Parker Drilling Company
Filed 3/22/01
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-7573
PARKER DRILLING COMPANY
(Exact name of registrant as specified in its charter)
Delaware 73-0618660
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Parker Building, Eight East Third Street, Tulsa, Oklahoma 74103
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (918) 585-8221
Securities registered pursuant Name of each exchange on which
to Section 12(b) of the Act: registered:
Common Stock, par value $.16 2/3 per share New York Stock Exchange, Inc.
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
As of January 31, 2001, 91,730,183 common shares were outstanding, and the aggregate market value of the common shares
(based upon the closing price of these shares on the New York Stock Exchange) held by nonaffiliates was $497.7 million.
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PART I
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PART II
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PART III
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PART IV
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FINANCIAL STATEMENTS
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PARKER DRILLING COMPANY
TABLE OF CONTENTS
Page No.
PART I
Item 1. Business 1
Item 2. Properties 13
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 4a. Executive Officers 20
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matter 22
Item 6. Selected Financial Data 23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 24
Item 8. Financial Statements and Supplementary Data 35
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 73
PART III
Item 10. Directors and Executive Officers of the Registrant 73
Item 11. Executive Compensation 73
Item 12. Security Ownership of Certain Beneficial Owners
and Management 73
Item 13. Certain Relationships and Related Transactions 73
PART IV
Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K 75
Signatures 80
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain statements that are "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. These statements may be made
directly in this document, referring to the Company, or may be "incorporated by reference", referring to other documents filed
with the Securities and Exchange Commission. All statements included in this document, other than statements of historical
facts, that address activities, events or developments that the Company expects, projects, believes or anticipates will or may
occur in the future, including future operating results, future capital expenditures and investments in the acquisition and
refurbishment of rigs and equipment, borrowings, repayment of debt, expansion and growth of operations, anticipated cost
savings, and other such matters, are forward-looking statements.
Forward-looking statements are based on certain assumptions and analyses made by the management of the Company in light
of their experience and perception of historical trends, current conditions, expected future developments and other factors they
believe are relevant. Although management of the Company believes that its assumptions are reasonable based on current
information available, they are subject to certain risks and uncertainties, many of which are outside the control of the Company.
These risks and uncertainties include worldwide economic and business conditions, fluctuations in the market prices of oil and
gas, the timing and extent of current or anticipated drilling market conditions, level of spending by oil and gas operators,
government regulations and environmental matters, international trade restrictions and political instability, operating hazards and
uninsured risks, substantial leverage, seasonality and adverse weather conditions, concentration of customer and supplier
relationships, capital expenditure overruns and delays on rig upgrade and refurbishment projects, competition, integration of
operations, successful execution of acquisition strategies and other similar factors (some of which are discussed in documents
incorporated by reference). Because the forward-looking statements are subject to these risks and uncertainties, the actual
results of operations and actions taken by the Company may differ materially from those expressed or implied by such
forward-looking statements. Each forward-looking statement speaks only as of the date of this Form 10-K, and the Company
undertakes no obligation to publicly update or revise any forward-looking statement.
PART I
Item 1. BUSINESS
GENERAL DEVELOPMENT
Parker Drilling Company was incorporated in the state of Oklahoma in 1954 after having been established in 1934 by its
founder, Gifford C. Parker. The founder was the father of Robert L. Parker, chairman and a principal stockholder, and the
grandfather of Robert L. Parker Jr., president and chief executive officer. In March 1976, the state of incorporation of the
Company was changed to Delaware through the merger of the Oklahoma corporation into its wholly-owned subsidiary Parker
Drilling Company, a Delaware corporation. Unless otherwise indicated, the term "Company" refers to Parker Drilling Company
together with its subsidiaries and "Parker Drilling" refers solely to the parent, Parker Drilling Company.
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The Company is a leading worldwide provider of contract drilling and drilling related services, operating in the coastal and
transition zones of the Gulf of Mexico and Nigeria, in the offshore waters of the Gulf of Mexico and the Caspian Sea, and on
land in international oil and gas producing regions. Historically, the Company operated exclusively on land, specializing in deep,
difficult wells and drilling in remote areas. In the last four years, the Company diversified into the offshore drilling business
through the acquisition of Mallard Bay Drilling, Inc. ("Mallard"), and Hercules Offshore Corp. and Hercules Rig Corp.
(collectively, "Hercules") and the rental tool business through the acquisition of Quail Tools, Inc. ("Quail"). In 1999, the
Company sold 26 land rigs, pursuant to the Company's strategic plan to focus on offshore and international land markets where
margins are generally higher. Included were 13 lower-48 U.S. land rigs sold in September 1999 and 11 Argentina land rigs
(previously classified as assets held for disposition) sold during the fourth quarter of 1999. In 2000, the Company sold its last
U.S. land rig that was located in Alaska.
The Company's current rig fleet consists of 27 barge drilling and workover rigs, seven offshore jackup rigs, four offshore
platform rigs and 47 land rigs. The Company's barge drilling and workover rig fleet is dedicated to transition zone waters,
which are generally defined as coastal waters having depths from 5 to 25 feet. The Company's offshore jackup and platform rig
fleets currently operate in the Gulf of Mexico market. The Company's land rig fleet generally consists of premium and
specialized deep drilling rigs, with 37 of its 40 marketed land rigs capable of drilling to depths of 15,000 feet or greater. The
diversity of the Company's rig fleet, both in terms of geographic location and asset class, enables the Company to provide a
broad range of services to oil and gas operators around the world.
The oilfield service industry experienced a significant increase in activity in the year 2000. This increase was the result of an
increase in oil and gas exploration activity by major and independent oil and gas operators, particularly in North American land
markets and the Gulf of Mexico, in response to significantly higher prices for crude oil and natural gas and an increase in
demand for natural gas in the U.S. As a result, the U.S. oilfield service industry experienced a significant improvement in both
land and offshore rig utilization and in rig dayrates. This improvement in industry conditions followed a two-year period which
saw crude oil and natural gas prices fall to near-record low levels due to an oversupply of crude oil in world markets, reduced
demand for crude oil in developing countries, particularly southeast Asia, and a succession of unusually warm winters in Europe
and North America. During this time, oil and gas operators reduced their spending significantly which adversely affected the
level of oilfield activity, and in turn, the revenues of most companies in the oilfield service industry. Management is unable to
predict the duration of present market conditions, but based on a continuation of current high commodity prices and spending
by oil and gas operators, particularly in the Company's Gulf of Mexico markets, management is encouraged about prospects
for 2001.
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While the level of U.S. oil and gas operators' spending increased sharply in the year 2000 for the reasons noted above,
spending, and hence, oilfield service activity has lagged in international markets. We believe this is attributable to uncertainty
regarding the stability of crude oil prices and the restructuring of oil and gas operators due to mergers. Only recently has the
Company experienced an increase in bid inquiries and contracts in its core international land markets.
TRANSITION ZONE OPERATIONS
The Company provides contract drilling services in the transition zones which are coastal waters including lakes, bays, rivers,
and marshes, of the Gulf of Mexico, the Caspian Sea and Nigeria, where barge rigs are the primary source of drilling and
workover services. Barge rigs are mobile drilling and workover vessels that are built to work in 5 to 25 feet of water. These
barge rigs are towed by tugboats to the drill site with the derrick laid down. The derrick, also known as a mast structure, is a
framework for hoisting and lowering equipment over a borehole. When the barge reaches the drilling location, the hull is
submerged until it rests on the bottom which stabilizes the rig for drilling operations. The derrick is then raised and drilling or
workover operations are conducted with the barge in this position.
U.S. Barge Drilling and Workover
The Company's U.S. market for its barge drilling rigs is the transition zones of the Gulf of Mexico, primarily in Louisiana and, to
a lesser extent, Alabama and Texas, where conventional jackup rigs are unable to operate. This area historically has been the
world's largest market for shallow water barge drilling. The Company has a significant presence in this market, with 22 drilling
and workover barges.
The barge market in the transition zones of the Gulf of Mexico has undergone significant attrition and consolidation in recent
years, with the number of drilling rigs declining from over 120 in the early 1980s to approximately 95 today, and the number of
competitors decreasing over the same period from more than 30 to only two significant contractors. During 1997 and early
1998, drilling and workover activity increased significantly in the Gulf of Mexico transition zones, spurred by the increased use
of 3-D seismic technology, higher natural gas prices, and the settlement of a royalty dispute between the State of Louisiana and
a major oil and gas exploration company. However, conditions in this market softened considerably in mid-1998 through 1999.
Drilling barge utilization began to increase during the second quarter of 2000, and averaged approximately 92% in 2000. By
late 2000, drilling barge dayrates had risen above the levels reached in the 1997-98 period. Utilization and dayrates in the
workover barge market have rebounded, but not to the degree of drilling barges.
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International Barge Drilling
The Company has focused its international barge drilling efforts in the transition zones of West Africa and the Caspian Sea.
International markets have historically been more attractive due to the availability of long-term contracts and the opportunity to
earn dayrates higher than U.S. rates.
The Company is the leading provider of barge rigs in Nigeria, with four of the eight rigs in this market. The Company has
operated in Nigeria since acquiring Mallard in 1996, with Mallard having operated in the country since 1991. The Company's
barge rigs operate under long-term contracts, generally three or more years in duration. Upon expiration, the contracts have
typically been renewed with the then-current operator. The local community problems that plagued the area in late 1999 and
early 2000 abated in the third and fourth quarters of 2000 resulting in utilization at 100 percent in the fourth quarter of 2000.
When operations are suspended, the Company has generally received a standby dayrate from the operator, and in the case of
one barge rig in 2000 that sustained damage, loss-of-hire insurance proceeds.
In 1999, the Company completed modification of a state-of-the-art barge rig for drilling activities in the Caspian Sea. The
barge rig is under contract to a consortium of international operators for a three-year initial term with seven one-year options.
The rig was specially designed with a closed-loop cuttings processing system, high-standard safety systems, and other
specialized functions to withstand the harsh climate conditions of the north Caspian Sea. The rig commenced drilling activities
during September 1999. In 2000, the rig finished work on the first exploration well, the Kashagan East, and moved to the
second well, the Kashagan West.
OFFSHORE OPERATIONS
Jackup Drilling
The Company has seven shallow water jackup rigs that are mobile, self-elevating drilling and workover units equipped with legs
that can be lowered to the ocean floor until a foundation is established to support the hull, which contains the drilling equipment,
jacking system, crew quarters, loading and unloading facilities, storage areas for bulk and liquid materials, helicopter landing
deck and other related equipment. Five of the rigs are cantilever design, a feature that permits the drilling floor to be extended
out from the hull, allowing drilling and workover operations to be performed over existing platforms. Jackup rigs with the
cantilever feature historically have achieved higher dayrates and utilization levels. The other two rigs are slot-type design
configured for the drilling operations to take place through a keyway in the hull. These two rigs have the added capability of
operating in shallow water to a depth less than ten feet. Four of the seven jackup rigs are mat-supported rigs and three are
independent leg rigs.
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Shallow water jackup rig utilization and dayrates in the Gulf of Mexico declined to historically low levels in 1999. In 2000,
however, utilization increased steadily throughout the year as oil and gas operators increased their spending in response to
higher demand for natural gas and higher natural gas prices. Utilization of the Company's jackup rig fleet averaged
approximately 86 percent during 2000. Utilization was affected due to one rig being out of service for six months to undergo
inspection and repairs.
Platform Drilling
The Company's fleet of platform rigs consists of four modular self-erecting rigs. These platform rigs consist of drilling equipment
and machinery arranged in modular packages that are transported to and self-erected on fixed offshore platforms owned by oil
companies. The Company believes that the modular self-erecting design of the platform rigs provides a competitive advantage
due to lower mobilization and erection costs and smaller "footprint."
LAND OPERATIONS
General
The Company's land drilling operations specialize in the drilling of difficult wells, often in remote and harsh environments. Since
beginning operations in 1934, the Company has operated in 53 foreign countries and throughout the United States, making it
one of the most geographically diverse land drilling contractors in the world. In 2000 the Company sold its last U.S. land rig,
thus exiting the U.S. land rig market.
International Operations
The Company's international land drilling operations have focused primarily in Latin America, the Asia Pacific region and the
republics of the former Soviet Union. Because many international drilling locations are inaccessible by traditional land methods
as in jungles, swamps and mountainsides, the Company pioneered the heli-rig concept, whereby a lightweight-design drilling rig
is transported by helicopter or all-terrain vehicle. The Company traditionally has been a pioneer in frontier areas and is currently
working in China, Russia and Kazakhstan.
International utilization is currently lagging the recent increase in U.S. activity. Management is optimistic that the demand for
drilling services in international land markets will rebound as worldwide demand for oil and gas increases and countries
dependent on oil and gas revenues seek to increase their production. The Company has recently entered into several new
contracts and has seen an increase in bid requests that the Company believes will result in increased land rig activity in 2001.
Management is unable to predict the timing or extent that international land drilling markets will rebound. During the year 2000,
the Company's international land rig utilization averaged 35 percent.
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International markets differ from the U.S. market in terms of competition, nature of customers, equipment and experience
requirements. The majority of international drilling markets have the following characteristics: (i) a small number of competitors;
(ii) customers who typically are major, large independent or foreign national oil companies; (iii) drilling programs in remote
locations requiring drilling equipment with a large inventory of spare parts and other ancillary equipment; and (iv) drilling of
difficult wells requiring considerable experience.
Latin America. The Company has 21 land rigs (18 marketed and three cold stacked) located in the Latin American drilling
markets of Colombia, Peru and Bolivia. Most of the Company's rigs have been upgraded to meet the demands of remote and
difficult drilling in these areas.
Asia Pacific/Middle East/Africa. The Company has 18 land rigs (14 marketed and four cold stacked) located in the Asia
Pacific, Middle East and Africa drilling markets. Included are nine helicopter transportable rigs located in this region due to the
remoteness of the mountainside and jungle drilling required to meet customer demand. The Asia Pacific market has been
adversely affected by political and economic instability. The Company experienced weakening demand for its services in certain
Asia Pacific markets in 1998 and 1999, notably Indonesia and Papua New Guinea, and did not recover in 2000.
Former Soviet Union. Eight of the Company's rigs are currently located in the oil and gas producing regions of the former
Soviet Union. After becoming the first Western drilling contractor to enter the Russian drilling market in 1991, few major oil
company projects progressed during the remainder of the 1990's. As a result, in 1999 the Company relocated all four of its
drilling rigs from Russia to Kazakhstan. In 2000, the Company re-entered the Russian market with one rig contracted to work
in the Kharyaga field in Russia on a multi-well contract. In addition, the Company manages one platform rig in the waters off the
coast of Sakhalin Island under a project management contract.
As anticipated, the agreement regarding the pipeline to be built to transport crude oil production from the Tengiz field in
Kazakhstan has increased exploration efforts in this region. In addition to operating the Company's own rigs, the Company was
awarded a five-year alliance contract in 1997 by the operator of the Tengiz field in Kazakhstan to operate and maintain its rigs,
provide expatriate and local drilling crews and manage its warehouse, drilling base and mobile equipment fleet. A recent
amendment to the alliance contract has resulted in the addition of two land rigs which have been substantially modified for
service in the Tengiz field under a five-year contract. The first rig commenced drilling in October 2000, and the second is
anticipated to commence operations in March 2001. By the end of 2001, the Company anticipates operating nine land rigs in
Kazakhstan.
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U.S. Operations
In 1999 the Company sold its 13 remaining U.S. lower-48 land rigs to Unit Corporation for $40.0 million cash plus one million
shares of Unit common stock. In September 2000, the Company sold these shares for net proceeds of $15.0 million. In
November 2000, the Company sold its last U.S. land rig, which had been stacked in Alaska for approximately two years, for
$20.0 million cash.
Specialty Services
Arctic Drilling. The Company has been one of the pioneers in arctic drilling conditions and has developed technology to meet
the demand for increased drilling in an ecologically sensitive manner. Although originally developed for the North Slope of
Alaska, these technological developments and the Company's general expertise in arctic drilling are assets to the Company in
marketing its services to operators in international markets with similar environmental considerations.
Project Management. The Company has been active in managing drilling rigs owned by third parties, generally oil companies,
that prefer to own the rig equipment but do not have the technical expertise or labor resources to operate the rig. During the
year 2000, the Company operated nine project management contracts in six countries.
RENTAL TOOLS
Quail Tools, based in New Iberia, Louisiana, is a provider of premium rental tools used for land and offshore oil and gas drilling
and workover activities. Approximately 65 percent of Quail's equipment is utilized in offshore and coastal water operations.
Since its inception in 1978, Quail's principal customers have been major and independent oil and gas exploration and
production companies.
Quail rents specialized equipment utilized in well drilling, production and workover applications. Quail offers a full line of drill
pipe, drill collars, tubing, high- and low-pressure blowout preventers, choke manifolds, casing scrapers, and junk and cement
mills. During 1997, Quail entered into a contract with a major oil company to be its preferred provider of rental tools to the
land and offshore Texas markets and built a facility in Victoria, Texas, to service this customer and others in the area. In 2000
Quail expanded operations to include a facility in Odessa, Texas. Both Texas locations help Quail to better service the
increasing demand for tools in that region. Approximately 40 percent of Quail's revenues are realized from rentals for workover
activities.
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During the latter part of 1998 and through 1999, rental tool activity in the Gulf of Mexico and Gulf Coast region declined due to
the reduction in oilfield services activity. Rental tool activity has rebounded since mid-1999 with the increase in crude oil and
natural gas prices, and Quail achieved record revenues and cash flow in the year 2000.
Quail derives equipment rental revenues primarily from the daily rental charges for its tools, pipe, and related equipment and, to
a lesser extent, by charging customers for ancillary parts and repairs, transportation of the rental items to the customer's
location, inspection of rental items as specified by the customer, items it sub-rents from other rental tool companies, the
disposal of waste removed from the rental items after their use, and the cost of rental items lost or damaged beyond repair. The
operating costs associated with Quail's rentals consist primarily of expenses associated with depreciation, transportation,
inspection, maintenance, repair and related direct overhead.
COMPETITION
The contract drilling industry is a competitive and cyclical business characterized by high capital and, in recent times, difficulty in
finding and retaining qualified field personnel.
The industry downturn that occurred during the latter half of 1998 and through 1999 increased competition, resulting in lower
dayrates and reduced utilization. In the Gulf of Mexico barge drilling and workover markets the Company competes with only
one major competitor, R & B Falcon, now Transocean Sedco Forex. In the jackup market, there are numerous U.S. offshore
contractors. In international land markets, the Company competes with a number of international drilling contractors but also
with smaller local contractors in certain markets. However, due to the high capital costs of operating in international land
markets as compared to the U.S. land market, the high cost of mobilizing land rigs from one country to another, and the
technical expertise required, there are usually fewer competitors in international land markets. In international land and offshore
markets, experience in operating in certain environments and customer alliances have been factors in the selection of the
Company in certain cases, as well as the Company's patented drilling equipment for remote drilling projects. The Company
believes that the market for drilling contracts, both land and offshore, will continue to be competitive for the foreseeable future.
Certain of the Company's competitors have greater financial resources than the Company, which may enable them to better
withstand industry downturns, compete more effectively on the basis of price, build new rigs or acquire existing rigs.
Management believes that Quail is one of the leading rental tool companies in the offshore Gulf of Mexico. A number of Quail's
competitors in the Gulf of Mexico and the Gulf Coast land markets are substantially larger and have greater financial resources
than Quail.
CUSTOMERS
The Company believes it has developed an international reputation for providing efficient, safe, environmentally conscious and
innovative drilling services. An increasing trend indicates that a number of the Company's customers have been seeking to
establish exploration or development drilling programs based on partnering relationships or
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alliances with a limited number of preferred drilling contractors. Such relationships or alliances can result in longer-term work
and higher efficiencies that increase profitability for drilling contractors at a lower overall well cost for oil and gas operators. The
Company is currently a preferred contractor for operators in certain U.S. and international locations, which management
believes is a result of the Company's quality of equipment, personnel, service and experience.
The Company's drilling customer base consists of major, independent and foreign-owned oil and gas companies. Shell
Petroleum Development Company of Nigeria, the Company's largest customer for 2000 and 1999, accounted for
approximately 10 percent of total revenues in both years. For fiscal year 1998, Chevron was the Company's largest customer
with approximately 15 percent of total revenues.
CONTRACTS
The Company generally obtains drilling contracts through competitive bidding. Under most contracts the Company is paid a
daily fee, or dayrate. The dayrate received is based on several factors, including: type of equipment, services and personnel
furnished; investment required to perform the contract; location of the well; term of the contract; and competitive market forces.
The Company generally receives a lump sum fee to move its equipment to the drilling site, which in most cases approximates
the cost incurred by the Company. U.S. contracts are generally for one to three wells with options, while international contracts
are more likely to be for multi-well long-term programs. The Company provides project management services including
logistics, procurement, well design, engineering, site preparation and road construction in an effort to help customers eliminate
or reduce management overhead, which would otherwise be necessary to supervise such services.
EMPLOYEES
At December 31, 2000, the Company employed 3,542 persons, increasing approximately 13 percent from the 3,142
employed at December 31, 1999. The following table sets forth the composition of the Company's employees:
December 31,
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2000 1999
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International Drilling Operations 2,109 1,768
U.S. Drilling Operations 1,175 1,112
Rental Tool Operations 107 89
Corporate and Other 151 173
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RISKS AND ENVIRONMENTAL CONSIDERATIONS
The operations of the Company are subject to numerous federal, state and local laws and regulations governing the discharge of
materials into the environment or otherwise relating to environmental protection. Numerous governmental agencies, such as the
U.S. Environmental Protection Agency ("EPA"), issue regulations to implement and enforce such laws, which often require
difficult and costly compliance measures that carry substantial administrative, civil and criminal penalties or may result in
injunctive relief for failure to comply. These laws and regulations may require the acquisition of a permit before drilling
commences, restrict the types, quantities and concentrations of various substances that can be released into the environment in
connection with drilling and production activities, limit or prohibit construction or drilling activities on certain lands lying within
wilderness, wetlands, ecologically sensitive and other protected areas, require remedial action to prevent pollution from former
operations, and impose substantial liabilities for pollution resulting from the Company's operations. Changes in environmental
laws and regulations occur frequently, and any changes that result in more stringent and costly compliance could adversely
affect the Company's operations and financial position, as well as those of similarly situated entities operating in the Gulf Coast
market. While management believes that the Company is in substantial compliance with current applicable environmental laws
and regulations, there is no assurance that compliance can be maintained in the future.
The drilling of oil and gas wells is subject to various federal, state, local and foreign laws, rules and regulations. The Company,
as an owner or operator of both onshore and offshore facilities including mobile offshore drilling rigs in or near waters of the
United States, may be liable for the costs of removal and damages arising out of a pollution incident to the extent set forth in the
Federal Water Pollution Control Act, as amended by the Oil Pollution Act of 1990 ("OPA"), the Outer Continental Shelf
Lands Act ("OCSLA"), the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), and the
Resource Conservation and Recovery Act ("RCRA"), each as amended from time to time. In addition, the Company may also
be subject to applicable state law and other civil claims arising out of any such incident.
The OPA and regulations promulgated pursuant thereto impose a variety of regulations on "responsible parties" related to the
prevention of oil spills and liability for damages resulting from such spills. A "responsible party" includes the owner or operator
of a vessel, pipeline or onshore facility, or the lessee or permittee of the area in which an offshore facility is located. The OPA
assigns liability of oil removal costs and a variety of public and private damages to each responsible party.
The liability for a mobile offshore drilling rig is determined by whether the unit is functioning as a vessel or is in place and
functioning as an offshore facility. If operating as a vessel, liability limits of $600 per gross ton or $500,000, whichever is
greater, apply. If functioning as an offshore facility, the mobile offshore drilling rig is considered a "tank vessel" for spills of oil on
or above the water surface, with liability limits of $1,200 per gross ton or $10.0 million. To the extent damages and removal
costs exceed this amount, the mobile
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offshore drilling rig will be treated as an offshore facility and the offshore lessee will be responsible up to higher liability limits for
all removal costs plus $75.0 million. A party cannot take advantage of liability limits if the spill was caused by gross negligence
or willful misconduct or resulted from violation of a federal safety, construction or operating regulation. If the party fails to
report a spill or to cooperate fully in the cleanup, liability limits likewise do not apply. Few defenses exist to the liability imposed
by the OPA. The OPA also imposes ongoing requirements on a responsible party, including proof of financial responsibility (to
cover at least some costs in a potential spill) and preparation of an oil spill contingency plan for offshore facilities and vessels in
excess of 300 gross tons. Amendments to the OPA adopted in 1996 require owners and operators of offshore facilities that
have a worst case oil spill potential of more than 1,000 barrels to demonstrate financial responsibility in amounts ranging from
$10.0 million in specified state waters to $35.0 million in federal Outer Continental Shelf waters, with higher amounts, up to
$150.0 million, in certain limited circumstances where the U.S. Minerals Management Service ("MMS") believes such a level is
justified by the risks posed by the quantity or quality of oil that is handled by the facility. However, such OPA amendments did
not reduce the amount of financial responsibility required for "tank vessels." Since the Company's offshore drilling rigs are
typically classified as tank vessels, the recent amendments to the OPA are not expected to have a significant effect on the
Company's operations. A failure to comply with ongoing requirements or inadequate cooperation in a spill may even subject a
responsible party to civil or criminal enforcement actions.
In addition, the OCSLA authorizes regulations relating to safety and environmental protection applicable to lessees and
permittees operating on the Outer Continental Shelf. Specific design and operational standards may apply to Outer Continental
Shelf vessels, rigs, platforms, vehicles and structures. Violations of environmental-related lease conditions or regulations issued
pursuant to the OCSLA can result in substantial civil and criminal penalties as well as potential court injunctions curtailing
operations and the cancellation of leases. Such enforcement liabilities can result from either governmental or citizen prosecution.
All of the Company's operating U.S. barge drilling rigs have zero discharge capabilities as required by law. In addition, in
recognition of environmental concerns regarding dredging of inland waters and permitting requirements, the Company conducts
negligible dredging operations, with approximately two-thirds of the Company's offshore drilling contracts involving directional
drilling, which minimizes the need for dredging. However, the existence of such laws and regulations has had and will continue
to have a restrictive effect on the Company and its customers.
