps related to those borrowings, are at
variable rates of interest; and
- make us more vulnerable to downturns in our business.
We cannot give you any assurances that, if we are unable to service our
debt obligations, we will be able to sell equity securities, sell additional
assets or restructure or refinance our debt. Our ability to generate sufficient
cash flow from operating activities to pay the principal of and interest on our
indebtedness is uncertain. Further, we may not be able to refinance any of our
indebtedness on commercially reasonable terms or at all.
OUR CURRENT OPERATIONS AND FUTURE GROWTH MAY REQUIRE SIGNIFICANT ADDITIONAL
CAPITAL, AND OUR SUBSTANTIAL INDEBTEDNESS COULD IMPAIR OUR ABILITY TO FUND OUR
CAPITAL REQUIREMENTS.
Our business requires substantial capital. We believe that we have or will
generate sufficient funds to finance our planned capital expenditures, but we
may require additional capital in the event of significant departures from our
current business plan or unanticipated expenses. Sources of funding for our
future capital requirements may include any or all of the following:
- public offerings or private placements of equity and debt securities;
- commercial bank loans;
- capital leases; and
- sales of assets.
Due to our highly leveraged capital structure, additional financing may not
be available to us, or, if it were available, it may not be available on a
timely basis, on terms acceptable to us and within the limitations contained in
the indentures governing our 10.125% senior notes and our 9.625% senior notes,
the documentation governing our senior secured credit facility and the indenture
that governs the notes. Failure to obtain appropriate financing, should the need
for it develop, could impair our ability to fund our capital expenditure
requirements and meet our debt service requirements and could have an adverse
effect on our business.
RIG UPGRADES, REFURBISHMENT AND CONSTRUCTION PROJECTS ARE SUBJECT TO RISKS,
INCLUDING DELAYS AND COST OVERRUNS, WHICH COULD HAVE AN ADVERSE IMPACT ON OUR
RESULTS OF OPERATIONS.
We often have to make upgrade and refurbishment expenditures for our rig
fleet, such as when we move a rig from one location to another or when repairs
are required in response to an inspection by a governmental authority. For
example, in 2002, we were required to make repairs to two of our barge rigs in
Nigeria due to inspections by the American Bureau of Shipping, resulting in
downtime of a total of five months with no revenues from these rigs. We may also
make significant expenditures when we move rigs from one location to another,
such as when we moved eight rigs to Mexico from South America and the U.S. Gulf
of Mexico earlier this year. Additionally, we may make substantial expenditures
for the construction of additional new rigs. Rig upgrade, refurbishment and
construction projects are subject to the risks of delay or cost overruns
inherent in any large construction project, including the following:
- shortages of material or skilled labor;
- unforeseen engineering problems;
- unanticipated actual or purported change orders;
- work stoppages;
- adverse weather conditions;
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- unanticipated cost increases; and
- inability to obtain the required permits or approvals.
Significant cost overruns or delays would adversely affect our financial
condition and results of operations. Additionally, capital expenditures for rig
upgrades, refurbishment or construction projects could exceed our planned
capital expenditures, impairing our ability to service our debt obligations.
VOLATILE OIL AND NATURAL GAS PRICES IMPACT DEMAND FOR OUR DRILLING AND RELATED
SERVICES.
The success of our drilling operations is materially dependent upon the
exploration and development activities of the major, independent and national
oil and gas companies that comprise our customer base. Oil and natural gas
prices and market expectations can be extremely volatile, and therefore the
level of exploration and production activities can be extremely volatile.
Increases or decreases in oil and natural gas prices and expectations of future
prices could have an impact on our customers' long-term exploration and
development activities, which in turn could materially affect our business and
financial performance. Generally, changes in the price of oil have a greater
impact on our international operations while changes in the price of natural gas
have a greater effect on our operations in the Gulf of Mexico.
Demand for our drilling and related services also depends on other factors
that are beyond our control, including:
- the cost of producing and delivering oil and natural gas;
- advances in exploration, development and production technology;
- laws and government regulations, both in the United States and elsewhere;
- the imposition or lifting of economic sanctions against foreign
countries;
- local and worldwide military, political and economic events, including
events in the oil producing countries in the Middle East;
- the ability of the Organization of Petroleum Exporting Countries, or
OPEC, to set and maintain production levels and prices;
- the level of production by non-OPEC countries;
- weather conditions;
- levels of consumer demand;
- the rate of discovery of new oil and gas reserves;
- the availability of pipeline capacity; and
- the policies of various governments regarding exploration and development
of their oil and gas reserves.
Fluctuations during the past several years in the demand and supply of oil
and natural gas have contributed to, and are likely to continue to contribute to
price volatility. Any sustained reduction in oil and natural gas prices would
depress the level of exploration and production activity. This would in turn
result in a corresponding decline in the demand for our drilling and related
services and would adversely affect our business and financial performance.
MOST OF OUR CONTRACTS ARE SUBJECT TO CANCELLATION BY OUR CUSTOMERS WITHOUT
PENALTY WITH LITTLE OR NO NOTICE.
Most of our contracts, including our recent contracts relating to our
operations in Mexico, are terminable by our customers without penalty with
relatively little or no notice, and customers are more likely to exercise their
termination rights during depressed market conditions. A customer may decide to
terminate a contract because they no longer need a rig or may be able to obtain
a comparable rig at a lower dayrate. For instance,
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in Colombia, we had four drilling rigs working for a customer when the operator
terminated our drilling contract in May 2002 without cause. Also, customers may
seek to renegotiate the terms of their existing drilling contracts during
depressed market conditions.
Our customers may also seek to terminate drilling contracts if we
experience operational problems. We specialize in drilling geologically
challenging wells in locations that are difficult to access or involve harsh
environmental conditions. If our equipment fails to function properly and cannot
be repaired promptly, we will not be able to engage in drilling operations, and
customers may have the right to terminate the drilling contracts. The likelihood
that a customer may seek to terminate a contract for operational difficulties is
increased during periods of market weakness. The cancellation or renegotiation
of a number of our drilling contracts could adversely affect our financial
performance.
WE RELY ON A SMALL NUMBER OF CUSTOMERS, AND THE LOSS OF A SIGNIFICANT CUSTOMER
COULD ADVERSELY AFFECT US.
A substantial percentage of our sales has been made to a relatively small
number of customers, and the loss of a major customer would adversely affect us.
For the year ended December 31, 2003, Royal Dutch Shell accounted for
approximately 15 percent of our total revenues, Tengizchevroil, a consortium led
by ChevronTexaco Corporation and including Exxon Mobil Corporation, accounted
for approximately 14 percent of our total revenues and ChevronTexaco accounted
for approximately 11 percent of our total revenues. Our ten most significant
customers collectively accounted for approximately 66 percent of our total
revenues in 2003. In addition, as a result of our recent contracts in Mexico,
Halliburton has become one of our more significant customers. Our results of
operations could be adversely affected if any of our major customers terminate
their contracts with us, fail to renew our existing contracts or refuse to award
new contracts to us.
CONTRACT DRILLING IS HIGHLY COMPETITIVE AND THERE IS CURRENTLY SIGNIFICANT
EXCESS DRILLING CAPACITY, WHICH DEPRESSES PRICES AND RIG UTILIZATION AND
ADVERSELY AFFECTS OUR FINANCIAL PERFORMANCE. THE RENTAL TOOLS MARKET IS ALSO
HIGHLY COMPETITIVE.
The drilling and rental tools markets are highly competitive, and no single
competitor is dominant. In the drilling market, a general oversupply of rigs has
lasted for well over a decade. This oversupply has adversely affected our
utilization rates, which was 49 percent for the twelve months ended September
30, 2004 and 40 percent for the twelve months ended December 31, 2003. Contract
drilling companies compete primarily on a regional basis, and competition may
vary significantly from region to region at any particular time. Many drilling
and workover rigs can be moved from one region to another in response to changes
in levels of activity and provided market conditions warrant, which may result
in an oversupply of rigs in an area. In many markets in which we operate, the
number of rigs available for use exceeds the demand for rigs, resulting in
intense price competition. Most drilling and workover contracts are awarded on
the basis of competitive bids, which also results in price competition. We
believe that competition for drilling contracts will continue to be intense for
the foreseeable future. If we cannot keep our rigs utilized, our financial
performance will be adversely impacted. The rental tools market is also
characterized by vigorous competition among several competitors. Many of our
competitors in both the contract drilling and rental tools business possess
significantly greater financial resources than we do.
OUR INTERNATIONAL OPERATIONS COULD BE ADVERSELY AFFECTED BY TERRORISM, WAR,
CIVIL DISTURBANCES, POLITICAL INSTABILITY AND SIMILAR EVENTS.
We have operations in Bangladesh, Bolivia, Chad, China, Colombia,
Indonesia, Kazakhstan, Kuwait, Mexico, New Zealand, Nigeria, Papua New Guinea,
Peru, Russia and Turkmenistan. Our international operations are subject to
interruption, suspension and possible expropriation due to terrorism, war, civil
disturbances, political instability and similar events. We may not be able to
obtain insurance policies covering such risks, or such policies may only be
available with premiums that are not commercially justifiable. For example,
significant civil unrest in Nigeria has resulted in the suspension of drilling
operations of our rigs in Nigeria for substantial periods during the past two
years. Community unrest resulted in substantial damage to one of our rigs in
Nigeria in 2003 and our evaluation indicates that this rig is a total loss.
Although we
10
believe that the damage to this rig will be covered by our insurance policy,
under the terms of our insurance coverage we are responsible for the first
$250,000 of the cost of repairs plus 20 percent of the cost of repairs in excess
of $250,000. Terrorism, war, civil disturbances and other hostilities are likely
to occur in other foreign countries, including in the developing countries in
which we have operations, and could adversely affect our business and financial
performance.
OUR INTERNATIONAL OPERATIONS ARE ALSO SUBJECT TO GOVERNMENTAL REGULATION AND
OTHER RISKS.
We derive a significant portion of our revenues from our international
operations. In the twelve months ended September 30, 2004, we derived
approximately 60 percent of our revenues from operations in countries outside
the United States. Our international operations are subject to the following
risks, among others:
- foreign laws and governmental regulation;
- expropriation, confiscatory taxation and nationalization of our assets
located in areas in which we operate;
- terrorism, war, civil disturbances and other political events;
- hiring and retaining skilled and experienced workers, many of which are
represented by foreign labor unions;
- unfavorable changes in foreign monetary and tax policies and unfavorable
and inconsistent interpretation of foreign tax laws; and
- foreign currency fluctuations and restrictions on currency repatriation.
Our international operations are subject to the laws and regulations of a
number of foreign countries. Additionally, our ability to compete in
international contract drilling markets may be adversely affected by foreign
governmental regulations that favor or require the awarding of contracts to
local contractors or by regulations requiring foreign contractors to employ
citizens of, or purchase supplies from, a particular jurisdiction. For example,
these types of regulations have resulted in the formation of a joint venture,
AralParker CJSC, with a local Kazakhstan company which currently owns two rigs
that operate in the Tengiz field in Kazakhstan. Furthermore, our foreign
subsidiaries may face governmentally imposed restrictions from time to time on
their ability to transfer funds to us. While we attempt to limit these risks by
transferring the risk of loss to the operators under our contracts, we cannot
completely eliminate such risk.
A significant portion of the workers we employ in our international
operations are members of labor unions or otherwise subject to collective
bargaining. We may not be able to hire and retain a sufficient number of skilled
and experienced workers for wages and other benefits that we believe are
commercially reasonable.
Tax and other laws and regulations applicable to us in many of the
countries in which we have operations are not always interpreted consistently
among local, regional and national authorities. For example, in 2001, the
Ministry of State Revenues of the Republic of Kazakhstan, or MSR, issued an Act
of Audit to the Kazakhstan branch of one of our wholly-owned subsidiaries, PKD
Kazakhstan, assessing additional taxes of approximately $29.0 million for the
years 1998 through 2000. We filed an Act of Non-Agreement that reimbursements
for rig modifications should not be taxable in Kazakhstan and requested that the
Act of Audit be revised accordingly. In 2002, the Supreme Court of Kazakhstan
held that no additional taxes were payable by us. The MSR had until the end of
March 2003 to appeal the decision. Although no appeal was filed, in 2003 the
Ministry of Finance conducted another audit and issued an assessment of $7.7
million on a related issue, which was upheld by the Supreme Court of Kazakhstan
in March 2004. The United States Treasury Department has granted our petition
for competent authority review, and has initiated ongoing competent authority
proceedings with the Ministry of Finance. The ultimate outcome of this dispute
is not certain, and it is possible that the outcome could have an adverse effect
on our financial performance. It is also possible that in the future we will be
subject to similar disputes concerning taxation and other matters in Kazakhstan
and other countries in which we do business, which disputes could have a
material adverse effect on our financial performance.
11
In 2004, PKD Kazakhstan received a notice of an assessment of duties, taxes
and penalties in the amount of $6.0 million for failure to submit monthly duties
and taxes under the temporary import license for rig 257 from November 2003
through February 2004, based on the allegation of the Customs Control in
Mangistau that rig 257 was no longer under a contract, exempting it from such
duties and taxes. On October 26, 2004, the Mangistau Oblast Court of Kazakhstan
confirmed an earlier settlement that PKD Kazakhstan had reached with the Customs
Control in Mangistau in connection with this matter. The settlement resulted in
a charge of $2.1 million during the third quarter of 2004. The short-term cash
impact of the settlement was $3.9 million, however, we expect that approximately
$1.8 million of this amount will be recaptured through reduced Value Added Tax
payments over the next six months. The settlement releases all claims of the
Kazakhstan customs authorities over rig 257 and PKD Kazakhstan bank accounts.
We have historically been successful in limiting the risks of currency
fluctuation and restrictions on currency repatriation by obtaining contracts
providing for payment in U.S. dollars or freely convertible foreign currencies.
However, some countries in which we may operate could require that all or a
portion of our revenues be paid in local currencies that are not freely
convertible. In addition, some parties with which we do business may require
that all or a portion of our revenues be paid in local currencies. To the extent
possible, we limit our exposure to potentially devaluating currencies by
matching the acceptance of local currencies to our expense requirements in those
currencies. Although we have done this in the past, we may not be able to take
these actions in the future, thereby exposing us to foreign currency
fluctuations that could have a material adverse effect upon our results of
operations and financial condition.
WE ARE SUBJECT TO HAZARDS CUSTOMARY FOR DRILLING OPERATIONS, WHICH COULD
ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE IF WE ARE NOT ADEQUATELY
INDEMNIFIED OR INSURED.
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, oil and gas well fires and explosions,
natural disasters, pollution and mechanical failure. Our offshore operations
also are subject to hazards inherent in marine operations, such as capsizing,
grounding, collision and damage from severe weather conditions. Our
international operations are also subject to risks of terrorism, war, civil
disturbances and other political events. 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. We have had accidents
in the past demonstrating some of these hazards. For example, in September 2003,
a malfunction occurred on one of our jackup rigs in the Gulf of Mexico, which
caused one side of the rig to become submerged in the water and resulted in the
loss of certain drilling equipment overboard, and in November 2003 we
experienced a well control incident during completion operations on one of our
workover barge rigs. Generally, drilling contracts provide for the division of
responsibilities between a drilling company and its customer, and we generally
seek to obtain indemnification from our customers by contract for some of these
risks. However, the laws of certain countries place significant limitations on
the enforceability of indemnification. To the extent that we are unable to
transfer such risks to customers by contract or indemnification agreements, we
generally seek protection through insurance. However, there is no assurance that
such insurance or indemnification agreements will adequately protect us against
liability from all of the consequences of the hazards and risks described above.
The occurrence of an event not fully insured or indemnified against, or the
failure of a customer or insurer to meet its indemnification or insurance
obligations, could result in substantial losses. In addition, there can be no
assurance that insurance will be available to cover any or all of these risks,
or, even if available, that insurance premiums or other costs will not rise
significantly in the future, so as to make the cost of such insurance
prohibitive. For example, we are currently unable to obtain political violence
coverage at commercially reasonable premiums for rigs while they are operating
in Nigeria, but if the insurance market and political climate in Nigeria
changes, political violence coverage may become available for a reasonable
premium.
12
GOVERNMENT REGULATIONS AND ENVIRONMENTAL RISKS, WHICH REDUCE OUR BUSINESS
OPPORTUNITIES AND INCREASE OUR OPERATING COSTS, MIGHT WORSEN IN THE FUTURE.
Government regulations control and often limit access to potential markets
and impose extensive requirements concerning employee safety, environmental
protection, pollution control and remediation of environmental contamination.
Environmental regulations, in particular, prohibit access to some markets and
make others less economical, increase equipment and personnel costs and often
impose liability without regard to negligence or fault. In addition,
governmental regulations may discourage our customers' activities, reducing
demand for our products and services. We may be liable for damages resulting
from pollution of offshore waters and, under United States regulations, must
establish financial responsibility in order to drill offshore.
FAILURE TO RETAIN KEY PERSONNEL COULD HURT OUR OPERATIONS.
We require highly skilled and experienced personnel to provide technical
services and support for our drilling operations. To the extent that the demand
for drilling services and the size of the worldwide rig fleet increase,
shortages of qualified personnel could arise, creating upward pressure on wages
and preventing us from attracting qualified personnel in a cost-effective
manner.
Additionally, we depend significantly on the experience of our senior
management team, including, in particular, Robert L. Parker, Robert L. Parker
Jr. and James W. Whalen. The unexpected loss of the services of any one of these
persons could result in operating inefficiencies and lost business
opportunities.
OUR DEBT INSTRUMENTS CONTAIN RESTRICTIVE COVENANTS THAT MAY LIMIT OUR
OPERATING FLEXIBILITY.