CERCLA, also known as "Superfund," and comparable state laws impose liability without regard to fault or the legality of the
original conduct, on certain classes of persons who are considered to be responsible for the release of a "hazardous substance"
into the environment. While CERCLA exempts crude oil from the definition of hazardous substances for purposes of the
statute, the Company's operations may involve the use or handling of other materials that may be classified as hazardous
substances. CERCLA
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assigns strict liability to each responsible party for all response and remediation costs, as well as natural resource damages. Few
defenses exist to the liability imposed by CERCLA. The Company believes that it is in compliance with CERCLA and currently
is not aware of any events that, if brought to the attention of regulatory authorities, would lead to the imposition of CERCLA
liability against the Company.
RCRA generally does not regulate most wastes generated by the exploration and production of oil and gas. RCRA specifically
excludes from the definition of hazardous waste "drilling fluids, produced waters, and other wastes associated with the
exploration, development, or production of crude oil, natural gas or geothermal energy." However, these wastes may be
regulated by EPA or state agencies as solid waste. Moreover, ordinary industrial wastes, such as paint wastes, waste solvents,
laboratory wastes, and waste oils, may be regulated as hazardous waste. Although the costs of managing solid and hazardous
wastes may be significant, the Company does not expect to experience more burdensome costs than similarly situated
companies involved in drilling operations in the Gulf Coast market.
The drilling industry is dependent on the demand for services from the oil and gas exploration and development industry and,
accordingly, is affected by changes in laws relating to the energy business. The Company's business is affected generally by
political developments and by federal, state, local and foreign laws and regulations that may relate directly to the oil and gas
industry. The adoption of laws and regulations, both U.S. and foreign, that curtail exploration and development drilling for oil
and gas for economic, environmental and other policy reasons may adversely affect the Company's operations by limiting
available drilling opportunities.
12
15
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in three segments, U.S. drilling services, international drilling services and rental tool operations.
Information about the Company's business segments and operations by geographic areas for the years ended December 31,
2000 and 1999, the four months ended December 31, 1998 and the year ended August 31, 1998, is set forth in Note 10 of
Notes to Consolidated Financial Statements.
Item 2. PROPERTIES
The Company owns and occupies a ten-story building in downtown Tulsa, Oklahoma, as its home office. Additionally, the
Company owns and leases office space and operating facilities in various locations, but only to the extent necessary for
administrative and operational support functions.
Land Rigs. The following table shows, as of December 31, 2000, the locations and drilling depth ratings of the Company's 40
actively marketed land rigs:
Actively Marketed Land Rigs
Drilling Depth Rating in Feet
10,000
or Over
less 15,000 20,000 25,000 25,000 TOTAL
------ ------ ------ ------ ------ ------
INTERNATIONAL:
Latin America -- 6 5 4 3 18
Asia Pacific 1 3 4 1 1 10
Africa and Middle East 1 2 1 -- -- 4
Former Soviet Union 1 3 1 -- 3 8
--- --- --- --- --- ---
Total 3 14 11 5 7 40
--- --- --- --- --- ---
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16
In addition, the Company has seven land rigs classified as cold stacked which would need to be refurbished at a significant cost
before being placed back into service, with locations and drilling depth ratings as follows:
Cold Stacked Land Rigs
Drilling Depth Rating in Feet
10,000
or Over
less 15,000 20,000 25,000 25,000 TOTAL
------ ------ ------ ------ ------ ------
INTERNATIONAL:
Latin America -- 1 2 -- -- 3
Asia Pacific 3 1 -- -- -- 4
Africa and Middle East -- -- -- -- -- --
Former Soviet Union -- -- -- -- -- --
--- --- --- --- --- ---
Total 3 2 2 -- -- 7
--- --- --- --- --- ---
Barge Rigs. A schedule of the Company's deep and intermediate drilling barges located in the Gulf of Mexico, as of December
31, 2000, is set forth below:
Maximum
Year Built Drilling
or Last Depth
Horsepower Refurbished (Feet) Status(1)
---------- ----------- -------- ---------
Deep Drilling:
Rig No. 50 2,000 1993 25,000 Active
Rig No. 51 2,000 1993 25,000 Active
Rig No. 53 1,600 1995 20,000 Active
Rig No. 54 2,000 1995 25,000 Active
Rig No. 55 2,000 1993 25,000 Active
Rig No. 56 2,000 1992 25,000 Active
Rig No. 57 1,500 1997 20,000 Active
Rig No. 76 3,000 1997 30,000 Active
Intermediate Drilling:
Rig No. 8 1,000 1995 14,000 Active
Rig No. 12 1,100 1990 14,000 Active
Rig No. 15 1,000 1998 15,000 Active
Rig No. 17 1,000 1993 13,000 Active
Rig No. 21 1,200 1995 13,000 Active
(1) "Active" denotes that the rig is currently under contract or available for contract.
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17
A schedule of the Company's workover rigs, as of December 31, 2000, which includes some rigs with shallow drilling
capabilities, is set forth below:
Maximum
Year Built Drilling
or Last Depth
Horsepower Refurbished (Feet) Status(1)
---------- ----------- -------- ---------
Workover and Shallow Drilling:
Rig No. 6(2) 700 1995 -- Active
Rig No. 9(2) 650 1996 -- Active
Rig No. 16 800 1994 8,500 Active
Rig No. 18 800 1993 8,500 Active
Rig No. 20 800 1995 8,500 Active
Rig No. 23 1,000 1993 11,500 Active
Rig No. 24 1,000 1992 11,500 Active
Rig No. 25 1,000 1993 11,500 Active
Rig No. 26(2) 650 1996 -- Active
(1) "Active" denotes that the rig is currently under contract or available for contract.
(2) Workover rig.
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A schedule of the Company's international drilling barges, as of December 31, 2000, is set forth below:
Maximum
Year Built Drilling
or Last Depth
Horsepower Refurbished (Feet) Status(1)
---------- ----------- -------- ---------
Deep Drilling:
Rig No. 72 3,000 1991 30,000 Active
Rig No. 73 3,000 2000 30,000 Active
Rig No. 74 3,000 1997 30,000 Active
Rig No. 75 3,000 1999 30,000 Active
Rig No. 257 3,000 1999 25,000 Active
(1) "Active" denotes that the rig is currently under contract or available for contract.
Platform Rigs. The following table sets forth certain information, as of December 31, 2000, with respect to the Company's
platform rigs:
Maximum
Year Built Drilling
or Last Depth
Horsepower Refurbished (Feet) Status(1)
---------- ----------- -------- ---------
Deep Drilling:
Rig No. 2 1,000 1982 12,000 Active
Rig No. 3 1,000 1997 12,000 Active
Rig No. 10(2) 650 1989 -- Active
Rig No. 41 1,000 1997 12,500 Active
(1) "Active" denotes that the rig is currently under contract or available for contract.
(2) Workover rig.
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19
Jackup Rigs. The following table sets forth certain information as of December 31, 2000, with respect to the Company's
jackup rigs:
Maximum Maximum
Water Drilling
Depth Depth
Design (1) (Feet) (Feet) Status(2)
---------------------------- ------- -------- ---------
Rig No. 11(3) Bethlehem JU-200(MC) 200 -- Active
Rig No. 14 Baker Marine Big Foot(IS) 85 20,000 Active
Rig No. 15 Baker Marine Big Foot III(IS) 100 20,000 Active
Rig No. 20 Bethlehem JU-100(MC) 110 25,000 Active
Rig No. 21 Baker Marine BMC-125(MC) 100 20,000 Active
Rig No. 22 Le Tourneau Class 51(MC) 173 15,000 Active
Rig No. 25 Le Tourneau Class 150-44(IC) 215 20,000 Active
(1) IC--independent leg, cantilevered; IS--independent leg, slot; MC--mat-supported, cantilevered.
(2) "Active" denotes that the rig is currently under contract or available for contract.
(3) Workover rig.
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The following table presents the Company's utilization rates, rigs available for service and cold stacked rigs for the years ended
December 31, 2000 and 1999.
2000 1999
------ ------
Transition Zone Rig Data:
U.S. barge deep drilling:
Rigs available for service (1) 8.0 7.5
Utilization rate of rigs available for service (2) 92% 78%
U.S. barge intermediate drilling:
Rigs available for service (1) 5.0 5.0
Utilization rate of rigs available for service (2) 93% 59%
U.S. barge workover and shallow drilling:
Rigs available for service (1) 9.0 9.0
Utilization rate of rigs available for service (2) 44% 31%
Cold stacked rigs (1) 0 1.0
International barge drilling:
Rigs available for service (1) 5.0 4.4
Utilization rate of rigs available for service (2) 97% 96%
Offshore Rig Data:
Jackup Rigs:
Rigs available for service (1) 7.0 7.0
Utilization rate of rigs available for service (2) 86% 66%
Platform Rigs:
Rigs available for service (1) 4.0 4.5
Utilization rate of rigs available for service (2) 53% 56%
Cold stacked rigs (1) 0 1.0
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21
2000 1999
------ ------
Land Rig Data:
International Rigs:
Rigs available for service(1) 40.0 45.2
Utilization rate of rigs available for service(2) 35% 36%
Cold stacked rigs(1) 7.0 8.0
U.S. Rigs(3):
Rigs available for service(1) .9 11.0
Utilization rate of rigs available for service(2) 0% 40%
(1) The number of rigs is determined by calculating the number of days each rig was in the fleet, e.g., a rig under contract or
available for contract for an entire year is 1.0 "rigs available for service" and a rig cold stacked for one quarter is 0.25 "cold
stacked rigs." "Rigs available for service" includes rigs currently under contract or available for contract. "Cold stacked rigs"
includes all rigs that are stacked and would require significant refurbishment cost before being placed back into service.
(2) Rig utilization rates are based on a weighted average basis assuming 365 days availability for all rigs available for service.
Rigs acquired or disposed of have been treated as added to or removed from the rig fleet as of the date of acquisition or
disposal. Rigs that are in operation or fully or partially staffed and on a revenue-producing standby status are considered to be
utilized. Rigs under contract that generate revenues during moves between locations or during mobilization/demobilization are
also considered to be utilized.
(3) Includes 13 U.S. lower-48 land rigs through the date of sale, September 30, 1999, and one U.S. land rig located in Alaska,
which was sold November 20, 2000.
Item 3. LEGAL PROCEEDINGS
The Company is a party to certain legal proceedings that have resulted from the ordinary conduct of its business. In the opinion
of the Company's management, none of these proceedings is expected to have a material adverse effect on the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to Parker Drilling Company security holders during the fourth quarter of 2000.
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22
Item 4A. EXECUTIVE OFFICERS
Officers are elected each year by the board of directors following the annual meeting for a term of one year and until the
election and qualification of their successors. The current executive officers of the Company and their ages, positions with the
Company and business experience are presented below:
(1) Robert L. Parker, 77, chairman, joined the Company in 1944 and was elected vice president in 1950. He was elected
president in 1954 and chief executive officer and chairman in 1969.
(2) Robert L. Parker Jr., 52, president and chief executive officer, joined the Company in 1973 as a contract representative
and was named manager of U.S. operations later in 1973. He was elected a vice president in 1973, executive vice president in
1976 and was named president and chief operating officer in October 1977. In December 1991, he was elected chief
executive officer.
(3) James W. Linn, 55, executive vice president and chief operating officer, joined the Company in 1973. He has general
charge of the Company's business affairs and its officers. Mr. Linn first served in the Company's international division and in
1976 was named northern U.S. district manager prior to being elected vice president of U.S. and Canada operations in 1979.
He was named a senior vice president in September 1981 and was elected to his current position in December 1991.
(4) James J. Davis, 54, senior vice president of finance and chief financial officer, joined the Company in November 1991.
From 1986 through 1991, Mr. Davis was vice president and treasurer of MAPCO Inc., a diversified energy company with
interests in natural gas liquids marketing and transportation, oil refining and retail motor fuel marketing. He serves as a member
of the board of directors of Dollar Thrifty Funding Corp.
(5) Thomas L. Wingerter, 48, vice president of operations, joined the Company in 1979. In 1983 he was named contract
manager for the Rocky Mountain division. He was promoted to Rocky Mountain division manager in 1984, a position he held
until September 1991 when he was elected vice president, North American region. In March 1999 he was appointed vice
president and general manager - North American operations. In January 2001, he was appointed to his current position.
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23
Item 4A. EXECUTIVE OFFICERS (continued)
(6) W. Kirk Brassfield, 45, corporate controller and chief accounting officer, joined the Company in March 1998 in his stated
position. From 1991 through March 1998, Mr. Brassfield served in various positions, including subsidiary controller and
director of financial planning of MAPCO Inc., a diversified energy company. From 1979 through 1991, Mr. Brassfield served
at the public accounting firm, KPMG Peat Marwick.
OTHER PARKER DRILLING COMPANY OFFICERS
(7) John R. Gass, 49, vice president of corporate business development, joined the Company in 1977 and has served in
various management positions in the Company's international divisions. In 1985 he became the division manager of Africa and
the Middle East. In 1987 he directed the Company's mining operations in South Africa. In 1989 he was promoted to
international contract manager. In January 1996, he was elected vice president, frontier areas and assumed his current position
in March 1999.
(8) Denis Graham, 51, vice president of engineering, joined the Company in 2000. Mr. Graham was the senior vice president
of technical services for Diamond Offshore Inc., an international offshore drilling contractor. His experience with Diamond
Offshore ranged from 1978 through 1999 in the areas of offshore drilling rig design, new construction, conversions, marine
operations, maintenance and regulatory compliance.
(9) Patrick Seals, 37, vice president of shared services, joined the Company in 1992 as an internal auditor. From 1993 through
1999, he held various contracts and marketing management roles in the North American Division. In late 1999, Mr. Seals
assumed the role of general manager of e-business and in January of 2001 was promoted to his current position. From 1985 to
1992, he served in roles at the public accounting firm of Arthur Andersen, Scrivner, Inc. and The Oklahoma Publishing
Company.
(10) David W. Tucker, 45, was elected treasurer in March 1999. He joined the Company in 1978 as a financial analyst and
served in various financial and accounting positions before being named chief financial officer of the Company's wholly-owned
subsidiary, Hercules Offshore Corporation, in February 1998.
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24
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Parker Drilling Company common stock is listed for trading on the New York Stock Exchange under the symbol PKD. At the
close of business on December 31, 2000, there were 3,155 holders of record of Parker Drilling common stock. Prices on
Parker Drilling's common stock for the years ended December 31, 2000 and 1999, were as follows:
2000 1999
------------------------------ -------------------------------
Quarter High Low High Low
------- ---------- ---------- --------- ----------
First $ 5.125 $ 3.000 $ 4.688 $ 2.250
Second 6.875 3.750 4.375 3.000
Third 7.438 4.875 5.625 3.312
Fourth 7.125 3.938 4.750 3.000
No dividends have been paid on common stock since February 1987. Restrictions contained in Parker Drilling's existing bank
revolving loan facility prohibit the payment of dividends and the indenture for the Senior Notes restricts the payment of
dividends. The Company has no present intention to pay dividends on its common stock in the foreseeable future because of
the restrictions noted and because of its business plan to reinvest earnings in the Company's operations.
22
25
Item 6. SELECTED FINANCIAL DATA
(In Thousands Except Per Share Data)
Four Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
Revenues $ 376,349 $ 324,553 $ 136,723 $ 481,223
Net income (loss) $ (19,045)(1) $ (37,897) $ (14,633) $ 28,092
Earnings (loss) per
share, diluted $ (.23)(1) $ (.49) $ (.19) $ .36
Total assets $ 1,107,419 $ 1,082,743 $ 1,159,326 $ 1,200,544
Long-term debt $ 592,584 $ 648,577 $ 630,479 $ 630,090
(1) Income (loss) before extraordinary gain was $(22,981) or $(.28) per share.
(In Thousands Except Per Share Data)
Year Ended Year Ended
August 31, August 31,
1997 1996
Revenues $ 311,644 $ 156,652
Net income (loss) $ 16,315 $ 4,053
Earnings (loss) per
share, diluted $ .23 $ .07
Total assets $ 984,136 $ 275,959
Long-term debt $ 551,042 $ 2,794
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26
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Introduction
The year 2000 was marked by a significant improvement in rig activity and cash flow for the Company. Rig utilization and
dayrates improved substantially in the Company's Gulf of Mexico drilling markets, as a result of the increase in spending by oil
and gas operators in response to significantly higher oil and gas prices and an increase in demand for natural gas in the U.S. In
addition, rental tool activity increased substantially for Quail. While the Company reported a loss for the year 2000, operating
results were substantially improved over the prior year, and the Company's financial position and prospects going forward have
improved. Management is unable to predict the duration of present market conditions, but based on a continuation of current
high commodity prices and spending by oil and gas operators, particularly in the Company's Gulf of Mexico markets,
management is encouraged about prospects for the year 2001.
The Company recently announced the relocation of its corporate office to Houston, Texas, which is expected to be completed
during the third quarter of 2001. The relocation will be accompanied by a reorganization of certain senior management positions
and of the management of drilling operations. Management believes that the Company will benefit from being closer to certain
customers, competitors and vendors. In addition, management anticipates the long-term savings from the consolidation of
offices and other administrative cost-cutting steps will offset the moving expenses for retained employees and severance costs
for terminated employees.
During the second quarter of 1999, the Company reorganized its drilling operations and administrative functions to enable more
efficient management and administration of worldwide operations and to reduce operating and overhead costs. Prior to the
reorganization, the Company's business segments were designated as land drilling, offshore drilling and rental tools. Mallard and
Hercules made up the offshore drilling segment and since the time of their acquisitions, each company maintained its existing
organization structure, both operationally and administratively. The reorganization in 1999 resulted in the consolidation of the
land and offshore drilling operations into two new segments, U.S. drilling operations and international drilling operations.
Certain accounting and other administrative functions previously performed by Mallard and Hercules were consolidated into
corporate. Quail was not significantly affected by the reorganization. Results of operations for fiscal year ended 1998 have been
reclassified to reflect the new organization.
During 1998 the Company decided to change its fiscal year end from August 31 to December 31 effective for the calendar
year beginning January 1, 1999.
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27
RESULTS OF OPERATIONS (continued)
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
The Company recorded a net loss of $23.0 million, before extraordinary gain, for the year ended December 31, 2000,
compared to a net loss of $37.9 million recorded for the year ended December 31, 1999.
The Company's revenues increased $51.8 million to $376.3 million in the current year as compared to 1999. U.S. drilling
revenues increased $34.7 million to $148.4 million. U.S. offshore drilling revenues increased $50.8 million due primarily to
increased utilization and dayrates for the drilling barge rigs and the jackup rigs. U.S. land drilling revenues decreased $16.1
million due to the sale of the Company's 13 U.S. land rigs on September 30, 1999 and the sale of Rig 245, located in Alaska,
in November 2000. Rig 245 was stacked throughout the current year.
International drilling revenues increased $2.2 million to $185.1 million in the current period as compared to the year ended
December 31, 1999.
International land drilling revenues decreased $14.5 million while international offshore drilling revenues increased $16.7 million.
Primarily responsible for the international land drilling revenues decrease was the Latin America region, which decreased $15.9
million. This decrease is attributed to reduced rig utilization in Colombia, Ecuador and Peru. Revenues from the Bolivian
operations were relatively constant for the two periods but have recently decreased. In addition, land drilling revenues
decreased $9.7 million in the Asia Pacific region due to completion of a one-well drilling contract in Vietnam, that ended during
the third quarter of 1999, and reduced utilization in Papua New Guinea. Revenues in the Frontier region, which includes Russia,
Kazakhstan, Africa and the Middle East, increased $11.1 million during the current period as compared to the year ended
December 31, 1999. This increase is primarily attributed to short-term drilling contracts conducted during the current year in
Madagascar and Nigeria (land contract). Additionally, a labor contract in Kuwait and increased rig utilization in Kazakhstan
contributed to the increase.
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28
RESULTS OF OPERATIONS (continued)
International offshore drilling revenues increased $16.7 million to $72.2 million due primarily to barge Rig 257 in the Caspian
Sea and barge Rig 75 in Nigeria. Barge Rig 257, which commenced drilling in September of 1999, contributed $24.8 million of
revenues during the year ended December 31, 2000, an increase of $16.2 million. With the addition of barge Rig 75 during the
third quarter of 1999, the Company has four barge rigs in the Nigerian offshore market. Due to several episodes of community
unrest, three of the four barge rigs were on standby status during most of the first six months of the current year. One rig, barge
Rig 74, operated for approximately three and a half months during the first six months. Despite the reduced revenues earned
while on standby, Nigerian offshore revenues increased $11.3 million to $47.4 million during the current year. The increase is
due to revenues earned by the new barge Rig 75 and the start-up of drilling operations on Rig 74 which was on standby during
1999. Since August 2000, drilling operations on the Nigerian barge rigs have resumed at full dayrates. Offsetting the increased
revenues in the Caspian Sea and Nigeria was a $10.8 million decrease in international offshore revenues due to the completion
of a barge contract in Venezuela during the third quarter of 1999.
Rental tool revenues increased $15.2 million due to the increased level of drilling activity in the Gulf of Mexico. Contributing to
this increase was the New Iberia, Louisiana, operation in the amount of $7.7 million, $5.0 million from the Victoria, Texas,
operation and $2.5 million from the new Odessa, Texas, operation which commenced operations in May 2000.
Profit margins (revenues less direct operating expenses, excluding depreciation) of $128.3 million in the current period reflect
an increase of $43.0 million from the $85.3 million recorded during the year ended December 31, 1999. The U.S. and
international drilling segments recorded profit margin percentages (profit margin as a percent of revenues) of 33.2 percent and
28.2 percent, respectively, in the current year, as compared to 11.9 percent and 31.0 percent in 1999. U.S. profit margins
increased $35.7 million. U.S. drilling profit margins were positively impacted during the current year by increased utilization in
the Gulf of Mexico from the barge and jackup rigs. In addition, average dayrates for the jackup rigs increased approximately
45 percent during the current period when compared to the prior year. Offsetting the increased U.S. offshore profit margins
was the sale of all 13 U.S. lower-48 land rigs during the third quarter of 1999. During the year ended December 31, 1999, the
U.S. lower-48 land rigs contributed profit margins of $1.7 million. In addition, Rig 245, which was stacked in Alaska all year,
was sold in November of 2000.
26
29
RESULTS OF OPERATIONS (continued)
International drilling profit margins declined $4.5 million to $52.2 million during the year ended December 31, 2000 as
compared to 1999. International land drilling profit margins declined $5.9 million to $29.5 million during the current period
primarily due to lower utilization in the Company's land drilling operations as previously discussed. The international offshore
drilling profit margins increased $1.4 million to $22.7 million.
Rental tool profit margins increased $10.1 million to $26.8 million during the current year as compared to the year ended
December 31, 1999. Profit margins increased primarily due to the $15.2 million increase in revenue during the current year.
The profit margin percentage increased during the current period to 62.7 percent from 60.6 percent for the previous year.
Depreciation and amortization expense increased $2.9 million to $85.1 million in the current year. Depreciation expense
recorded in connection with 1998/1999 capital additions, principally barge Rig 257 and barge Rig 75, was the primary reason
for the increase. General and administrative expenses increased $4.1 million in the current year as compared to 1999. This
increase is primarily attributed to travel costs, employee bonuses, franchise taxes, professional fees and information technology
projects.
Interest expense increased $1.1 million due to $3.0 million of interest being capitalized to construction projects during the year
ended December 31, 1999, as compared to $0.5 million capitalized during the current year. Gain on disposition of assets
decreased $21.2 million to $17.9 million for the current year. On September 30, 1999 the Company sold its U.S. lower-48
land rigs to Unit Corporation for $40.0 million cash plus one million shares of Unit Corporation common stock. The Company
recognized a pre-tax gain of $36.1 million during the third quarter of 1999. In September 2000, the Company sold its one
million shares of Unit Corporation common stock and recognized a pre-tax gain of $7.4 million. In November 2000, the
Company sold Rig 245 in Alaska for $20.0 million and recognized a pre-tax gain of $14.9 million.
27
30
RESULTS OF OPERATIONS (continued)
Income tax expense consists of foreign tax expense and deferred tax benefit. The deferred tax benefit is due to the loss incurred
during the year ended December 31, 2000.
Year Ended December 31, 1999 Compared to Fiscal Year Ended August 31, 1998
The Company's net loss of $37.9 million in 1999 reflects a decrease of $66.0 million when compared to the net income of
$28.1 million recorded in fiscal 1998. The loss in 1999 is reflective of the significant decline in utilization and dayrates that
began in the fourth quarter of fiscal 1998 and continued throughout 1999.
The Company's revenues decreased $156.7 million to $324.6 million as all of the Company's market segments, U.S.,
international and rental tools, recorded a decrease in revenues. International drilling revenues decreased $66.6 million to
$182.9 million for the year ended December 31, 1999, as compared to the fiscal year ended August 31, 1998. International
land revenues were negatively impacted during 1999 by the downturn in the industry and as a result, land revenues decreased
$88.1 million to $127.5 million. This decrease is primarily attributed to the significant reduction in utilization across essentially all
international land rig markets. During the first and second quarters of fiscal 1998, international land rig utilization averaged 81
percent as compared to 28 percent during the fourth quarter of 1999. The average dayrates also decreased for comparable
periods but only by approximately 7 percent. Land drilling revenues decreased in all countries in which the Company operated
except Ecuador (increased $7.7 million), Vietnam (increased $4.4 million) and Kazakhstan/Russia (increased $7.5 million).
Ecuador and Vietnam represented one-rig contracts that began toward the end or after fiscal year 1998. The geographic areas
most impacted by the industry downturn during 1999 were Indonesia, Papua New Guinea and Bolivia.
28
31
RESULTS OF OPERATIONS 1999 AS COMPARED TO 1998 (continued)
International offshore revenues increased $21.5 million to $55.5 million in September 1999 as compared to fiscal year 1998.
The increase is primarily attributable to two new barge rigs, one each in Nigeria and the Caspian Sea. Rig 257 in the Caspian
Sea began drilling in September and Rig 75 in Nigeria generated standby revenues pending commencement of drilling
operations. In addition, barge Rig 76 completed drilling operations in Venezuela, generating approximately $10.8 million in
revenues during 1999.
U.S. drilling revenues decreased $83.4 million to $113.7 million during 1999 as compared to fiscal 1998. U.S. land drilling
revenues, arising from the Company's 13 U.S. lower-48 land rigs and one rig in Alaska, decreased $32.9 million during 1999.
On September 30, 1999 the Company sold the 13 lower-48 land rigs to Unit Corporation for $40.0 million in cash and one
million shares of Unit common stock. A pre-tax gain of $36.1 million was recognized during the third quarter. The one
remaining U.S. land rig, located in Alaska, was stacked since March 1999 due to reduced drilling activity in Alaska.
U.S. offshore revenues, arising from the Company's fleet of barge, platform and jackup rigs located in the Gulf of Mexico,
decreased $50.5 million during 1999 as compared to fiscal 1998. Rig utilization and dayrates in the Gulf of Mexico offshore
drilling market were particularly hurt by the decline in oil and gas operators' spending. Barge drilling and workover rig revenues
decreased $32.6 million during 1999 due to approximately a 25 percent decrease in dayrates and a decrease in barge rig
utilization from an average 90 percent in fiscal 1998 to approximately 45 percent in 1999. Revenues related to the seven
jackups decreased $10.5 million during 1999 as compared to the eight months of operations (Hercules was acquired
December 30, 1997) during fiscal 1998. Jackup dayrates were particularly impacted by the downturn, declining from an
average $28,000 per day in fiscal 1998 to approximately $16,000 per day during 1999. Platform rig revenues decreased $7.4
million due to decreases in dayrates and utilization. In addition, one platform rig which had operated in the Gulf of Mexico was
sold during 1999.
The Company's rental tool revenues decreased $5.1 million to $27.7 million during 1999 as compared to fiscal 1998. Rental
tool revenues were impacted during 1999 mainly due to depressed drilling activity in the Gulf of Mexico.
Profit margins (revenues less direct operating expenses) of $85.3 million in 1999 reflected a decrease of $84.2 million from the
$169.5 million recorded in fiscal 1998. The U.S. and international drilling segments recorded profit margin percentages (profit
margin as a percent of revenues) of 12 percent and 31 percent in 1999, as compared to 35 percent and 33 percent in fiscal
1998. The significant reduction in utilization and drilling dayrates during 1999 accounted for the significant declines in profit
margin percentages. The Company's rental tool business had a slight increase in profit margin percentage to 61 percent from 58
percent.
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32
RESULTS OF OPERATIONS 1999 AS COMPARED TO 1998 (continued)
Depreciation and amortization increased $13.6 million to $82.2 million in 1999 as compared to fiscal 1998. This increase was
primarily attributable to two major construction projects, Rig 257 and Rig 75, that completed construction and began
depreciating during the third quarter of 1999. In addition, 1999 recognized a full year of depreciation expense on the assets of
Hercules and a full year of amortization of goodwill associated with the purchase compared to only eight months depreciation
and amortization in fiscal 1998. General and administrative expense increased $2.0 million, due primarily to severance costs
incurred as part of management's restructuring of operations in early 1999 referred to previously.
Interest expense increased $6.5 million to $55.9 million during 1999. Subsequent to fiscal 1998, the Company borrowed an
additional $20.0 million on its revolving credit facility that remained outstanding until September 30, 1999 when the outstanding
balance of $40.0 million was repaid in full and the revolving credit facility was terminated. The revolving credit facility was
repaid with the proceeds from the sale of the 13 lower-48 land rigs. In October 1999, the Company entered into a new $50.0
million revolving credit facility and refinanced $24.8 million of the capital cost to construct Rig 75. These financing arrangements
resulted in higher average outstanding debt levels in 1999 than in fiscal 1998, resulting in the higher interest expense reported in
1999. As of December 31, 1999, no funds had been drawn on the new revolving credit facility. Interest capitalized on rig
construction projects during 1999 was $3.0 million as compared to $3.5 million in 1998. Gain on disposition of assets of $39.1
million included a $36.1 million gain on the sale of the 13 lower-48 land rigs.
In 1999, the Company generated an income tax benefit of $2.7 million as compared to income tax expense of $16.4 million in
fiscal 1998. The income tax benefit of $2.7 million in 1999 consisted of $11.2 million current tax expense related primarily to
foreign taxes and $13.9 million net deferred tax benefit related to operating losses incurred during 1999. The income tax
expense of $16.4 million in fiscal 1998 consisted of $14.3 million current tax expense related primarily to foreign taxes and
deferred tax of $2.1 million.
30
33
Liquidity and Capital Resources
As of December 31, 2000, the Company had cash, cash equivalents and other short-term investments of $63.3 million, an
increase of $17.0 million from December 31, 1999. The primary sources of cash in 2000, as reflected on the Consolidated
Statement of Cash Flows, were $87.3 million of net proceeds from a common stock offering, $31.9 million from the disposition
of assets, $27.3 million provided by operating activities and $16.9 million from the sale of investments. The net proceeds from
the equity offering of $87.3 million were the result of issuing 13.8 million shares of common stock during September 2000.
Proceeds from the disposition of assets included the sale of Rig 245 in Alaska for $20.0 million, the sale of various
non-marketable rigs and components and reimbursements by our customers for equipment lost in the hole. Also, the Company
sold its one million shares of Unit Corporation stock in September 2000 for $15.0 million. The Unit stock (and $40.0 million
cash) was received in 1999 in conjunction with the sale of the Company's 13 U.S. lower-48 land rigs to Unit.
The primary uses of cash in 2000 were $98.5 million for capital expenditures (net of reimbursements) and $48.3 million for
repayment of debt. Major projects during the year included completion of modifications to Rig 249 for a contract in
Kazakhstan for Tengizchevroil (TCO). Additionally, Rig 258 was constructed for the TCO project and is scheduled to arrive in
Kazakhstan during the first quarter of 2001. During 2000, Rig 259 was purchased and modified for a new project in the
Karachaganak field in Kazakhstan and should arrive during the first quarter of 2001. Also, modifications were completed on
Rig 25J in the Gulf of Mexico as a result of its scheduled five-year Coast Guard inspection. Repayment of debt included $43.5
million for the buyback of a portion of the Company's 5.5% Convertible Subordinated Notes from proceeds from the equity
offering and $4.1 million on a five-year note with Boeing Capital Corporation for Rig 75 in Nigeria.
The Company has total long-term debt, including the current portion, of $597.6 million at December 31, 2000. The Company
entered into a new $50.0 million revolving credit facility with a group of banks led by Bank of America on October 22, 1999.
This facility is available for working capital requirements, general corporate purposes and to support letters of credit. The
revolver is collateralized by accounts receivable, inventory and certain barge rigs located in the Gulf of Mexico. The facility
contains customary affirmative and negative
31
34
Liquidity and Capital Resources (continued)
covenants. Availability under the revolving credit facility is subject to certain borrowing base limitations based on 80 percent of
eligible receivables plus 50 percent of rig materials and supplies. As of December 31, 2000, the borrowing base was $50.0
million of which none had been drawn down but $14.6 million availability has been used to support letters of credit that have
been issued. The revolver terminates on October 22, 2003. On October 7, 1999 a subsidiary of the Company entered into a
loan agreement with Boeing Capital Corporation for refinancing the construction costs of Rig 75. The loan of $24.8 million plus
interest is to be repaid in 60 monthly payments of $0.5 million. The loan is collateralized by Rig 75 and is guaranteed by Parker
Drilling.
The Company anticipates that working capital needs and funds required for capital spending in 2001 will be met from existing
cash, other short-term investments and cash provided by operations. The Company anticipates cash requirements for capital
spending will be approximately $75 million in 2001. Should new opportunities requiring additional capital arise, the Company
will utilize cash and short-term investments and, if necessary, its revolving credit facility. In addition, the Company may seek
project financing or equity participation from outside alliance partners or customers. The Company cannot predict whether such
financing or equity participation would be available on terms acceptable to the Company.
32
35
OTHER MATTERS
Business Risks
Internationally, the Company specializes in drilling geologically challenging wells in locations that are difficult to access and/or
involve harsh environmental conditions. The Company's international services are primarily utilized by major and national oil
companies in the exploration and development of reserves of oil. In the United States, the Company primarily drills offshore in
the Gulf of Mexico with barge, jackup and platform rigs for major and independent oil and gas companies. Business activity is
dependent on the exploration and development activities of the major, independent and national oil and gas companies that
make up the Company's customer base. Generally, temporary fluctuations in oil and gas prices do not materially affect these
companies' exploration and development activities, and consequently do not materially affect the operations of the Company.
However, sustained increases or decreases in oil and natural gas prices could have an impact on customers' long-term
exploration and development activities which in turn could materially affect the Company's operations. Generally, a sustained
change in the price of oil would have a greater impact on the Company's international operations while a sustained change in the
price of natural gas would have a greater effect on U.S. operations. Due to the locations in which the Company drills, the
Company's operations are subject to interruption, prolonged suspension and possible expropriation due to political instability
and local community unrest. Further, the Company is exposed to liability issues from pollution arising out of its operations. The
majority of such risks are transferred to the operator by contract or otherwise insured.
Year 2000
The Company began preparing for Year 2000 in 1997 by replacing critical financial, human resources and payroll systems with
Year 2000 compliant off-the-shelf software. The Year 2000 problem was not the main reason for upgrading the information
technology platform; however, it was beneficial in achieving Year 2000 compliance. The Company also prepared contingency
plans to cover failures in its supply chain, communications, civil disturbances and information technology systems.
The Company estimates that $225,000 was spent during 1998 and 1999 in its Year 2000 compliance efforts. While the
majority of those costs were internal salaries, the Company's process for tracking internal costs did not capture all of the costs
incurred for each individual task on the project.
During the Year 2000 date transition and throughout the year ended December 31, 2000, the Company did not experience any
material failure with its information technology or non-information technology systems or key customers or suppliers.
33
36
Other Matters (continued)
Change in Fiscal Year
On July 10, 1998, the Company decided to change its fiscal year end from August 31 to December 31, effective January 1,
1999. The Company filed a Quarterly Report on Form 10-Q with the Securities and Exchange Commission covering the
transition period of September 1, 1998 to December 31, 1998.
Indonesian Operations
Due to political and currency instability in Indonesia during 1997 and 1998, the development of certain power plant projects, in
which the Company's subsidiaries were involved by providing management, technical and training support to an Indonesian
drilling contractor, was postponed or delayed. As a result, the customer, which was leading the development of the projects,
defaulted on payments to the Indonesian contractor, causing the Indonesian contractor to initiate arbitration proceedings against
two subsidiaries of the customer to collect these delinquent payments. In 1999, the arbitration panels awarded the Indonesian
contractor approximately $8.5 million, including interest. Due to the uncertainty over the economic viability of the power plant
projects and timing of repayment of guarantees by the Indonesian government, the Indonesian contractor elected to accept a
settlement of the outstanding awards, which will result in the payment of approximately $6.0 million to the Company's
subsidiaries by the end of 2001.
34
37
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders Parker Drilling Company
In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) of the Form 10-K,
present fairly, in all material respects, the financial position of Parker Drilling Company and its subsidiaries at December 31,
2000 and 1999, and the results of their operations and their cash flows for the years ended December 31, 2000 and 1999,
August 31, 1998, and the four months ended December 31, 1998, in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under
Item 14(a)(2) of the Form 10-K, presents fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are
the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of these financial statements in accordance with
auditing standards generally accepted in the United States of America which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
January 30, 2001
35
38
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands Except Per Share and Weighted Average Shares Outstanding)
Four Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
------------ ------------ ------------ ------------
Revenues:
U.S. drilling $ 148,411 $ 113,715 $ 49,648 $ 197,084
International drilling 185,100 182,908 76,248 249,481
Rental tools 42,833 27,656 10,245 32,723
Other 5 274 582 1,935
------------ ------------ ------------ ------------
Total revenues 376,349 324,553 136,723 481,223
------------ ------------ ------------ ------------
Operating expenses:
U.S. drilling 99,193 100,199 42,025 127,951
International drilling 132,882 126,226 52,623 167,651
Rental tools 15,994 10,910 4,416 13,749
Other 4 1,899 932 2,365
Depreciation and amortization 85,060 82,170 26,529 68,574
General and administrative 20,392 16,312 5,904 17,273
Restructuring charges -- 3,000 -- --
Provision for reduction in
carrying value of certain assets 8,300 10,607 4,055 --
------------ ------------ ------------ ------------
Total operating expenses 361,825 351,323 136,484 397,563
------------ ------------ ------------ ------------
Operating income (loss) 14,524 (26,770) 239 83,660
------------ ------------ ------------ ------------
Other income and (expense):
Interest expense (57,036) (55,928) (17,427) (49,389)
Interest income 3,691 1,725 619 5,732
Gain on disposition of assets 17,920 39,070 605 2,289
Other 2,243 1,326 (304) 2,235
------------ ------------ ------------ ------------
Total other income and (expense) (33,182) (13,807) (16,507) (39,133)
------------ ------------ ------------ ------------
Income (loss) before income taxes (18,658) (40,577) (16,268) 44,527
------------ ------------ ------------ ------------
Income tax expense (benefit) 4,323 (2,680) (1,635) 16,435
------------ ------------ ------------ ------------
Income (loss) before extraordinary gain (22,981) (37,897) (14,633) 28,092
Extraordinary gain on early retirement of
debt, net of deferred tax expense of
$2,214 3,936 -- -- --
------------ ------------ ------------ ------------
Net income (loss) $ (19,045) $ (37,897) $ (14,633) $ 28,092
============ ============ ============ ============
Basic earnings (loss) per share:
Income (loss) before extraordinary gain $ (.28) $ (.49) $ (.19) $ .37
Extraordinary gain $ .05 $ -- $ -- $ --
Net income (loss) $ (.23) $ (.49) $ (.19) $ .37
Diluted earnings (loss) per share:
Income (loss) before extraordinary gain $ (.28) $ (.49) $ (.19) $ .36
Extraordinary gain $ .05 $ -- $ -- $ --
Net income (loss) $ (.23) $ (.49) $ (.19) $ .36
Number of common shares used in computing earnings per share:
Basic 81,758,825 77,159,461 76,828,879 76,658,100
Diluted 81,758,825 77,159,461 76,828,879 77,789,390
See accompanying notes to consolidated financial statements.
36
39
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars In Thousands)
ASSETS December 31, December 31,
2000 1999
------------ ------------
Current assets:
Cash and cash equivalents $ 62,480 $ 45,501
Other short-term investments 811 777
Accounts and notes receivable, net of
allowance for bad debts of $3,755 in 2000
and $5,677 in 1999 123,474 75,411
Rig materials and supplies 16,500 13,766
Other current assets 4,600 15,988
------------ ------------
Total current assets 207,865 151,443
------------ ------------
Property, plant and equipment, at cost:
Drilling equipment 940,381 956,957
Rental equipment 55,237 43,857
Buildings, land and improvements 22,455 20,657
Other 26,066 25,291
Construction in progress 68,120 38,154
------------ ------------
1,112,259 1,084,916
Less accumulated depreciation and
amortization 448,734 423,514
------------ ------------
Net property, plant and equipment 663,525 661,402
------------ ------------
Deferred charges and other assets:
Goodwill, net of accumulated amortization
of $27,786 in 2000 and $20,304 in 1999 196,609 204,090
Rig materials and supplies 12,414 13,363
Assets held for disposition 6,860 17,063
Debt issuance costs 10,311 13,202
Other 9,835 22,180
------------ ------------
Total deferred charges and other assets 236,029 269,898
------------ ------------
Total assets $ 1,107,419 $ 1,082,743
============ ============
See accompanying notes to consolidated financial statements.
37
40
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, CONTINUED
(Dollars in Thousands)
December 31, December 31,
2000 1999
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,043 $ 5,054
Accounts payable 44,445 29,170
Accrued liabilities 32,756 29,562
Accrued income taxes 9,422 8,323
------------ ------------
Total current liabilities 91,666 72,109
------------ ------------
Long-term debt (Note 5) 592,584 648,577
------------ ------------
Deferred income taxes 18,467 28,273
------------ ------------
Other long-term liabilities 5,539 4,363
------------ ------------
Commitments and contingencies (Note 11) -- --
Stockholders' equity:
Preferred stock, $1 par value, 1,942,000
shares authorized, no shares outstanding -- --
Common stock, $.16 2/3 par value, authorized
120,000,000 shares, issued and outstanding
91,723,933 shares (77,372,040 shares in 1999) 15,287 12,895
Capital in excess of par value 431,043 343,374
Comprehensive income-net unrealized gain
on investments available for sale (net
of taxes of $190 in 2000 and $908 in 1999) 339 1,613
Retained earnings (accumulated deficit) (47,506) (28,461)
------------ ------------
Total stockholders' equity 399,163 329,421
------------ ------------
Total liabilities and stockholders' equity $ 1,107,419 $ 1,082,743
============ ============
See accompanying notes to consolidated financial statements.
38
41
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
Four
Year Year Months Year
Ended Ended Ended Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (19,045) $ (37,897) $ (14,633) $ 28,092
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 85,060 82,170 26,529 68,574
Gain on disposition of assets (17,920) (39,070) (605) (6,851)
Gain on early retirement of debt,
net of deferred tax expense (3,936) -- -- --
Provision for reduction in
carrying value
of certain assets 8,300 10,607 4,055 --
Deferred tax expense (benefit) (11,302) (13,888) (6,147) 2,100
Other 5,320 3,503 1,875 3,992
Change in assets and liabilities:
Accounts and notes receivable (47,954) 28,554 7,569 8,886
Rig materials and supplies (1,981) (721) (257) (5,544)
Other current assets 11,150 (3,263) 658 3,065
Accounts payable and
accrued liabilities 18,356 (21,569) (10,232) 40,383
Accrued income taxes 1,098 747 1,544 1,128
Other assets 125 5,312 871 (306)
------------ ------------ ------------ ------------
Net cash provided by operating
activities 27,271 14,485 11,227 143,519
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets 31,912 63,868 1,481 13,470
Capital expenditures
(net of reimbursements) (98,525) (49,146) (52,711) (196,078)
Acquisition of Bolifor -- -- (500) (2,189)
Acquisition of Hercules -- -- -- (195,599)
Purchase of short-term investments -- (777) -- (18,708)
Proceeds from sale of short-term
investments 16,925 -- 9,999 11,547
Other-net -- 650 1,000 (766)
------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities (49,688) 14,595 (40,731) (388,323)
------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements.
39
42
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(continued)
(Dollars in Thousands)
Four
Year Year Months Year
Ended Ended Ended Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt $ -- $ 35,186 $ 10,000 $ 204,692
Proceeds from common
stock offering, net 87,313 -- -- --
Payments for early retirement
of debt (43,477) -- -- --
Principal payments under
debt obligations (4,854) (43,017) (1,441) (124,287)
Repurchase of common stock -- -- -- (302)
Other 414 (62) 5 4
------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities 39,396 (7,893) 8,564 80,107
------------ ------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents 16,979 21,187 (20,940) (164,697)
Cash and cash equivalents at
beginning of year 45,501 24,314 45,254 209,951
------------ ------------ ------------ ------------
Cash and cash equivalents at
end of year $ 62,480 $ 45,501 $ 24,314 $ 45,254
============ ============ ============ ============
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $ 56,608 $ 56,806 $ 22,802 $ 46,892
Income taxes $ 14,527 $ 10,461 $ 2,968 $ 13,207
Supplemental noncash investing and
financing activity:
1.0 million shares of Unit
Corporation stock received on
sale of U.S. lower-48 land rigs $ -- $ 7,562 $ -- $ --
Net unrealized gain (loss) on
investments available for sale
(net of taxes of $717 in 2000
and $908 in 1999) $ (1,274) $ 1,613 $ -- $ --
Note receivable for sale of
platform rig $ -- $ 1,645 $ -- $ --
See accompanying notes to consolidated financial statements.
40
43
PARKER DRILLING COMPANY AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Dollars in Thousands)
Capital Retained
in excess earnings
Preferred Common of par (accumulated
stock stock value deficit) Other
------------ ------------ ------------ ------------ ------------
Balances, August 31, 1997 $ -- $ 12,780 $ 340,243 $ (4,023) $ (277)
Activity in employees' stock plans -- 20 1,152 -- 277
Acquisition of stock from
certain employees -- (6) (296) -- --
Net income -- -- -- 28,092 --
------------ ------------ ------------ ------------ ------------
Balances, August 31, 1998 -- 12,794 341,099 24,069 --
Activity in employees' stock plans -- 21 600 -- --
Net loss -- -- -- (14,633) --
------------ ------------ ------------ ------------ ------------
Balances, December 31, 1998 -- 12,815 341,699 9,436 --
Activity in employees' stock plans -- 83 1,738 -- --
Acquisition of stock from
certain employees -- (3) (63) -- --
Comprehensive Income -
Net unrealized gain on
investments
(net of taxes of $908) -- -- -- -- 1,613
Net loss (total comprehensive
loss of $36,284) -- -- -- (37,897) --
------------ ------------ ------------ ------------ ------------
Balances, December 31, 1999 -- 12,895 343,374 (28,461) 1,613
------------ ------------ ------------ ------------ ------------
Activity in employees' stock plans -- 92 2,656 -- --
Issuance of 13,800,000
common shares -- 2,300 85,013 -- --
Comprehensive Income -
Net unrealized loss on
investments available for
sale (net of taxes of $717) -- -- -- -- (1,274)
Net loss (total
comprehensive loss of $20,319) -- -- -- (19,045) --
------------ ------------ ------------ ------------ ------------
Balances, December 31, 2000 $ -- $ 15,287 $ 431,043 $ (47,506) $ 339
============ ============ ============ ============ ============
See accompanying notes to the consolidated financial statements.
41
44
PARKER DRILLING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Consolidation - The consolidated financial statements include the accounts of Parker Drilling Company ("Parker Drilling") and
all of its majority-owned subsidiaries (collectively, the "Company").
Operations - The Company provides land and offshore contract drilling services and rental tools on a worldwide basis to
major, independent and foreign-owned oil and gas companies. At December 31, 2000, the Company's rig fleet consists of 27
barge drilling and workover rigs, seven offshore jackup rigs, four offshore platform rigs and 47 land rigs. The Company
specializes in the drilling of deep and difficult wells, drilling in remote and harsh environments, drilling in transition zones and
offshore waters, and in providing specialized rental tools. The Company also provides a range of services that are ancillary to
its principal drilling services, including engineering, logistics and construction, as well as various types of project management.
Change in Fiscal Year - The Company changed its fiscal year end from August 31 to December 31, effective for the fiscal year
beginning January 1, 1999. The Company's transition period included the four months from September 1 through December
31, 1998, (the "Transition Period").
Drilling Contracts and Rental Revenues - The Company recognizes revenues and expenses on dayrate contracts as the drilling
progresses (percentage-of-completion method) because the Company does not bear the risk of completion of the well. For
meterage contracts, the Company recognizes the revenues and expenses upon completion of the well (completed-contract
method). Revenues from rental activities are recognized over the rental term which is generally less than six months.
Cash and Cash Equivalents - For purposes of the balance sheet and the statement of cash flows, the Company considers cash
equivalents to be all highly liquid debt instruments that have a remaining maturity of three months or less at the date of purchase.
Other Short-Term Investments - Other short-term investments include primarily certificates of deposit, U.S. government
securities and commercial paper having remaining maturities of greater than three months at the date of purchase and are stated
at the lower of cost or market.
Property, Plant and Equipment - The Company provides for depreciation of property, plant and equipment primarily on the
straight-line method over the estimated useful lives of the assets after provision for salvage value. The depreciable lives for land
drilling equipment approximate 15 years. The depreciable lives for offshore drilling equipment generally range from 15 to 20
years. The depreciable lives for certain other equipment, including drill pipe, range from three to seven years. When properties
are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any
gain or
42
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 1 - Summary of Significant Accounting Policies (continued)
loss is included in operations. Management periodically evaluates the Company's assets to determine that their net carrying
value is not in excess of their net realizable value. Management considers a number of factors such as estimated future cash
flows, appraisals and current market value analysis in determining net realizable value. Assets are written down to their fair
value if it is below its net carrying value. In addition, interest totaling approximately $0.5 million, $3.0 million, $1.7 million and
$3.5 million were capitalized during the years ended December 31, 2000 and 1999, the four months ended December 31,
1998, and the fiscal year ended August 31, 1998, respectively.
Goodwill - Goodwill is being amortized on a straight-line basis over 30 years commencing on the dates of the respective
acquisitions. The Company assesses whether the excess of cost over net assets acquired is impaired based on the ability of the
operation, to which it relates, to generate cash flows in amounts adequate to cover the future amortization of such assets. If an
impairment is determined, the amount of such impairment is calculated based on the estimated fair market value of the related
assets.
Rig Materials and Supplies - Since the Company's international drilling generally occurs in remote locations, making timely
outside delivery of spare parts uncertain, a complement of parts and supplies is maintained either at the drilling site or in
warehouses close to the operations. During periods of high rig utilization, these parts are generally consumed and replenished
within a one-year period. During a period of lower rig utilization in a particular location, the parts, like the related idle rigs, are
generally not transferred to other international locations until new contracts are obtained because of the significant transportation
costs which would result from such transfers. The Company classifies those parts which are not expected to be utilized in the
following year as long-term assets.
Other Assets - Other assets includes the Company's investment in marketable equity securities. Equity securities that are
classified as available for sale are stated at fair value as determined by quoted market prices. Unrealized holding gains and
losses are excluded from current earnings and are included in comprehensive income, net of taxes, in a separate component of
stockholders' equity until realized. At December 31, 2000 and 1999, the fair value of equity securities totaled $1.7 million and
$11.5 million, respectively.
In computing realized gains and losses on the sale of equity securities, the cost of the equity securities sold is determined using
the specific cost of the security when originally purchased.
Other Long-Term Obligations - Included in this account is the accrual of workers' compensation liability.
43
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 1 - Summary of Significant Accounting Policies (continued)
Income Taxes - The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under this method, deferred tax liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are
expected to reverse.
Earnings (Loss) Per Share (EPS) - Basic earnings (loss) per share is computed by dividing net income (loss), as adjusted for
dividends on preferred stock, by the weighted average number of common shares outstanding during the period. The effect of
dilutive securities is included in the diluted EPS calculation, when applicable.
Concentrations of Credit Risk - Financial instruments which potentially subject the Company to concentrations of credit risk
consist primarily of trade receivables with a variety of national and international oil and gas companies. The Company generally
does not require collateral on its trade receivables.
Due to political and currency instability in Indonesia during 1997 and 1998, the development of certain power plant projects,
for which the Company's subsidiaries were involved by their providing of management, technical and training support to an
Indonesian drilling contractor, was postponed or delayed. As a result, the customer, which was leading the development of the
projects, defaulted on payments to the Indonesian contractor, causing the Indonesian contractor to initiate arbitration against
two subsidiaries of the customer to collect these delinquent payments. In 1999, the arbitration panels awarded the Indonesian
contractor approximately $8.5 million including interest. Due to the uncertainty over the economic viability of the power plant
projects and timing of repayment of guarantees by the Indonesian government, the Indonesian contractor elected to accept a
settlement of the outstanding awards, which will result in the payment of approximately $6.0 million to the Company's
subsidiaries by the end of 2001.