The indentures governing the notes, our 10.125% senior notes and our 9.625%
senior notes, and the agreement governing our senior secured credit facility,
contain significant covenants that limit our ability to engage in various
transactions. Our senior secured credit facility also requires satisfaction of
specified financial performance criteria. In addition, under each of these
documents, the occurrence of specific events, in some cases after notice and
grace periods, would constitute an event of default permitting acceleration of
the respective indebtedness. These events include:
- failure to comply with a document's covenants;
- material inaccuracies of representations and warranties;
- specified defaults under or acceleration of other indebtedness; and
- events of bankruptcy or insolvency.
The limitations imposed by our outstanding indebtedness are substantial,
and failure to comply with them could have a material adverse effect on our
business. We are in full compliance with our debt covenants as of the date of
this prospectus.
RISKS RELATED TO THE EXCHANGE NOTES
PAYMENT OF PRINCIPAL AND INTEREST ON THE EXCHANGE NOTES WILL BE EFFECTIVELY
SUBORDINATED TO OUR SENIOR SECURED DEBT TO THE EXTENT OF THE VALUE OF THE
ASSETS SECURING THAT DEBT.
The exchange notes and the guarantees related to these exchange notes are
senior unsecured obligations of Parker Drilling Company and certain of our
domestic subsidiaries that rank senior in right of payment to all current and
future subordinated debt. Holders of our secured obligations, including
obligations under our senior secured credit facility, will have claims that are
prior to claims of the holders of the exchange notes with respect to the assets
securing those obligations. In the event of a liquidation, dissolution,
reorganization, bankruptcy or any similar proceeding, our assets and those of
our subsidiaries will be available to pay obligations on the notes and the
guarantees only after holders of our senior secured debt have been paid the
value of the assets securing such debt. Accordingly, there may not be sufficient
funds remaining to pay amounts due on all or any of the exchange notes.
13
We have granted the lenders under our senior secured credit facility a
security interest in all accounts receivable and substantially all other
tangible and intangible assets of Parker Drilling Company and our material
direct and indirect domestic subsidiaries, including substantially all of the
personal property assets of our rental tool business. In the event of a default
on secured indebtedness, the parties granted security interests will have a
prior secured claim on our assets and the assets of our subsidiaries. If the
parties should attempt to foreclose on their collateral, our financial condition
and the value of the notes would be adversely affected.
WE ARE A HOLDING COMPANY AND CONDUCT SUBSTANTIALLY ALL OF OUR OPERATIONS
THROUGH OUR SUBSIDIARIES, WHICH MAY AFFECT OUR ABILITY TO MAKE PAYMENTS ON THE
NOTES.
We conduct substantially all of our operations through our subsidiaries. As
a result, our cash flows and our ability to service our debt, including the
notes, is dependent upon the earnings of our subsidiaries. In addition, we are
dependent on the distribution of earnings, loans or other payments from our
subsidiaries to us. Any payment of dividends, distributions, loans or other
payments from our subsidiaries to us could be subject to statutory restrictions.
In addition, payment of dividends or distributions from our joint ventures are
subject to contractual restrictions. Payments to us by our subsidiaries also
will be contingent upon the profitability of our subsidiaries. If we are unable
to obtain funds from our subsidiaries we may not be able to pay interest or
principal on the notes when due, or to redeem the notes upon a change of
control, and we cannot assure you that we will be able to obtain the necessary
funds from other sources.
THE SUBSIDIARY GUARANTEES COULD BE DEEMED FRAUDULENT CONVEYANCES UNDER CERTAIN
CIRCUMSTANCES, AND A COURT MAY TRY TO SUBORDINATE OR VOID THE SUBSIDIARY
GUARANTEES.
Under the federal bankruptcy laws 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 such guarantee; and
- was insolvent or rendered insolvent by reason of such incurrence; or
- 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 such 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, was greater than
the fair saleable value of all of its assets;
- the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability, including
contingent liabilities, on its existing debts, as they become absolute
and mature; or
- it could not pay its debts as they become due.
14
WE MAY NOT BE ABLE TO REPURCHASE THE NOTES UPON A CHANGE OF CONTROL.
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 secured 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.
In addition, the change of control provisions in the indenture may not
protect you from certain important corporate events, such as a leveraged
recapitalization (which would increase the level of our indebtedness),
reorganization, restructuring, merger or other similar transaction, unless such
transaction constitutes a "Change of Control" under the indenture. Such a
transaction may not involve a change in voting power or beneficial ownership or,
even if it does, may not involve a change that constitutes a "Change of Control"
as defined in the indenture that would trigger our obligation to repurchase the
notes. Therefore, if an event occurs that does not constitute a "Change of
Control" as defined in the indenture, we will not be required to make an offer
to repurchase the notes and you may be required to continue to hold your notes
despite the event. See "Description of Certain Indebtedness" and "Description of
the Notes -- Repurchase at the Option of Holders -- Change of Control."
THERE WILL BE NO PUBLIC TRADING MARKET FOR THE EXCHANGE NOTES, AND YOUR
ABILITY TO SELL YOUR EXCHANGE NOTES IS LIMITED.
The exchange notes are new securities, and there is no existing public
market for the exchange notes. We cannot assure you as to the liquidity of any
markets that may develop for the exchange notes, the ability of holders of the
exchange notes to sell their exchange notes or the price at which holders would
be able to sell their exchange notes. Future trading prices of the exchange
notes will depend on many factors, including, among other things, prevailing
interest rates, our operating results, the number of holders of the notes and
the market for similar securities. Lehman Brothers Inc. and Banc of America
Securities LLC have advised us that they currently intend to make a market in
the exchange notes. However, they are not obligated to do so and any
market-making activities may be discontinued by any of them at any time without
notice. We do not intend to apply for listing of the notes on any securities
exchange.
IF YOU WISH TO TENDER YOUR PRIVATE NOTES FOR EXCHANGE, YOU MUST COMPLY WITH
THE REQUIREMENTS DESCRIBED IN THIS PROSPECTUS.
You will receive exchange notes in exchange for private notes only after
the exchange agent receives such private notes, a properly completed and duly
executed letter of transmittal and all other required documentation within the
time limits described below. If you wish to tender your private notes in
exchange for exchange notes, you should allow sufficient time for delivery.
Neither the exchange agent nor Parker Drilling has any duty to give you notice
of defects or irregularities with respect to tenders of private notes for
exchange. Private notes that are not tendered or are tendered but not accepted
will, following consummation of the exchange offer, continue to be subject to
the existing restrictions upon transfer relating to the private notes.
In addition, if you tender your private notes in the exchange offer for the
purpose of participating in a distribution of the exchange notes, you will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-dealer
who holds private notes acquired for its own account as a result of
market-making or other trading activities and who receives exchange notes for
its own account in exchange for such private notes pursuant to the exchange
offer must acknowledge in the letter of transmittal that it will deliver a
prospectus in connection with any resale of such exchange notes.
15
IF YOU DO NOT EXCHANGE YOUR PRIVATE NOTES, YOU MAY HAVE DIFFICULTY IN
TRANSFERRING THEM AT A LATER TIME.
We will issue exchange notes in exchange for the private notes after the
exchange agent receives your private notes, the letter of transmittal and all
related documents. You should allow adequate time for delivery if you choose to
tender your notes for exchange. Notes that are not exchanged will remain subject
to restrictions on transfer and will not have rights to registration.
If you do not participate in the exchange offer for the purpose of
participating in the distribution of the exchange notes, you must comply with
the registration and prospectus delivery requirements of the Securities Act for
any resale transaction. Each broker-dealer who holds private notes for its own
account due to market-making or other trading activities and who receives
exchange notes for its own account must acknowledge that it will deliver a
prospectus in connection with any resale of the exchange notes. If any private
notes are not tendered in the exchange or are tendered but not accepted, the
trading market for such notes could be negatively affected due to the limited
amount of notes expected to remain outstanding following the completion of the
exchange offer.
16
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated herein by reference contain
statements that are "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act of
1934, as amended, or the Exchange Act. All statements contained in or
incorporated by reference into this prospectus, other than statements of
historical facts, are "forward-looking statements" for purposes of these
provisions, including any statements regarding:
- prices and demand for oil and natural gas;
- levels of oil and natural gas exploration and production activities;
- demand for contract drilling and drilling related services and demand for
rental tools;
- our future operating results, including our efforts to reduce costs and
our projected net loss from continuing operations;
- our future rig utilization, dayrates and rental tool activity;
- entering into new, or extending existing, drilling contracts;
- our future capital expenditures and investments in the acquisition and
refurbishment of rigs and equipment;
- reducing our debt, including our liquidity and the sources and
availability of funds to reduce our debt;
- future sales of our assets and the gains or losses that we may recognize
as a result of any such sales;
- the outcome of pending and future legal proceedings, including the
outcome of our dispute with the Ministry of Finance of the Republic of
Kazakhstan and the Customs Control in Mangistau;
- our recovery of insurance proceeds in respect of our damaged rig in
Nigeria;
- maintenance of the borrowing base under our senior secured credit
facility; and
- expansion and growth of our operations.
In some cases, you can identify these statements by forward-looking words such
as "anticipate," "believe," "could," "estimate," "expect," "intend," "outlook,"
"may," "should," "will" and "would" or similar words. Forward-looking statements
are based on certain assumptions and analyses made by our management in light of
their experience and perception of historical trends, current conditions,
expected future developments and other factors they believe are relevant.
Although our management believes that their assumptions are reasonable based on
information currently available, those assumptions are subject to significant
risks and uncertainties, many of which are outside of our control. The factors
listed in the "Risk Factors" section of this prospectus, as well as any other
cautionary language contained in or incorporated by reference into in this
prospectus, provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from the expectations we describe in our
forward-looking statements. Each forward-looking statement speaks only as of the
date of this prospectus, and we undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. Before you decide to exchange your private notes for
exchange notes, you should be aware that the occurrence of the events described
in these risk factors and elsewhere in this prospectus and the documents
incorporated herein by reference could have a material adverse effect on our
business, results of operations and financial condition.
17
USE OF PROCEEDS
The exchange offer is intended to satisfy certain obligations of Parker
Drilling under our registration rights agreement. We will not receive any
proceeds from the issuance of the exchange notes. In exchange for issuing the
exchange notes as contemplated in this exchange offer, we will receive private
notes in the same principal amount. The form and terms of the exchange notes are
identical in all material respects to the form and terms of the private notes,
except as described below under the heading "The Exchange Offer -- Terms of the
Exchange Offer." The private notes surrendered in exchange for the exchange
notes will be retired and cancelled and cannot be re-issued. Accordingly,
issuance of the exchange notes will not result in any increase in our
outstanding debt.
18
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated. For more information on our consolidated
ratios of earnings to fixed charges, see our Current Report on Form 8-K dated
August 13, 2004, and our Quarterly Reports for the quarters ended March 31,
2004, June 30, 2004 and September 30, 2004, each of which are incorporated by
reference into this prospectus as described under "Where You Can Find More
Information."
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
- ----------------- --------------------------------
2004 2003 2003 2002 2001 2000 1999
---- ------- ---- ---- ---- ---- ----
0.1x 0.4x 0.3x 0.6x 1.3x 0.8x 0.6x
</Table>
The ratio of earnings to fixed charges is computed by dividing fixed
charges into earnings, as defined. Earnings include income (loss) from
continuing operations before income taxes, minority interest and income (loss)
from equity investees, plus fixed charges. Fixed charges include interest
expense and the interest factor of lease obligations. Fixed charges exceeded
earnings by approximately $35.5 million for the nine months ended September 30,
2004, approximately $26.0 million for the nine months ended September 30, 2003,
approximately $35.8 million for the year ended December 31, 2003, approximately
$19.4 million for the year ended December 31, 2002, approximately $9.0 million
for the year ended December 31, 2000 and approximately $24.2 million for the
year ended December 31, 1999.
As of the date of this prospectus, we have no preferred stock outstanding.
19
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables present selected historical consolidated financial
data derived from the unaudited financial statements of Parker Drilling for the
nine months ended September 30, 2004 and 2003, the audited financial statements
of Parker Drilling for the years ended December 31, 2003, 2002 and 2001, and
unaudited financial information for the years ended December 31, 2000 and 1999.
In the opinion of management, the interim financial data include all
adjustments, consisting only of normal, recurring adjustments necessary for a
fair presentation of results for the interim period. Effective as of June 30,
2003, our non-core assets, including our Latin America assets, consisting of 16
land rigs and related inventory and spare parts, and our U.S. offshore assets,
consisting of six jackup and four platform rigs, were reclassified from
continuing operations to discontinued operations in accordance with SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" after our
board of directors approved a plan to sell such non-core assets.
During 2004, we were awarded three drilling contracts in Mexico and
mobilized seven land rigs that were located in South America to Mexico to
fulfill the terms of the contracts. In May 2004, the operations related to the
seven land rigs were reclassified from discontinued operations to continuing
operations. In addition, effective June 30, 2004, the remaining nine land rigs
located in South America were reclassified to continuing operations as required
by SFAS No. 144 due to the lack of a firm sales prospect. The U.S. offshore
assets remain in discontinued operations due to the subsequent sale of all but
one rig and a commitment to sell the remaining one jackup rig in that group.
Accordingly, our consolidated financial statements for the nine months ended
September 30, 2004 and 2003 and for each of the five years in the period ended
December 31, 2003 have been reclassified to present our Latin America operations
as continuing operations. The financial data for the year ended December 31,
2000 also have been reclassified to reflect the adoption of SFAS No. 145,
"Rescission of FASB Statements No. 4, No. 44, and No. 64, Amendment of FASB
Statement No. 13, and Technical Corrections," which resulted in the
reclassification of the extraordinary gain on early extinguishment of debt to
other income and the related deferred taxes to income tax expense. The following
financial data are qualified by reference to and should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes incorporated by
reference into this prospectus.
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------------------------------------
2004 2003 2003 2002(1) 2001(1) 2000(1) 1999(1)
-------- -------- --------- --------- ---------- ---------- ----------
Total drilling and
rental revenues....... $266,725 $247,053 $ 338,653 $ 385,714 $ 452,944 $ 339,334 $ 300,192
Income (loss) from
continuing
operations............ (48,418) (37,266) (52,434) (21,193) 2,327 (15,371) (18,690)
Net income (loss)....... (41,832) (97,265) (109,699) (114,054) 11,059 (19,045) (37,897)
Income (loss) from
continuing operations
per share............. (0.52) (0.40) (0.56) (0.23) 0.03 (0.19) (0.24)
Net income (loss) per
share................. (0.45) (1.04) (1.17) (1.23) 0.12 (0.23) (0.49)
Total assets(2)......... 741,103 864,764 847,632 953,325 1,105,777 1,107,419 1,082,743
Total long-term debt and
capital leases,
including current
portion(2)............ $481,122 $569,360 $ 571,625 $ 589,930 $ 592,172 $ 597,627 $ 653,631
</Table>
- ---------------
(1) During the first quarter of 2003, we determined that pursuant to the
provisions of EITF No. 01-14, "Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses Incurred," amounts
received as reimbursements should have been reported as revenues, with the
corresponding amounts reported as operating expenses. In prior years, we
netted the reimbursement with the cost in the statement of operations.
Accordingly, we have revised our previously issued statement of operations
to reflect this new presentation. The effect of making this change was an
increase in both total drilling and rental revenues and total drilling and
rental operating expenses for continuing operations of $32.6 million, $37.6
million, $20.8 million and $8.1 million for the years ended December 31,
2002, 2001, 2000 and
20
1999, respectively, and $4.9 million, $7.1 million, $9.7 million and $10.4
million for discontinued operations for the years ended December 31, 2002,
2001, 2000 and 1999, respectively, as previously reported in our Annual
Report on Form 10-K for the year ended December 31, 2003. As a result of the
change in our discontinued operations in the second quarter of 2004, as
discussed in Note 2 in the notes to the consolidated financial statements,
the effect of making this change on our financial statements incorporated by
reference herein was an increase in both total drilling and rental revenues
and total drilling and rental operating expenses for continuing operations
of $35.0 million, $41.4 million, $25.9 million and $14.7 million for the
years ended December 31, 2002, 2001, 2000 and 1999, respectively, and $2.5
million, $3.3 million, $4.6 million and $3.8 million for discontinued
operations for the years ended December 31, 2002, 2001, 2000 and 1999,
respectively. This revision has no effect on total operating income, net
income, cash flows or any balance sheet amount presented.
(2) Balance sheet data are as of the ends of the periods presented.
21
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We sold the private notes on September 2, 2004, to Lehman Brothers Inc. and
Banc of America Securities LLC, as initial purchasers in a private offering
pursuant to a purchase agreement. These initial purchasers subsequently sold the
private notes to:
- "qualified institutional buyers" ("QIBs"), as defined in Rule 144A under
the Securities Act, in reliance on Rule 144A; and
- persons in offshore transactions in reliance on Regulation S under the
Securities Act.
As a condition to the initial sale of the private notes, we and the initial
purchasers entered into a registration rights agreement on September 2, 2004.
Pursuant to the registration rights agreement, we agreed to:
- file with the SEC a registration statement under the Securities Act with
respect to the exchange notes no later than 90 days after September 2,
2004;
- use our commercially reasonable best efforts to cause the registration
statement to become effective under the Securities Act within 180 days
after September 2, 2004; and
- unless the exchange offer would not be permitted by applicable law or SEC
policy, to commence the exchange offer and to use our commercially
reasonable best efforts to issue on or prior to 30 business days, or
longer, if required by the federal securities laws, after the date on
which the registration statement was declared effective by the SEC,
exchange notes in exchange for all private notes tendered prior thereto
in the exchange offer.
The registration rights agreement provides, among other things, that if we
default in our obligations to take required actions to make the exchange offer
within the required time periods described above, then we will pay additional
interest to each holder of notes, with respect to the first 90-day period
immediately following the occurrence of the first default in an amount equal to
$.05 per week per $1,000 principal amount of notes held by such holder. The
amount of the additional interest will increase by an additional $.05 per week
per $1,000 principal amount of notes with respect to each subsequent 90-day
period until all defaults have been cured, up to a maximum amount of additional
interest for all defaults of $.50 per week per $1,000 principal amount of notes.
We agreed to issue and exchange the exchange notes for all private notes
properly surrendered and not withdrawn before the expiration of the exchange
offer. The summary in this document of the registration rights agreement is not
complete and is subject to, and is qualified in its entirety by, all the
provisions of the registration rights agreement. WE URGE YOU TO READ THE ENTIRE
REGISTRATION RIGHTS AGREEMENT CAREFULLY. A copy of the registration rights
agreement has been filed as an exhibit to the registration statement which
includes this prospectus. The registration statement is intended to satisfy some
of our obligations under the registration rights agreement and the purchase
agreement.
TERMS OF THE EXCHANGE OFFER
Based on the terms and conditions in this prospectus and in the letter of
transmittal, we will issue $1,000 principal amount of exchange notes in exchange
for each $1,000 principal amount of outstanding private notes properly
surrendered pursuant to the exchange offer and not withdrawn prior to the
expiration date. Private notes may be surrendered only in integral multiples of
$1,000. The form and terms of the exchange notes are the same as the form and
terms of the private notes except that:
- the exchange notes will have a different CUSIP number from the private
notes;
- the exchange notes will be registered for the exchange offer under the
Securities Act and, therefore, the exchange notes will not bear legends
restricting the transfer of the exchange notes; and
22
- holders of the exchange notes will not be entitled to any of the
registration rights of holders of private notes under the registration
rights agreement, which will terminate upon the consummation of the
exchange offer.
The exchange notes will evidence the same indebtedness as the private
notes, which they replace, and will be issued under, and be entitled to the
benefits of, the same indenture, that authorized the issuance of the private
notes. As a result, both series of notes will be treated as a single class of
debt securities under the indenture.
As of the date of this prospectus, $150,000,000 in aggregate principal
amount of the private notes is outstanding. All of it is registered in the name
of Cede & Co., as nominee for The Depository Trust Company ("DTC"). Solely for
reasons of administration, we have fixed the close of business on December 1,
2004 as the record date for the exchange offer for purposes of determining the
persons to whom this prospectus and the letter of transmittal will be mailed
initially. There will be no fixed record date for determining holders of the
private notes entitled to participate in this exchange offer.
In connection with the exchange offer, neither the General Corporation Law
of the State of Delaware nor the indenture governing the notes gives you any
appraisal or dissenters' rights nor any other right to seek monetary damages in
court. We intend to conduct the exchange offer in accordance with the provisions
of the registration rights agreement and the applicable requirements of the
Exchange Act and the related SEC rules and regulations.
For all relevant purposes, we will be regarded as having accepted properly
surrendered private notes if and when we give oral or written notice of our
acceptance to the exchange agent. The exchange agent will act as agent for the
surrendering holders of private notes for the purposes of receiving the exchange
notes from us.
If you surrender private notes in the exchange offer, you will not be
required to pay brokerage commissions or fees. In addition, subject to the
instructions in the letter of transmittal, you will not have to pay transfer
taxes for the exchange of private notes. We will pay all charges and expenses,
other than certain applicable taxes described under "-- Fees and Expenses"
below.
By executing or otherwise becoming bound by the letter of transmittal, you
will be making the representations described under "-- Representations on
Tendering Private Notes" below.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The "expiration date" is 5:00 p.m., New York City time on January 3, 2005,
unless we, in our sole discretion, extend the exchange offer, in which case the
expiration date is the latest date and time to which we extend the exchange
offer.
In order to extend the exchange offer, we will:
- notify the exchange agent of any extension by oral or written notice; and
- issue a press release or other public announcement which will include
disclosure of the approximate number of private notes deposited; such
press release or announcement would be issued prior to 9:00 a.m., New
York City time, on the next business day after the previously scheduled
expiration date.
We expressly reserve the right:
- to delay accepting any private notes;
- to extend the exchange offer; or
- if, in the opinion of our counsel, the consummation of the exchange offer
would violate any law or interpretation of the staff of the SEC, to
terminate or amend the exchange offer by giving oral or written notice to
the exchange agent.
23
Any delay in acceptance, extension, termination or amendment will be
followed as soon as practicable by a press release or other public announcement.
If the exchange offer is amended in a manner determined by us to constitute a
material change, we will promptly disclose that amendment by means of a
prospectus supplement that will be distributed to the holders. We will also
extend the exchange offer for a period of five to ten business days, depending
upon the significance of the amendment and the manner of disclosure to the
holders, if the exchange offer would otherwise expire during the five to ten
business days period.
We will have no obligation to publish, advertise, or otherwise communicate
any public announcement of any delay, extension, amendment or termination that
we may choose to make, other than by making a timely release to an appropriate
news agency.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will accrue interest on the same terms as the private
notes from September 1, 2004, payable quarterly in arrears on March 1, June 1,
September 1 and December 1 of each year, commencing December 1, 2004.
RESALE OF THE EXCHANGE NOTES
We believe that you will be allowed to resell the exchange notes to the
public without registration under the Securities Act, and without delivering a
prospectus that satisfies the requirements of the Securities Act, if you can
make the three representations set forth above under "Prospectus
Summary -- Summary of the Exchange Offer -- Procedures for Participating in the
Exchange Offer." However, if you intend to participate in a distribution of the
exchange notes, you must comply with the registration requirements of the
Securities Act and deliver a prospectus, unless an exemption from registration
is otherwise available. In addition, you cannot be an "affiliate" of Parker
Drilling Company as defined under Rule 405 of the Securities Act, or a
broker-dealer tendering the private notes acquired directly from Parker Drilling
Company for its own account. You are required to represent to us in the letter
of transmittal accompanying this prospectus that you meet these conditions
exempting you from the registration requirements.
We base our view on interpretations by the staff of the SEC in no-action
letters issued to other issuers in exchange offers like ours. We have not,
however, asked the SEC to consider this particular exchange offer in the context
of a no-action letter. Therefore, you cannot be sure that the SEC will treat
this exchange offer in the same way as it has treated others in the past. If our
belief is wrong, or if you cannot truthfully make the representations described
above, and you transfer any exchange note issued to you in the exchange offer
without meeting the registration and prospectus delivery requirements of the
Securities Act, or without an exemption from such requirements, you could incur
liability under the Securities Act. We are not indemnifying you for any such
liability and we will not protect you against any loss incurred as a result of
any such liability under the Securities Act.
A broker-dealer that has bought private notes for market-making or other
trading activities has to deliver a prospectus in order to resell any exchange
notes it has received for its own account in the exchange. This prospectus may
be used by a broker-dealer to resell any of its exchange notes. In addition, a
broker-dealer which has acquired the private notes for its own account as a
result of market-making or other trading activities may participate in the
exchange offer if it has not entered into any arrangement or understanding with
us or any of our affiliates to distribute the exchange notes. We have agreed in
the registration rights agreement to make this prospectus, and any amendment or
supplement to this prospectus, available to any broker-dealer that requests
copies in the letter of transmittal for a period of up to one year after the
registration statement relating to this exchange offer is declared effective.
See "Plan of Distribution" for more information regarding broker-dealers.
24
PROCEDURES FOR TENDERING
If you wish to surrender private notes you must do the following:
- properly complete, sign and date the letter of transmittal (or a
facsimile of the letter of transmittal);
- have the signatures on the letter of transmittal (or facsimile)
guaranteed if required by the letter of transmittal; and
- mail or deliver the letter of transmittal (or facsimile) together with
your private notes and any other required documents to the exchange agent
at the address appearing below under "-- Exchange Agent" for receipt
prior to 5:00 p.m., New York City time, on the expiration date.
In addition, either:
- certificates for such private notes must be received by the exchange
agent along with the letter of transmittal;
- a timely confirmation of a book-entry transfer of the private notes into
the exchange agent's account at DTC pursuant to the procedure for
book-entry transfer described below under "-- Book-Entry Transfer," must
be received by the exchange agent prior to the expiration date; or
- you must comply with the procedures described below under "-- Guaranteed
Delivery Procedures."
In order for the tender to be effective, the exchange agent must receive
the private notes, a completed letter of transmittal and all other required
documents before 5:00 p.m., New York City time, on the expiration date.
The method of delivery of private notes and the letter of transmittal and
all other required documents to the exchange agent is at your election and risk,
and the delivery will be deemed made only when actually received or confirmed by
the exchange agent.
As an alternative to delivery by mail, you may wish to consider overnight
courier service, property insured. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT
TIME TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. Do not
send the letter of transmittal or any private notes to us. You may ask your
broker, dealer, commercial bank, trust company or nominee to perform these
transactions for you.
If you do not withdraw your surrender of private notes prior to the
expiration date, you will be regarded as agreeing to surrender the exchange
notes in accordance with the terms and conditions in this exchange offer.
If you are a beneficial owner of the private notes and your private notes
are held through a broker, dealer, commercial bank, trust company or other
nominee and you want to surrender your private notes, you should contact your
intermediary promptly and instruct it to surrender the private notes on your
behalf. If you wish to tender on your own behalf, you must, before completing
and executing the letter of transmittal for the exchange offer and delivering
your private notes, either arrange to have your private notes registered in your
name or obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take a long time.
By tendering, you will make the representations described below under
"-- Representations on Tendering Private Notes." In addition, each participating
broker-dealer must acknowledge that it will deliver a prospectus in connection
with any resale of the new notes. See "Plan of Distribution."
Your tender and our acceptance of the tender will constitute the agreement
between you and us set forth in this prospectus and in the letter of
transmittal.
SIGNATURE ON LETTER OF TRANSMITTAL
Signatures on a letter of transmittal or a notice of withdrawal described
below under "-- Withdrawal of Tenders," as the case may be, must generally be
guaranteed by an eligible institution. You can submit the letter of transmittal
without guarantee if you surrender your private notes (i) as a registered holder
and you
25
have not completed the box titled "Special Delivery Instruction" on the letter
of transmittal or (ii) for the account of an eligible institution. In the event
that signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantee must be made by:
- a member firm of a registered national securities exchange or of the
NASD;
- a commercial bank or trust company having an office or correspondent in
the United States; or
- an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act which is a member of one of the recognized
signature guarantee programs identified in the letter of transmittal.
If you sign the letter of transmittal even though you are not the
registered holder of any private notes listed in the letter of transmittal, your
private notes must be endorsed or accompanied by a properly completed bond
power. The bond power must authorize you to tender the private notes on behalf
of the registered holder and must be signed by the registered holder as the
registered holder's name appears on the private notes.
In connection with any surrender of private notes in definitive
certificated form, if you sign the letter of transmittal or any private notes or
bond powers in your capacity as trustee, executor, administrator, guardian,
attorney-in-fact or officer of a corporation or if you are otherwise acting in a
fiduciary or representative capacity, you should indicate this when signing.
Unless waived by us, you must submit with the letter of transmittal evidence
satisfactory to us of your authority to act in the particular capacity.
ACCEPTANCE OF TENDERED PRIVATE NOTES
All questions as to the validity, form, acceptance, withdrawal and
eligibility, including time of receipt of surrendered private notes, will be
determined by us in our sole discretion, which will be final and binding.
We reserve the absolute right:
- to reject any and all private notes not properly surrendered;
- to reject any private notes if our acceptance of them would, in the
opinion of our counsel, be unlawful; and
- to waive any defects, irregularities or conditions of surrender as to
particular private notes.
Unless waived, you must cure any defects or irregularities in connection
with surrenders of private notes within the time period we will determine.
Although we intend to notify holders of defects or irregularities in connection
with surrenders of private notes, neither we, the exchange agent nor anyone else
will be liable for failure to give such notice. Surrenders of private notes will
not be deemed to have been made until any defects or irregularities have been
cured or waived.
We do not currently intend to acquire any private notes that are not
surrendered in the exchange offer or to file a registration statement to permit
resales of any private notes that are not surrendered pursuant to the exchange
offer. We reserve the right in our sole discretion to purchase or make offers
for any private notes that remain outstanding after the expiration date. To the
extent permitted by applicable law, we also reserve the right in our sole
discretion to purchase private notes in the open market, in privately negotiated
transactions or otherwise. The terms of any future purchases or offers could
differ from the terms of the exchange offer.
REPRESENTATIONS ON TENDERING PRIVATE NOTES
By surrendering private notes pursuant to the exchange offer, you will be
telling us that, among other things,
- you have full power and authority to surrender, sell, assign and transfer
the private notes tendered;
- you are acquiring the exchange notes in the ordinary course of your
business;
26
- you are not an "affiliate", as defined in Rule 405 under the Securities
Act, of Parker Drilling Company, or a broker-dealer tendering the private
notes acquired directly from us for its own account;
- you are not participating, do not intend to participate and have no
arrangement or understanding with any person to participate in the
distribution of the exchange notes;
- you acknowledge and agree that if you are a broker-dealer registered
under the Exchange Act or you are participating in the exchange offer for
the purposes of distributing the exchange notes, you must comply with the
registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale of the exchange notes, and you
cannot rely on the position of the SEC staff in their no-action letters;
- you understand that a secondary resale transaction described above and
any resales of exchange notes obtained by you in exchange for private
notes acquired by you directly from us should be covered by an effective
registration statement containing the selling security holder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
SEC; and
- we will acquire good, marketable and unencumbered title to the private
notes being tendered, free and clear of all security interests, liens,
restrictions, charges, encumbrances, conditional sale agreements or other
obligations relating to their sale or transfer, and not subject to any
adverse claim when the private notes are accepted by us.
If you are a broker-dealer and you will receive exchange notes for your own
account in exchange for private notes that were acquired as a result of
market-making activities or other trading activities, you will be required to
acknowledge in the letter of transmittal that you will deliver a prospectus in
connection with any resale of such exchange notes.
RETURN OF PRIVATE NOTES
If any surrendered private notes are not accepted for any reason described
here or if private notes are withdrawn or are submitted for a greater principal
amount than you desire to exchange, those private notes will be returned, at our
cost, to (i) the person who surrendered them or (ii) in the case of private
notes surrendered by book-entry transfer, the exchange agent's account at DTC.
Any such private notes will be returned to the surrendering person or credited
to an account maintained with DTC promptly.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the private notes at DTC for purposes of facilitating the exchange offer
within two business days after the date of this prospectus. Subject to the
establishment of the account, any financial institution that is a participant in
DTC's systems may make book-entry delivery of private notes by causing DTC to
transfer the private notes into the exchange agent's account at DTC in
accordance with DTC's procedures for transfer. However, although delivery of
private notes may be effected through book-entry transfer at DTC, you must
transmit the letter of transmittal with any required signature guarantees and
any other required documents to the exchange agent at the address appearing
below under "-- Exchange Agent" for its receipt on or prior to the expiration
date or pursuant to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If you wish to surrender your private notes and (i) your private notes are
not readily available so you cannot meet the expiration date deadline or (ii)
you cannot deliver your private notes, the letter of transmittal
27
or any other required documents to the exchange agent prior to the expiration
date, you may still participate in the exchange offer if:
- the surrender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed notice of
guaranteed delivery substantially in the form provided by us, by
facsimile transmission, mail or overnight courier, containing:
the name and address of the holder, the certificate number(s) of the
private notes, if applicable, and the principal amount of private notes
surrendered;
- a statement that the surrender is being made thereby;
- a guarantee that, within five New York Stock Exchange ("NYSE") trading
days after the expiration date, the letter of transmittal, together with
the certificate(s) representing the private notes in proper form for
transfer or a book-entry confirmation, and any other required documents,
will be deposited by the eligible institution with the exchange agent;
and
- the properly executed letter of transmittal, as well as the
certificate(s) representing all surrendered private notes in proper form
for transfer or a book-entry confirmation, and all other documents
required by the letter of transmittal are received by the exchange agent
within five NYSE trading days after the expiration date.
The exchange agent will send you a notice of guaranteed delivery upon your
request if you wish to surrender your private notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
surrender of private notes at any time prior to 5:00 p.m., New York City time,
on the expiration date.
To withdraw a surrender of private notes in the exchange offer, the
exchange agent must receive a written or facsimile transmission notice of
withdrawal at its address set forth below under "-- Exchange Agent" prior to
5:00 p.m., New York City time, on the expiration date. Any notice of withdrawal
must:
- specify the name of the person having deposited the private notes to be
withdrawn;
- identify the private notes to be withdrawn, including the certificate
number or numbers, if applicable, and principal amount of the private
notes; and
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the private notes were tendered.
All questions as to the validity, form, eligibility and time of receipt of
notices will be determined by us, in our sole discretion, and our determination
shall be final and binding upon all parties. Any private notes so withdrawn will
be deemed not to have been validly surrendered for purposes of the exchange
offer, and no exchange notes will be issued unless the private notes so
withdrawn are validly re-tendered. Properly withdrawn private notes may be
re-tendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the expiration date.