The Company places substantially all its interest-bearing investments with major financial institutions and, by policy, limits the
amount of credit exposure to any one financial institution. At December 31, 2000 and 1999, the Company had deposits in
domestic banks in excess of federally insured limits of approximately $65.9 million and $51.7 million, respectively. In addition,
the Company had deposits in foreign banks at December 31, 2000 and 1999 of $3.3 million and $2.9 million, respectively,
which are not federally insured.
The Company's drilling customer base consists of major, independent and foreign-owned oil and gas companies. Shell
Petroleum Development Company of Nigeria was the Company's largest customer for the years 2000 and 1999, accounting
for approximately 10 percent of total revenues in both years. For fiscal year 1998, Chevron was the Company's largest
customer with approximately 15 percent of total revenues.
44
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 1 - Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments - The carrying amount of the Company's cash and short-term investments and short-term
and long-term debt had fair values that approximated their carrying amounts.
Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Note 2 - Acquisitions
On December 30, 1997, the Company acquired all of the outstanding capital stock of Hercules Offshore Corporation, a Texas
corporation (HOC), and all of the outstanding capital stock of Hercules Rig Corp., a Texas corporation (HRC) and an affiliate
of HOC (HOC and HRC being collectively referred to as "Hercules"), for $195.6 million, including acquisition costs. The
purchase price for the acquisition was adjusted for certain debt assumed by the Company, for capital expenditures incurred
subsequent to the purchase agreement date and for levels of working capital at closing. Hercules owned three self-erecting
platform rigs and seven offshore jackup rigs.
The acquisition has been accounted for by the purchase method of accounting; and, the reported financial results include the
Hercules operations from the date of acquisition. The excess of purchase price over the fair value of the net assets acquired
was $83.9 million and has been recorded as goodwill.
The summarized unaudited pro forma information for the year ended August 31, 1998, as if the acquisitions of the Hercules
companies had occurred September 1, 1997 is as follows (in thousands except per share amount): revenues - $506,627; net
income - $30,876; and earnings per share (diluted) - $.40.
45
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 3 - Disposition of Assets
On November 20, 2000, the Company sold its last remaining U.S. land rig, Rig 245 in Alaska, for $20.0 million. The
Company recognized a pre-tax gain of $14.9 million during the fourth quarter of 2000.
On September 30, 1999, the Company completed the sale of its U.S. lower-48 land rigs to Unit Corporation for $40.0 million
cash plus one million shares of Unit common stock. The value of such common stock, based on the closing price for Unit's
common stock on September 30, 1999 approximated $7.6 million. The Company recognized a pre-tax gain of $36.1 million
during September, 1999. During September 2000, the Company sold the one million shares of Unit common stock for $15.0
million. The Company recognized a pre-tax gain of approximately $7.4 million during the third quarter of 2000.
46
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During October 1999, the Company sold its Argentina drilling rigs and inventories (previously classified as assets held for sale)
plus one operating drilling rig, Rig 9 in Bolivia, for total consideration of approximately $9.3 million. The Company recognized a
pre-tax gain of approximately $0.8 million during October 1999 related primarily to the Bolivia rig.
Note 4 - Assets Held for Disposition
In the third quarter of 1999, it was decided that barge Rig 80, the Gulf Explorer, would be actively marketed for disposition.
The Company reduced the carrying value by $2.5 million to record the rig at its estimated net realizable value of $9.0 million.
During the fourth quarter of 2000, due to the continued sluggish drilling market in Southeast Asia, the Company reduced the
carrying value of the Gulf Explorer by an additional $8.3 million. The net realizable value of the rig is included in assets held for
disposition.
During the second quarter of 1999, the Company restructured its drilling operations into two primary business units. As part of
the plan, the Company combined two office facilities in Louisiana into one location. The carrying value of the vacated office
building was reduced by approximately $1.4 million to its estimated net realizable value of $4.5 million. The net realizable value
of the building is included in assets held for disposition.
47
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 - Long-Term Debt
December 31, 2000 1999
(Dollars in Thousands)
---------------------------------------------------------------------------------------------------------
Senior Notes payable in November 2006 with interest
of 9.75% payable semi-annually in May and November, net of unamortized
discount of $1,381 and $1,616 at December 31, 2000 and 1999, respectively
(effective interest rate of 9.88%) $ 298,619 $ 298,384
Senior Notes payable in November 2006 with interest of 9.75% payable
semi-annually in May and November, net of unamortized premium of $3,888
and $4,545 at December 31, 2000 and 1999, respectively
(effective interest rate of 8.97%) 153,868 154,545
Convertible Subordinated Notes payable in July 2004
with interest of 5.5% payable semi-annually in
February and August 124,509 175,000
Revolving Credit Facility with interest at prime plus
0.50% or LIBOR plus 2.50% -- --
Secured promissory note to Boeing Capital Corporation
with interest at 10.1278%. Principal and interest
payable monthly over a 60-month term 20,110 24,198
Other 521 1,504
---------- ----------
Total debt 597,627 653,631
Less current portion 5,043 5,054
---------- ----------
Total long-term debt $ 592,584 $ 648,577
========== ==========
48
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The aggregate maturities of long-term debt for the five years ending December 31, 2005 are as follows (000's): 2001 - $5,043;
2002 - $5,009; 2003 - $5,536; 2004 - $129,565; 2005 - $0.
The Senior Notes, which mature in 2006, were initially issued in November 1996 and in March 1998 in amounts of $300
million (Series B) and $150 million (Series C), respectively. The $300 million issue was sold at a $2.4 million discount while the
$150 million issue was sold at a premium of $5.7 million. In May 1998, a registration statement was filed by the Company
which offered to exchange the Series B and C Notes for new Series D Notes. The form and terms of the Series D Notes are
identical in all material respects to the form and terms of the Series B and C Notes, except for certain transfer restrictions and
registration rights relating to the Series C Notes. All of the Series B Notes except $189 thousand and all of the Series C Notes
were exchanged for new Series D Notes per this offering. The Notes have an interest rate of 9 3/4 percent and are guaranteed
by substantially all subsidiaries of Parker Drilling, all of which are wholly owned. The guarantees are joint and several, full,
complete and unconditional. There are currently no restrictions on the ability of the subsidiaries to transfer funds to Parker
Drilling in the form of cash dividends, loans or advances. Parker Drilling is a holding company with no operations, other than
through its subsidiaries. The non-guarantors are inconsequential, individually and in the aggregate, to the consolidated financial
statements and separate financial statements of the guarantors are not presented because management has determined that they
would not be material to investors.
In anticipation of funding the Hercules acquisition, in July 1997, the Company issued $175 million of Convertible Subordinated
Notes due 2004. The Notes bear interest at 5.5 percent payable semi-annually in February and August. The Notes are
convertible at the option of the holder into shares of common stock of Parker Drilling at $15.39 per share at any time prior to
maturity. The Notes will be redeemable at the option of the Company at any time after July 2000 at certain stipulated prices.
During the fourth quarter of 2000, the Company repurchased on the open market $50.5 million principal amount of the
5.5% Notes at an average price of 86.11 percent of face value. The Note repurchases were funded with proceeds from an
equity offering in September 2000, whereby the Company sold 13.8 million shares of common stock for net proceeds of
approximately $87.3 million. The amount of outstanding Notes at the end of 2000 was $124.5 million.
On October 22, 1999, the Company entered into a $50.0 million revolving loan facility with a group of banks led by Bank of
America. The new facility is available for working capital requirements, general corporate purposes and to support letters of
credit. At December 31, 2000, no amounts have been drawn down against the facility but $14.6 million of availability has been
used to support letters of credit that have been issued. The revolver is collateralized by accounts receivable, inventory and
certain barge rigs located in the Gulf of Mexico. The facility will terminate on October 22, 2003.
49
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On October 7, 1999, a wholly-owned subsidiary of the Company entered into a loan agreement with Boeing Capital
Corporation for the refinancing of a portion of the capital cost of barge Rig 75. The loan principal of approximately $24.8
million plus interest is to be repaid in 60 monthly payments of approximately $0.5 million. The loan is collateralized by barge Rig
75 and is guaranteed by Parker Drilling.
Each of the 9 3/4% Senior Notes, 5 1/2% Convertible Subordinated Notes and the revolving loan facility contains customary
affirmative and negative covenants, including restrictions on incurrence of debt and sales of assets. The revolving loan facility
prohibits payment of dividends and the indenture for the 9 3/4% Senior Notes restricts the payment of dividends.
50
53
Note 6 - Income Taxes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Income (loss) before income taxes and extraordinary gain (in thousands) is summarized as follows:
Year Year Four Months Year
Ended Ended Ended Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
------------ ------------ ------------ ------------
United States $ (29,253) $ (47,526) $ (19,249) $ 7,682
Foreign 10,595 6,949 2,981 36,845
------------ ------------ ------------ ------------
$ (18,658) $ (40,577) $ (16,268) $ 44,527
============ ============ ============ ============
Income tax expense (benefit) (in thousands) is summarized as follows:
Year Year Four Months Year
Ended Ended Ended Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
------------ ------------ ------------ ------------
Current:
United States:
Federal $ -- $ -- $ -- $ --
State -- 838 21 50
Foreign 15,625 10,370 4,491 14,285
Deferred:
United States:
Federal (10,988) (13,552) (5,976) 2,042
State (314) (336) (171) 58
------------ ------------ ------------ ------------
$ 4,323 $ (2,680) $ (1,635) $ 16,435
============ ============ ============ ============
Total income tax expense (benefit) (in thousands) differs from the amount computed by multiplying income (loss) before income
taxes by the U.S. federal income tax statutory rate. The reasons for this difference are as follows:
51
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Income Taxes (continued)
Four Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
-------------------- -------------------- -------------------- --------------------
% of % of % of % of
pretax pretax pretax pretax
Amount income Amount income Amount income Amount income
-------- -------- -------- -------- -------- -------- -------- --------
Computed expected
tax expense
(benefit) $ (6,530) (35%) $(14,202) (35%) $ (5,694) (35%) $ 15,584 35%
Foreign taxes 10,156 54% 6,741 17% 2,919 18% 1,389 3%
Utilization of loss
carryforwards -- -- -- -- -- -- (1,973) (4%)
Change in valuation
allowance (6,097) (33%) -- -- -- -- -- --
Foreign corporation
losses 4,253 23% 2,438 6% -- -- -- --
Goodwill
amortization 1,488 8% 1,488 4% 584 4% 1,162 2%
Other 1,053 6% 855 1% 556 3% 273 1%
-------- -------- -------- -------- -------- -------- -------- --------
Actual tax expense
(benefit) $ 4,323 23% $ (2,680) (7%) $ (1,635) (10%) $ 16,435 37%
======== ======== ======== ======== ======== ======== ======== ========
52
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Income Taxes (continued)
The components of the Company's tax assets and (liabilities) as of December 31, 2000 and 1999 are shown below (in
thousands):
December 31,
2000 1999
---------- ----------
Deferred tax assets:
Net operating loss carryforwards $ 61,796 $ 83,209
Reserves established against
realization of certain assets 2,304 2,430
Accruals not currently
deductible for tax purposes 6,476 5,654
---------- ----------
70,576 91,293
Deferred tax liabilities:
Property, plant and equipment (59,090) (76,188)
Goodwill (4,824) (3,361)
Unrealized gain on investments
held for sale (190) (908)
---------- ----------
Net deferred tax asset 6,472 10,836
Valuation allowance (24,939) (39,109)
---------- ----------
Deferred income tax liability $ (18,467) $ (28,273)
========== ==========
At December 31, 2000, the Company had $171,656,000 of net operating loss carryforwards. For tax purposes the net
operating loss carryforwards expire over a 20-year period ending August 31 as follows (000's): 2001-$58,830,000;
2002-$32,947,000; 2003-$0; 2004-$5,184,000; thereafter-$119,195,000. The Company has recorded a valuation
allowance of $24,939,000 with respect to its deferred tax asset. However, the amount of the asset considered realizable could
be different in the near term if estimates of future taxable income change.
53
56
Note 7 - Common Stock and Stockholders' Equity
In September 2000, the Company sold 13.8 million common shares in a public offering, resulting in net proceeds (after
deducting issuance costs) of $87.3 million. The proceeds will be used to acquire, upgrade and refurbish certain offshore and
land drilling rigs and for general corporate purposes, including the repayment of debt (see Note 5).
Stock Plans
The Company's employee and non-employee director stock plans are summarized as follows:
The 1994 Non-Employee Director Stock Option Plan ("Director Plan") provides for the issuance of options to purchase up to
200,000 shares of Parker Drilling's common stock. The option price per share is equal to the fair market value of a Parker
Drilling share on the date of grant. The term of each option is ten years, and an option first becomes exercisable six months
after the date of grant. All shares available for issuance under this plan have been granted.
The 1994 Executive Stock Option Plan provides that the directors may grant a maximum of 2,400,000 shares to key
employees of the Company and its subsidiaries through the granting of stock options, stock appreciation rights and restricted
and deferred stock awards. The option price per share may not be less than 50 percent of the fair market value of a share on
the date the option is granted, and the maximum term of a non-qualified option may not exceed 15 years and the maximum term
of an incentive option is 10 years. All shares available for issuance under this plan have been granted.
The 1997 Stock Plan is a "broad-based" stock plan, based on the interim rules of the New York Stock Exchange, that
provides that the directors may grant stock options and restricted stock awards up to a maximum of 4,000,000 shares to all
employees of the Company who, in the opinion of the board of directors, are in a position to contribute to the growth,
management and success of the Company. More than 50 percent of all awards under this plan have been awarded to
employees who are non-executive officers. The option price per share may not be less than the fair market value on the date
the option is granted for incentive options and not less than par value of a share of common stock for non-qualified options. The
maximum term of an incentive option is 10 years and the maximum term of a non-qualified option is 15 years. In July 1999,
2,000,000 additional shares were registered with the SEC for granting under the 1997 Stock Plan. As of December 31, 2000,
there were 1,145,250 shares available for granting.
54
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information regarding the Company's stock option plans is summarized below:
1994 Director Plan
---------------------------
Weighted
Average
Exercise
Shares Price
------------ ------------
Shares under option:
Outstanding at August 31, 1997 170,000 $ 8.303
Granted 20,000 12.094
Exercised -- --
Cancelled -- --
------------ ------------
Outstanding at August 31, 1998 190,000 8.702
Granted -- --
Exercised -- --
Cancelled -- --
------------ ------------
Outstanding at December 31, 1998 190,000 8.702
Granted 10,000 3.281
Exercised -- --
Cancelled -- --
------------ ------------
Outstanding at December 31, 1999 200,000 8.431
Granted -- --
Exercised -- --
Cancelled -- --
------------ ------------
Outstanding at December 31, 2000 200,000 $ 8.431
------------ ------------
55
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1994 Option Plan
Non-Qualified
Incentive Options Options
----------------------- ------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ---------- ---------- ----------
Shares under option:
Outstanding at August 31, 1997 622,564 $ 7.227 1,591,436 $ 7.500
Granted -- -- -- --
Exercised -- -- (2,000) 2.250
Cancelled -- -- -- --
---------- ---------- ---------- ----------
Outstanding at August 31, 1998 622,564 7.227 1,589,436 7.507
Granted -- -- -- --
Exercised -- -- (2,500) 2.250
Cancelled -- -- -- --
---------- ---------- ---------- ----------
Outstanding at December 31, 1998 622,564 7.227 1,586,936 7.516
Granted -- -- -- --
Exercised -- -- -- --
Cancelled -- -- -- --
---------- ---------- ---------- ----------
Outstanding at December 31, 1999 622,564 7.227 1,586,936 7.516
Granted -- -- -- --
Exercised -- -- (18,750) 2.250
Cancelled -- -- -- --
---------- ---------- ---------- ----------
Outstanding at December 31, 2000 622,564 $ 7.227 1,568,186 $ 7.577
---------- ---------- ---------- ----------
56
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1997 Stock Plan
---------------------------------------------------
Non-Qualified
Incentive Options Options
------------------------ ------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ---------- ---------- ----------
Shares under option:
Outstanding at August 31, 1997 739,685 $ 8.875 1,060,315 $ 8.875
Granted 1,149,220 12.022 261,280 10.813
Exercised -- -- -- --
Cancelled (15,000) 12.188 -- --
---------- ---------- ---------- ----------
Outstanding at August 31, 1998 1,873,905 10.750 1,321,595 9.258
Granted -- -- -- --
Exercised -- -- -- --
Cancelled -- -- -- --
---------- ---------- ---------- ----------
Outstanding at December 31, 1998 1,873,905 10.750 1,321,595 9.258
Granted 1,003,021 3.189 897,979 3.232
Exercised (1,011) 3.188 (239) 3.188
Cancelled (81,740) 11.410 (153,760) 10.813
---------- ---------- ---------- ----------
Outstanding at December 31, 1999 2,794,175 8.038 2,065,575 6.523
Granted 50,000 5.938 15,000 5.062
Exercised (92,094) 3.188 (24,370) 3.188
Cancelled (30,130) 8.564 (2,870) 3.188
---------- ---------- ---------- ----------
Outstanding at December 31, 2000 2,721,951 $ 8.158 2,053,335 $ 6.556
---------- ---------- ---------- ----------
57
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Outstanding Options
----------------------------
Weighted
Average Weighted
Remaining Average
Number of Contractual Exercise
Plan Exercise Prices Shares Life Price
-------------------------- -------------------------------- --------- ------------- ----------
1994 Director Plan $ 3.281 - $ 6.125 40,000 5.4 years $ 4.827
$ 8.875 - $ 12.094 160,000 6.5 years $ 9.332
1994 Executive Option Plan
Incentive Option $ 4.500 234,554 4.0 years $ 4.500
Incentive Option $ 8.875 388,010 6.4 years $ 8.875
Non-qualified $ 2.250 - $ 4.50 436,196 4.0 years $ 4.207
Non-qualified $ 8.875 1,131,990 6.4 years $ 8.875
1997 Stock Plan
Incentive Option $ 3.188 - $ 5.938 947,786 5.4 years $ 3.334
Incentive Option $ 8.875 - $ 12.188 1,774,165 6.2 years $ 10.750
Non-qualified $ 3.188 - $ 5.062 885,500 5.3 years $ 3.263
Non-qualified $ 8.875 - $ 10.183 1,167,835 6.6 years $ 9.054
Exercisable Options
-------------------------------
Weighted
Number of Average
Plan Exercise Prices Shares Exercise Price
-------------------------- ------------------------------- ------------ --------------
1994 Director Plan $ 3.281 - $ 6.125 40,000 $ 4.829
$ 8.875 - $ 12.094 136,000 $ 9.413
1994 Executive Option Plan
Incentive Option $ 4.500 234,554 $ 4.500
Incentive Option $ 8.875 388,010 $ 8.875
Non-qualified $ 2.250 - $ 4.500 436,196 $ 4.207
Non-qualified $ 8.875 1,131,990 $ 8.875
1997 Stock Plan
Incentive Option $ 3.188 - $ 5.938 357,100 $ 3.286
Incentive Option $ 8.875 - $ 12.188 1,339,034 $ 10.824
Non-qualified $ 3.188 - $ 5.062 553,135 $ 3.309
Non-qualified $ 8.875 - $ 10.183 686,366 $ 9.057
58
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7 - Common Stock and Stockholders' Equity (continued)
The Company has three additional stock plans which provide for the issuance of stock for no cash consideration to officers and
key non-officer employees. Under two of the plans, each employee receiving a grant of shares may dispose of 15 percent of
his/her grant on each annual anniversary date from the date of grant for the first four years and the remaining 40 percent on the
fifth year anniversary. These two plans have a total of 11,375 shares reserved and available for granting. Shares granted under
the third plan are fully vested no earlier than 24 months from the effective date of the grant and not later than 36 months. The
plan has a total of 1,562,195 shares reserved and available for granting. No shares were granted under these plans in 2000 and
1999, the transition period and fiscal 1998.
The fair market value of the common stock at date of grant which exceeds the option price of shares granted under any of the
plans is recorded as deferred compensation and amortized to expense over the period during which the restrictions lapse.
Deferred compensation is shown as a deduction from stockholders' equity. All such costs had been fully amortized as of August
31, 1998.
During 1999, the Company purchased 15,195 shares at an average price of $4.31 per share from certain of its employees who
had received stock grants under the Company's stock plans. During fiscal 1998, the Company purchased 36,562 shares from
certain of its employees who had received stock grants under the Company's stock plans. Total shares purchased from
employees and treated as treasury stock were 402,607 for the fiscal year ended August 31, 1998. Currently, 497,323 shares
are held in Treasury. The Company acquired the shares at then current market prices (weighted average price was $8.28 per
share in fiscal 1998). The proceeds were used to pay the employees' tax withholding obligations arising from the vesting of
shares under the Plans.
The Company has elected the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the Company's stock option plans when the option price is equal
to or greater than the fair market value of a share of the Company's common stock on the date of grant. Pro forma net income
and earnings per share are reflected below as if compensation cost had been determined based on the fair value of the options
at their applicable grant date, according to the provisions of SFAS No. 123.
59
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Year Year Four Months Year
Ended Ended Ended Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
------------ ------------ ------------ ------------
(In thousands)
Income (loss) before
extraordinary gain:
As reported $ (22,981) $ (37,897) $ (14,633) $ 28,092
Pro forma $ (25,941) $ (45,925) $ (16,605) $ 21,922
Earnings (loss) per share
before extraordinary
gain, diluted:
As reported $ (.28) $ (.49) $ (.19) $ .36
Pro forma $ (.32) $ (.59) $ (.22) $ .28
The fair value of each option grant is estimated using the Black-Scholes option pricing model with the following assumptions:
Expected dividend yield 0.0%
Expected stock volatility 44.0% in fiscal year 1998
49.0% for the Transition Period
49.0% in 1999
51.6% in 2000
Risk-free interest rate 5.4 - 6.7%
Expected life of options 5 - 7 years
The fair values of options granted during the year ended December 31, 1999 and the fiscal year 1998 under the Director Plan
were $16,500 and $115,000, respectively. Options granted in fiscal 1998 under the 1997 Stock Plan had a fair value of
$8,585,100. Options granted in 2000 and 1999 under the 1997 Stock Plan had a fair value of $202,900 and $3,262,749,
respectively.
60
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Stock Reserved For Issuance
The following is a summary of common stock reserved for issuance:
December 31,
2000 1999
---------- ----------
Stock Plans 9,969,570 9,983,070
Stock Bonus Plan 106,375 965,621
Convertible Notes 8,090,254 11,371,020
---------- ----------
Total shares reserved for issuance 18,166,199 22,319,711
========== ==========
Stockholder Rights Plan
The Company adopted a stockholder rights plan on June 25, 1998, to assure that the Company's stockholders receive fair and
equal treatment in the event of any proposed takeover of the Company and to guard against partial tender offers and other
abusive takeover tactics to gain control of the Company without paying all stockholders a fair price. The rights plan was not
adopted in response to any specific takeover proposal. Under the rights plan, the Company's Board of Directors declared a
dividend of one right to purchase one one-thousandth of a share of a new series of junior participating preferred stock for each
outstanding share of common stock.
The rights may only be exercised 10 days following a public announcement that a third party has acquired 15 percent or more
of the outstanding common shares of the Company or 10 days following the commencement of, or announcement of an
intention to make a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a
third party of 15 percent or more of the common shares. When exercisable, each right will entitle the holder to purchase one
one-thousandth share of the new series of junior participating preferred stock at an exercise price of $30, subject to
adjustment. If a person or group acquires 15 percent or more of the outstanding common shares of the Company, each right, in
the absence of timely redemption of the rights by the Company, will entitle the holder, other than the acquiring party, to
purchase for $30, common shares of the Company having a market value of twice that amount.
The rights, which do not have voting privileges, expire June 30, 2008, and at the Company's option, may be redeemed by the
Company in whole, but not in part, prior to expiration for $.01 per right. Until the rights become exercisable, they have no
dilutive effect on earnings per share.
61
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 - Reconciliation of Income and Number of Shares Used to Calculate Basic and Diluted Earnings Per Share
(EPS)
For the Twelve Months Ended December 31, 2000
---------------------------------------------
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS:
Loss before extraordinary gain $(22,981,000) 81,758,825 $ (.28)
Extraordinary gain 3,936,000 81,758,825 .05
Net loss (19,045,000) 81,758,825 (.23)
Effect of dilutive securities:
Stock options and grants --
Diluted EPS:
Loss before extraordinary gain (22,981,000) 81,758,825 (.28)
Extraordinary gain 3,936,000 81,758,825 .05
Net income (loss) + assumed
conversions $(19,045,000) 81,758,825 $ (.23)
============ ============ ============
For the Twelve Months Ended December 31, 1999
---------------------------------------------
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS:
Net loss $(37,897,000) 77,159,461 $ (.49)
Effect of dilutive securities:
Stock options and grants --
Diluted EPS:
Net loss + assumed
conversions $(37,897,000) 77,159,461 $ (.49)
============ ============ ============
62
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 - Reconciliation of Income and Number of Shares Used to Calculate
Basic and Diluted Earnings Per Share (EPS) (continued)
For the Four Months Ended December 31, 1998
-------------------------------------------
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS:
Net loss $(14,633,000) 76,828,879 $ (.19)
Effect of dilutive securities:
Stock options and grants --
Diluted EPS:
Net loss + assumed
conversions $(14,633,000) 76,828,879 $ (.19)
============ ============ ============
For the Twelve Months Ended August 31, 1998
-------------------------------------------
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS:
Net income $ 28,092,000 76,658,100 $ .37
Effect of dilutive securities:
Stock options and grants 1,131,290
Diluted EPS:
Net income + assumed
conversions $ 28,092,000 77,789,390 $ .36
============ ============ ============
63
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 - Reconciliation of Income and Number of Shares Used to Calculate Basic
and Diluted Earnings Per Share (EPS) (continued)
The Company has outstanding $124,509,000 of 5.5% Convertible Subordinated Notes, which are convertible into 8,090,254
shares of common stock at $15.39 per share. The Notes have been outstanding since their issuance in July 1997, but were not
included in the computation of diluted EPS because the assumed conversion of the Notes would have had an anti-dilutive effect
on EPS. For the years ended December 31, 2000 and 1999, and four months ended December 31, 1998, options to purchase
7,166,036, 7,269,250 and 5,595,000 shares of common stock, respectively, at prices ranging from $2.25 to $12.1875, were
outstanding but not included in the computation of diluted EPS because the assumed exercise of the options would have had an
anti-dilutive effect on EPS due to the net loss during those periods. In addition, for the fiscal year ended August 31, 1998,
options to purchase 995,500, 400,000 and 20,000 shares of common stock at $12.1875, $10.8125 and $12.0938,
respectively, which were outstanding during part of the period, were not included in the computation of diluted EPS because
the options' exercise price was greater than the average market price of the common shares during the period.