CONDITIONS
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange the exchange notes for, any private notes, and
we may terminate the exchange offer as provided in this prospectus before the
acceptance of those private notes if, in our judgment, any of the following
28
conditions has occurred or exists or has not been satisfied or waived prior to
the expiration of the exchange offer:
- any law, statute, rule or regulation is proposed, adopted or enacted, or
the staff of the SEC interprets any existing law, statute, rule or
regulation in a manner, which, in our reasonable judgment, would
materially impair our ability to proceed with the exchange offer;
- any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer
which, in our reasonable judgment, would materially impair our ability to
proceed with the exchange offer; or
- any governmental approval, which we deem necessary for the consummation
of the exchange offer, has not been obtained.
If we determine in our sole discretion that any of these conditions are not
satisfied, we may:
- refuse to accept any private notes and return all tendered private notes
to the tendering holders;
- extend the exchange offer and retain all private notes tendered prior to
the expiration of the exchange offer, subject, however, to the rights of
holders who tendered the private notes to withdraw their tendered private
notes; or
- waive the unsatisfied conditions with respect to the exchange offer and
accept all properly tendered private notes which have not been withdrawn.
If that waiver constitutes a material change to the exchange offer, we
will promptly disclose the waiver by means of a prospectus supplement
that will be distributed to the registered holders, and we will extend
the exchange offer to the extent required by law.
The conditions listed above are for our sole benefit and we may assert
these rights regardless of the circumstances giving rise to any of these
conditions. We may waive these conditions in our reasonable discretion in whole
or in part at any time and from time to time. If we fail at any time to exercise
any of the above rights, the failure will not be deemed a waiver of these
rights, and these rights will be deemed ongoing rights which may be asserted at
any time and from time to time.
The exchange offer is not conditioned upon any minimum principal amount of
private notes being submitted for exchange.
TERMINATION OF CERTAIN RIGHTS
All registration rights under the registration rights agreement benefiting
the holders of the private notes will terminate when we consummate the exchange
offer. That includes all rights to receive additional interest in the event of a
registration default under the registration rights agreement. In any case we are
under a continuing obligation, for a period of up to one year after the
expiration date of this exchange offer, to use our commercially reasonable best
efforts to keep the registration statement effective and to make this
prospectus, and any amendment or supplement to this prospectus, available to any
broker-dealer that requests copies in the letter of transmittal for use in a
resale.
29
EXCHANGE AGENT
We have appointed JPMorgan Chase Bank, National Association as the exchange
agent for the exchange offer. You should direct any questions and requests for
assistance, requests for additional copies of this prospectus or of the letter
of transmittal and requests for notice of guaranteed delivery to the exchange
agent, addressed as follows:
BY MAIL OR OVERNIGHT COURIER:
JPMorgan Chase Bank, National Association
2001 Bryan Street, Floor 10
Dallas, Texas 75201
Attention: Frank Ivins
BY FACSIMILE:
(214) 468-6494
CONFIRM BY TELEPHONE:
(800) 275-2048
JPMorgan Chase Bank, National Association also serves as trustee under the
indenture governing the notes.
FEES AND EXPENSES
We will pay for the expenses of this exchange offer. The principal
solicitation for tenders of private notes is being made by mail. However,
additional solicitation may be made by telegraph, facsimile transmission,
e-mail, telephone or in person by our officers and regular employees.
We have not retained a dealer-manager in connection with the exchange
offer, and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection with providing the services.
We will pay any transfer taxes applicable to the exchange of private notes.
If, however, a transfer tax is imposed for any reason other than the exchange,
then the amount of any transfer taxes will be payable by the person surrendering
the notes. If you do not submit satisfactory evidence of payment of taxes or of
an exemption with the letter of transmittal, the amount of those transfer taxes
will be billed directly to you.
ACCOUNTING TREATMENT
We will record the exchange notes at the same carrying value as the private
notes as reflected in our accounting records on the date of exchange. Therefore,
we will not recognize a gain or loss for accounting purposes. We will amortize
the expenses of the exchange offer and the unamortized expenses related to the
issuance of the private notes over the remaining term of the notes.
CONSEQUENCE OF FAILURE TO EXCHANGE
YOU DO NOT HAVE TO PARTICIPATE IN THE EXCHANGE OFFER. You should carefully
consider whether to accept the terms and conditions of this exchange offer. We
urge you to consult your financial and tax advisors in deciding what action to
take with respect to the exchange offer.
Private notes that are not exchanged will remain "restricted securities"
within the meaning of Rule 144(a)(3)(iii) of the Securities Act. Accordingly,
they may not be offered, sold, pledged or otherwise transferred except:
- so long as the private notes are eligible for resale under Rule 144A
under the Securities Act, to a person who the seller reasonably believes
is a "qualified institutional buyer" within the meaning of
30
Rule 144A, purchasing for its own account or for the account of a
qualified institutional buyer in a transaction meeting the requirements
of Rule 144A;
- outside the U.S. to a foreign person in accordance with the requirements
of Regulation S under the Securities Act;
- pursuant to an exemption from registration under the Securities Act
provided by Rule 144, if available;
- pursuant to an effective registration statement under the Securities Act;
or
- pursuant to another available exemption from the registration
requirements of the Securities Act,
in each case in accordance with all other applicable securities laws.
See "Risk Factors" for more information about the risks of not
participating in the exchange offer.
31
DESCRIPTION OF THE EXCHANGE NOTES
The private notes were, and the exchange notes will be, issued under an
indenture among Parker Drilling Company, the Guarantors and JPMorgan Chase Bank,
National Association, as trustee. The terms of the notes include those stated in
the indenture and those made part of the indenture by reference to the United
States Trust Indenture Act of 1939, as amended.
The exchange notes have the same financial terms and covenants as the
private notes. In this prospectus we sometimes refer to the private notes and
the exchange notes together as the "notes." The exchange notes will evidence the
same debt as the outstanding private notes which they replace.
The following description is a summary of the material provisions of the
indenture and the registration rights agreement. It does not restate those
agreements in their entirety. We urge you to read the indenture and the
registration rights agreement because they, and not this description, define
your rights as holders of the notes. Copies of the indenture and the
registration rights agreement have been filed with the SEC as exhibits to the
registration statement of which this prospectus forms a part and are available
to you as set forth under "Where You Can Find More Information." You can find
the definitions of certain terms used in this description under the subheading
"Certain Definitions." In this description of the exchange notes, the terms
"Company," "we," "us" and "our" refer only to Parker Drilling Company and not to
any of its subsidiaries or consolidated joint ventures.
The registered holder of a note will be treated as the owner of it for all
purposes. Only registered holders will have rights under the indenture. See
"-- Book-Entry, Delivery and Form -- Depositary Procedures."
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
The Notes
The notes will be:
- general unsecured obligations of the Company;
- senior in right of payment to all existing and future subordinated
Indebtedness of the Company;
- pari passu in right of payment with any existing and future senior
unsecured Indebtedness of the Company;
- effectively junior in right of payment to the Company's existing and
future secured Indebtedness, including Indebtedness under the Credit
Agreement, to the extent of the value of the collateral securing that
Indebtedness;
- unconditionally guaranteed by the Guarantors on a senior basis; and
- effectively junior in right of payment to Indebtedness of our
non-guarantor subsidiaries.
As of September 30, 2004, the Company (excluding its subsidiaries) would
have had total Indebtedness of approximately $481.1 million, all of which would
have been pari passu with the notes.
The Guarantees
The notes are guaranteed by all of the Company's Domestic Subsidiaries. In
addition, the notes will be guaranteed by Parker Drilling Offshore
International, Inc., one of the Company's foreign Subsidiaries, for so long as
it guarantees the Company's 10.125% senior notes due 2009. These subsidiaries
are the same subsidiaries that guarantee the 10.125% senior notes due 2009 and
9.625% senior notes due 2013 and are substantially the same subsidiaries that
guarantee the Company's Credit Agreement. For a complete definition of the term
"Guarantors," please see page 65 of this prospectus.
32
Each guarantee of the notes is:
- a general unsecured obligation of the Guarantor;
- senior in right of payment to all existing and future subordinated
Indebtedness of that Guarantor;
- pari passu in right of payment with any existing and future senior
unsecured Indebtedness of that Guarantor; and
- effectively junior in right of payment to that Guarantor's existing and
future secured Indebtedness, including its guarantee of Indebtedness
under the Credit Agreement, to the extent of the value of the collateral
securing that Indebtedness.
As of September 30, 2004, and after giving effect to the guarantees of the
Company's obligations under the notes, the Guarantors would have had total
Indebtedness of approximately $481.1 million, all of which would have been pari
passu with their guarantees of the Company's obligations under the notes.
Not all of our subsidiaries will guarantee the notes. In the event of a
bankruptcy, liquidation or reorganization of any of these non-guarantor
subsidiaries, the non-guarantor subsidiaries will pay the holders of their debt
and their trade creditors before they will be able to distribute any of their
assets to us. As of September 30, 2004, the non-guarantor subsidiaries had total
liabilities (including trade payables) of approximately $68.6 million and held
approximately 20 percent of our consolidated total assets. The guarantor
subsidiaries generated approximately 76 percent of our consolidated revenues in
the nine-month period ended September 30, 2004. See footnote 9 to our condensed
consolidated financial statements for the nine months ended September 30, 2004
included in our Quarterly Report on Form 10-Q for the quarter ended September
30, 2004, which is incorporated by reference into this prospectus, for more
detail about the division of the revenues and assets between the Company, the
Guarantors and our non-guarantor subsidiaries.
The indenture permits us and our Subsidiaries to incur additional
Indebtedness, including senior secured Indebtedness under the Credit Agreement.
The indenture does not impose any limitation on the incurrence by our
subsidiaries of liabilities that are not considered Indebtedness.
As of the date notes were first issued, substantially all of our
subsidiaries were "Restricted Subsidiaries." However, under the circumstances
described below under the subheading "-- Certain Covenants -- Designation of
Restricted and Unrestricted Subsidiaries," we are permitted to designate certain
of our subsidiaries as "Unrestricted Subsidiaries." Our Unrestricted
Subsidiaries are not subject to many of the restrictive covenants in the
indenture. Our Unrestricted Subsidiaries will not guarantee the notes.
PRINCIPAL, MATURITY AND INTEREST
The Company previously issued the private notes with an initial maximum
aggregate principal amount of $150.0 million. The Company may issue additional
notes from time to time after this exchange offer. Any offering of additional
notes is subject to the covenant described below under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock." The
private notes, the exchange notes and any additional notes subsequently issued
under the indenture will be treated as a single class for all purposes under the
indenture, including, without limitation, waivers, amendments, redemptions and
offers to purchase. Unless the context otherwise requires, for purposes of this
"Description of the Exchange Notes" section, reference to the notes includes the
private notes, the exchange notes and any additional notes actually issued. The
Company will issue exchange notes in denominations of $1,000 and integral
multiples of $1,000. The notes will mature on September 1, 2010.
Interest on the notes will be payable quarterly in cash on each March 1,
June 1, September 1 and December 1, commencing on December 1, 2004 to the
persons who are registered Holders at the close of business on the February 15,
May 15, August 15 and November 15 immediately preceding the applicable interest
payment date, provided that if any interest payment date other than the maturity
date is not a Business Day, such interest payment date will be postponed to the
next succeeding Business Day, except that if such Business Day falls in the next
succeeding calendar month, such interest payment date will be the immediately
preceding Business Day. If the maturity date of a note falls on a day that is
not a Business Day,
33
the required payment of principal and interest will be made on the next
succeeding Business Day as if made on the date such payment was due, and no
interest will accrue on such payment for the period from and after the maturity
date to the date of such payment on the next succeeding Business Day. Interest
on the notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from and including the date of issuance.
The notes will bear interest at a rate per annum, reset quarterly, equal to
LIBOR plus 4.75%, as determined by the calculation agent. Interest on the notes
will be computed on the basis of the actual number of days in the applicable
Interest Period divided by 360, as further described below.
Set forth below is a summary of certain of the defined terms used in the
indenture relating to calculation of the interest rate on the notes.
"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which commercial banks are authorized or
required by law, regulation or executive order to close in New York City and
that is a London Banking Day.
"LIBOR," with respect to an Interest Period, will be the rate (expressed as
a percentage per annum) for deposits in United States dollars for a three-month
period beginning on the second London Banking Day after the Determination Date
that appears on Telerate Page 3750 as of 11:00 a.m., London time, on the
Determination Date. If Telerate Page 3750 does not include such a rate or is
unavailable on a Determination Date, the calculation agent will request the
principal London office of each of four major banks in the London interbank
market, as selected by the calculation agent, to provide such bank's offered
quotation (expressed as a percentage per annum), as of approximately 11:00 a.m.,
London time, on such Determination Date, to prime banks in the London interbank
market for deposits in a Representative Amount in United States dollars for a
three-month period beginning on the second London Banking Day after the
Determination Date. If at least two such offered quotations are so provided,
LIBOR for the Interest Period will be the arithmetic mean of such quotations. If
fewer than two such quotations are so provided, the calculation agent will
request each of three major banks in New York City, as selected by the
calculation agent, to provide such bank's rate (expressed as a percentage per
annum), as of approximately 11:00 a.m., New York City time, on such
Determination Date, for loans in a Representative Amount in United States
dollars to leading European banks for a three-month period beginning on the
second London Banking Day after the Determination Date. If at least two such
rates are so provided, LIBOR for the Interest Period will be the arithmetic mean
of such rates. If fewer than two such rates are so provided, then LIBOR for the
Interest Period will be LIBOR in effect with respect to the immediately
preceding Interest Period.
"Interest Period" means the period commencing on and including an interest
payment date and ending on and including the day immediately preceding the next
succeeding interest payment date, with the exception that the first Interest
Period shall commence on the date the notes are first issued.
"Determination Date," with respect to an Interest Period, will be the
second London Banking Day preceding the first day of the Interest Period.
"London Banking Day" is any day in which dealings in United States dollars
are transacted or, with respect to any future date, are expected to be
transacted in the London interbank market.
"Representative Amount" means a principal amount of not less than U.S.
$1,000,000 for a single transaction in the relevant market at the relevant time.
"Telerate Page 3750" means the display designated as "Page 3750" on the
Moneyline Telerate service (or such other page as may replace Page 3750 on that
service).
The amount of interest for each day that the notes are outstanding (the
"Daily Interest Amount") will be calculated by dividing the interest rate in
effect for such day by 360 and multiplying the result by the principal amount of
the notes. The amount of interest to be paid on the notes for each Interest
Period will be calculated by adding the Daily Interest Amounts for each day in
the Interest Period.
34
All percentages resulting from any of the above calculations will be
rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point being rounded upwards
(e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)) and all
dollar amounts used in or resulting from such calculations will be rounded to
the nearest cent (with one-half cent being rounded upwards).
The interest rate on the notes will in no event be higher than the maximum
rate permitted by New York law as the same may be modified by United States law
of general application.
The calculation agent will, upon the request of the holder of any note,
provide the interest rate then in effect with respect to the notes. All
calculations made by the calculation agent in the absence of manifest error will
be conclusive for all purposes and binding on the Company and the holders of the
notes.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder of record has given wire transfer instructions to the Company,
the Company will pay all principal, interest and premium and Additional
Interest, if any, on that holder's notes in accordance with those instructions.
All other payments on notes will be made at the office or agency of the paying
agent and registrar within the City and State of New York unless the Company
elects to make interest payments by check mailed to the holders at their address
set forth in the register of holders. See "-- Book-Entry, Delivery and
Form -- Depositary Procedures."
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee will initially act as paying agent, registrar and calculation
agent. The Company may change the paying agent, registrar or calculation agent
without prior notice to the holders of the notes, and the Company or any of its
Subsidiaries may act as paying agent, registrar or calculation agent.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a holder to furnish appropriate
endorsements and transfer documents in connection with a transfer of notes.
Holders will be required to pay all taxes due on transfer. The Company is not
required to transfer or exchange any note selected for redemption. Also, the
Company is not required to transfer or exchange any note for a period of 15 days
before a selection of notes to be redeemed. See "-- Book Entry, Delivery and
Form."
SUBSIDIARY GUARANTEES
The notes will be guaranteed by each of the Company's current and future
Domestic Subsidiaries. In addition, Parker Drilling Offshore International,
Inc., one of the Company's foreign subsidiaries, will guarantee the notes for so
long as it guarantees the Company's 10.125% senior notes due 2009. These
Subsidiary Guarantees will be joint and several obligations of the Guarantors.
The obligations of each Guarantor under its Subsidiary Guarantee will be limited
as necessary to prevent that Subsidiary Guarantee from constituting a fraudulent
conveyance under applicable law. See "Risk Factors -- Risks Related to the
Exchange Notes -- The subsidiary guarantees could be deemed fraudulent
conveyances under certain circumstances, and a court may try to subordinate or
void the subsidiary guarantees."
A Guarantor may not sell or otherwise dispose of all or substantially all
of its assets to, or consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another Person, other than the Company or
another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default
exists; and
(2) either:
(a) the Person acquiring the property in any such sale or
disposition or the Person formed by or surviving any such consolidation
or merger assumes all the obligations of that Guarantor under
35
the indenture, its Subsidiary Guarantee and the registration rights
agreement, pursuant to a supplemental indenture satisfactory to the
trustee; or
(b) the Net Proceeds of such sale or other disposition are applied
in accordance with the covenant described under "-- Repurchase at the
Option of Holders -- Asset Sales."
Notwithstanding the foregoing, any Guarantor may merge with another
Subsidiary that has no significant assets or liabilities and was incorporated
solely for the purpose of reincorporating that Guarantor in another jurisdiction
so long as the amount of our Indebtedness and the Indebtedness of our Restricted
Subsidiaries is not increased as a result of the merger.