Note 9 - Employee Benefit Plans
The Parker Drilling Company Stock Bonus Plan ("Plan") was adopted effective September 1980 for employees of Parker
Drilling and its subsidiaries who are U.S. citizens and who have completed three months of service with the Company. It was
amended in 1983 to qualify as a 401(k) plan under the Internal Revenue Code which permits a specified percentage of an
employee's salary to be voluntarily contributed on a before-tax basis and to provide for a Company matching feature.
Participants may contribute from one percent to 15 percent of eligible earnings and direct contributions to one or more of 10
investment funds. The Plan was amended and restated, effective January 1, 1999, to provide for dollar-for-dollar matching
contributions by the Company up to three percent of a participant's compensation and $.50 for every dollar contributed from
three percent to five percent. The Company's matching contribution is made in Parker Drilling common stock. The Plan was
amended and restated on April 1, 1996, for the purpose of adding loans and daily record keeping. The Plan was further
amended, effective September 1, 1996, to provide for immediate vesting of participants in the full amount of the Company's
past and future contributions. Each Plan year, additional Company contributions can be made, at the discretion of the Board of
Directors, in amounts not exceeding the permissible deductions under the Internal Revenue Code. The Company issued
361,855 and 498,654 shares to the Plan in 2000 and 1999, 119,390 shares to the Plan during the transition period and
119,809 shares to the Plan in fiscal 1998, with the Company recognizing expense of $2,037,000, $1,796,000, $374,000 and
$1,167,000 in each of the periods, respectively.
64
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10 - Business Segments
In fiscal 1997, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information"
and organized its segments according to services provided: land drilling, offshore drilling and rental tools. During the second
quarter of 1999, the Company restructured its worldwide drilling operations into two primary business units, U.S. operations
and international operations. This is the basis management uses for making operating decisions and assessing performance.
Accordingly, the Company has changed its segments to include U.S. drilling, international drilling and rental tools and has
restated the segment information for the four months ended December 31, 1998 and the fiscal year ended August 31, 1998.
The primary services the Company provides are as follows: U.S. land and offshore drilling, international land and offshore
drilling and rental tools.
65
68
Note 10 - Business Segments (continued)
Information regarding the Company's operations by industry segment and geographic area is as follows:
Four Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
------------ ------------ ------------ ------------
Operations by (Dollars in Thousands)
Industry Segment
----------------------------
Revenues:
U.S. drilling $ 148,411 $ 113,715 $ 49,648 $ 197,084
International drilling 185,100 182,908 76,248 249,481
Rental tools 42,833 27,656 10,245 32,723
Other 5 274 582 1,935
------------ ------------ ------------ ------------
Total revenues $ 376,349 $ 324,553 $ 136,723 $ 481,223
------------ ------------ ------------ ------------
Operating income (loss):
U.S. drilling $ (2,713) $ (41,508) $ (7,814) $ 25,148
International drilling 569 10,037 6,048 47,519
Rental tools 16,667 7,356 2,926 11,551
Other 1 (2,655) (921) (558)
------------ ------------ ------------ ------------
Total operating income (loss) 14,524 (26,770) 239 83,660
Interest expense (57,036) (55,928) (17,427) (49,389)
Other income (expense) - net 23,854 42,121 920 10,256
------------ ------------ ------------ ------------
Income (loss) before taxes $ (18,658) $ (40,577) $ (16,268) $ 44,527
============ ============ ============ ============
Identifiable assets:
U.S. drilling $ 356,090 $ 386,385 $ 446,820 $ 446,927
International drilling 412,839 357,906 419,640 410,034
Rental tools 57,550 43,356 45,533 44,040
Other 11,943 13,034 16,696 15,984
------------ ------------ ------------ ------------
Total identifiable assets 838,422 800,681 928,689 916,985
Corporate assets 268,997 282,062 230,637 283,559
------------ ------------ ------------ ------------
Total assets $ 1,107,419 $ 1,082,743 $ 1,159,326 $ 1,200,544
============ ============ ============ ============
66
69
Note 10 - Business Segments (continued)
Information regarding the Company's operations by industry segment and geographic area is as follows: (continued)
Four Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
------------ ------------ ------------ ------------
(Dollars in Thousands)
Operations by
Industry Segment
----------------------------
Capital expenditures:
U.S. drilling $ 22,221 $ 8,093 $ 11,510 $ 64,652
International drilling 55,215 29,937 37,355 115,999
Rental tools 16,168 7,221 3,638 14,133
Other 4,921 3,895 208 1,294
------------ ------------ ------------ ------------
Total capital expenditures $ 98,525 $ 49,146 $ 52,711 $ 196,078
============ ============ ============ ============
Depreciation and
amortization:
U.S. drilling $ 42,458 $ 39,787 $ 10,831 $ 35,912
International 30,730
drilling 34,046 12,728 24,092
Rental tools 11,147 8,261 2,425 6,943
Other 725 76 545 1,627
------------ ------------ ------------ ------------
Total depreciation and
amortization $ 85,060 $ 82,170 $ 26,529 $ 68,574
============ ============ ============ ============
67
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10 - Business Segments (continued)
Four Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
------------ ------------ ------------ ------------
(Dollars in Thousands)
Operations by Geographic Area
-----------------------------
Revenues:
United States $ 191,249 $ 141,644 $ 60,475 $ 231,744
Latin America 58,467 85,112 35,820 121,048
Asia Pacific 15,373 25,194 8,368 65,867
Africa and Middle East 55,671 36,852 18,433 42,778
Former Soviet Union 55,589 35,751 13,627 19,786
------------ ------------ ------------ ------------
Total revenues $ 376,349 $ 324,553 $ 136,723 $ 481,223
============ ============ ============ ============
Operating income (loss):
United States $ 13,955 $ (36,807) $ (5,809) $ 39,715
Latin America 3,393 8,175 481 9,701
Asia Pacific (10,967) (9,044) (390) 18,005
Africa and Middle East 4,773 6,497 4,302 12,381
Former Soviet Union 3,370 4,409 1,655 3,858
------------ ------------ ------------ ------------
Total operating income (loss) $ 14,524 $ (26,770) $ 239 $ 83,660
============ ============ ============ ============
Identifiable assets:
United States $ 702,639 $ 724,837 $ 739,687 $ 790,510
Latin America 93,896 102,348 151,935 145,256
Asia Pacific 41,602 60,458 65,725 83,854
Africa and Middle East 119,607 105,354 93,102 82,041
Former Soviet Union 149,675 89,746 108,877 98,883
------------ ------------ ------------ ------------
Total identifiable assets $ 1,107,419 $ 1,082,743 $ 1,159,326 $ 1,200,544
============ ============ ============ ============
68
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 11 - Commitments and Contingencies
At December 31, 2000 and 1999, the Company had a $50.0 million revolving credit facility available for general corporate
purposes and to support letters of credit. As of December 31, 2000, $14.6 million availability has been reserved to support
letters of credit that have been issued. As of December 31, 1999, the Company had pledged $6.7 million cash, included as
other current assets, as collateral to support letters of credit, which amount was released in March 2000. At December 31,
2000 and 1999, no amounts had been drawn under the revolving credit facility.
Certain officers of the Company entered into Severance Compensation and Consulting Agreements with the Company in 1988
and 1992. In October 1996, the officers executed revised Severance Compensation and Consulting Agreements (the
"Agreements"). Subsequently, other officers have signed a form of the Agreements, as revised in 1996, resulting in a total of
nine officers who are currently signatories. The Agreements provide for an initial six-year term and the payment of certain
benefits upon a change of control (as defined in the Agreements). A change of control includes certain mergers or
reorganizations, changes in the board of directors, sale or liquidation of the Company or acquisition of more than 15 percent of
the outstanding common stock of the Company by a third party; provided, that the amendments in 1996 gave the Board the
right to preclude triggering of a change of control when a third party acquired 15 percent of the outstanding voting securities if
the Board determines within five days that the circumstances of the acquisition did not warrant implementation of the
Agreements. After a change of control occurs, if an officer is terminated within four years without good cause or resigns within
two years for good reason (as each are defined in the Agreements) the officer shall receive a payment of three times his annual
cash compensation, plus additional compensation for a one-year consulting agreement at the officer's annual cash
compensation, plus extended life, health and other miscellaneous benefits for four years.
The drilling of oil and gas wells is subject to various federal, state, local and foreign laws, rules and regulations. The Company,
as an owner or operator of both onshore and offshore facilities operating in or near waters of the United States, may be liable
for the costs of removal and damages arising out of a pollution incident to the extent set forth in the Federal Water Pollution
Control Act, as amended by the Oil Pollution Act of 1990 ("OPA") and the Outer Continental Shelf Lands Act. In addition, the
Company may also be subject to applicable state law and other civil claims arising out of any such incident. Certain of the
Company's facilities are also subject to regulations of the Environmental Protection Agency ("EPA") that require the preparation
and implementation of spill prevention, control and countermeasure plans relating to possible discharge of oil into navigable
waters. Other regulations of the EPA may require certain precautions in storing, handling and transporting hazardous wastes.
State statutory provisions relating to oil and natural gas generally include requirements as to well spacing, waste prevention,
production limitations, pollution prevention and cleanup, obtaining drilling and dredging permits and similar matters. The
Company believes that it is in substantial compliance with such laws, rules and regulations.
69
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 11 - Commitments and Contingencies (continued)
The Company is a party to various lawsuits and claims arising out of the ordinary course of business. Management, after review
and consultation with legal counsel, considers that any liability resulting from these matters would not materially affect the results
of operations, the financial position or the net cash flows of the Company.
Note 12 - Related Party Transactions
Since 1975 when the stockholders approved a Stock Purchase Agreement, the Company and Robert L. Parker have entered
into various life insurance arrangements on the life of Robert L. Parker. To insure the lives of Mr. and Mrs. Parker for $15.2
million and Mr. Robert L. Parker for $8.0 million the Company is currently paying $.6 million in annual premiums. Annual
premiums funded by the Company will be reimbursed from the proceeds of the policies, plus accrued interest beginning March
2003 at a one-year treasury bill rate. The Company may use, at its option, up to $7.0 million of such proceeds to purchase
Parker Drilling Company stock from the Robert L. Parker Sr. Family Limited Partnership at a discounted price. Robert L.
Parker, Jr., chief executive officer of the Company and son of Robert L. Parker, will receive one-third of the net proceeds of
these policies as a beneficiary.
Note 13 - Supplementary Information
At December 31, 2000, accrued liabilities included $8.4 million of accrued interest expense, $6.0 million of workers'
compensation and health plan liabilities and $9.9 million of accrued payroll and payroll taxes. At December 31, 1999, accrued
liabilities included $9.6 million of accrued interest expense, $5.4 million of workers' compensation and health plan liabilities and
$4.0 million of accrued payroll and payroll taxes. Other long-term obligations included $3.2 million and $3.0 million of workers'
compensation liabilities as of December 31, 2000 and 1999, respectively.
70
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 14 - Selected Quarterly Financial Data (Unaudited)
Quarter
---------------------------------------------------------------------------
First Second Third Fourth Total
------------ ------------ ------------ ------------ ------------
(Dollars in Thousands Except Per Share Amounts)
YEAR 2000
---------
Revenues $ 73,953 $ 86,960 $ 101,849 $ 113,587 $ 376,349
Gross profit(1) $ (3,931) $ 6,409 $ 15,445 $ 25,293 $ 43,216
Operating income $ (8,934) $ 1,965 $ 9,953 $ 11,540 $ 14,524
Net income (loss)
before extraordinary
gain $ (14,876) $ (9,482) $ (1,034) $ 2,411 $ (22,981)
Extraordinary gain,
net of taxes $ -- $ -- $ -- $ 3,936 $ 3,936
Net income (loss) $ (14,876) $ (9,482) $ (1,034) $ 6,347 $ (19,045)
Basic earnings (loss)
per share:
Income (loss) before
extraordinary gain $ (.19) $ (.12) $ (.01) $ .03 $ (.28)(2)
Extraordinary gain $ -- $ -- $ -- $ .04 $ .05 (2)
Net income $ (.19) $ (.12) $ (.01) $ .07 $ (.23)(2)
Diluted earnings (loss)
per share:
Income (loss) before
extraordinary gain $ (.19) $ (.12) $ (.01) $ .03 $ (.28)(2)
Extraordinary gain $ -- $ -- $ -- $ .04 $ .05 (2)
Net income (loss) $ (.19) $ (.12) $ (.01) $ .07 $ (.23)(2)
71
74
Quarter
------------------------------------------------------------------
First Second Third Fourth Total
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands Except Per Share Amounts)
YEAR 1999
-------------
Revenues $ 86,846 $ 81,994 $ 80,080 $ 75,633 $ 324,553
Gross profit (loss)(1) $ 1,353 $ 3,573 $ (2,267) $ 490 $ 3,149
Operating income (loss) $ (6,751) $ (4,768) $ (11,730) $ (3,521) $ (26,770)
Net income (loss) $ (12,796) $ (13,073) $ 1,325 $ (13,353) $ (37,897)
Earnings (loss)
per share:
Basic $ (.17) $ (.17) $ .02 $ (.17) $ (.49)
Diluted $ (.17) $ (.17) $ .02 $ (.17) $ (.49)
(1) Gross profit is calculated by excluding general and administrative expense, restructuring charges and provision for reduction
in carrying value of certain assets from operating income, as reported in the Consolidated Statement of Operations.
(2) As a result of shares issued during the year, earnings per share for the year's four quarters, which are based on weighted
average shares outstanding during each quarter, do not equal the annual earnings per share, which is based on the weighted
average shares outstanding during the year.
72
75
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
This item is not applicable to the Company in that disclosure is required under Regulation S-X by the Securities and Exchange
Commission only if the Company had changed independent auditors and, if it had, only under certain circumstances.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is shown in Item 14A "Executive Officers" and hereby incorporated by reference from the
information appearing under the captions "Proposal One - Election of Directors" in the Company's definitive proxy statement
for the Annual Meeting of Stockholders to be held April 25, 2001, to be filed with the Securities and Exchange Commission
("Commission") within 120 days of the end of the Company's year ended December 31, 2000.
Item 11. EXECUTIVE COMPENSATION
Notwithstanding the foregoing, in accordance with the instructions to Item 402 of Regulations S-K, the information contained in
the Company's proxy statement under the sub-heading "Compensation Committee Report on Executive Compensation" and
"Performance Graph" shall not be deemed to be filed as part of or incorporated by reference into this Form 10-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by reference from the information appearing under the captions
"Principal Stockholders and Security Ownership of Management" in the Company's definitive proxy statement for the Annual
Meeting of Stockholders to be held April 25, 2001, to be filed with the Commission within 120 days of the end of the
Company's year ended December 31, 2000.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference to such information appearing under the caption
"Other Information" and "Related Transactions" in the Company's definitive proxy statement for the Annual Meeting of
Stockholders to be held April 25, 2001, to be filed with the Commission within 120 days of the end of the Company's year
ended December 31, 2000.
73
76
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements of Parker Drilling Company and subsidiaries which are included in Part II, Item 8:
Page
----
Report of Independent Accountants 35
Consolidated Statement of Operations for the years ended December 31, 2000 and
1999, August 31, 1998 and for the four months ended December 31, 1998 36
Consolidated Balance Sheet as of December 31, 2000 and 1999 37
Consolidated Statement of Cash Flows for the years ended December 31, 2000 and
1999, August 31, 1998 and for the four months ended December 31, 1998. 39
Consolidated Statement of Stockholders' Equity for the years ended December 31,
2000 and 1999, August 31, 1998 and for the four months ended December 31, 1998 41
Notes to Consolidated Financial Statements 42
74
77
PART IV
(continued)
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(continued)
(2) Financial Statement Schedule:
Page
----
Schedule II - Valuation and qualifying accounts 79
(3) Exhibits:
Exhibit Number Description
2(a) - Stock Purchase Agreement dated May 9, 1997 by and
among the Company, Parker Drilling Offshore Company
and Trenergy (Malaysia) BHD. (incorporated by
reference to Exhibit 10(n) to the Company's
Quarterly Report on Form 10-Q for the three months
ended May 31, 1997).
2(b) - Stock Purchase Agreement dated May 9, 1997 by and
among the Company, Parker Drilling Offshore Company
and Rashid & Lee Nominees SDN BHD. (incorporated by
reference to Exhibit 10(o) to the Company's
Quarterly Report on Form 10-Q for the three months
ended May 31, 1997).
2(c) - Definitive agreement between Parker Drilling Company
and Energy Ventures, Inc., for the purchase of
Mallard Bay Drilling, Inc. (incorporated herein by
reference to the Company's current report on Form
8-K filed September 19, 1996).
2(d) - Definitive agreement to acquire Quail Tools, Inc.
(incorporated herein by reference to the Company's
current report on Form 8-K filed October 17, 1996).
3(a) - Corrected Restated Certificate of Incorporation of
the Company, as amended on September 21, 1998
(incorporated by reference to Exhibit 3(c) to the
Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1998).
3(b) - By-Laws of the Company, as amended July 27, 1999
(incorporated by reference to Exhibit 3 to the
Company's Quarterly Report on Form 10-Q for the
three months ended September 30, 1999).
3(c) - Rights Agreement dated as of July 14, 1998 between
the Company and Norwest Bank Minnesota, N.A., as
rights agent (incorporated by reference to Form 8-A
filed July 15, 1998).
75
78
PART IV (continued)
(3) Exhibits: (continued)
Exhibit Number Description
4(a) - Indenture dated as of March 11, 1998 among the
Company, as issuer, certain Subsidiary Guarantors
(as defined therein) and Chase Bank of Texas,
National Association, as Trustee (incorporated by
reference to Exhibit 4.5 to the Company's S-4
Registration Statement No. 333-49089 dated April 1,
1998).
4(b) - Indenture dated as of July 25, 1997, between the
Company and Chase Bank of Texas, National
Association, f/k/a Texas Commerce Bank National
Association, as Trustee, respecting 5 1/2%
Convertible Subordinated Notes due 2004
(incorporated by reference to Exhibit 4.7 to the
Company's S-3 Registration Statement No. 333-30711).
4(c) - Loan and Security Agreement dated as of October 22,
1999, between the Company and Bank of America,
National Association, as agent for the lenders,
regarding the $50.0 million revolving line of credit
for loans and letters of credit due October 22,
2003.
76
79
PART IV (continued)
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(continued)
(3) Exhibits: (continued)
Exhibit Number Description
10(a) - Amended and Restated Parker Drilling Company Stock
Bonus Plan, effective as of January 1, 1999
(incorporated herein by reference to Exhibit 10(a)
to the Company's Quarterly Report on Form 10-Q for
the three months ended March 31, 1999).
10(b) - Form of Severance Compensation and Consulting
Agreement entered into between Parker Drilling
Company, and certain officers of Parker Drilling
Company, dated on or about October 15, 1996
(incorporated herein by reference to Exhibit 10(g)
to Annual Report on Form 10-K for the period ended
August 31, 1996)*
10(c) - 1994 Parker Drilling Company Deferred Compensation
Plan (incorporated herein by reference to Exhibit
10(h) to Annual Report on Form 10-K for the year
ended August 31, 1995).*
10(d) - 1994 Non-Employee Director Stock Option Plan
(incorporated herein by reference to Exhibit 10(i)
to Annual Report on Form 10-K for the year ended
August 31, 1995).*
10(e) - 1994 Executive Stock Option Plan (incorporated
herein by reference to Exhibit 10(j) to Annual
Report on Form 10-K for the year ended August 31,
1995).*
21 - Subsidiaries of the Registrant.
23 - Consent of Independent Accountants.
*Management Contract, Compensatory Plan or Agreement
77
80
PART IV (continued)
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(continued)
(b) Reports on Form 8-K:
The Company filed a Form 8-K on September 14, 2000 disclosing that the Company will sell up to 13,800,000 shares of its
common stock pursuant to an underwritten public offering, with an initial price to the public of $6.625 per share.
The Company filed a Form 8-K on January 6, 1999 disclosing that the Company and Superior Energy Services, Inc. had
agreed to terminate their merger agreement.
The Company filed a Form 8-K on July 24, 1998, disclosing that the Company decided to change its fiscal year-end from
August 31 to December 31, effective December 31, 1998. The Company filed a Form 8-K on July 24, 1998, disclosing that
the Board of Directors of the Company authorized issuance of one Preferred Share Purchase Right for each outstanding share
of common stock.
78
81
PARKER DRILLING COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Column A Column B Column C Column D Column E
------------------------------------- ------------ ------------ ------------ ------------
Balance Charged
at to cost Balance
beginning and at end of
Classifications of period expenses Deductions period
------------------------------------- ------------ ------------ ------------ ------------
Year ended December 31, 2000:
Allowance for doubtful accounts
and notes $ 5,677 $ 860 $ 2,782 $ 3,755
Reduction in carrying value of
rig materials and supplies $ 1,539 $ 780 $ (172) $ 2,491
Deferred tax valuation
allowance $ 39,109 $ (6,097) $ 8,073 $ 24,939
Year ended December 31, 1999:
Allowance for doubtful accounts
and notes $ 3,002 $ 3,270 $ 595 $ 5,677
Reduction in carrying value of
rig materials and supplies $ 2,572 $ 780 $ 1,813 $ 1,539
Deferred tax valuation
allowance $ 38,469 $ 640 $ -- $ 39,109
Year ended December 31, 1998:
Allowance for doubtful accounts
and notes $ 3,073 $ 40 $ 111 $ 3,002
Reduction in carrying value of
rig materials and supplies $ 2,312 $ 260 $ -- $ 2,572
Deferred tax valuation
allowance $ 38,469 $ -- $ -- $ 38,469
Year ended December 31, 1999:
Allowance for doubtful accounts
and notes $ 3,153 $ 160 $ 240 $ 3,073
Reduction in carrying value of
rig materials and supplies $ 2,846 $ 780 $ 1,314 $ 2,312
Deferred tax valuation
allowance $ 44,086 $ -- $ 5,617 $ 38,469
79
82
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
PARKER DRILLING COMPANY
By /s/ Robert L. Parker Jr. Date: March 16, 2001
------------------------------
Robert L. Parker Jr.
President and Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
By: /s/ Robert L. Parker Chairman of the Board and Date: March 16, 2001
------------------------------------ Director
Robert L. Parker
By: /s/ Robert L. Parker Jr.
------------------------------------ President and Chief Executive
Robert L. Parker Jr. Officer and Director
(Principal Executive Officer)
By: /s/ James W. Linn
------------------------------------ Executive Vice President and Date: March 16, 2001
James W. Linn Chief Operating Officer and
Director
By: /s/ James J. Davis
------------------------------------ Senior Vice President - Finance Date: March 16, 2001
James J. Davis and Chief Financial Officer
(Principal Financial Officer)
By: /s/ W. Kirk Brassfield Corporate Controller Date: March 16, 2001
------------------------------------ (Principal Accounting Officer)
W. Kirk Brassfield
By: /s/ Earnest F. Gloyna Director Date: March 16, 2001
------------------------------------
Earnest F. Gloyna
By: /s/ David L. Fist Director Date: March 16, 2001
------------------------------------
David L. Fist
By: /s/ R. Rudolph Reinfrank Director Date: March 16, 2001
------------------------------------
R. Rudolph Reinfrank
By: /s/ Bernard J. Duroc-Danner Director Date: March 16, 2001
------------------------------------
Bernard J. Duroc-Danner
By: /s/ James E. Barnes Director Date: March 16, 2001
------------------------------------
By: /s/ Simon G. Kukes Director Date: March 16, 2001
------------------------------------
Simon G. Kukes
80
1
LOAN AND SECURITY AGREEMENT
dated as of October 22, 1999
among
THE FINANCIAL INSTITUTIONS NAMED HEREIN
as Lenders,
BANK OF AMERICA, NATIONAL ASSOCIATION
as the Agent,
PARKER DRILLING COMPANY
and
THE SUBSIDIARIES OF PARKER DRILLING COMPANY NAMED HEREIN
as the Borrowers
BANK OF AMERICA, NATIONAL ASSOCIATION
Lead Arranger and Sole Book Runner
2
TABLE OF CONTENTS
ARTICLE 1 INTERPRETATION OF THIS AGREEMENT................................................................2
Section 1.1 Definitions...................................................................2
Section 1.2 Accounting Terms.............................................................31
Section 1.3 Interpretive Provisions......................................................31
ARTICLE 2 LOANS AND LETTERS OF CREDIT....................................................................32
Section 2.1 Total Facility...............................................................32
Section 2.2 Revolving Loans..............................................................33
Section 2.3 Reserved.....................................................................40
Section 2.4 Letters of Credit............................................................40
Section 2.5 Bank Products................................................................47
ARTICLE 3 INTEREST AND FEES..............................................................................47
Section 3.1 Interest.....................................................................47
Section 3.2 Conversion and Continuation Elections. .....................................48
Section 3.3 Maximum Interest Rate........................................................49
Section 3.4 Unused Line Fee. ...........................................................50
Section 3.5 Letter of Credit Fee. ......................................................50
Section 3.6 Other Fees...................................................................50
Section 3.7 Interest Limitation..........................................................50
ARTICLE 4 PAYMENTS AND PREPAYMENTS.......................................................................51
Section 4.1 Revolving Loans. ...........................................................51
Section 4.2 Reduction of Commitments; Termination of Facility. .........................52
Section 4.3 Reserved.....................................................................53
Section 4.4 Prepayments from Capex Reimbursements........................................53
Section 4.5 Prepayments from Asset Dispositions..........................................53
Section 4.6 Payments by the Borrower.....................................................53
Section 4.7 Payments as Revolving Loans..................................................54
Section 4.8 Apportionment, Application and Reversal of Payments..........................54
Section 4.9 Indemnity for Returned Payments..............................................54
Section 4.10 The Agent's and the Lenders' Books and Records; Monthly Statements...........55
ARTICLE 5 TAXES, YIELD PROTECTION AND ILLEGALITY.........................................................55
Section 5.1 Taxes........................................................................55
Section 5.2 Illegality...................................................................56
Section 5.3 Increased Costs and Reduction of Return......................................57
Section 5.4 Funding Losses...............................................................57
Section 5.5 Inability to Determine Rates.................................................58
Section 5.6 Certificates of Lenders......................................................58
Section 5.7 Survival.....................................................................58
Section 5.8 Replacement of Affected Lender...............................................58
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ARTICLE 6 COLLATERAL.....................................................................................59
Section 6.1 Grant of Security Interest...................................................59
Section 6.2 Perfection and Protection of Security Interest...............................60
Section 6.3 Location of Collateral.......................................................61
Section 6.4 Title to, Liens on, and Sale and Use of Collateral...........................62
Section 6.5 Appraisals...................................................................62
Section 6.6 Access and Examination; Confidentiality......................................62
Section 6.7 Collateral Reporting.........................................................63
Section 6.8 Accounts.....................................................................64
Section 6.9 Collection of Accounts; Payments.............................................65
Section 6.10 Inventory....................................................................66
Section 6.11 Rig Equipment................................................................67
Section 6.12 Reserved.....................................................................67
Section 6.13 Documents, Instruments, and Chattel Paper....................................67
Section 6.14 Right to Cure................................................................67
Section 6.15 Power of Attorney............................................................67
Section 6.16 The Agent's and Lenders' Rights, Duties and Liabilities......................68
Section 6.17 Site Visits, Observations and Testing........................................68
Section 6.18 Guaranties; Loan Party Joinder...............................................69
Section 6.19 Voting Rights, Distributions, Etc. in Respect of Investment Property.........69
ARTICLE 7 BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES..............................................70
Section 7.1 Books and Records............................................................70
Section 7.2 Financial Information........................................................71
Section 7.3 Notices to the Lenders.......................................................73
Section 7.4 Revisions or Updates to Schedules............................................75
ARTICLE 8 GENERAL WARRANTIES AND REPRESENTATIONS.........................................................76
Section 8.1 Authorization, Validity, and Enforceability of this Agreement and
the Loan Documents; No Conflicts...........................................76
Section 8.2 Validity and Priority of Security Interest...................................76
Section 8.3 Organization and Qualification...............................................76
Section 8.4 Corporate Name; Prior Transactions...........................................77
Section 8.5 Subsidiaries and Affiliates..................................................77
Section 8.6 Financial Statements and Projections.........................................77
Section 8.7 Capitalization...............................................................77
Section 8.8 Solvency.....................................................................77
Section 8.9 Debt. ......................................................................78
Section 8.10 Distributions................................................................78
Section 8.11 Title to Property............................................................78
Section 8.12 Real Estate; Leases..........................................................78
Section 8.13 Reserved.....................................................................78
Section 8.14 Trade Names..................................................................78
Section 8.15 Litigation...................................................................78
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Section 8.16 Restrictive Agreements.......................................................78
Section 8.17 Labor Disputes...............................................................79
Section 8.18 Environmental Laws...........................................................79
Section 8.19 No Violation of Law..........................................................80
Section 8.20 No Default...................................................................80
Section 8.21 ERISA Compliance.............................................................80
Section 8.22 Taxes........................................................................81
Section 8.23 Regulated Entities...........................................................81
Section 8.24 Use of Proceeds; Margin Regulations..........................................81
Section 8.25 Copyrights, Patents, Trademarks and Licenses, etc............................81
Section 8.26 No Material Adverse Change...................................................82
Section 8.27 Full Disclosure..............................................................82
Section 8.28 Material Agreements..........................................................82
Section 8.29 Bank Accounts................................................................82
Section 8.30 Governmental Authorization...................................................82
Section 8.31 Investment Property..........................................................82
Section 8.32 Mutual Benefit...............................................................83
Section 8.33 Loan Parties.................................................................83
Section 8.34 Non-Material Subsidiaries....................................................83
ARTICLE 9 AFFIRMATIVE AND NEGATIVE COVENANTS.............................................................83
Section 9.1 Taxes and Other Obligations..................................................83
Section 9.2 Existence and Good Standing..................................................84
Section 9.3 Compliance with Law and Agreements; Maintenance of Licenses..................84
Section 9.4 Maintenance of Property......................................................84
Section 9.5 Insurance....................................................................84
Section 9.6 Condemnation.................................................................85
Section 9.7 Environmental Laws...........................................................86
Section 9.8 Compliance with ERISA........................................................86
Section 9.9 Mergers, Consolidations or Sales.............................................87
Section 9.10 Distributions; Capital Change; Restricted Investments........................87
Section 9.11 Transactions Affecting Collateral or Obligations.............................87
Section 9.12 Guaranties...................................................................87
Section 9.13 Debt.........................................................................87
Section 9.14 Prepayment...................................................................88
Section 9.15 Transactions with Affiliates.................................................88
Section 9.16 Investment Banking and Finder's Fees.........................................88
Section 9.17 Reserved.....................................................................89
Section 9.18 Business Conducted...........................................................89
Section 9.19 Liens........................................................................89
Section 9.20 Sale and Leaseback Transactions..............................................89
Section 9.21 New Subsidiaries.............................................................89
Section 9.22 Fiscal Year..................................................................89
Section 9.23 Capital Expenditures.........................................................89
Section 9.24 Operating Lease Obligations..................................................89
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Section 9.25 Fixed Charge Coverage Ratio..................................................90
Section 9.26 Adjusted Tangible Net Worth..................................................90
Section 9.27 Use of Proceeds..............................................................90
Section 9.28 Further Assurances...........................................................90
ARTICLE 10 CONDITIONS OF LENDING..........................................................................90
Section 10.1 Conditions Precedent to Making of Loans on the Closing Date..................90
Section 10.2 Conditions Precedent to Each Loan............................................94
ARTICLE 11 DEFAULT; REMEDIES..............................................................................95
Section 11.1 Events of Default............................................................95
Section 11.2 Remedies.....................................................................98
ARTICLE 12 TERM AND TERMINATION..........................................................................100
Section 12.1 Term and Termination........................................................100
ARTICLE 13 AMENDMENTS; WAIVER; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS...................................101
Section 13.1 No Waivers; Cumulative Remedies.............................................101
Section 13.2 Amendments and Waivers......................................................101
Section 13.3 Assignments; Participations.................................................102
ARTICLE 14 THE AGENT.....................................................................................104
Section 14.1 Appointment and Authorization...............................................104
Section 14.2 Delegation of Duties........................................................105
Section 14.3 Liability of the Agent......................................................105
Section 14.4 Reliance by the Agent.......................................................105
Section 14.5 Notice of Default...........................................................106
Section 14.6 Credit Decision.............................................................106
Section 14.7 Indemnification.............................................................106
Section 14.8 The Agent in Individual Capacity............................................107
Section 14.9 Successor Agent.............................................................107
Section 14.10 Withholding Tax.............................................................108
Section 14.11 Reserved....................................................................109
Section 14.12 Collateral Matters..........................................................109
Section 14.13 Restrictions on Actions by Lenders; Sharing of Payments.....................110
Section 14.14 Agency for Perfection.......................................................111
Section 14.15 Payments by the Agent to Lenders............................................111
Section 14.16 Concerning the Collateral and the Related Loan Documents....................111
Section 14.17 Field Audit and Examination Reports; Disclaimer by Lenders..................111
Section 14.18 Relation Among Lenders......................................................112
ARTICLE 15 MISCELLANEOUS.................................................................................112
Section 15.1 Cumulative Remedies; No Prior Recourse to Collateral........................112
Section 15.2 Severability................................................................113
Section 15.3 Governing Law; Choice of Forum; Service of Process..........................113
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Section 15.4 Waiver of Jury Trial........................................................114
Section 15.5 Survival of Representations and Warranties..................................114
Section 15.6 Other Security and Guaranties...............................................114
Section 15.7 Fees and Expenses...........................................................114
Section 15.8 Notices.....................................................................115
Section 15.9 Waiver of Notices...........................................................116
Section 15.10 Binding Effect..............................................................116
Section 15.11 Indemnity of the Agent and the Lenders by the Loan Parties..................116
Section 15.12 Limitation of Liability.....................................................117
Section 15.13 Final Agreement.............................................................118
Section 15.14 Counterparts................................................................118
Section 15.15 Captions....................................................................118
Section 15.16 Right of Setoff.............................................................118
Section 15.17 Joint and Several Liability.................................................118
Section 15.18 Contribution and Indemnification among the Loan Parties.....................119
Section 15.19 Express Waivers By Loan Parties In Respect of Cross Guaranties
and Cross Collateralization...............................................120
Section 15.20 Exception to Covenants......................................................121
Section 15.21 Judgment Currency...........................................................121
Section 15.22 Agency of the Parent for each other Loan Party..............................122
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EXHIBITS
Exhibit A Form of Revolving Note
Exhibit B Form of Borrowing Base Certificate
Exhibit C Financial Statements
Exhibit D Form of Notice of Borrowing
Exhibit E Form of Notice of Conversion/Continuation
Exhibit F Form of Assignment and Acceptance
Exhibit G Form of Drilling Contract Report
Exhibit H Form of Rig Report
SCHEDULES
Schedule 1.1 Liens
Schedule 1.2 Rig Equipment
Schedule 1.3 Rig 75 Property
Schedule 6.3 Chief Executive Offices; Locations
Schedule 8.3 State(s) of Organization and Qualification
Schedule 8.4 Other Names; Previous Transactions
Schedule 8.5 Subsidiaries and Affiliates
Schedule 8.9 Debt
Schedule 8.12 Premises Address(es); Real Estate; Leases
Schedule 8.14 Trade Names
Schedule 8.15 Litigation
Schedule 8.17 Labor Matters
Schedule 8.18 Environmental Matters
Schedule 8.21 ERISA Matters
Schedule 8.28 Material Agreements
Schedule 8.29 Bank Accounts
Schedule 8.31 Investment Property
Schedule 9.9 Non-material Subsidiaries
Schedule 9.5 Insurance
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LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement, dated as of October 22, 1999, is among the financial institutions listed on the signature
pages hereof (such financial institutions, together with their respective successors and assigns, are referred to hereinafter each
individually as a "Lender" and collectively as the "Lenders"), Bank of America, National Association (the "Bank"), with an office
at 901 Main Street, Dallas, Texas 75202, as agent for the Lenders (in its capacity as agent, the "Agent"), Parker Drilling
Company, a Delaware corporation (the "Parent"), each of Anachoreta, Inc., a Nevada corporation, Canadian Rig Leasing,
Inc., an Oklahoma corporation, Choctaw International Rig Corp., a Nevada corporation, Creek International Rig Corp., a
Nevada corporation, DGH, Inc., a Texas corporation, Indocorp of Oklahoma, Inc., an Oklahoma corporation, Mallard Peru
Holdings, Inc., a Delaware corporation, Management Service Logistics, Inc., a Nevada corporation, OIME, Inc., an
Oklahoma corporation, Parco Masts and Substructures, Inc., an Oklahoma corporation, Parco, Inc., an Oklahoma
corporation, Pardril, Inc., an Oklahoma corporation, Parker-VSE, Inc., a Nevada corporation, Parker Aviation Inc., an
Oklahoma corporation, Parker Drilling (Kazakstan), Ltd., an Oklahoma corporation, Parker Drilling Company Eastern
Hemisphere, Ltd., an Oklahoma corporation, Parker Drilling Company International Limited, a Nevada corporation, Parker
Drilling Company International, Inc., a Delaware corporation, Parker Drilling Company Limited, a Nevada corporation, Parker
Drilling Company Limited, an Oklahoma corporation, Parker Drilling Company North America, Inc., a Nevada corporation,
Parker Drilling Company of Argentina, Inc., a Nevada corporation, Parker Drilling Company of Bolivia, Inc., an Oklahoma
corporation, Parker Drilling Company of Indonesia, Inc., an Oklahoma corporation, Parker Drilling Company of Mexico, Ltd.,
an Oklahoma corporation, Parker Drilling Company of New Guinea, Inc., an Oklahoma corporation, Parker Drilling Company
of Niger, an Oklahoma corporation, Parker Drilling Company of Oklahoma, Incorporated, an Oklahoma corporation, Parker
Drilling Company of Singapore, Ltd., an Oklahoma corporation, Parker Drilling Company of South America, Inc., an
Oklahoma corporation, Parker Drilling Company of South Texas, Inc., an Oklahoma corporation, Parker Drilling Offshore
Corporation, a Texas corporation, Parker Drilling Offshore USA, L.L.C., an Oklahoma limited liability company, Parker
Drilling U.S.A., Ltd., a Nevada corporation, Parker Energy Resources, Inc., a Texas corporation, Parker Measurement, Inc.,
a Texas corporation, Parker North America Operations, Inc., a Nevada corporation, Parker Pipeline Company, Inc., a Texas
corporation, Parker Technology, Inc., an Oklahoma corporation, Parker Technology, L.L.C., a Louisiana limited liability
company, Parker USA Drilling Company, a Nevada corporation, Parker Valve Company, a Texas corporation, Quail Tools,
L.L.P., an Oklahoma limited liability partnership, Saints Acquisition Company, a Delaware corporation, Selective Drilling
Corporation, and Oklahoma corporation, Total Coverage Services, a Nevada corporation, Total Funds Management
Corporation, a Nevada corporation, Total Logistics Corporation, a Nevada corporation, Universal Rig Service Corp., a
Nevada corporation (including the Parent each a "Borrower" and collectively the "Borrowers") and the other "Loan Parties" (as
defined herein) party hereto.
LOAN AND SECURITY AGREEMENT - Page 1
9
WITNESSETH
WHEREAS, the Loan Parties have requested the Lenders to make available to the Borrowers a revolving line of credit for
loans and letters of credit in an amount not to exceed $50,000,000, which extensions of credit the Borrowers will use for
working capital needs and general business purposes;
WHEREAS, the Lenders have agreed to make available to the Borrowers a revolving credit facility upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement, and for good and
valuable consideration, the receipt of which is hereby acknowledged, the Lenders, the Agent, and the Loan Parties hereby
agree as follows.
ARTICLE 1
INTERPRETATION OF THIS AGREEMENT
Section 1.1 Definitions. As used herein:
"Accounts" means, with respect to a Person, all of such Person's now owned or hereafter acquired or arising accounts, and any
other rights to payment for the sale or lease of goods or rendition of services, whether or not they have been earned by
performance.
"Account Debtor" means each Person obligated in any way on or in connection with an Account.
"ACH Transactions" means any cash management or related services including the automated clearing house transfer of funds
by the Bank for the account of any Loan Party pursuant to agreement or overdrafts.
"Adjusted Tangible Assets" means, as applied to any Person, all of such Person's assets except: (a) deferred assets, other than
prepaid insurance and prepaid taxes; (b) patents, copyrights, trademarks, trade names, franchises, goodwill, and other similar
intangibles; (c) Restricted Investments; (d) unamortized debt discount and expense; (e) in the case of a Loan Party, assets of
such Loan Party included in Intercompany Accounts; and (f) fixed assets to the extent of any write-up in the book value thereof
resulting from a revaluation effective after the Closing Date.
"Adjusted Tangible Net Worth" means, as applied to any Person, at any date: (a) the book value (after deducting related
depreciation, obsolescence, amortization, valuation, and other proper reserves as determined in accordance with GAAP) at
which the Adjusted Tangible Assets would be shown on a balance sheet of such Person at such date prepared in accordance
with GAAP less (b) the amount at which such Person's liabilities would be shown on such balance sheet, including as liabilities
all reserves for contingencies and other potential liabilities which would be required to be
LOAN AND SECURITY AGREEMENT - Page 2
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shown on such balance sheet plus, in the case of a Loan Party, liabilities of such Loan Party included in Intercompany
Accounts.
"Adjusted Tangible Net Worth Requirement" means, at any time, an amount equal to the following amounts for the periods
indicated:
Period Amount
------ ------
December 31, 1999 $90,000,000
March 31, 2000 $90,000,000
June 31, 2000 $85,000,000
September 30, 2000 $78,000,000
December 31, 2000 $70,000,000
March 31, 2001 and thereafter $70,000,000 plus the Adjusted TNW
Requirement Increase
"Adjusted TNW Requirement Increase" means an amount, determined as of the end of any fiscal quarter for Parent and its
consolidated Subsidiaries, commencing on and after March 31, 2001, equal to the sum of (i) seventy-five percent (75%) of the
amount (not less than zero dollars) of Net Income for such fiscal quarter plus (ii) the amount of all equity proceeds (net of
transaction costs) received during such fiscal quarter.
"Affiliate" means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person or which owns, directly or indirectly, ten percent (10%) or more of the outstanding equity
interest of such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the
ownership of voting securities, by contract, or otherwise.
"Agent" means the Bank, solely in its capacity as administrative agent for the Lenders, and any successor agent.
"Agent Advances" has the meaning specified in Section 2.2(i).
"Agent's Liens" means the Liens in the Collateral granted to the Agent, for the benefit of the Lenders, the Bank, and the Agent
pursuant to this Agreement and the other Loan Documents.
"Agent Related Persons" means the Agent, together with its Affiliates, and the officers, directors, employees, agents and
attorneys-in-fact of the Agent and its Affiliates.
"Aggregate Revolver Outstandings" means, at any time: the sum of (a) the unpaid balance of Revolving Loans, (b) the aggregate
amount of Pending Revolving Loans, (c) one hundred percent (100%) of the aggregate undrawn face amount of all outstanding
Letters of Credit, and (d) the aggregate amount of any unpaid reimbursement obligations in respect of Letters of Credit.
LOAN AND SECURITY AGREEMENT - Page 3
11
"Agreement" means this Loan and Security Agreement and any and all amendments, restatements, or other modifications
hereof.
"Anniversary Date" means each anniversary of the Closing Date.
"Applicable Margin" means
(a) with respect to Base Rate Revolving Loans and all other Obligations (other than LIBOR Rate Loans), one-half of one
percent (0.50%); and
(b) with respect to LIBOR Revolving Loans two and one-half percent (2.50%);
in each case subject to adjustment from time to time thereafter to the applicable percentage specified corresponding to the
Leverage Ratio, as set forth below, respectively:
Base Rate LIBOR
Leverage Ratio Revolving Loans Revolving Loans
-------------- --------------- ---------------
Greater than or equal to 7.0 to 1.0 0.75% 2.75%
Less than 7.0 to 1.0 but greater 0.50% 2.50%
than or equal to 4.0 to 1.0
Less than 4.0 to 1.0 but greater 0.25% 2.25%
than or equal to 3.2 to 1.0
Less than 3.2 to 1.0 0.25% 2.00%
For the purpose of determining any such adjustments to the Applicable Margin, the Leverage Ratio shall be determined based
upon the Parent's consolidated financial statements for its respective fiscal quarter periods, beginning with the fiscal quarter
ending December 31, 1999, delivered to the Agent as required by Section 7.2(c), and any such adjustment, if any, shall
become effective as of the date, on or after the first day of the calendar month following the month in which such financial
statements are delivered to the Agent, when any Revolving Loan is made, or any LIBOR Revolving Loan is continued or
converted, as the case may be.
"Approved Foreign Account" means an Eligible Foreign Account of a Borrower which is approved by the Agent in its sole
discretion for inclusion in the Borrowing Base.
"Assignee" has the meaning specified in Section 13.3(a).
"Assignment and Acceptance" has the meaning specified in Section 13.3(a).
"Attorney Costs" means and includes all fees, expenses and disbursements of any law firm or other counsel engaged by the
Agent.
LOAN AND SECURITY AGREEMENT - Page 4
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"Availability" means, at any time, (a) the Borrowing Base minus (b) the Aggregate Revolver Outstandings.
"Bank" means Bank of America, National Association, a national banking association, or any successor entity thereto.
"Bank Products" means any one or more of the following types of services or facilities extended to any Loan Party by the Bank
or any Affiliate of the Bank in reliance on the Bank's agreement to indemnify such Affiliate: (a) credit cards; (b) ACH
Transactions; (c) Interest Rate Protection Agreements; and
(d) foreign exchange contracts.
"Bank Product Reserves" means all reserves which the Agent from time to time establishes in its sole discretion for the Bank
Products then provided and outstanding.
"Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C.
Section 101 et seq.).
"Base Rate" means, for any day, the rate of interest in effect for such day as publicly announced from time to time by the Bank
in Charlotte, North Carolina as its "prime rate" (the "prime rate" being a rate set by the Bank based upon various factors
including the Bank's costs and desired return, general economic conditions and other factors, and is used as a prime point for
pricing some loans, which may be priced at, above, or below such announced rate). Any change in the prime rate announced
by the Bank shall take effect at the opening of business on the day specified in the public announcement of such change. Each
Interest Rate based upon the Base Rate shall be adjusted simultaneously with any change in the Base Rate.
"Base Rate Loans" means the Base Rate Revolving Loans.
"Base Rate Revolving Loan" means a Revolving Loan during any period in which it bears interest based on the Base Rate.
"Blocked Account Agreement" means an agreement among one or more of the Loan Parties, the Agent and a Clearing Bank, in
form and substance satisfactory to the Agent, concerning the collection of payments which represent the proceeds of Accounts
or of any other Collateral.
"Book Value of Rig Materials and Supplies" means the book value of Rig Materials and Supplies, determined according to
GAAP.
"Borrower" and "Borrowers" have the meanings specified for such terms in the introductory paragraph of this Agreement.
"Borrowing" means a borrowing hereunder consisting of Revolving Loans made on the same day by the Lenders to the
Borrowers (or by the Bank in the case of a Borrowing funded by Non-Ratable Loans) or by the Agent in the case of a
Borrowing consisting of an Agent Advance.
LOAN AND SECURITY AGREEMENT - Page 5
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"Borrowing Base" means, at any time, an amount equal to the lesser of
(a) the Maximum Revolver Amount or
(b) the sum of
(i) eighty percent (80.0%) of the Net Amount of Eligible Accounts; plus
(ii) eighty percent (80.0%) of the Net Amount of Approved Foreign Accounts, provided, that the amount includable under this
clause
(b)(ii) shall not exceed twenty-five percent (25.0%) of the sum of the Net Amount of Eligible Accounts plus the Net Amount of
Eligible Foreign Accounts; plus
(iii) the lesser of
(1) forty percent (40.0%) of the aggregate Orderly Liquidation Value of Rig Equipment or
(2) the Rig Component Maximum or
(3) 50% of the Book Value of Rig Materials and Supplies, minus
(iv) the sum of (A) reserves for accrued interest on the Obligations, (B) the Environmental Compliance Reserve, (C) the Bank
Product Reserves, and (D) all other reserves which the Agent deems necessary in the exercise of its reasonable credit judgment
to maintain with respect to any Borrower, including reserves for any amounts which the Agent or any Lender may be obligated
to pay in the future for the account of any Loan Party.
"Borrowing Base Certificate" means a certificate by a Responsible Officer of each of the Borrowers, substantially in the form of
Exhibit B (or another form acceptable to the Agent) setting forth the calculation of the Borrowing Base, including a calculation
of each component thereof, as of the close of business no more than five (5) Business Days prior to the date of such certificate,
all in such detail as shall be satisfactory to the Agent. All calculations of the Borrowing Base in connection with the preparation
of any Borrowing Base Certificate shall originally be made by the Borrowers and certified to the Agent; provided that the Agent
shall have the right to review and adjust, in the exercise of its reasonable credit judgment, any such calculation (a) to reflect its
reasonable estimate of declines in value of any of the Collateral described therein, and (b) to the extent that such calculation is
not in accordance with this Agreement.
"Business Day" means (a) any day that is not a Saturday, Sunday, or a day on which banks in Dallas, Texas or Charlotte,
North Carolina are required or permitted to be closed, and (b) with respect to all notices, determinations, fundings and
payments in connection with the LIBOR Rate or
LOAN AND SECURITY AGREEMENT - Page 6
14
LIBOR Rate Loans, any day that is a Business Day pursuant to clause (a) above and that is also a day on which trading in
Dollars is carried on by and between banks in the London interbank market.
"Capex Reimbursements" means cash payments paid to Parent or a Restricted Subsidiary by an Account Debtor in respect of
Capital Expenditures previously made by Parent or such Restricted Subsidiary pursuant to an agreement between Parent or
such Restricted Subsidiary and such Account Debtor.
"Capital Adequacy Regulation" means any guideline, request or directive of any central bank or other Governmental Authority,
or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any
bank or of any corporation controlling a bank.
"Capital Expenditures" means all payments due (whether or not paid) in respect of the cost of any fixed asset or improvement,
or replacement, substitution, or addition thereto, which has a useful life of more than one year, including, without limitation,
those costs arising in connection with the direct or indirect acquisition of such asset by way of increased product or service
charges or in connection with a Capital Lease.
"Capital Lease" means any lease of property which, in accordance with GAAP, should be reflected as a capital lease on a
balance sheet.
"Capital Stock" means any and all corporate stock, units, shares, partnership interests, limited partnership interests, membership
interests, equity interests, rights, securities or other equivalent evidences of ownership (however designated) issued by any
entity (whether a corporation, partnership, limited liability company, limited partnership or any other type of entity).
"Change of Control" means the occurrence of any of the following: (a) except as allowed by Section 9.9, the adoption of a plan
relating to the liquidation or dissolution of the Parent or any Borrower, (b) the acquisition by any Person or group (as such term
is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of a direct or indirect majority in interest
(more than 50%) of the voting power of the voting stock of the Parent by way of merger or consolidation or otherwise, (c) the
first day on which a majority of the members of the Management Group of the Parent are not Continuing Directors,
(d) except as allowed by Section 9.9, any Borrower shall cease to be a Wholly-Owned Subsidiary of the Parent.
"Clearing Bank" means the Bank or any other banking institution with whom a Payment Account has been established pursuant
to a Blocked Account Agreement.
"Closing Date" means the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute, and regulations
promulgated thereunder.
"Collateral" has the meaning specified in Section 6.1.
LOAN AND SECURITY AGREEMENT - Page 7
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"Commitment" means, at any time with respect to a Lender, the principal amount set forth beside such Lender's name under the
heading "Commitment" on the signature pages of this Agreement or on the signature page of the Assignment and Acceptance
pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 13.3, as such
Commitment may be adjusted from time to time in accordance with the provisions of Section 13.3, and "Commitments" means,
collectively, the aggregate amount of the commitments of all of the Lenders; provided, that the aggregate amount of the
Commitments shall be deemed automatically reduced (with each Commitment being simultaneously reduced pro-rata) by the
amount of any reduction of the Maximum Revolver Amount pursuant to Section 4.2.