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of
merger or consolidation) to a Person that is not (either before or after
giving effect to such transaction) a Subsidiary of the Company, if the sale
or other disposition complies with the covenant described under
"-- Repurchase at the Option of Holders -- Asset Sales;" or
(2) in connection with any sale of such amount of Capital Stock as
would result in such Guarantor no longer being a Subsidiary to a Person
that is not (either before or after giving effect to such transaction) a
Subsidiary of the Company, if the sale complies with the covenant described
under "-- Repurchase at the Option of Holders -- Asset Sales;" or
(3) if the Company designates any Restricted Subsidiary that is a
Guarantor as an Unrestricted Subsidiary in accordance with the provisions
described under "-- Certain Covenants -- Designation of Restricted and
Unrestricted Subsidiaries;" or
(4) upon Legal Defeasance or Covenant Defeasance as described under
"-- Legal Defeasance and Covenant Defeasance."
In addition, the Subsidiary Guarantee of Parker Drilling Offshore
International, Inc. shall be automatically released and terminated upon the
release, termination or satisfaction of Parker Drilling Offshore International,
Inc.'s guarantee of the Company's 10.125% senior notes due 2009.
OPTIONAL REDEMPTION
At any time prior to September 1, 2006, the Company may on any one or more
occasions redeem up to 35% of the aggregate principal amount of notes issued
under the indenture at a redemption price of 100.00% of the principal amount,
plus a premium equal to the interest rate per annum applicable on the date on
which the notice of redemption is given, plus accrued and unpaid interest and
Additional Interest, if any, to the redemption date, with the net cash proceeds
of one or more Equity Offerings by the Company; provided that:
(1) at least 65% of the aggregate principal amount of notes issued
under the indenture remains outstanding immediately after the occurrence of
such redemption (excluding notes held by the Company and its Subsidiaries);
and
(2) the redemption occurs within 120 days of the date of the closing
of such Equity Offering.
Except pursuant to the preceding paragraph, the notes will not be
redeemable at the Company's option prior to September 1, 2006.
On and after September 1, 2006, the Company may redeem all or a part of the
notes 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 Additional Interest, if any, on the notes
redeemed, to the
36
applicable redemption date, if redeemed during the twelve-month period beginning
on September 1 of the years indicated below:
<Table>
<Caption>
YEAR PERCENTAGE
- ---- ----------
2006........................................................ 102.00%
2007........................................................ 101.00%
2008 and thereafter......................................... 100.00%
</Table>
Selection and Notice
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange on which the notes are listed; or
(2) if the notes are not listed on any national securities exchange,
on a pro rata basis, by lot or by such method as the trustee deems fair and
appropriate.
No notes of $1,000 or less can be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed at its registered
address, except that redemption notices may be mailed more than 60 days prior to
a redemption date if the notice is issued in connection with a defeasance of the
notes or a satisfaction and discharge of the indenture. Notices of redemption
may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount of that note
that is to be redeemed. A new note in principal amount equal to the unredeemed
portion of the original note will be issued in the name of the holder of notes
upon cancellation of the original note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on notes or portions of them called for redemption.
MANDATORY REDEMPTION; OPEN MARKET PURCHASES
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the notes. However, under certain circumstances we are
required to offer to purchase the notes as set forth below under "-- Repurchase
at the Option of Holders." We may at any time and from time to time purchase
notes in the open market or otherwise.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
If a Change of Control occurs, each holder of notes will have the right to
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple of $1,000) of that holder's notes pursuant to an offer by the
Company (a "Change of Control Offer") on the terms described below. In the
Change of Control Offer, the Company will offer a payment in cash (the "Change
of Control Payment") equal to 101% of the aggregate principal amount of notes
repurchased plus accrued and unpaid interest and Additional Interest, if any,
for the notes repurchased, to the date of purchase. Within 30 days following any
Change of Control, the Company will mail a notice to each registered holder of
notes describing the transaction or transactions that constitute the Change of
Control and offering to repurchase notes on the date specified in the notice,
which date will be no earlier than 30 days and no later than 60 days from the
date such notice is mailed (the "Change of Control Payment Date"), pursuant to
the procedures described below and in such notice.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in
37
connection with the repurchase of the notes as a result of a Change of Control.
To the extent that the provisions of any securities laws or regulations conflict
with the Change of Control provisions of the indenture, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under the Change of Control provisions of the
indenture by virtue of such conflict.
On the Change of Control Payment Date, the Company will, to the extent
lawful:
(1) accept for payment all notes or portions of notes properly
tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all notes or portions of notes properly
tendered; and
(3) deliver or cause to be delivered to the trustee the notes properly
accepted together with an officers' certificate stating the aggregate
principal amount of notes or portions of notes being purchased by the
Company.
The paying agent will promptly mail to each holder of notes properly
tendered the Change of Control Payment for such notes, and the trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each holder a new note equal in principal amount to any unpurchased portion of
the notes surrendered, if any; provided that each new note will be in a
principal amount of $1,000 or an integral multiple of $1,000.
The Credit Agreement prohibits the Company from redeeming or purchasing any
notes, and also provides that certain change of control events with respect to
the Company would constitute a default under the Credit Agreement. Any future
credit agreements or other agreements relating to Indebtedness to which the
Company becomes a party may contain similar restrictions and provisions. In the
event a Change of Control occurs at a time when those agreements prohibit the
Company from purchasing notes, the Company could seek the consent of its lenders
to the purchase of notes or could attempt to refinance the borrowings that
contain the prohibition. If the Company does not obtain such a consent or repay
those borrowings, the Company will remain prohibited from purchasing notes. In
such case, the Company's failure to comply with the foregoing provisions would
constitute an Event of Default under the indenture, which would in turn
constitute a default under the Credit Agreement and could also constitute a
default under those other agreements. See "Risk Factors -- Risks Related to the
Exchange Notes -- We may not be able to repurchase the notes upon a change of
control."
The provisions described above that require the Company to make a Change of
Control Offer following a Change of Control 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 notes to require that
the Company repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
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 notes properly tendered and not withdrawn under the Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the
direct or indirect sale, transfer, 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. Although there is a limited 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 notes to require the Company to repurchase its notes as a result of a
sale, 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.
38
The Change of Control provisions of the indenture may be waived or modified
with the consent of the holders of a majority in principal amount of the notes.
Asset Sales
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of the Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) the fair market value is determined by (a) an executive officer of
the Company if the value is less than $10.0 million and evidenced by an
officer's certificate delivered to the trustee or (b) the Company's Board
of Directors if the value is $10.0 million or more and evidenced by a
resolution of such Board of Directors delivered to the trustee; and
(3) at least 75% of the consideration received in the Asset Sale by
the Company or such Restricted Subsidiary is in the form of cash, or Cash
Equivalents, or any combination thereof. For purposes of this provision,
each of the following will be deemed to be cash:
(a) 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
by their terms subordinated to the notes or any Subsidiary Guarantee)
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
(b) any securities, 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 or Cash
Equivalents within 180 days following the closing of such Asset Sale, to
the extent of the cash or Cash Equivalents received in that conversion.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply those Net Proceeds at its option:
(1) to repay, repurchase, redeem, defease or otherwise acquire or
retire Senior Debt of the Company or any Indebtedness of a Restricted
Subsidiary;
(2) to acquire all or substantially all of the assets of, or a
majority of the Voting Stock of, another Permitted Business;
(3) to make a capital expenditure in a Permitted Business; or
(4) to acquire other long-term assets that are used or useful in a
Permitted Business.
Pending the final application of any Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest the 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 preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $20.0 million, the Company will make
an offer (an "Asset Sale Offer") to all holders of notes and to the extent
required, to all holders of other Indebtedness that is pari passu with the notes
containing provisions similar to those set forth in the indenture with respect
to offers to purchase or redeem with the proceeds of sales of assets, to
purchase the maximum principal amount of notes (in integral multiples of $1,000)
and such other pari passu Indebtedness that may be purchased out of the Excess
Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of the
principal amount of notes and other pari passu Indebtedness to be purchased or
the lesser amount required under agreements governing such other pari passu
Indebtedness, plus accrued and unpaid interest and Additional Interest, if any,
to the date of purchase, and will be payable in cash. If any Excess Proceeds
remain after consummation of an Asset Sale Offer, the Company may use
39
those Excess Proceeds for any purpose not otherwise prohibited by the indenture.
If the aggregate principal amount of notes and other pari passu Indebtedness
tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the
trustee will select the notes and such other pari passu Indebtedness to be
purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the
amount of Excess Proceeds will be reset at zero.
The Asset Sale Offer will remain open for a period of at least 20 Business
Days following its commencement and not more than 30 Business Days, except to
the extent that a longer period is required by applicable law (the "Asset Sale
Offer Period"). No later than three Business Days after the termination of the
Asset Sale Offer Period (the "Asset Sale Payment Date"), the Company will apply
all Excess Proceeds to the purchase of notes and the other pari passu
Indebtedness to be purchased (on a pro rata basis, if applicable) or, if notes
and such other pari passu Indebtedness in an aggregate principal amount less
than the Excess Proceeds has been tendered, all notes and pari passu
Indebtedness tendered in response to the Asset Sale Offer.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sale
provisions of the indenture, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of the indenture by virtue of such
conflict.
The paying agent will promptly (but in any case not later than three
Business Days after termination of the Asset Sale Offer Period) mail to each
holder of notes properly tendered the payment for such notes, and the trustee
will promptly authenticate and mail (or cause to be transferred by book entry)
to each holder a new note equal in principal amount to any unpurchased portion
of the notes surrendered, if any; provided that each new note will be in a
principal amount of $1,000 or an integral multiple of $1,000.
The Credit Agreement and other agreements governing the Company's
Indebtedness prohibit the Company from purchasing any notes, and also provide
that certain asset sales would constitute a default or require repayment of the
Indebtedness under these agreements. Any future credit agreements or other
agreements relating to Indebtedness to which the Company becomes a party may
contain similar restrictions and provisions. In the event an Asset Sale occurs
at a time when the Company is prohibited from purchasing notes, the Company
could seek the consent of its lenders to the purchase of notes or could attempt
to refinance the borrowings that contain the prohibition. If the Company does
not obtain such a consent or repay those borrowings, the Company will remain
prohibited from purchasing notes. In such case, the Company's failure to comply
with the foregoing provisions would constitute an Event of Default under the
indenture which would, in turn, constitute a default under the Credit Agreement
and could also constitute a default under such other agreements.
The Asset Sale provisions of the indenture may be waived or modified with
the consent of the holders of a majority in principal amount of the notes.
CERTAIN COVENANTS
Restricted Payments
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) 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 any
of its Restricted Subsidiaries) or to the direct or indirect holders of the
Company's or any of its Restricted Subsidiaries' Equity Interests in their
capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company or to the Company
or a Restricted Subsidiary of the Company);
40
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving the Company) any Equity Interests of the Company or
any direct or indirect parent of the Company;
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the notes or the Subsidiary Guarantees, except a payment of
interest or principal at the Stated Maturity thereof; or
(4) make any Restricted Investment
(all such payments and other actions set forth in clauses (1) through (4) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(1) no Default has occurred and is continuing or would occur as a
consequence of such Restricted Payment;
(2) 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 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
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after October 10, 2003 (excluding Restricted Payments
permitted by clauses (2), (3), (4) and (6) of the next succeeding
paragraph), is less than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from October 1, 2003 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
(b) 100% of the aggregate net cash proceeds (or the fair market
value of any Permitted Business or assets used or useful in a Permitted
Business to the extent acquired in consideration of Equity Interests
(other than Disqualified Stock) of the Company) received by the Company
since October 10, 2003 as a contribution to its common equity capital or
from the issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or from the issue or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable debt
securities of the Company that have been converted into or exchanged for
such Equity Interests (other than Equity Interests (or Disqualified
Stock or debt securities) sold to a Subsidiary of the Company), plus
(c) to the extent that any Restricted Investment that was made
after October 10, 2003 is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (i) the cash return of capital with
respect to such Restricted Investment, including without limitation
repayment of principal of any Restricted Investment constituting a loan
or advance (less the cost of disposition, if any) and (ii) the initial
amount of such Restricted Investment, plus
(d) to the extent that any Unrestricted Subsidiary of the Company
is redesignated as a Restricted Subsidiary after October 10, 2003, the
lesser of (i) the fair market value of the Company's Investment in such
Subsidiary as of the date of such redesignation or (ii) the aggregate
fair market value of the Company's Investment in such Subsidiary as of
the date on which such Subsidiary was originally designated as an
Unrestricted Subsidiary and all Investments made by the Company or any
Restricted Subsidiary in such Unrestricted Subsidiary that were treated
as Restricted Payments since such designation, in each case as of the
date of such Investment.
41
The preceding provisions will not prohibit:
(1) the payment of any dividend or distribution within 60 days after
the date of declaration of the dividend or distribution, if at the date of
declaration the dividend payment or distribution within 60 days would have
complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of the Company or any
Guarantor or of any Equity Interests of the Company or any of its
Restricted Subsidiaries in exchange for, or out of the net cash proceeds of
the substantially concurrent sale (other than to a Subsidiary of the
Company) of, Equity Interests of the Company (other than Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition will be excluded from clause (3)(b) of the preceding
paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness or Disqualified Stock of the Company or any
Guarantor with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness;
(4) the payment of any dividend or distribution by a Restricted
Subsidiary of the Company to the holders of its Equity Interests on a pro
rata basis;
(5) so long as no Default has occurred and is continuing or would be
caused thereby, the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any
Restricted Subsidiary of the Company held by any existing or former
employee of the Company (or any of its Restricted Subsidiaries) pursuant to
any equity subscription agreement, stock option agreement or similar
agreement; provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests may not exceed $2.0 million
in any twelve-month period;
(6) so long as no Default has occurred and is continuing or would be
caused thereby, the declaration and payment of dividends to holders of any
class or series of Disqualified Stock of the Company issued in accordance
with the terms of the indenture to the extent such dividends are included
in the definition of "Fixed Charges;"
(7) the acquisition of Equity Interests by the Company in connection
with the exercise of stock options or stock appreciation rights by way of
cashless exercise or in connection with the satisfaction of withholding tax
obligations; and
(8) so long as no Default has occurred and is continuing or would be
caused thereby, other Restricted Payments in an aggregate amount since the
date notes are first issued not to exceed $20.0 million.
The amount of all Restricted Payments (other than cash) will be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant will be determined in good faith by the Board of Directors, whose
resolution with respect thereto will be delivered to the trustee. The Board of
Directors' determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $10.0 million. Not later than the date of making any
Restricted Payment, the Company will 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, together with a copy of any fairness opinion or
appraisal required by the indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
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
Debt), and the
42
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 and any Restricted Subsidiary may incur Indebtedness
(including Acquired Debt) and the Company may issue Disqualified Stock, 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,
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
Disqualified Stock had been issued, as the case may be, at the beginning of such
four quarter period.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by the Company and any Restricted Subsidiary of
Indebtedness and letters of credit under one or more Credit Facilities in
an aggregate principal amount at any one time outstanding under this clause
(1) (with letters of credit being deemed to have a principal amount equal
to the maximum potential liability of the Company and its Subsidiaries
thereunder) not to exceed $175.0 million;
(2) the incurrence by the Company and its Restricted Subsidiaries of
Existing Indebtedness;
(3) the incurrence by the Company and the Guarantors of Indebtedness
represented by the notes issued on the date notes are first issued and the
Exchange Notes, including, in each case, the related Subsidiary Guarantees
to be issued pursuant to the registration rights agreement and Subsidiary
Guarantees of any additional notes that may be issued in the future in
accordance with this covenant;
(4) the incurrence by the Company and any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case, incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used in the
business of the Company or such Restricted Subsidiary, in an aggregate
principal amount, including all Permitted Refinancing Indebtedness incurred
to refund, refinance or replace any Indebtedness incurred pursuant to this
clause (4), not to exceed $5.0 million at any time outstanding;
(5) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness) that was permitted by the indenture
to be incurred under the first paragraph of this covenant or clauses (2),
(3), (5) or (14) of this paragraph;
(6) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Restricted Subsidiaries; provided that:
(a) if the Company or any Guarantor is the obligor on such
Indebtedness, such Indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
notes, in the case of the Company, or the Subsidiary Guarantee, in the
case of a Guarantor; and
(b) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than the
Company or a Restricted Subsidiary of the Company and (ii) any sale or
other transfer of any such Indebtedness to a Person that is not either
the Company or a Restricted Subsidiary of the Company will be deemed, in
each case, to constitute an incurrence of such Indebtedness by the
Company or a Restricted Subsidiary, as the case may be, that was not
permitted by this clause (6);
(7) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations in the normal course of business and
not for speculative purposes, designed to protect the Company or its
Restricted Subsidiary against fluctuations in interest rates or currency
exchange rates with respect to Indebtedness incurred or against
fluctuations in the price of commodities used by that entity at the time;
43
(8) the Guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or any Restricted Subsidiary that was permitted
to be incurred by another provision of this covenant; provided that in the
event the Indebtedness that is being Guaranteed is subordinated in right of
payment to the notes or a Subsidiary Guarantee, then the Guarantee of that
Indebtedness by the Company or the Guarantor shall be subordinated in right
of payment to the notes or the Guarantor's Subsidiary Guarantee, as the
case may be;
(9) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock will not be deemed to be an incurrence of Indebtedness
or an issuance of Disqualified Stock for purposes of this covenant;
provided, in each such case, that the amount thereof is included in Fixed
Charges of the Company as accrued;
(10) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt; provided that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event will be deemed
to constitute an incurrence of Indebtedness by a Restricted Subsidiary of
the Company that was not permitted by this clause (10);
(11) Indebtedness incurred in respect of workers' compensation claims,
self-insurance obligations, bid, performance, surety and similar bonds and
completion guarantees provided by the Company or a Restricted Subsidiary in
the ordinary course of business;
(12) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument (except in
the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided that such Indebtedness is
extinguished within five business days of incurrence;
(13) Indebtedness represented by agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or Capital Stock of
the Company or any Restricted Subsidiary; provided that the maximum
aggregate liability in respect of all such Indebtedness shall at no time
exceed the gross proceeds actually received by the Company and its
Restricted Subsidiaries in connection with such disposition;
(14) Indebtedness of a Restricted Subsidiary incurred and outstanding
on the date on which such Restricted Subsidiary was acquired by the Company
(other than Indebtedness incurred in connection with, or in contemplation
of, such acquisition); provided that at the time such Restricted Subsidiary
is acquired by the Company, the Company would have been able to incur $1.00
of additional Indebtedness pursuant to the first paragraph of this covenant
after giving effect to the incurrence of such Indebtedness pursuant to this
clause (14); and
(15) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any Indebtedness incurred pursuant to this clause (15), not to exceed $30.0
million.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of Indebtedness (including Acquired Debt) at any time meets the criteria of
more than one of the categories of Permitted Debt described in clauses (1)
through (15) above, or is entitled to be incurred pursuant to the first
paragraph of this covenant, the Company will be permitted to classify (and later
reclassify) in whole or in part in its sole discretion such item of Indebtedness
in any manner that complies with this covenant.
For purposes of determining compliance with any U.S. dollar-denominated
restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent
principal amount of Indebtedness denominated in a foreign currency will be
calculated based on the relevant currency exchange rate in effect on the date
such
44
Indebtedness was incurred, in the case of term Indebtedness, or first committed,
in the case of revolving credit Indebtedness; provided that if such Indebtedness
is incurred to refinance other Indebtedness denominated in the same foreign
currency, and such refinancing would cause the applicable U.S. dollar-
denominated restriction to be exceeded if calculated at the relevant currency
exchange rate in effect on the date of such refinancing, the U.S.
dollar-denominated restriction will be deemed not to have been exceeded so long
as the principal amount of the refinancing Indebtedness does not exceed the
principal amount of the Indebtedness being refinanced. Notwithstanding any other
provision of this covenant, the maximum amount of Indebtedness that the Company
may incur pursuant to this covenant will not be deemed to be exceeded solely as
a result of fluctuations in the exchange rate of currencies.
Liens
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien of any kind (other than Permitted Liens) securing
Indebtedness, Attributable Debt or trade payables upon any of their property or
assets, now owned or hereafter acquired, or any income or profits therefrom or
assign or convey any right to receive income therefrom, unless all payments due
under the indenture and the notes are secured on an equal and ratable basis (or
on a senior basis to, in the case of obligations subordinated in right of
payment to the notes or Subsidiary Guarantee, as the case may be) with the
obligations so secured until such time as such obligations are no longer secured
by a Lien.
Sale and Leaseback Transactions
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 may enter into a sale and leaseback
transaction if:
(1) the Company or that Restricted Subsidiary, as applicable, could
have (a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction under the covenant
described above under the caption "-- Incurrence of 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;"
(2) the gross cash proceeds of that 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 that sale and leaseback
transaction; and
(3) the transfer of assets in that 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."
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to the Company or any of its Restricted Subsidiaries, or with respect to
any other interest or participation in, or measured by, its profits, or pay
any indebtedness owed to the Company or any of its Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries.
45
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) agreements governing Existing Indebtedness and Credit Facilities
as in effect on the date notes are first issued and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of those agreements; provided that the
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are no more restrictive, taken as
a whole, with respect to such dividend and other payment restrictions than
those contained in those agreements on the date notes are first issued;
(2) the indenture, the notes and the Subsidiary Guarantees;
(3) applicable law or any applicable rule, regulation or order of any
court or governmental authority;
(4) 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 or
Capital Stock 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
indenture to be incurred;
(5) customary non-assignment provisions in any contract or lease
entered into in the ordinary course of business and consistent with past
practices;
(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on that property of the nature
described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness; provided that the encumbrances
or restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive, taken as a whole, than
those contained in the agreements governing the Indebtedness being
refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred
under the provisions of the covenant described above under the caption
"-- Liens" that limit the right of the debtor to dispose of the assets
subject to such Liens;
(10) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements, asset sale agreements,
stock sale agreements and other similar agreements entered into in the
ordinary course of business;
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
and
(12) secured Indebtedness otherwise permitted to be incurred pursuant
to the provisions of the covenant described above under the caption
"-- Liens" that limits the right of the debtor to dispose of the assets
securing the Indebtedness.
Merger, Consolidation or Sale of Assets
The Company may not, directly or indirectly: (i) consolidate or merge with
or into another Person (whether or not the Company is the surviving corporation)
or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company and its Restricted
Subsidiaries taken as a whole, in one or more related transactions, to another
Person unless:
(1) either: (a) the Company is the surviving corporation; or (b) the
Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment,
46
transfer, conveyance or other disposition has been made is a corporation
organized or existing under the laws of the United States, any state of the
United States or the District of Columbia;
(2) 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, conveyance or other disposition has been made assumes all the
obligations of the Company under the notes, the indenture and the
registration rights agreement pursuant to agreements reasonably
satisfactory to the trustee;
(3) immediately after such transaction no Default exists; and
(4) immediately after such transaction after giving pro forma effect
thereto and any related financing transactions as if the same had occurred
at the beginning of the applicable four-quarter period, either 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,
conveyance or other disposition has been made would be permitted to incur
at least $1.00 of additional 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" or the Fixed Charge Coverage Ratio of the
Company or the surviving Person, as applicable, or of the Person to which
such sale, assignment, transfer, conveyance or other disposition has been
made, would not be less than the Fixed Charge Coverage Ratio of the Company
immediately prior to the transaction.
In addition, the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person.
Notwithstanding the preceding clause (4), (i) any Restricted Subsidiary of
the Company may consolidate with, merge into or sell, assign, transfer or convey
all or part of its properties and assets to the Company and (ii) the Company may
merge with an Affiliate that has no significant assets or liabilities and was
formed solely for the purpose of changing the jurisdiction of organization of
the Company to another state of the United States so long as the amount of our
Indebtedness and the Indebtedness of our Restricted Subsidiaries is not
increased thereby.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person; and
(2) the Company delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, a resolution of the Board of Directors of the Company set
forth in an officers' certificate certifying that such Affiliate
Transaction complies with this covenant and that such Affiliate
Transaction has been approved by a majority of the disinterested members
of the Board of Directors of the Company; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$20.0 million, an opinion issued by an accounting, appraisal or
investment banking firm of national standing as to the fairness to the
holders of such Affiliate Transaction from a financial point of view or
that the terms of the Affiliate Transaction are no less favorable to the
Company or the relevant Restricted Subsidiary than terms that would have
been obtained in a comparable transaction with an unrelated person or
entity.
47
The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business and consistent
with past practices;
(2) transactions between or among the Company and/or its Restricted
Subsidiaries;
(3) transactions with a Person that is an Affiliate of the Company
solely because the Company owns an Equity Interest in, or controls, such
Person;
(4) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of the Company;
(5) sales of Equity Interests (other than Disqualified Stock) to
Affiliates of the Company;
(6) Restricted Payments that are permitted by the covenant described
above under the caption "-- Restricted Payments;"
(7) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements or stock option or stock ownership plans approved by the Board
of Directors;
(8) loans or advances to employees in the ordinary course of business
and consistent with past practices, but in any event not to exceed $2.0
million in the aggregate outstanding at any one time;
(9) indemnification agreements with, and payments made, to officers,
directors and employees of the Company or any of its Restricted
Subsidiaries pursuant to charter, bylaw, statutory or contractual
provisions; and
(10) the performance of obligations of the Company or any of its
Restricted Subsidiaries under the terms of any agreement to which the
Company or any of its Restricted Subsidiaries is a party as of or on the
date notes are first issued, and any amendments, modifications,
supplements, extensions or renewals of those agreements; provided that the
amendments, modifications, supplements, extensions or renewals are no more
disadvantageous, taken as a whole, to the holders of the notes than the
terms of the agreements in effect on the date notes are first issued.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
fair market value of all outstanding Investments owned by the Company and its
Restricted Subsidiaries in the Subsidiary properly designated will be deemed to
be an Investment made as of the time of the designation and will reduce the
amount available for Restricted Payments under the first or second paragraph of
the covenant described above under the caption "-- Restricted Payments" or
Permitted Investments, as determined by the Company. That designation will only
be permitted if the Investment would be permitted at that time and if the
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if the redesignation would not cause a Default.
Additional Subsidiary Guarantees
If any Restricted Subsidiary that is not a Guarantor guarantees, assumes or
in any other manner becomes liable with respect to Indebtedness of the Company
or any Guarantor, then that Restricted Subsidiary will become a Guarantor and
execute a supplemental indenture and deliver an opinion of counsel satisfactory
to the trustee within 10 Business Days of the date on which it so became liable
with respect to such Indebtedness; provided that the foregoing shall not apply
to any Subsidiary that has properly been designated as an Unrestricted
Subsidiary in accordance with the provisions described under "-- Designation of
Restricted and Unrestricted Subsidiaries" for so long as it continues to
constitute an Unrestricted Subsidiary.
48
Upon the release, termination or satisfaction of that Restricted Subsidiary's
guarantee or assumption of such Indebtedness, that Restricted Subsidiary's
Subsidiary Guarantee shall automatically be released and terminated.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent as
would not be material to the Company and its Subsidiaries taken as a whole.
Payments for Consent
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any holder of notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the indenture or the notes unless
such consideration is offered to be paid and is paid to all holders of the notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Reports
Whether or not required by the SEC, so long as any notes are outstanding,
the Company will furnish to the trustee and registered holders of notes, within
the time periods specified in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC 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"
and, with respect to the annual information only, a report on the annual
financial statements by the Company's independent registered public
accounting firm; and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if the Company were required to file such reports.
In addition, following the consummation of the exchange offer contemplated
by the registration rights agreement, whether or not required by the SEC, the
Company will file a copy of all of the information and reports referred to in
clauses (1) and (2) above with the SEC for public availability within the time
periods specified in the SEC's rules and regulations (unless the SEC will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request. The Company and the Guarantors have also
agreed that, for so long as any notes remain outstanding, they 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.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Additional Interest with respect to, the notes;
(2) default in payment when due of the principal of, or premium, if
any, on the notes;
(3) failure by the Company or any of its Restricted Subsidiaries to
comply with the provisions described under the captions "-- Repurchase at
the Option of Holders -- Change of Control," or "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets;"
(4) failure by the Company or any of its Restricted Subsidiaries for
30 days after notice to comply with the provisions described under the
captions "-- Certain Covenants -- Restricted Payments,"
49
"-- Repurchase at the Option of Holders -- Asset Sales," or "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock;"
(5) failure by the Company or any of its Restricted Subsidiaries for
60 days after notice to comply with any of the other agreements in the
indenture;
(6) 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 notes are first issued, if that
default:
(a) is caused by a failure to pay principal of, or interest or
premium, if any, 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
Stated 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 $15.0 million or more;
(7) failure by the Company or any of its Subsidiaries to pay final
judgments aggregating in excess of $15.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days;
(8) except as permitted by the indenture, any Subsidiary Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason (other than in accordance with the terms of that
guarantee and the indenture) to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under its Subsidiary Guarantee; and
(9) certain events of bankruptcy or insolvency described in the
indenture with respect to the Company or any of its Significant
Subsidiaries or any group of Restricted Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company, all outstanding notes will
become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the trustee or the holders of
at least 25% in principal amount of the then outstanding notes may declare all
the notes to be due and payable immediately.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust or power. The holders of a majority in aggregate principal
amount of the notes then outstanding by notice to the trustee may on behalf of
the holders of all of the notes (i) waive any existing Default and its
consequences under the indenture except a continuing Default in the payment of
principal of, or interest or premium or Additional Interest, if any, on, the
notes and (ii) rescind an acceleration and its consequences, if the rescission
would not conflict with any judgment or decree and if all existing Events of
Default have been cured or waived.
The Company is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default, the
Company is required to deliver to the trustee a statement specifying such
Default. The trustee may withhold from holders of the notes notice of any
continuing Default if it determines that withholding notice is in their
interest, except a Default relating to the payment of principal of, or interest
or premium or Additional Interest, if any, on, the notes.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, will have any liability for any obligations of the
Company or the Guarantors under the notes, the indenture,
50
the Subsidiary Guarantees, or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each holder of notes by accepting
a note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the notes. The waiver may not be effective
to waive liabilities under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes and all obligations
of the Guarantors discharged with respect to their Subsidiary Guarantees ("Legal
Defeasance") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, or interest or premium and Additional
Interest, if any, on such notes when such payments are due from the trust
referred to below;
(2) the Company's obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee,
and the Company's and the Guarantor's obligations in connection therewith;
and
(4) 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 and the Guarantors released with respect to
certain covenants (including its obligations to make Change of Control Offers
and Asset Sale Offers) that are described in the indenture ("Covenant
Defeasance") and thereafter any omission to comply with those covenants will not
constitute a Default with respect to the notes. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default and
Remedies" will no longer constitute an Event of Default with respect to the
notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the trustee, in trust,
for the benefit of the holders of the notes, cash in U.S. dollars,
non-callable Government Securities, or a combination of cash in U.S.
dollars and non-callable Government Securities, in amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, or interest and premium and
Additional Interest, if any, on the outstanding notes on the Stated
Maturity or on the applicable redemption date, as the case may be, and the
Company must specify whether the notes are being defeased to maturity or to
a particular redemption date;
(2) in the case of Legal Defeasance, the Company has delivered to the
trustee an opinion of counsel 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 notes are first issued, 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 will confirm that, the
holders of the outstanding 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;
(3) in the case of Covenant Defeasance, the Company has delivered to
the trustee an opinion of counsel reasonably acceptable to the trustee
confirming that the holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance
51
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;
(4) no Default has occurred and is continuing on the date of such
deposit (other than a 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 day of deposit;
(5) 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) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(6) 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;
(7) 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 notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors
of the Company or others; and
(8) the Company must deliver to the trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent
relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated, except lost, stolen or
destroyed notes that have been replaced or paid and notes for whose
payment money has been deposited in trust and thereafter repaid to the
Company, have been delivered to the trustee for cancellation; or
(b) all notes that have not been delivered to the trustee for
cancellation have become due and payable or will become due and payable
within one year by reason of the mailing of a notice of redemption or
otherwise and the Company or any Guarantor has irrevocably deposited or
caused to be deposited with the trustee as trust funds in trust solely
for the benefit of the holders, cash in U.S. dollars, non-callable
Government Securities, or a combination of cash in U.S. dollars and non-
callable Government Securities, in amounts as will be sufficient,
without consideration of any reinvestment of interest, to pay and
discharge the entire indebtedness on the notes not delivered to the
trustee for cancellation for principal, premium and Additional Interest,
if any, and accrued interest to the date of maturity or redemption;
(2) no Default has occurred and is continuing on the date of the
deposit or will occur as a result of the deposit and the deposit will not
result in a breach or violation of, or constitute a default under, any
other instrument to which the Company or any of its Subsidiaries is a party
or by which the Company or any of its Subsidiaries is bound;
(3) the Company or any Guarantor has paid or caused to be paid all
sums payable by it under the indenture; and
(4) the Company has delivered irrevocable instructions to the trustee
under the indenture to apply the deposited money toward the payment of the
notes at maturity or the redemption date, as the case may be.
52
In addition, the Company must deliver an officers' certificate and an
opinion of counsel to the trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the indenture or
the notes may be amended or supplemented with the consent of the holders of a
majority in principal amount of the notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, notes), and, subject to certain exceptions, any existing
default or compliance with any provision of the indenture or the notes may be
waived with the consent of the holders of a majority in principal amount of the
then outstanding notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes).
Without the consent of each holder affected, an amendment, supplement or
waiver may not (with respect to any notes held by a non-consenting holder):
(1) reduce the principal amount of notes whose holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note
or alter the provisions with respect to the redemption of the notes (other
than provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) waive a Default in the payment of principal of, or interest or
premium or Additional Interest, if any, on the notes (except a rescission
of acceleration of the notes by the holders of at least a majority in
aggregate principal amount of the notes and a waiver of the payment default
that resulted from such acceleration);
(5) make any note payable in currency other than that stated in the
notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of holders of notes to receive
payments of principal of, or interest or premium or Additional Interest, if
any, on the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the caption
"-- Repurchase at the Option of Holders");
(8) make any change in the ranking or priority of any note that would
adversely affect the noteholder;
(9) release any Guarantor from any of its obligations under its
Subsidiary Guarantee or the indenture, except in accordance with the terms
of the indenture; or
(10) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of notes,
the Company, the Guarantors and the trustee may amend or supplement the
indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of the Company's obligations to
holders of notes in the case of a merger or consolidation or sale of all or
substantially all of the Company's assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of notes or that does not adversely affect the
legal rights under the indenture of any such holder;
(5) to provide for the issuance of additional notes in accordance with
the provisions set forth in the indenture; or
53
(6) to comply with requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act.
The consent of the holders is not necessary under the indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
As permitted by Delaware law, our certificate of incorporation contains a
provision pursuant to which application may be made to a court of equitable
jurisdiction within the State of Delaware to order a meeting of our creditors or
a class of our creditors whenever a compromise or arrangement is proposed
between us and our creditors or a class of our creditors. If 75% of our
creditors or that class of creditors, as the case may be, agrees to any
compromise or arrangement, such compromise or arrangement, if sanctioned by the
court, will be binding on all of our creditors or that class of creditors and on
us. This provision is also applicable to any compromise or arrangement between
us and our shareholders or a class of our shareholders. The certificates of
incorporation of certain subsidiary guarantors also contain similar provisions.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of the Company or any Guarantor, the
indenture limits its right 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 SEC for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding 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
occurs and is continuing, 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 notes, unless such holder has offered to the trustee security and
indemnity satisfactory to it against any loss, liability or expense.