"Contaminant" means any waste, pollutant, hazardous substance, toxic substance, hazardous waste, special waste, petroleum or
petroleum-derived substance or waste, asbestos in any form or condition, polychlorinated biphenyls ("PCBs"), or any
constituent of any such substance or waste.
"Continuing Directors" means, with respect to any Loan Party, as of any date of determination, any duly appointed member of
the Management Group of such Loan Party or any general partner of such Loan Party, who (a) was a member of such
Management Group on the Closing Date or (b) was nominated for election or elected to such Management Group with the
affirmative vote of a majority of the Management Group who were members of such Management Group at the time of such
nomination or election.
"Credit Support" has the meaning specified in Section 2.4(a).
"Current Assets" means, with respect to a Person, at any date the amount at which the current assets of such Person (other than
assets constituting Intercompany Accounts) would be shown on a balance sheet of such Person, prepared in accordance with
GAAP.
"Current Liabilities" means, with respect to a Person, at any date the amount at which the current liabilities of such Person
would be shown on a balance sheet of such Person, prepared in accordance with GAAP.
"Debt" means, with respect to a Person, all liabilities, obligations, and indebtedness of such Person to any other Person, of any
kind or nature, now or hereafter owing, arising, due or payable, howsoever evidenced, created, incurred, acquired or owing,
whether primary, secondary, direct, contingent, fixed or otherwise, and including, without in any way limiting the generality of
the foregoing (without duplication): (a) liabilities and obligations to trade creditors; (b) in the case of a Loan Party, all
Obligations; (c) all obligations and liabilities of any Person, whether or not owed by such Person, secured by any Lien on such
Person's property, even though such Person shall not have assumed or become liable for the payment thereof; provided,
however, that all such obligations and liabilities which are limited in recourse to such property shall be included in Debt only to
the extent of the book value of such property as would be shown on a balance sheet of such Person prepared in accordance
with GAAP; (d) all obligations or liabilities created or arising under any Capital Lease or conditional sale or other title retention
agreement with respect to property used or acquired by such Person, even if the rights and remedies of the lessor, seller or
lender thereunder are limited to repossession of such property; provided, however, that all such obligations and liabilities which
are
LOAN AND SECURITY AGREEMENT - Page 8
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limited in recourse to such property shall be included in Debt only to the extent of the book value of such property as would be
shown on a balance sheet of such Person prepared in accordance with GAAP; and (e) all obligations and liabilities under
Guaranties.
"Debt For Borrowed Money" means, with respect to any Person (and without duplication with respect to Parent and its
subsidiaries on a consolidated basis), Debt for borrowed money or as evidenced by notes, bonds, debentures or similar
evidences of any such Debt of such Person, the deferred and unpaid purchase price of any property or business (other than
trade accounts payable incurred in the ordinary course of business and constituting current liabilities) and all obligations under
Capital Leases. "Debt for Borrowed Money" includes Debt for interest which is capitalized but excludes Debt for interest that is
not capitalized.
"Default" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or
otherwise remedied during such time) constitute an Event of Default.
"Defaulting Lender" has the meaning specified in Section 2.2(g)(ii).
"Default Rate" means a fluctuating per annum interest rate at all times equal to the sum of (a) the otherwise applicable Interest
Rate plus (b) two percent (2.0%). The Default Rate shall be adjusted simultaneously with any change in the applicable Interest
Rate. In addition, with respect to Letters of Credit, the Default Rate shall mean an increase in the Letter of Credit Fee by two
percent (2.0%).
"Distribution" means, in respect of any Person: (a) the payment or making of any dividend or other distribution of property in
respect of its Capital Stock (or any options or warrants therefor), other than distributions in its Capital Stock (or any options or
warrants therefor) of the same class; or
(b) the redemption or other acquisition by such Person of any of its Capital Stock (or any options or warrants therefor) (except
when solely in exchange for such Capital Stock or any options or warrants therefor) unless made contemporaneously from the
net proceeds of a sale of such Capital Stock.
"DOL" means the United States Department of Labor or any successor department or agency.
"Dollar" and "$" means dollars in the lawful currency of the United States.
"Drilling Contract" means a written agreement between a Loan Party and a Person pursuant to which such Loan Party agrees to
perform services for such Person and such Person agrees to pay such Loan Party for such services, on terms specified therein.
"Drilling Contract Report" means a report prepared by or for the Loan Parties, in the ordinary course of business, reflecting
Drilling Contract day rates, rig utilization and related gross margins, in form as appears in Exhibit G or otherwise in form
satisfactory to the Agent.
"Domestic Subsidiary" means each direct or indirect Subsidiary of Parent formed under the laws of the United States or any
state thereof.
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"EBITDA" means, for any period, the sum of Net Income, plus, the sum of the following to the extent included in the
determination of Net Income: the amount, if any, by which Interest Expense exceeds interest income, plus any provision for (or
minus any credit for or with respect to) income or franchise taxes (including without limitation, reserves for deferred taxes), plus
depreciation and amortization expense.
"Eligible Accounts" means the Accounts of a Borrower which the Agent in the exercise of its reasonable commercial discretion
determines to be Eligible Accounts. Without limiting the discretion of the Agent to establish other criteria of ineligibility, Eligible
Accounts shall not, unless the Agent in its sole discretion elects, include any Account:
(a) with respect to which more than ninety (90) days have elapsed since the date of the original invoice therefor or it is more
than sixty (60) days past due;
(b) with respect to which any of the representations, warranties, covenants, and agreements contained in Section 6.8 are not or
have ceased to be complete and correct or have been breached;
(c) with respect to which, in whole or in part, a check, promissory note, draft, trade acceptance or other instrument for the
payment of money has been received, presented for payment and returned uncollected for any reason;
(d) which represents a progress billing (as hereinafter defined) or as to which such Borrower has extended the time for payment
without the consent of the Agent; for the purposes hereof, "progress billing" means any invoice for goods sold or leased or
services rendered under a contract or agreement pursuant to which the Account Debtor's obligation to pay such invoice is
conditioned upon such Borrower's completion of any further performance under the contract or agreement;
(e) with respect to which any one or more of the following events has occurred to the Account Debtor on such Account: death
or judicial declaration of incompetency of an Account Debtor who is an individual; the filing by or against the Account Debtor
of a request or petition for liquidation, reorganization, arrangement, adjustment of debts, adjudication as a bankrupt,
winding-up, or other relief under the bankruptcy, insolvency, or similar laws of the United States, any state or territory thereof,
or any foreign jurisdiction, now or hereafter in effect; the making of any general assignment by the Account Debtor for the
benefit of creditors; the appointment of a receiver or trustee for the Account Debtor or for any of the assets of the Account
Debtor, including, without limitation, the appointment of or taking possession by a "custodian," as defined in the Bankruptcy
Code; the institution by or against the Account Debtor of any other type of insolvency proceeding (under the Bankruptcy Code
or otherwise) or of any formal or informal proceeding for the dissolution or liquidation of, settlement of claims against, or
winding up of affairs of, the Account Debtor; the sale, assignment, or transfer of all or any material part of the assets of the
Account Debtor; the nonpayment generally by the Account Debtor of its debts as they become due; or the cessation of the
business of the Account Debtor as a going concern;
LOAN AND SECURITY AGREEMENT - Page 10
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(f) if fifty percent (50.0%) or more of the aggregate Dollar amount of outstanding Accounts owed at such time by the Account
Debtor thereon is classified as ineligible under the other criteria set forth herein or otherwise established by the Agent;
(g) owed by an Account Debtor which: (i) does not maintain its chief executive office in the United States or Canada; or (ii) is
not organized under the laws of the United States or Canada or any state or province thereof; or (iii) is the government of any
foreign country or sovereign state, or of any state, province, municipality, or other political subdivision thereof, or of any
department, agency, public corporation, or other instrumentality thereof; except to the extent that such Account is secured or
payable by a letter of credit satisfactory to the Agent in its discretion;
(h) owed by an Account Debtor which is an Affiliate or employee of such Borrower;
(i) except as provided in clause (k) below, with respect to which either the perfection, enforceability, or validity of the Agent's
Lien in such Account, or the Agent's right or ability to obtain direct payment to the Agent of the proceeds of such Account, is
governed by any federal, state, or local statutory requirements other than those of the UCC;
(j) owed by an Account Debtor to which a Loan Party is indebted in any way, or which is subject to any right of setoff or
recoupment by the Account Debtor, unless the Account Debtor has entered into an agreement acceptable to the Agent to
waive setoff rights; or if the Account Debtor thereon has disputed liability or made any claim with respect to any other Account
due from such Account Debtor; but in each such case only to the extent of such indebtedness, setoff, recoupment, dispute, or
claim;
(k) owed by the government of the United States, or any department, agency, public corporation, or other instrumentality
thereof, unless the Federal Assignment of Claims Act of 1940, as amended (31 U.S.C. Section 3727 et seq.), and any other
steps necessary to perfect the Agent's Lien therein, have been complied with to the Agent's satisfaction with respect to such
Account;
(l) owed by any state, municipality, or other political subdivision of the United States, or any department, agency, public
corporation, or other instrumentality thereof and as to which the Agent determines that its Lien therein is not or cannot be
perfected;
(m) which represents a sale on a bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment, or other
repurchase or return basis;
(n) which is evidenced by a promissory note or other instrument or by chattel paper;
LOAN AND SECURITY AGREEMENT - Page 11
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(o) if the Agent believes, in the exercise of its reasonable judgment, that the prospect of collection of such Account is impaired
or that the Account may not be paid by reason of the Account Debtor's financial inability to pay;
(p) with respect to which the Account Debtor is located in any state requiring the filing of a Notice of Business Activities Report
or similar report in order to permit such Borrower to seek judicial enforcement in such State of payment of such Account,
unless such Borrower has qualified to do business in such state or has filed a Notice of Business Activities Report or equivalent
report for the then current year; or
(q) which arises out of a sale not made in the ordinary course of such Borrower's business;
(r) with respect to which the goods giving rise to such Account have not been shipped and delivered to and accepted by the
Account Debtor or the services giving rise to such Account have not been performed by such Borrower, and, if applicable,
accepted by the Account Debtor, or the Account Debtor revokes its acceptance of such goods or services;
(s) owed by an Account Debtor which is obligated to such Borrower respecting Accounts the aggregate unpaid balance of
which exceeds twenty-five percent (25.0%) of the aggregate unpaid balance of all Accounts owed to such Borrower at such
time by all of such Borrower's Account Debtors, but only to the extent of such excess;
(t) which arises out of an enforceable contract or order which, by its terms, forbids, restricts or makes void or unenforceable
the granting of a Lien by such Borrower to the Agent with respect to such Account; or
(u) which is not subject to a first priority and perfected security interest in favor of the Agent for the benefit of the Lenders.
If any Account at any time ceases to be an Eligible Account, then such Account shall promptly be excluded from the calculation
of Eligible Accounts.
"Eligible Assignee" means (a) a commercial bank, commercial finance company or other asset based lender, having total assets
in excess of $1,000,000,000; (b) any Lender listed on the signature page of this Agreement;
(c) any Affiliate of any Lender; and (d) if an Event of Default exists, any Person reasonably acceptable to the Agent.
"Eligible Foreign Account" means an Account which is excluded from Eligible Accounts solely by application of paragraph (i),
paragraph (u) and clauses (i) or (ii) of paragraph (g) of the definition of "Eligible Accounts" in this Section 1.1, in each case due
solely to the fact that the Account Debtor thereon does not maintain its chief executive office in the United States or Canada or
is not organized under the laws of the United States or Canada or any state or province thereof
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"Environmental Claims" means all claims, however asserted, by any Governmental Authority or other Person alleging potential
liability or responsibility for violation of any Environmental Law, or for a Release or injury to the environment.
"Environmental Compliance Reserve" means any reserve which the Agent, after the Closing Date, establishes in its reasonable
discretion from time to time for amounts that are reasonably likely to be expended by a Loan Party in order for such Loan
Party and its operations and property (a) to comply with any notice from a Governmental Authority asserting material
non-compliance with Environmental Laws, or (b) to correct any such material non-compliance identified in a report delivered to
the Agent and the Lenders pursuant to
Section 9.7.
"Environmental Laws" means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and
codes, together with all administrative orders, directed duties, licenses, authorizations and permits of, and agreements with, any
Governmental Authority, in each case relating to environmental, health, safety and land use matters.
"Environmental Lien" means a Lien in favor of any Governmental Authority for (a) any liability under Environmental Laws, or
(b) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of
a Contaminant into the environment.
"Environmental Property Transfer Act" means any applicable requirement of law that conditions, restricts, prohibits or requires
any notification or disclosure triggered by the closure of any property or the transfer, sale or lease of any property or deed or
title for any property for environmental reasons, including, but not limited to, any so-called "Environmental Cleanup
Responsibility Acts" or "Responsible Property Transfer Acts."
"Equipment" means, with respect to a Person, all of such Person's now owned and hereafter acquired machinery, equipment,
furniture, furnishings, fixtures, and other tangible personal property (except Inventory), including motor vehicles with respect to
which a certificate of title has been issued, aircraft, dies, tools, jigs, drilling rigs, and office equipment, as well as all of such
types of property leased by such Person and all of such Person's rights and interests with respect thereto under such leases
(including, without limitation, options to purchase); together with all present and future additions and accessions thereto,
replacements therefor, component and auxiliary parts and supplies used or to be used in connection therewith, and all
substitutes for any of the foregoing, and all manuals, drawings, instructions, warranties and rights with respect thereto; wherever
any of the foregoing is located. "Equipment" includes, without limitation, the Rig Equipment.
"ERISA" means the Employee Retirement Income Security Act of 1974, and regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with a Loan Party within
the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section
412 of the Code).
LOAN AND SECURITY AGREEMENT - Page 13
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"ERISA Event" means (a) a Reportable Event with respect to a Pension Plan, (b) a withdrawal by a Loan Party or any ERISA
Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as
defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section
4062(e) of ERISA, (c) a complete or partial withdrawal by a Loan Party or any ERISA Affiliate from a Multi-employer Plan or
notification that a Multi-employer Plan is in reorganization, (d) the filing of a notice of intent to terminate, the treatment of a Plan
amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to
terminate a Pension Plan or Multi-employer Plan, (e) the occurrence of an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan or Multi-employer Plan, or (f) the imposition of any liability under Title IV of ERISA, other than
for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon a Loan Party or any ERISA Affiliate.
"Event of Default" has the meaning specified in Section 11.1.
"Exchange Act" means the Securities Exchange Act of 1934, and regulations promulgated thereunder.
"Existing Obligations" has the meaning specified for such term within the definition of "Obligations" as provided in this Section
1.1.
"FDIC" means the Federal Deposit Insurance Corporation, and any Governmental Authority succeeding to any of its principal
functions.
"Federal Funds Rate" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.15(519)") on
the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Agent of
the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by
each of three leading brokers of Federal funds transactions in New York City selected by the Agent.
"Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any successor thereto.
"Financial Statements" means, according to the context in which it is used, the financial statements referred to in Section 8.6 or
any other financial statements required to be given to the Lenders pursuant to this Agreement.
"Fiscal Year" means the Parent's fiscal year for financial accounting purposes. The current Fiscal Year of the Parent will end on
December 31, 1999.
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"Fixed Assets" means, with respect to a Person, the Equipment and Real Estate of such Person.
"Fixed Charge Coverage Ratio" means, for any period, determined for the Parent and the Restricted Subsidiaries in accordance
with GAAP, the ratio of (a) EBITDA, minus (i) an amount, not less than zero Dollars ($0.00), equal to the remainder of (A)
Capital Expenditures, minus (B) the gross amount of assets sold, minus (C) the principal amount of Purchase Money
Indebtedness incurred in connection with the Capital Expenditures included in clause (A) preceding, minus (D) Capex
Reimbursements paid to the Agent pursuant to Section 4.4, minus (E) an amount, not less than zero Dollars ($0.00), equal to
cash and cash equivalents as of the first day of such period less the unpaid balance of Revolving Loans as of such day, minus
(ii) the cash amount of Distributions paid (other than Distributions paid to the Parent or a Restricted Subsidiary of the Parent)
minus cash taxes paid plus proceeds received from the issuance of Capital Stock, in each case during such period to (b) the
sum of (i) current maturities of long term debt plus (ii) Interest Expense.
"Foreign Currency Reimbursements" means reimbursement obligations, denominated and payable in a currency other than
Dollars, owing to a Loan Party by an Account Debtor pursuant to an agreement between such Loan Party and such Account
Debtor, representing reimbursement in respect of costs or expenses incurred by such Loan Party in connection with services
rendered, or to be rendered, by such Loan Party for such Account Debtor.
"Foreign Subsidiary" means each direct or indirect Subsidiary of Parent that is not a Domestic Subsidiary.
"Funding Date" means the date on which a Borrowing occurs.
"GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the
U.S. accounting profession), which are applicable to the circumstances as of the Closing Date.
"General Intangibles" means, with respect to a Person, all of such Person's now owned or hereafter acquired general intangibles
(excluding patents, copyrights and trademarks), choses in action and causes of action and all other intangible personal property
of such Person of every kind and nature (other than Accounts), including, without limitation, all contract rights, corporate or
other business records, blueprints, plans, specifications, computer software, customer lists, registrations, licenses, franchises,
tax refund claims, any funds which may become due to such Person in connection with the termination of any Plan or other
employee benefit plan or any rights thereto and any other amounts payable to such Person from any Plan or other employee
benefit plan, rights and claims against carriers and shippers, rights to indemnification, business interruption insurance and
proceeds thereof, property, casualty or any similar type of insurance and any proceeds thereof, proceeds of insurance covering
the lives of key employees on which such Person is beneficiary, and any letter of credit, guarantee, claim, security interest or
other security held by or granted to such Person.
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"Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital
ownership or otherwise, by any of the foregoing.
"Guaranty" means, with respect to any Person, all obligations of such Person which in any manner directly or indirectly
guarantee or assure, or in effect guarantee or assure, the payment or performance of any indebtedness, dividend or other
obligations of any other Person (the "guaranteed obligations"), or assure or in effect assure the holder of the guaranteed
obligations against loss in respect thereof, including any such obligations incurred through an agreement, contingent or
otherwise: (a) to purchase the guaranteed obligations or any property constituting security therefor; (b) to advance or supply
funds for the purchase or payment of the guaranteed obligations or to maintain a working capital or other balance sheet
condition; or (c) to lease property or to purchase any debt or equity securities or other property or services.
"Guaranty Agreement" means a Parent Guaranty or a Subsidiary Guaranty, as the case may be.
"Indentures" means, collectively, Indenture 1996, Indenture 1998 and Indenture 1997.
"Indenture 1996" means the certain Indenture dated as of November 12, 1996, as supplemented by the certain First
Supplemental Indenture dated as of April 1, 1997, the Second Supplemental Indenture dated as of May 30, 1997 and the
Third Supplemental Indenture dated as of March 13, 1998, between Parker Drilling Company and certain of its Subsidiaries
and Texas Commerce Bank National Association, Trustee, in respect of $300,000,000 9 3/4% Senior Notes due 2006, as
such indenture may be renewed, supplemented, amended, or otherwise modified.
"Indenture 1997" means the certain Indenture dated as of July 25, 1997 between Parker Drilling Company and Texas
Commerce Bank National Association, Trustee, in respect of $175,000,000 5 1/2% Convertible Subordinated Notes due
2004, as such indenture may be renewed, supplemented, amended, or otherwise modified.
"Indenture 1998" means the certain Indenture dated as of March 11, 1998 between Parker Drilling Company and certain of its
Subsidiaries and Texas Commerce Bank National Association, Trustee, in respect of $450,000,000 9 3/4% Senior Notes due
2006, as such indenture may be renewed, supplemented, amended, or otherwise modified.
"Intercompany Accounts" means all assets and liabilities, however arising, which are due to any Loan Party from, which are due
from any Loan Party to, or which otherwise arise from any transaction by any Loan Party with, any Affiliate.
"Intercompany Debt" means Debt owing by a Loan Party to the Parent or to any Subsidiary of the Parent.
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"Intercompany Subordination Agreement" means the certain Subordination Agreement dated as of the Closing Date among the
Agent, the Loan Parties and any other Subsidiary of the Parent to whom any Intercompany Debt is owing, and any renewals,
extensions, modifications, amendments or restatements thereof.
"Interest Expense" means, for any period, the interest expense for such period, determined on a consolidated basis in
accordance with GAAP.
"Interest Period" means, as to any LIBOR Rate Loan, the period commencing on the Funding Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or continued as a LIBOR Rate Loan, and ending on the
date one, two, three or six months thereafter as selected by the Borrowers in a Notice of Borrowing or Notice of
Conversion/Continuation, as the case may be; provided that:
(i) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the
following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month,
in which event such Interest Period shall end on the preceding Business Day;
(ii) any Interest Period pertaining to a LIBOR Rate Loan that begins on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the
last Business Day of the calendar month at the end of such Interest Period; and
(iii) no Interest Period shall extend beyond the Stated Termination Date.
"Interest Rate" means each or any of the interest rates, including the Default Rate, set forth in Section 3.1.
"Interest Rate Protection Agreement" means (a) any and all rate swap transactions, basis swaps, forward rate transactions,
commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond
price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate
options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap
transactions, cross-currency rate swap transactions, currency options, or any other similar transactions or any combination of
any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed
by or subject to any master agreement, or (b) any and all transactions of any kind, and the related confirmations, which are
subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and
Derivatives Associations, Inc., or any other master agreement (any such master agreement, together with any related schedules,
as amended, restated, extended, supplemented or otherwise modified in writing from time to time, a "Master Agreement),
including but not limited to any such obligations or liabilities under any Master Agreement.
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"Inventory" means, with respect to a Person, all of such Person's now owned and hereafter acquired inventory, goods and
merchandise, wherever located, to be furnished under any contract of service or held for sale or lease, all returned goods, raw
materials, other materials and supplies (including without limitation rig materials and supplies and other materials and supplies
used or consumed in connection with maintaining or operating drilling rigs) of any kind, nature or description which are or might
be consumed in such Person's business or used in connection with the packing, shipping, advertising, selling or finishing of such
goods, merchandise and such other personal property, and all documents of title or other documents representing them.
"Investment Property" means, with respect to a Person, all of such Person's right title and interest in and to any and all: (a)
securities whether certificated or uncertificated; (b) securities entitlements; (c) securities accounts; (d) commodity contracts; or
(e) commodity accounts.
"IRS" means the Internal Revenue Service and any Governmental Authority succeeding to any of its principal functions under
the Code.
"Latest Projections" means: (a) on the Closing Date and thereafter until the Agent receives new projections pursuant to Section
7.2(f), the projections of the financial condition, results of operations, and cash flow, in each case for the Loan Parties for the
period commencing on January 1, 1999, and ending on December 31, 2000, and delivered to the Agent prior to the Closing
Date; and (b) thereafter, the projections most recently received by the Agent pursuant to Section 7.2(f).
"Lender" and "Lenders" have the meanings specified in the introductory paragraph hereof and shall include the Agent to the
extent of any Agent Advance outstanding and the Bank to the extent of any Non-Ratable Loan outstanding; provided that no
such Agent Advance or Non-Ratable Loan shall be taken into account in determining any Lender's Pro Rata Share.
"Letter of Credit" means a letter of credit issued or caused to be issued for the account of a Loan Party pursuant to Section
2.4.
"Letter of Credit Fee" has the meaning specified in Section 3.6.
"Letter of Credit Fee Percentage" means, as of the Closing Date, two percent (2.00%), subject to adjustment from time to time
thereafter to the percentage specified corresponding to the Leverage Ratio, as set forth below, respectively:
Letter of Credit
Leverage Ratio Fee Percentage
-------------- ----------------
Greater than or equal to 7.0 to 1.0 2.25%
Less than 7.0 to 1.0 but greater 2.00%
than or equal to 4.0 to 1.0
Less than 4.0 to 1.0 1.75%
LOAN AND SECURITY AGREEMENT - Page 18
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For the purpose of determining any such adjustments to the Letter of Credit Fee Percentage, the Leverage Ratio shall be
determined based upon Parent's consolidated financial statements for its respective fiscal quarter periods, beginning with the
fiscal quarter ending December 31, 1999, delivered to the Agent as required by Section 7.2(c), and any such adjustment, if
any, shall become effective as of the first day of the calendar month following the month in which such financial statements are
delivered to the Agent.
"Letter of Credit Issuer" means the Bank, any affiliate of the Bank or any other financial institution that issues any Letter of
Credit pursuant to this Agreement.
"Leverage Ratio" means, as of any date, the ratio (determined for the Parent and its Subsidiaries on a consolidated basis in
accordance with GAAP) of
(a) the sum of (i) Debt for Borrowed Money (but excluding Debt outstanding under the Indenture 1997 and Debt owed by a
Loan Party to a Subsidiary that is not a Loan Party, provided that such Debt is Subordinated Debt), minus cash and cash
equivalents, plus (ii) the unfunded amount of all Letters of Credit, to (b) EBITDA.
"LIBOR Interest Payment Date" means, with respect to a LIBOR Rate Loan, the last day of each Interest Period applicable to
such Loan.
"LIBOR Rate" means, for any Interest Period, with respect to LIBOR Rate Loans, the rate of interest per annum determined
pursuant to the following formula:
Offshore Base Rate LIBOR Rate = ------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Offshore Base Rate" means the rate per annum appearing on Telerate Page 3750 (or any successor page) as the London
interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first
day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the
Offshore Base Rate shall be, for any Interest Period, the rate per annum appearing on Reuters Screen LIBO Page as the
London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to
the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is
specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. If for any reason
none of the foregoing rates is available, the Offshore Base Rate shall be, for any Interest Period, the rate per annum determined
by the Agent as the rate of interest at which dollar deposits in the approximate amount of the LIBOR Rate Loan comprising
part of such Borrowing would be offered by the Bank's London Branch to major banks in the offshore dollar market at their
request at or about 11:00 a.m.
LOAN AND SECURITY AGREEMENT - Page 19
27
(London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period.
"Eurodollar Reserve Percentage" means, for any day during any Interest Period, the reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1%) in effect on such day applicable to the Bank under regulations issued from
time to time by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as
"Eurocurrency liabilities"). The Offshore Rate for each outstanding LIBOR Rate Loan shall be adjusted automatically as of the
effective date of any change in the Eurodollar Reserve Percentage.
"LIBOR Rate Loans" means, collectively, the LIBOR Revolving Loans.
"LIBOR Revolving Loan" means a Revolving Loan during any period in which it bears interest based on the LIBOR Rate.