BOOK-ENTRY, DELIVERY AND FORM
The exchange notes initially will be represented by one or more permanent
global notes in registered form without interest coupons. The global notes will
be deposited upon issuance with the Trustee as custodian for The Depository
Trust Company ("DTC"), in New York, New York, and registered in the name of DTC
or its nominee, in each case for credit to an account of a direct or indirect
participant in DTC as described below.
Except as set forth below, the global notes may be transferred, in whole
but not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the global notes may not be exchanged for notes
in certificated form except in the limited circumstances described below. See
"-- Exchange of Global Notes for Certificated Notes." Except in the limited
circumstances described below, owners of beneficial interests in the global
notes will not be entitled to receive physical delivery of notes in certificated
form.
Transfers of beneficial interests in the global notes will be subject to
the applicable rules and procedures of DTC and its direct or indirect
participants, which may change from time to time.
Depositary Procedures
The following description of the operations and procedures of DTC is
provided solely as a matter of convenience. These operations and procedures are
solely within the control of DTC and are subject to changes by DTC. We take no
responsibility for these operations and procedures and urge investors to contact
DTC or their participants directly to discuss these matters.
54
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers and
dealers (including the initial purchasers), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised us that, pursuant to procedures established by it:
(1) upon deposit of the global notes, DTC will credit the accounts of
Participants designated by the initial purchasers with portions of the
principal amount of the global notes; and
(2) ownership of these interests in the global notes will be shown on,
and the transfer of ownership of these interests will be effected only
through, records maintained by DTC (with respect to the Participants) or by
the Participants and the Indirect Participants (with respect to other
owners of beneficial interests in the global notes).
The laws of some states require that certain Persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a global note to such Persons will be limited
to that extent. Because DTC can act only on behalf of Participants, which in
turn act on behalf of Indirect Participants, the ability of a Person having
beneficial interests in a global note to pledge such interests to Persons that
do not participate in the DTC system, or otherwise take actions in respect of
such interests, may be affected by the lack of a physical certificate evidencing
such interests.
Except as described below, owners of an interest in the global notes will
not have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
"holders" thereof under the indenture for any purpose.
Payments in respect of the principal of, and interest and premium and
Additional Interest, if any, on a global note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered holder
under the indenture. Under the terms of the indenture, the Company and the
trustee will treat the Persons in whose names the notes, including the global
notes, are registered as the owners of the notes for the purpose of receiving
payments and for all other purposes. Consequently, neither the Company, the
trustee nor any agent of the Company or the trustee has or will have any
responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interest in the global notes or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
global notes; or
(2) any other matter relating to the actions and practices of DTC or
any of its Participants or Indirect Participants.
DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date. Each relevant Participant is credited with an
amount proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the trustee or the Company. Neither the Company
nor the trustee will be liable for any delay by DTC or any of its Participants
in identifying the
55
beneficial owners of the notes, and the Company and the trustee may conclusively
rely on and will be protected in relying on instructions from DTC or its nominee
for all purposes.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the global notes and only in
respect of such portion of the aggregate principal amount of the notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the notes, DTC reserves the right
to exchange the global notes for legended notes in certificated form, and to
distribute such notes to its Participants.
Exchange of Global Notes for Certificated Notes
A global note is exchangeable for definitive notes in registered
certificated form ("certificated notes") if:
(1) DTC (a) notifies us that it is unwilling or unable to continue as
depositary for the global notes and the Company fails to appoint a
successor depositary or (b) has ceased to be a clearing agency registered
under the Exchange Act;
(2) the Company, at its option, notifies the trustee in writing that
it elects to cause the issuance of the certificated notes; or
(3) there has occurred and is continuing a Default with respect to the
notes.
In addition, beneficial interests in a global note may be exchanged for
certificated notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, certificated notes
delivered in exchange for any global note or beneficial interests in global
notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures) and will bear the applicable restrictive legend referred to in
"Notice to Investors," unless that legend is not required by applicable law.
Same-Day Settlement and Payment
The Company will make payments in respect of the notes represented by the
global notes (including principal, premium, if any, interest and Additional
Interest, if any) by wire transfer of immediately available funds to the
accounts specified by the global note holder. The Company will make all payments
of principal, interest and premium and Additional Interest, if any, with respect
to certificated notes by wire transfer of immediately available funds to the
accounts specified by the holders of the certificated notes or, if no such
account is specified, by mailing a check to each such holder's registered
address. The notes represented by the global notes are expected to be eligible
to trade in the PORTAL market and to trade in DTC's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in such notes will,
therefore, be required by DTC to be settled in immediately available funds. The
Company expects that secondary trading in any certificated notes will also be
settled in immediately available funds.
REGISTRATION RIGHTS; ADDITIONAL INTEREST
The following description is a summary of the material provisions of the
registration rights agreement. It does not restate that agreement in its
entirety. We urge you to read the registration rights agreement because it, and
not this description, defines your registration rights as holders of these
notes. See "-- Where You Can Find More Information."
The Company, the Guarantors and the initial purchasers of the private notes
entered into the registration rights agreement on the closing of the offering of
the private notes. Pursuant to the registration rights agreement, the Company
and the Guarantors have agreed to file with the SEC a registration statement on
the appropriate form for the Exchange Offer under the Securities Act with
respect to the Exchange Notes. Upon the effectiveness of the Exchange Offer
registration statement, the Company and the Guarantors will offer to
56
the holders of Transfer Restricted Securities pursuant to the Exchange Offer who
are able to make certain representations the opportunity to exchange their
Transfer Restricted Securities for Exchange Notes.
A holder of notes (other than certain specified holders) who wishes to
exchange such notes for Exchange Notes in the Exchange Offer will be required to
represent that any Exchange Notes to be received by it will be acquired in the
ordinary course of its business, that at the time of the commencement of the
Exchange Offer it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes and that it is not an "affiliate" of the Company or, if it is
an affiliate, that it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
Broker-dealers receiving Exchange Notes in the Exchange Offer will have a
prospectus delivery requirement with respect to resales of such Exchange Notes.
Under the registration rights agreement, the Company is required to allow such
broker-dealers and other persons, if any, with similar prospectus delivery
requirements to use the prospectus contained in the Exchange Offer registration
statement in connection with the resale of such Exchange Notes for 180 days
following the effective date of such registration statement (or such shorter
period during which such broker-dealers are required by law to deliver such
prospectus).
If:
(1) the Company and the Guarantors are not:
(a) required to file the Exchange Offer registration statement; or
(b) permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or SEC policy; or
(2) any holder of Transfer Restricted Securities notifies the Company
within 20 business days following consummation of the Exchange Offer that:
(a) it is prohibited by law or SEC policy from participating in the
Exchange Offer; or
(b) that it may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer registration statement is not
appropriate or available for such resales; or
(c) that it is a broker-dealer and owns notes acquired directly
from the Company or an affiliate of the Company,
the Company and the Guarantors will file with the SEC a shelf registration
statement to cover resales of the notes by the holders of the notes who satisfy
certain conditions in connection with the shelf registration statement.
Holders reselling notes pursuant to the shelf registration statement will
be required to deliver certain 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 the registration rights agreement
in order to have their notes included in the shelf registration statement and
benefit from the provisions regarding Additional Interest described below. By
acquiring Transfer Restricted Securities, a holder will be deemed to have agreed
to indemnify the Company and the Guarantors against certain losses arising out
of information furnished by such holder in writing for inclusion in any shelf
registration statement.
A holder reselling notes pursuant to the shelf registration statement will
be required to be named as a selling security holder in the related prospectus
and to deliver a prospectus to purchasers, and will be subject to certain of the
civil liability provisions under the Securities Act in connection with such
resales. Holders of notes will also be required to suspend their use of the
prospectus included in the shelf registration statement under certain
circumstances upon receipt of written notice to that effect from the Company.
The Company and the Guarantors will use their commercially reasonable best
efforts to cause the applicable registration statement to be declared effective
at the earliest possible time by the SEC.
57
For purposes of the foregoing, "Transfer Restricted Securities" means each
note until:
(1) the date on which such note has been exchanged by a Person other
than a broker-dealer for an Exchange Note in the Exchange Offer and is
entitled to be resold to the public by such Person without complying with
the prospectus delivery requirements of the Securities Act;
(2) following the exchange by a broker-dealer in the Exchange Offer of
a note for an Exchange 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;
(3) the date on which such note has been effectively registered under
the Securities Act and disposed of in accordance with the shelf
registration statement; or
(4) the date on which such note is sold pursuant to Rule 144 or may be
sold pursuant to Rule 144(k) under the Securities Act.
The registration rights agreement provides that:
(1) the Company and the Guarantors will file an Exchange Offer
registration statement with the SEC on or prior to 90 days after the
closing of this offering;
(2) the Company and the Guarantors will use their commercially
reasonable best efforts to have the Exchange Offer registration statement
declared effective by the SEC on or prior to 180 days after the closing of
this offering;
(3) unless the Exchange Offer would not be permitted by applicable law
or SEC policy, the Company and the Guarantors will:
(a) commence the Exchange Offer; and
(b) use their commercially reasonable best efforts to issue on or
prior to 30 business days, or longer, if required by the federal
securities laws, after the date on which the Exchange Offer registration
statement was declared effective by the SEC, Exchange Notes in exchange
for all notes tendered prior thereto in the Exchange Offer; and
(4) if obligated to file the shelf registration statement, the Company
and the Guarantors will use their commercially reasonable best efforts to
file the shelf registration statement with the SEC on or prior to 60 days
after such filing obligation arises and to cause the shelf registration
statement to be declared effective by the SEC on or prior to 180 days after
such obligation arises.
If:
(1) the Company and the Guarantors fails to file any of the
registration statements required by the registration rights agreement on or
before the date specified for such filing; or
(2) any of such registration statements is not declared effective by
the SEC on or prior to the date specified for such effectiveness; or
(3) the Company and the Guarantors fail to consummate the Exchange
Offer within 30 business days after the Exchange Offer registration
statement is declared effective by the SEC; or
(4) the shelf registration statement or the Exchange Offer
registration statement is declared effective but thereafter ceases to be
effective or fails to be usable for its intended purpose during the periods
specified in the registration rights agreement
(each such event referred to in clauses (1) through (4) above, a "Registration
Default"), then the Company and the Guarantors will pay Additional Interest to
each holder of notes, with respect to the first 90-day period immediately
following the occurrence of the first Registration Default in an amount equal to
$.05 per week per $1,000 principal amount of notes held by such holder. The
amount of the Additional Interest will increase by an additional $.05 per week
per $1,000 principal amount of notes with respect to each subsequent 90-day
58
period until all Registration Defaults have been cured, up to a maximum amount
of Additional Interest for all Registration Defaults of $.50 per week per $1,000
principal amount of notes. Additional Interest will not accrue under more than
one of the preceding clauses (1) through (4) at any one time.
All accrued Additional Interest will be paid by the Company and the
Guarantors on each day that interest is payable under the notes or the Exchange
Notes to the global note holder by wire transfer of immediately available funds
or by federal funds check and to holders of certificated notes 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 Additional
Interest will cease.
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 Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Restricted Subsidiary of such
specified Person, whether or not such Indebtedness is incurred in
connection with, or in contemplation of, such other Person merging with or
into, or becoming a Restricted Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"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,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person will be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, including by means of a merger, consolidation or similar
transaction; provided that the sale, conveyance or other disposition of all
or substantially all of the 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 Sale covenant; and
(2) the issuance of Equity Interests in any of the Company's
Restricted Subsidiaries or the sale of Equity Interests in any of its
Subsidiaries (other than directors' qualifying shares).
Notwithstanding the preceding, the following items will not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that
involves assets having a fair market value of less than $2.0 million;
(2) a transfer of assets between or among the Company and its
Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary;
(4) the sale or lease of equipment, inventory, accounts receivable,
services or other assets in the ordinary course of business or the sale of
inventory to any joint venture, in which the Company owns
59
directly or indirectly at least 50% of the Equity Interests, for resale by
such joint venture to its customers in the ordinary course of business of
its business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a Restricted Payment or Permitted Investment that is permitted by
the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments;"
(7) dispositions in connection with Permitted Liens;
(8) the sale of a rig built by the Company or any of its Restricted
Subsidiaries for the purpose of sale to a customer where the sale proceeds
are recorded in the Company's consolidated financial statements as
operating income in accordance with generally accepted accounting
principles in the United States;
(9) 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;
(10) 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,
in each case as determined as provided in the final paragraph of the
covenant described above under the caption "-- Certain
Covenants -- Restricted Payments" and (B) such exchange is approved by a
majority of the disinterested members of the Board of Directors of the
Company; and
(11) 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.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value 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. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Sections 13(d) and
14(d) of the Exchange Act), such "person" will be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire by
conversion or exercise of other securities, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition. The terms "Beneficially Owns" and "Beneficially Owned" have
correlative meanings.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the
corporation;
(2) with respect to a partnership, the Board of Directors of the
general partner of the partnership; and
(3) with respect to any other Person, the board or committee of such
Person serving a similar function.
"Business Day" means each day that is not a Saturday, Sunday or other day
on which banking institutions in New York, New York are authorized or required
by law to close.
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"Capital Lease Obligation" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) 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:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality of the United
States government (provided that the full faith and credit of the United
States is pledged in support of those securities) having maturities of not
more than one year from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case, with any lender party to the Credit Agreement (or
any affiliate of such lender party meeting such requirements) or with any
commercial bank organized under the laws of any country that is a member of
the Organization for Economic Cooperation and Development (or any affiliate
of such commercial bank meeting such requirements), having capital and
surplus in excess of $500.0 million and a Thomson Bank Watch Rating of "B"
or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in each
case maturing within 270 days after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, 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
properties or assets of the Company and its Restricted Subsidiaries taken
as a whole to any "person" (as that term is used in Sections 13(d) and
14(d) of the Exchange Act);
(2) the adoption of a plan by the stockholders of the Company relating
to the liquidation or dissolution of the Company;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as that term is used in Sections 13(d) and 14(d) of the Exchange
Act) becomes the Beneficial Owner, directly or indirectly, of more than 50%
of the voting power of the Voting Stock of the Company; or
61
(4) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors.
"Consolidated Cash Flow" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss
realized by such Person or any of its Subsidiaries in connection with an
Asset Sale, to the extent such losses were deducted in computing such
Consolidated Net Income; plus
(2) 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 deducted in computing such Consolidated Net Income;
plus
(3) consolidated 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 debt issuance
costs and 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 Debt, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings), and net of the effect of all payments made or received
pursuant to Hedging Obligations incurred with respect to Indebtedness, to
the extent that any such expense was deducted in computing such
Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of intangibles
but excluding amortization of prepaid cash expenses that were paid in a
prior period) and other non-cash expenses (including impairment charges
recorded in connection with the application of Financial Accounting
Standard No. 142 "Goodwill and Other Intangibles" but excluding any such
non-cash expense to the extent that it represents an accrual of or reserve
for cash expenses in any future period or amortization of a prepaid cash
expense that was paid in a prior period) of such Person and its
Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing such
Consolidated Net Income; plus
(5) all extraordinary, unusual or non-recurring items of loss or
expense; minus
(6) all extraordinary, unusual or non-recurring items of gain or
revenue; minus
(7) non-cash items increasing such Consolidated Net Income for such
period, other than the accrual of revenue in the ordinary course of
business,
in each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, amounts in clauses (1), (2), (4), (5) and (6)
relating to any Restricted Subsidiary that is not a Guarantor will be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in the same proportion) that the Net Income of such Restricted Subsidiary
was included in calculating Consolidated Net Income 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 any prior governmental approval
(that has not been obtained) and by operation of the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Restricted Subsidiary or its
stockholders.
"Consolidated Net Income" means, with respect to any specified 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:
(1) 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 will be included only to the extent of the amount of dividends
or distributions paid in cash to the specified Person or a Restricted
Subsidiary of the Person;
62
(2) the Net Income of any Restricted Subsidiary that is not a
Guarantor will 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;
and
(3) the cumulative effect of a change in accounting principles will be
excluded.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who:
(1) was a member of such Board of Directors on the date notes are
first issued under the indenture; or
(2) 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 of Directors at the time of such nomination or
election.
"Credit Agreement" means that certain Credit Agreement, dated as of October
10, 2003, as amended, among the Company and the lenders parties thereto,
providing for up to $100.0 million of term loan borrowings and $50.0 million of
revolving credit borrowings, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith.
"Credit Facilities" means, one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time (and
whether or not with the original lender or lenders or another lender or lenders
and whether provided under the original Credit Facility or any other credit or
other agreement or indenture).
"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.
"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, in each case at the option of the holder of the Capital Stock), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or is redeemable at the option of the
holder of the Capital Stock, in whole or in part, on or prior to the date that
is 91 days after the date on which the notes mature. Notwithstanding the
preceding sentence, any Capital Stock that would constitute Disqualified Stock
solely because the holders of the Capital Stock have the right to require the
Company to repurchase such Capital Stock upon the occurrence of a change of
control or an asset sale will not constitute Disqualified Stock if the terms of
such Capital Stock provide that the Company may not repurchase or redeem any
such Capital Stock pursuant to such provisions prior to compliance by the
Company with the Change of Control Offer and Asset Sale Offer provisions of the
indenture described above under the caption "Repurchase at the Option of
Holders" and unless such repurchase or redemption complies with the covenant
described above under the caption "-- Certain Covenants -- Restricted Payments."
"Domestic Subsidiary" means any Restricted Subsidiary of the Company that
was formed under the laws of the United States or any state of the United States
or the District of Columbia.
"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).
63
"Equity Offering" means any public or private sale of Capital Stock (other
than Disqualified Stock) made for cash on a primary basis by the Company after
the date notes are first issued.
"Exchange Notes" means the notes issued in the Exchange Offer pursuant to
the indenture.
"Exchange Offer" has the meaning set forth for such term in the
registration rights agreement.
"Existing Indebtedness" means any Indebtedness of the Company and its
Restricted Subsidiaries (other than any other Permitted Debt) in existence on
the date notes are first issued, until such amounts are repaid.
"Fixed Charges" means, with respect to any specified Person for any period,
the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and
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 Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings),
and net of the effect of all payments made or received pursuant to Hedging
Obligations incurred with respect to Indebtedness; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) 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; plus
(4) the product of (a) all dividends, whether paid or accrued and
whether or not in cash, on any series of Disqualified Stock or preferred
stock of such Person or any of its Restricted Subsidiaries, other than
dividends on Equity Interests payable solely in Equity Interests of the
Company (other than Disqualified Stock) or to the Company or a Restricted
Subsidiary of the Company, 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 specified Person
for any four-quarter reference period, the ratio of the Consolidated Cash Flow
of such Person for such period to the Fixed Charges of such Person for such
period. In the event that the specified Person or any of its Subsidiaries
incurs, assumes, Guarantees, repays, repurchases or redeems any Indebtedness
(other than ordinary working capital borrowings) or issues, repurchases or
redeems any Disqualified Stock or preferred stock subsequent to the commencement
of the applicable four-quarter reference period and on or prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio is
made occurs (the "Calculation Date"), then the Fixed Charge Coverage Ratio will
be calculated giving pro forma effect to such incurrence, assumption, Guarantee,
repayment, repurchase or redemption of Indebtedness, or such issuance,
repurchase or redemption of Disqualified Stock or preferred stock, and the use
of the proceeds therefrom as if the same had occurred at the beginning of such
period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, subsequent to the
commencement of the applicable four-quarter reference period and on or
prior to the Calculation Date will be given pro forma effect as if they had
occurred on the first day of such period including any pro forma expense
and cost reductions that have occurred or are reasonably expected to occur,
in the reasonable judgment of the chief financial officer of the Company
(regardless of whether those expense and cost reductions could then be
reflected in pro forma financial statements in accordance with
64
Regulation S-X promulgated under the Securities Act or any other regulation
or policy of the Commission related thereto);
(2) 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, will be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, will be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted Subsidiaries
following the Calculation Date.
"GAAP" means generally accepted accounting principles in the United States
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 on the date notes are first
issued.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, of all or any part of any Indebtedness in any manner including,
without limitation, by way of a pledge of assets or through letters of credit or
reimbursement agreements in respect thereof.
"Guarantors" means each of:
(1) the Company's Domestic Subsidiaries in existence as of the date of
the indenture;
(2) Parker Drilling Offshore International, Inc., but only for so long
as it guarantees the Company's 10.125% senior notes due 2009; and
(3) any other subsidiary that executes a Subsidiary Guarantee in
accordance with the provisions of the indenture;
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person incurred under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements;
(2) foreign exchange contracts and currency protection agreements;
(3) any commodity futures contract, commodity option or other similar
agreement or arrangement; and
(4) other similar agreements or arrangements.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments;
(3) in respect of banker's acceptances or letters of credit (or
reimbursement agreements in respect thereof) or similar instruments;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price
of any property, except any such balance that constitutes an accrued
expense or trade payable; or
65
(6) representing the net obligations of such Person under any Hedging
Obligations (the amount of any such obligations to be equal at any time to
the termination value of the agreement or arrangement giving rise to such
obligation that would be payable by such Person at such time),
if and to the extent any of the preceding items (other than letters of credit,
Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others to the extent secured by a
Lien on any asset of the specified Person (whether or not such Indebtedness is
assumed by the specified Person) and, to the extent not otherwise included, the
Guarantee by the specified Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any
Indebtedness issued with original issue discount; and
(2) the principal amount of the Indebtedness, together with any
interest on the Indebtedness that is more than 30 days past due, in the
case of any other Indebtedness.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding (x) commission, travel and similar advances to officers
and employees made in the ordinary course of business and (y) advances to
customers in the ordinary course of business that are recorded as accounts
receivable on the balance sheet of the lender), 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. 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 will be deemed to have made an Investment on the date of any such sale
or disposition in an amount equal to the fair market value of the Equity
Interests of and other Investments in such Subsidiary not sold or disposed of in
an amount determined as provided in the final paragraph of the covenant
described above under the caption "-- Certain Covenants -- Restricted Payments."
The acquisition by the Company or any Subsidiary of the Company of a Person that
holds an Investment in a third Person will be deemed to be an Investment made by
the Company or such Subsidiary in such third Person in an amount equal to the
fair market value of the Investment held by the acquired Person in such third
Person on the date of any such acquisition in an amount determined as provided
in the final paragraph of the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments."
"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 such asset and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction.
"Net Income" means, with respect to any specified 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:
(1) any gain (but not loss), other than gains associated with
reimbursements for lost or damaged 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; or (b) the
disposition of any securities by such Person or any of its Subsidiaries or
the extinguishment of any Indebtedness of such Person or any of its
Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
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"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 of the Asset Sale, taxes paid or payable as a result of the
Asset Sale, in each case, after taking into account any available tax credits or
deductions and any tax sharing arrangements, any amounts required to be applied
to the repayment of Senior Debt secured by a Lien on 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 Debt" means Indebtedness:
(1) 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 guarantor or otherwise, or (c) is
the lender;
(2) no default with respect to which (including any rights that the
holders of the Indebtedness 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 (other than the notes) of the Company
or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment of the Indebtedness to be accelerated or
payable prior to its stated maturity; and
(3) 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.
"Obligations" means any principal, premium and Additional Interest, if any,
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization, whether or not a claim for post-filing
interest is allowed in such proceeding), penalties, fees, charges, expenses,
indemnifications, reimbursement obligations, damages, guarantees, and other
liabilities or amounts payable under the documentation governing any
Indebtedness or in respect thereof.
"Permitted Business" means the lines of business conducted by us and our
Restricted Subsidiaries on the date hereof and any business incidental or
reasonably related thereto or which is a reasonable extension thereof as
determined in good faith by our Board of Directors.
"Permitted Investments" means:
(1) any Investment in the Company or in a Restricted Subsidiary of the
Company;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Subsidiary of the Company in
a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of the Company; or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary of the Company;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales;"
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company;
(6) any Investments received (a) in satisfaction of judgments or in
compromise of obligations of trade creditors or customers that were
incurred in the ordinary course of business, including pursuant to any plan
of reorganization or similar arrangement upon the bankruptcy or insolvency
of any trade
67
creditor or customer or (b) as a result of a foreclosure by the Company or
any of its Restricted Subsidiaries with respect to any secured Investment
in default;
(7) guarantees (including Subsidiary Guarantees) of Indebtedness
permitted under the covenant described above under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock;"
(8) Hedging Obligations permitted to be incurred under the covenant
described above under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant;
(9) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(10) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary not to exceed $2.0 million at any one time outstanding;
(11) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (8) that are at the time
outstanding, not to exceed $35.0 million.
"Permitted Liens" means:
(1) Liens securing Indebtedness and other obligations under any Credit
Facility permitted to be incurred under the indenture;
(2) Liens securing the notes and Subsidiary Guarantees;
(3) Liens existing on the date notes are first issued;
(4) Liens in favor of the Company or the Guarantors;
(5) Liens to secure Indebtedness of any Restricted Subsidiaries that
are not Guarantors; provided that the Indebtedness is permitted by the
terms of the indenture to be incurred;
(6) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the Company or any Restricted
Subsidiary of the Company or otherwise becomes a Restricted Subsidiary of
the Company; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation or such Person becoming a
Restricted Subsidiary of the Company and do not extend to any assets other
than those of such Person;
(7) Liens on property existing at the time of acquisition of the
property by the Company or any Restricted Subsidiary of the Company;
provided that such Liens were in existence prior to the contemplation of
such acquisition and do not extend to any assets other than such acquired
property;
(8) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant entitled
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such Indebtedness;
(9) Liens securing Permitted Refinancing Indebtedness Incurred to
refinance Indebtedness that was previously so secured; provided that any
such Lien is limited to all or part of the same property or assets (plus
improvements, accessions, proceeds or distributions in respect thereof)
that secured or, under the written arrangements under which the original
Lien arose, could secure the Indebtedness being refinanced;
(10) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries;
(11) Liens securing Hedging Obligations related to Indebtedness
permitted under the indenture;
68
(12) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(13) 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 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;
(14) 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);
(15) 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;
(16) 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;
(17) 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;
(18) 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;
(19) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted;
provided that any reserve or other appropriate provision as is required in
conformity with GAAP has been made therefor; and
(20) Liens incurred in the ordinary course of business of the Company
or any Subsidiary of the Company with respect to obligations that do not
exceed $10.0 million at any one time outstanding.
Notwithstanding the foregoing, "Permitted Liens" will not include any Lien
described in clause (6), (7) or (8) above to the extent such Lien applies to any
Additional Assets acquired directly or indirectly from Net Proceeds pursuant to
the covenant described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales." For purposes of this definition, the term
"Indebtedness" will be deemed to include interest on such Indebtedness.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its 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 Subsidiaries (other than intercompany
Indebtedness); provided that:
(1) 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 extended, refinanced,
renewed, replaced, defeased or refunded (plus all accrued interest on the
Indebtedness and the amount of all expenses and premiums incurred in
connection therewith);
(2) 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;
69
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes, such
Permitted Refinancing Indebtedness is subordinated in right of payment to,
the notes on terms at least as favorable to the holders of notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) such Permitted Refinancing Indebtedness is incurred either by (i)
the Company or a Guarantor or (ii) by the Subsidiary that is the obligor on
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"SEC" means the Securities Exchange Commission.
"Senior Debt" means:
(1) all Indebtedness of the Company or any Restricted Subsidiary
outstanding under Credit Facilities and all Hedging Obligations with
respect thereto;
(2) any other Indebtedness of the Company or any Restricted Subsidiary
permitted to be incurred under the terms of the indenture, unless the
instrument under which such Indebtedness is incurred expressly provides
that it is subordinated in right of payment to the notes or any Subsidiary
Guarantee; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2). Notwithstanding anything to the contrary in the
preceding sentence, Senior Debt will not include:
(a) any liability for federal, state, local or other taxes owed or
owing by the Company;
(b) any intercompany Indebtedness of the Company or any of its
Subsidiaries to the Company or any of its Affiliates;
(c) any trade payables; or
(d) any Indebtedness that is incurred in violation of the
indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02(w) of Regulation
S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect
on the date hereof; provided that all Unrestricted Subsidiaries will be excluded
from all calculations under Rule 1-02(w) of Regulation S-X.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1) 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 of the corporation, association
or other business entity is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person (or a combination thereof); and
(2) 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 only general partners of which are that Person or one or more
Subsidiaries of that Person (or any combination thereof).
70
"Subsidiary Guarantee" means any Guarantee by a Guarantor of the Company's
payment Obligations under the indenture and on the notes, executed pursuant to
the provisions of the indenture.
"Total Assets" means the total assets of the Company and its Restricted
Subsidiaries on a consolidated basis determined in accordance with GAAP, as
shown on the most recently available consolidated balance sheet of the Company
and its Restricted Subsidiaries.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) 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;
(3) 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
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Company or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of the Company as an Unrestricted
Subsidiary will be evidenced to the trustee by filing with the trustee a
certified copy of the Board Resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
preceding 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 preceding requirements as an
Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted
Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary
will 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 will 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 will 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 will only be
permitted if (1) such Indebtedness is permitted under the covenant described
under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period
and (2) no Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors (or comparable body) of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Stock or preferred stock of a Guarantor at any date, the number
of years obtained by dividing:
(1) 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 of the Indebtedness or redemption or similar payment in respect of
the Disqualified Stock or preferred stock of a Guarantor 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
(2) the then outstanding principal amount of such Indebtedness.
71
PLAN OF DISTRIBUTION
We are not using any underwriters for this exchange offer. We are also
bearing the expenses of the exchange.
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 any exchange notes
received in exchange for private notes acquired by such broker-dealer as a
result of market-making or other trading activities. Each such broker-dealer
that receives exchange notes for its own account in exchange for such private
notes pursuant to the exchange offer must acknowledge in the letter of
transmittal that it will deliver a prospectus in connection with any resale of
such exchange notes. We have agreed that for a period of up to one year after
the registration statement is declared effective, we will use our commercially
reasonable best efforts to keep the registration statement effective and will
make this prospectus, as amended or supplemented, available to any such
broker-dealer that requests copies of this prospectus in the letter of
transmittal for use in connection with any such resale.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers or any other persons. 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.
The exchange notes may be sold from time to time:
- 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 any 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 in exchange for private notes
acquired by such broker-dealer as a result of market-making or other trading
activities and any broker-dealer that participates in a distribution of such
exchange notes may be deemed to be an "underwriter" within the meaning of the
Securities Act. Any profit on these resales of exchange notes and any
commissions or concessions received by any person may be deemed to be
underwriting compensation under the Securities Act. 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.
We have agreed to pay all expenses incident to our performance of, or
compliance with, the registration rights agreement and will indemnify the
holders of the private notes, including any broker-dealers, and certain parties
related to these holders, against certain liabilities, including liabilities
under the Securities Act, as set forth in the registration rights agreement.
72
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The exchange of private notes for exchange notes should not be treated as a
taxable transaction for United States Federal income tax purposes because the
terms of the exchange notes should not be considered to differ materially in
kind or in extent from the terms of the private notes. Rather, the exchange
notes received by a holder of private notes should be treated as a continuation
of such holder's investment in the private notes. As a result, there should be
no material United States Federal income tax consequences to holders exchanging
private notes for exchange notes.
If you are considering an exchange of your private notes for the exchange
notes, you should consult your own tax advisor(s) concerning the tax
consequences arising under state, local, or foreign laws of such an exchange.
VALIDITY OF THE EXCHANGE NOTES
The validity of the exchange notes will be passed upon for Parker Drilling
Company by Bracewell & Patterson, L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements, incorporated in this prospectus by
reference to Parker Drilling Company's Current Report on Form 8-K dated August
13, 2004 and the financial statement schedule incorporated in this prospectus by
reference to the Annual Report on Form 10-K of Parker Drilling Company for the
year ended December 31, 2003, have been so incorporated in reliance on the
reports (which contain an explanatory paragraph for a change in accounting for
goodwill and an explanatory paragraph for the revision of the 2002 and 2001
statement of operations related to reimbursable costs) of PricewaterhouseCoopers
LLP, an independent registered public accounting firm, given on the authority of
said firm as experts in auditing and accounting.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
With respect to the unaudited consolidated financial information of Parker
Drilling Company and its subsidiaries for the three month periods ended March
31, 2004 and 2003, the three and six month periods ended June 30, 2004 and 2003
and the three and nine month periods ended September 30, 2004 and 2003,
incorporated by reference into this prospectus, PricewaterhouseCoopers LLP
reported that they have applied limited procedures in accordance with the
standards of the Public Company Accounting Oversight Board (United States) for a
review of such information. However, their separate reports dated May 7, 2004,
August 6, 2004 and November 8, 2004, incorporated by reference herein, state
that they did not audit and they do not express an opinion on that unaudited
financial information. Accordingly, the degree of reliance on their reports 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
reports on the unaudited financial information because those reports are not
"reports" 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.
73
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR
THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. NEITHER THE MAKING OF THE EXCHANGE OFFER PURSUANT
TO THIS PROSPECTUS NOR THE ACCEPTANCE OF PRIVATE NOTES FOR EXCHANGE PURSUANT
THERETO SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF PARKER DRILLING COMPANY AND ITS SUBSIDIARIES SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
EACH BROKER-DEALER WHO HOLDS PRIVATE NOTES ACQUIRED FOR ITS OWN ACCOUNT AS
A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES AND WHO RECEIVES EXCHANGE
NOTES FOR ITS OWN ACCOUNT IN EXCHANGE FOR SUCH PRIVATE NOTES PURSUANT TO THE
EXCHANGE OFFER MUST DELIVER A COPY OF THIS PROSPECTUS IN CONNECTION WITH ANY
RESALE OF SUCH EXCHANGE NOTES.
---------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Where You Can Find More
Information........................ i
Prospectus Summary................... 1
Risk Factors......................... 7
Special Note Regarding
Forward-Looking Statements......... 17
Use of Proceeds...................... 18
Ratio of Earnings to Fixed Charges... 19
Selected Historical Consolidated
Financial Data..................... 20
The Exchange Offer................... 22
Description of the Exchange Notes.... 32
Plan of Distribution................. 72
Material United States Federal Income
Tax Considerations................. 73
Validity of the Exchange Notes....... 73
Experts.............................. 73
Independent Registered Public
Accounting Firm.................... 73
</Table>
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$150,000,000
PARKER DRILLING COMPANY
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PROSPECTUS
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OFFER TO EXCHANGE
SENIOR FLOATING RATE NOTES DUE 2010
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
FOR
ALL OUTSTANDING UNREGISTERED
SENIOR FLOATING RATE NOTES DUE 2010
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