"Lien" means: (a) any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of the
property, whether such interest is based on the common law, statute, or contract, and including a security interest, charge,
claim, or lien arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement,
agreement, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes; (b) to
the extent not included under clause (a), any reservation, exception, encroachment, easement, right-of-way, covenant,
condition, restriction, lease or other title exception or encumbrance affecting property; and (c) any contingent or other
agreement to provide any of the foregoing.
"Loan Account" means the loan account of the Borrowers, which account shall be maintained by the Agent.
"Loan Documents" means this Agreement, the Revolving Notes, each Guaranty Agreement, the Maritime Security Documents,
the Intercompany Subordination Agreement and any other agreements, instruments, and documents heretofore, now or
hereafter evidencing, securing, guaranteeing or otherwise relating to the Obligations, the Collateral, or any other aspect of the
transactions contemplated by this Agreement.
"Loan Party" means the Parent and each Domestic Subsidiary of the Parent, and in each case their respective successors and
assigns, and "Loan Parties" means all of such Persons, collectively.
"Loans" means, collectively, all loans and advances provided for in Article 2.
"Majority Lenders" means at any time Lenders whose Pro Rata Shares aggregate more than fifty-one percent (51.0%) as such
percentage is determined under the definition of Pro Rata Share set forth herein.
LOAN AND SECURITY AGREEMENT - Page 20
28
"Management Group" means, as of any date of determination, the board of directors, board of managers or similar constituency
having management authority in respect of an entity under any Requirement of Law.
"Margin Stock" means "margin stock" as such term is defined in Regulation T, U or X of the Federal Reserve Board.
"Maritime Security Documents" means the certain Preferred Fleet Mortgage dated as of the Closing Date executed by Parker
Drilling Offshore USA, L.L.C. in favor of the Agent, for the benefit of the Lenders, and any other agreements, documents, or
instruments executed or delivered in connection therewith, in each case as such agreements, documents, or instruments may be
renewed, extended, amended, restated, or otherwise modified.
"Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the operations, business,
properties, condition (financial or otherwise) or prospects of the Parent or any Borrower, or of the Loan Parties taken as a
whole, or the Collateral; (b) a material impairment of the ability of any Loan Party to perform under any Loan Document and to
avoid any Event of Default; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any
Loan Party of any Loan Document.
"Maximum Rate" means, at any time, the maximum rate of interest the Lenders may lawfully contract for, charge or receive in
respect of the Obligations as allowed by Requirements of Law. For purposes of determining the Maximum Rate under the
Requirements of Law of the State of Texas, the applicable rate ceiling shall be (a) the weekly rate ceiling described in and
computed in accordance with the provisions of Section 303.003 of the Texas Finance Code, as amended or (b) if the parties
subsequently contract as allowed by Requirements of Law, the quarterly ceiling or the annualized ceiling computed pursuant to
Section 303.008 of the Texas Finance Code, as amended; provided, however, that at any time the weekly rate ceiling, the
quarterly ceiling or the annualized ceiling shall be less than 18% per annum or more than 24% per annum, the provisions of
Section 303.009(a) and Section 303.009(b) of the Texas Finance Code, as amended, shall control for purposes of such
determination, as applicable.
"Maximum Revolver Amount" means $50,000,000.
"Multi-employer Plan" means a "multi-employer plan" as defined in
Section 4001(a)(3) of ERISA which is or was at any time during the current year or the immediately preceding six (6) years
contributed to by a Loan Party or any ERISA Affiliate.
"Negative Pledge" means any agreement, contract or other arrangement whereby any Loan Party or any Subsidiary of a Loan
Party is prohibited from, or would otherwise be in default as a result of, creating, assuming, incurring or suffering to exist,
directly or indirectly, any Lien on any of its assets in favor of the Agent under the Loan Documents.
"Net Amount of Approved Foreign Accounts" means, at any time, the gross amount (in Dollars) of Approved Foreign
Accounts less sales, excise or similar taxes, and less returns, discounts,
LOAN AND SECURITY AGREEMENT - Page 21
29
claims, credits and allowances of any nature at any time issued, owing, granted, outstanding, available or claimed.
"Net Amount of Eligible Accounts" means, at any time, the gross amount (in Dollars) of Eligible Accounts less sales, excise or
similar taxes, and less returns, discounts, claims, credits and allowances of any nature at any time issued, owing, granted,
outstanding, available or claimed.
"Net Amount of Eligible Foreign Accounts" means, at any time, the gross amount (in Dollars) of Eligible Foreign Accounts less
sales, excise or similar taxes, and less returns, discounts, claims, credits and allowances of any nature at any time issued, owing,
granted, outstanding, available or claimed.
"Net Income" means, as applied to any Person, the net income (or net loss) of such Person for the period in question after
giving effect to deduction of or provision for all operating expenses, all taxes and reserves (including without limitation, reserves
for deferred taxes) and all other proper deductions, all determined in accordance with GAAP, provided that there shall be
excluded:
(a) the net income (or net loss) of any Person accrued prior to the date it becomes a Subsidiary of, or is merged into or
consolidated with, the Person whose Net Income is being determined or a consolidated Subsidiary of such Person;
(b) any net gains or losses on the sale or other disposition, not in the ordinary course of business, of investments and other
capital assets, provided that there shall also be excluded any related charges for taxes thereon;
(c) any net gain arising from the collection of the proceeds of any insurance policy;
(d) any write-up or write-down of any asset; and
(e) any other extraordinary item as defined by GAAP.
"Net Transfers" means an amount, determined for any period in the aggregate for all Loan Parties, equal to (A) the aggregate
amount of loans funded by the Loan Parties during such period to, and capital contributions made by the Loan Parties during
such period in, Restricted Subsidiaries that are not Loan Parties less (B) the aggregate amount of cash loan proceeds, cash loan
payments and cash Distributions received by the Loan Parties during such period from Restricted Subsidiaries that are not Loan
Parties.
"Net Transfers Allowed" means, as of the last day of any fiscal quarter (each a "Measuring Date") for any period (each a
"Specified Period"), the amount set forth for such Measuring Date for the corresponding Specified Period, as specified below:
LOAN AND SECURITY AGREEMENT - Page 22
30
Measuring Date Specified Period Amount
-------------- ---------------- ------
December 31, 1999 Closing Date through December 31, 1999 $ 2,500,000
March 31, 2000 Closing Date through March 31, 2000 $ 5,000,000
June 30, 2000 Closing Date through June 30, 2000 $ 7,500,000
September 30, 2000 Closing Date through September 30, 2000 $10,000,000
Last day of each
fiscal quarter
thereafter Preceding 12 months ending on such Measuring Date $10,000,000
"Newly Obligated Party" has the meaning specified for such term within the definition of "Obligations" as provided in this
Section 1.1.
"Non-Ratable Loan" and "Non-Ratable Loans" have the meanings specified in Section 2.2(h).
"Notice of Borrowing" has the meaning specified in Section 2.2(b). The form of Notice of Borrowing is attached hereto as
Exhibit D.
"Notice of Conversion/Continuation" has the meaning specified in
Section 3.2(b). The form of Notice of Conversion/Continuation is attached hereto as Exhibit E.
"Obligations" means all present and future loans, advances, liabilities, obligations, covenants, duties, and debts owing by the
Loan Parties, or any of them, to the Agent and/or any Lender, arising under or pursuant to this Agreement or any of the other
Loan Documents, whether or not evidenced by any note, or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, acceptance, loan, guaranty, indemnification or otherwise, whether direct or indirect
(including those acquired by assignment from others, and any participation by the Agent and/or any Lender in any Loan Party's
debts owing to others), absolute or contingent, due or to become due, primary or secondary, as principal or guarantor, and
including all principal, interest, charges, expenses, fees, attorneys' fees, filing fees and any other sums chargeable to any Loan
Party hereunder or under any of the other Loan Documents. "Obligations" includes, without limitation, (a) all debts, liabilities,
and obligations now or hereafter arising from or in connection with the Letters of Credit and (b) all debts, liabilities and
obligations now or hereafter arising from or in connection with Bank Products; provided, however, that notwithstanding the
forgoing, in the case of and with regard to or in connection with any Newly Obligated Party (defined hereinbelow), the term
"Obligations," wherever in any manner used in the Loan Documents, excludes Existing Obligations (defined hereinbelow). As
used herein, (A) "Newly Obligated Party" means each Person, if any, who becomes party to this Agreement as a Borrower
effective as of any date after the Closing Date, and (B) "Existing Obligations" means, in the case of a Newly Obligated Party
described in clause (A) preceding, any Obligations which are outstanding and unpaid as of the time such Newly Obligated
Party becomes a Borrower.
LOAN AND SECURITY AGREEMENT - Page 23
31
"Orderly Liquidation Value" means, with respect to the Rig Equipment, the orderly liquidation value thereof as determined in a
manner acceptable to the Agent by an experienced and reputable appraiser acceptable to the Agent.
"Other Taxes" means any present or future stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement or any other Loan Documents.
"Parent" means Parker Drilling Company, a Delaware corporation.
"Parent Guaranty" means a Guaranty Agreement dated as of the Closing Date executed by the Parent pursuant to Section 6.18.
"Participant" means any Person who shall have been granted the right by any Lender to participate in the financing provided by
such Lender under this Agreement, and who shall have entered into a participation agreement in form and substance
satisfactory to such Lender.
"Payment Account" means each bank account established pursuant to
Section 6.9, to which the funds of the Borrowers (including proceeds of Accounts and other Collateral) are deposited or
credited, and which is maintained in the name of the Agent or the Borrowers, or any of them, as the Agent may determine, on
terms acceptable to the Agent.
"PBGC" means the Pension Benefit Guaranty Corporation or any Governmental Authority succeeding to the functions thereof.
"Pending Revolving Loans" means, at any time, the aggregate principal amount of all Revolving Loans requested in any Notice
of Borrowing received by the Agent which have not yet been advanced.
"Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which any Loan Party
sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a
Multiple-employer Plan has made contributions at any time during the immediately preceding five (5) plan years.
"Permitted Liens" means:
(a) Liens for taxes not delinquent or statutory Liens for taxes in an amount not to exceed $1,000,000, provided that the
payment of such taxes which are due and payable is being contested in good faith and by appropriate proceedings diligently
pursued and as to which adequate financial reserves have been established on the appropriate Loan Party's books and records
and a stay of enforcement of any such Lien is in effect;
(b) the Agent's Liens;
LOAN AND SECURITY AGREEMENT - Page 24
32
(c) Liens consisting of deposits made in the ordinary course of business in connection with, or to secure payment of, obligations
under worker's compensation, unemployment insurance, social security and other similar laws, or to secure the performance of
bids, tenders or contracts (other than for the repayment of borrowed money) or to secure indemnity, performance or other
similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure
statutory obligations (other than liens arising under ERISA or Environmental Liens) or surety or appeal bonds, or to secure
indemnity, performance or other similar bonds, or arising under a Requirement of Law to secure customs and duties;
(d) Liens securing the claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons,
provided that if any such Lien arises from the nonpayment of such claims or demand when due, such claims or demands do not
exceed $3,000,000 in the aggregate;
(e) Liens constituting encumbrances in the nature of reservations, exceptions, encroachments, easements, rights of way,
covenants running with the land, and other similar title exceptions or encumbrances affecting any Real Estate; provided that they
do not in the aggregate materially detract from the value of the Real Estate or materially interfere with its use in the ordinary
conduct of a Loan Party's business;
(f) Liens arising from judgments and attachments in connection with court proceedings, provided that the attachment or
enforcement of such Liens would not result in an Event of Default hereunder and such Liens are being contested in good faith
by appropriate proceedings, adequate reserves have been set aside and no material Property is subject to a material risk of loss
or forfeiture and the claims in respect of such Liens are fully covered by insurance (subject to ordinary and customary
deductibles);
(g) The Rig 75 Lien, provided that such Lien secures only the Rig 75 Purchase Money Debt and attaches only to the Rig 75
Property; and
(h) Liens listed in Schedule 1.1.
"Permitted Rentals" has the meaning specified in Section 9.24.
"Person" means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, Governmental Authority, or any other entity.
"Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA) which any Loan Party sponsors or maintains or
to which any Loan Party makes, is making, or is obligated to make contributions and includes any Pension Plan.
"Premises" means the land identified by address on Schedule 8.12, together with all buildings, improvements, and fixtures
thereon and all tenements, hereditaments, and appurtenances belonging
LOAN AND SECURITY AGREEMENT - Page 25
33
or in any way appertaining thereto, which constitutes all of the real property in which any Loan Party has any interest.
"Pro Rata Share" means, with respect to a Lender, a fraction (expressed as a percentage), the numerator of which is the
amount of such Lender's Commitment and the denominator of which is the sum of the amounts of all of the Lenders'
Commitments, or if no Commitments are outstanding, a fraction (expressed as a percentage), the numerator of which is the
amount of Obligations owed to such Lender and the denominator of which is the aggregate amount of the Obligations owed to
the Lenders.
"Real Estate" means, with respect to a Person, all of such Person's present and future interests, as owner, lessee, or otherwise,
in the Premises, including any interest arising from an option to purchase or lease the Premises or any portion thereof.
"Release" means a release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration of a Contaminant into the indoor or outdoor environment or into or out of any Real Estate or other property, including
the movement of Contaminants through or in the air, soil, surface water, groundwater or Real Estate or other property.
"Rentals" has the meaning specified in Section 9.24.
"Reportable Event" means, any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, other than
any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC.
"Required Lenders" means at any time Lenders whose Pro Rata Shares aggregate more than 66.67% as such percentage is
determined under the definition of Pro Rata Share set forth herein.
"Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an
arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to
which the Person or any of its property is subject. In respect of contracts relating to interest or finance charges that are made or
performed in the State of Texas, "Requirement of Law" means the laws of the United States, including without limitation 12
USC Sections 85 and 86(a), as amended from time to time, and any other statute of the United States now or at any time
hereafter prescribing the maximum rates of interest on loans and extensions of credit, and the laws of the State of Texas,
including, without limitation, Section 306 of the Texas Finance Code, if applicable, and if Section 306 of the Texas Finance
Code is not applicable, Section 303 of the Texas Finance Code, and any other statute of the State of Texas now or at any time
hereafter prescribing maximum rates of interest on loans and extensions of credit; provided that the parties hereto agree
pursuant to Texas Finance Code
Section 346.004 that the provisions of Chapter 346 of the Texas Finance Code shall not apply to Revolving Loans, this
Agreement or any other Loan Documents.
"Responsible Officer" means, with respect to a Loan Party, the chief executive officer or the president of such Loan Party; or,
with respect to compliance with financial covenants, the chief
LOAN AND SECURITY AGREEMENT - Page 26
34
financial officer or the treasurer of Parent; or with respect to the preparation of any Borrowing Base Certificate, the chief
financial officer or the treasurer of each Borrower; and in each case any other officer having substantially the same authority and
responsibility.
"Restricted Investment" means, as to any Loan Party, any acquisition of property by such Loan Party in exchange for cash or
other property, whether in the form of an acquisition of stock, debt, or other indebtedness or obligation, or the purchase or
acquisition of any other property, or a loan, advance, capital contribution, or subscription, except the following:
(a) acquisitions of Equipment to be used in the business of such Loan Party so long as the acquisition costs thereof constitute
Capital Expenditures permitted hereunder;
(b) acquisitions of Inventory in the ordinary course of business of such Loan Party;
(c) acquisitions of current assets acquired in the ordinary course of business of such Loan Party;
(d) direct obligations of the United States, or any agency thereof, or obligations guaranteed by the United States, provided that
such obligations mature within one year from the date of acquisition thereof;
(e) acquisitions of certificates of deposit maturing within one year from the date of acquisition, bankers' acceptances, Eurodollar
bank deposits, or overnight bank deposits, in each case issued by, created by, or with a bank or trust company organized
under the laws of the United States or any state thereof having capital and surplus aggregating at least $100,000,000;
(f) acquisitions of commercial paper given a rating of "A2" or better by Standard & Poor's Rating Services, a division of
McGraw Hill Companies, Inc., or "P2" or better by Moody's Investors Service, Inc. and maturing not more than ninety (90)
days from the date of creation thereof;
(g) Interest Rate Protection Agreements;
(h) loans by the Parent or a Restricted Subsidiary to, and capital contributions by the Parent or a Restricted Subsidiary in, a
Loan Party;
(i) loans by a Loan Party or a Restricted Subsidiary to, and capital contributions by a Loan Party or a Restricted Subsidiary in,
a Restricted Subsidiary that is not a Loan Party, provided, that Net Transfers, measured as of the end of each fiscal quarter
ending after the Closing Date (measured (i) from the Closing Date through the end of such fiscal quarter in the case of each of
the fiscal quarters ending December 31, 1999, March 31, 2000, June 30, 2000 and September 30, 2000, respectively, and (ii)
for the preceding four fiscal quarters in
LOAN AND SECURITY AGREEMENT - Page 27
35
the case of the fiscal quarter ending December 31, 2000 and each fiscal quarter thereafter) shall not exceed Net Transfers
Allowed;
(j) loans by a Loan Party to, and capital contributions by a Loan Party in, a Subsidiary that is organized after the Closing Date
as and to the extent allowed by Section 9.21, provided that no Default or Event of Default exists as of the time of such
investment or would result therefrom; and
(k) redemptions or other acquisitions by a Restricted Subsidiary of its Capital Stock from the Parent or a Restricted Subsidiary.
"Restricted Subsidiary" means any Subsidiary of the Parent other than an Unrestricted Subsidiary, and "Restricted Subsidiaries"
means two or more of such Persons, collectively.
"Revolving Loans" has the meaning specified in Section 2.2 and includes each Agent Advance and Non-Ratable Loan.
"Revolving Note" means a Revolving Note made by the Borrowers payable to the order of a Lender evidencing the obligation
of the Borrowers to pay the aggregate unpaid principal amount of the Revolving Loans made to each of the Borrowers by such
Lender (and any promissory note or notes that may be issued from time to time in substitution, renewal, extension, replacement,
or exchange thereof whether payable to such Lender or to a different Lender in connection with a Person becoming a Lender
after the Agreement Date or otherwise) substantially in the form of Exhibit A, with all of the blanks properly completed, either
as originally executed or as such promissory note may be renewed, extended, modified, amended, supplemented, or restated
from time to time.
"Rig Component Maximum" means an amount, at any time on and after the Closing Date, equal to $25,000,000 reduced by
$1,562,500 on December 31, 1999 and on each March 31, June 30, September 30 and December 31 thereafter.
"Rig Equipment" means the Equipment described in Schedule 1.2 as such schedule may be supplemented or amended in
accordance with this Agreement.
"Rig Materials and Supplies" means Inventory of a Borrower consisting of rig materials and supplies.
"Rig Report" means a report prepared by or for the Loan Parties, in the ordinary course of business, reflecting, for each Loan
Party, each active drilling rig and its related location, status, customer, condition, contract duration and day rate, in form as
appears in Exhibit H or otherwise in form reasonably satisfactory to the Agent.
"Rig 75 Lien" means a Lien in the Rig 75 Property granted by Parker Drilling Offshore International, Inc., a Wholly-Owned
Subsidiary of the Parent, in favor of Boeing Capital Corporation to secure the Rig 75 Purchase Money Debt.
LOAN AND SECURITY AGREEMENT - Page 28
36
"Rig 75 Property" means property of Parker Drilling Offshore International, Inc., a Wholly- Owned Subsidiary of the Parent,
covered by the Rig 75 Lien as described in Schedule 1.3.
"Rig 75 Purchase Money Debt" means purchase money Debt incurred by Parker Drilling Offshore International, Inc., a
Wholly-Owned Subsidiary of the Parent, in favor of Boeing Capital Corporation in an amount equal to $28,840,000 in
connection with financing the purchase of a certain new drilling rig designated as "Parker Rig 75" and constituting the Rig 75
Property.
"Settlement" and "Settlement Date" have the meanings specified in
Section 2.2(j)(i).
"Solvent" means when used with respect to any Person that at the time of determination:
(a) the assets of such Person, at a fair valuation, are in excess of the total amount of its debts (including contingent liabilities);
and
(b) the present fair saleable value of its assets is greater than its probable liability on its existing debts as such debts become
absolute and matured; and
(c) it is then able and expects to be able to pay its debts (including contingent debts and other commitments) as they mature;
and
(d) it has capital sufficient to carry on its business as conducted and as proposed to be conducted.
For purposes of determining whether a Person is Solvent, the amount of any contingent liability shall be computed as the
amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be
expected to become an actual or matured liability.
"Stated Termination Date" means October 22, 2003.
"Subordinated Debt" means (i) the Indenture 1997, (ii) Debt of a Loan Party or a Subsidiary of a Loan Party which, if owing to
a Loan Party or a Subsidiary of a Loan Party, is subordinated to payment of the Obligations on terms substantially the same as
are provided by the Intercompany Subordination Agreement, (iii) other Debt of any Loan Party or any Subsidiary which has
maturities and terms, and which is subordinated to payment of the Obligations in a manner, approved in writing by the Agent
and the Majority Lenders, and in each such case any renewals, modifications or amendments thereof which are approved in
writing by the Agent and the Majority Lenders.
"Subsidiary" of a Person means any corporation, association, partnership, joint venture or other business entity of which more
than fifty percent (50.0%) of the voting stock or other equity interests (in the case of Persons other than corporations), is
owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination
thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of a Loan Party.
LOAN AND SECURITY AGREEMENT - Page 29
37
"Subsidiary Guaranty" means a Guaranty Agreement dated as of the Closing Date executed by each Loan Party other than
Parent pursuant to Section 6.18.
"Taxes" means any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender and the Agent, such taxes (including income taxes or franchise taxes) as
are imposed on or measured by each Lender's net income by the jurisdiction (or any political subdivision thereof) under the
laws of which such Lender or the Agent, as the case may be, is organized or maintains a lending office.
"Termination Date" means the earliest to occur of (a) the Stated Termination Date, (b) the date the Total Facility is terminated
either by the Borrowers pursuant to Section 4.2 or by the Majority Lenders pursuant to Section 11.2, and (c) the date this
Agreement is otherwise terminated for any reason whatsoever.
"Total Facility" has the meaning specified in Section 2.1.
"UCC" means the Uniform Commercial Code (or any successor statute) of the State of Texas or of any other state the laws of
which are required by
Section 9-103 thereof to be applied in connection with the issue of perfection of security interests.
"United States" means the United States of America.
"Unfunded Pension Liability" means the excess of a Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the
current value of that Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to
Section 412 of the Code for the applicable plan year.
"Unrestricted Subsidiary" means each of PKD Sales Corporation, an Oklahoma corporation, Casuarina Limited, a Bermuda
corporation, and Parker Drilling Investment Company, an Oklahoma corporation, Production Control Systems, Inc., a
Delaware corporation, and any other Person created and designated as an Unrestricted Subsidiary after the Closing Date in
accordance with Section 9.21, and "Unrestricted Subsidiaries" means two or more of such Persons, collectively.
"Unused Letter of Credit Subfacility" means an amount equal to $30,000,000 minus the sum of (a) the aggregate undrawn
amount of all outstanding Letters of Credit plus (b) the aggregate unpaid reimbursement obligations with respect to all Letters of
Credit.
"Unused Line Fee" has the meaning specified in Section 3.4.
"Unused Line Fee Percentage" means, as of the Closing Date, three-eighths percent (0.375%), subject to adjustment thereafter
from time to time to the percentage specified corresponding to the Leverage Ratio as set forth below, respectively:
LOAN AND SECURITY AGREEMENT - Page 30
38
Leverage Ratio Percentage
-------------- ----------
Greater than 7.0 to 1.0 0.500%
Less than or equal to 7.0 to 1.0 but 0.375%
greater than 4.0 to 1.0
Less than or equal to 4.0 to 1.0 0.250%
For the purpose of determining the Unused Line Fee Percentage the Leverage Ratio shall be determined based upon Parent's
consolidated financial statements for its respective fiscal quarter periods, beginning with the fiscal quarter ending December 31,
1999, delivered to the Agent as required by Section 7.2(c), and any resulting change, if any, in the Unused Commitment
Percentage shall become effective as of the first day of the calendar month following the month in which such financial
statements are delivered to the Agent.
"Wholly-Owned Subsidiary" when used to determine the relationship of a Subsidiary to a Person, means a Subsidiary all of the
issued and outstanding Capital Stock (other than directors' qualifying shares) of which shall at the time be owned by such
Person or one or more of such Person's Wholly-Owned Subsidiaries or by such Person and one or more of such Person's
Wholly- Owned Subsidiaries.
"Working Capital" at any date means Current Assets minus Current Liabilities.
Section 1.2 Accounting Terms. Any accounting term used in this Agreement shall have, unless otherwise specifically provided
herein, the meaning customarily given in accordance with GAAP, and all financial computations hereunder shall be computed,
unless otherwise specifically provided herein, in accordance with GAAP as consistently applied and using the same method for
inventory valuation as used in the preparation of the Financial Statements. Unless otherwise requested by the Agent pursuant to
Section 7.2(l), the term "consolidating," when used in Section 7.2 in connection with any financial statement or other financial
reporting requirement, shall mean such accounting term determined with reference to the Parent and its consolidated
Subsidiaries, as consolidated according to GAAP, therein making separate presentations for the Loan Parties and the
Restricted Subsidiaries on the one hand, and the Unrestricted Subsidiaries on the other.
Section 1.3 Interpretive Provisions.
(a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.
(b) The words "hereof," "herein," "hereunder" and similar words refer to this Agreement as a whole and not to any particular
provision of this Agreement; and Subsection, Section, Schedule and Exhibit references are to this Agreement unless otherwise
specified.
LOAN AND SECURITY AGREEMENT - Page 31
39
(i) The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means "including without limitation."
(iii) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and
including," the words "to" and "until" each mean "to but excluding" and the word "through" means "to and including."
(c) Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual
instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such
amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute
or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing,
supplementing or interpreting the statute or regulation.
(d) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of
this Agreement.
(e) This Agreement and other Loan Documents may use several different limitations, tests or measurements to regulate the same
or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with
their terms.
(f) This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to
the Agent, the Loan Parties and the other parties, and are the products of all parties. Accordingly, they shall not be construed
against the Lenders or the Agent merely because of the Agent's or Lenders' involvement in their preparation.
ARTICLE 2
LOANS AND LETTERS OF CREDIT
Section 2.1 Total Facility. Subject to all of the terms and conditions of this Agreement, the Lenders severally agree to make
available a total credit facility of up to $50,000,000 (the "Total Facility") for any Borrower's use from time to time during the
term of this Agreement. The Total Facility shall be composed of a revolving line of credit consisting of Revolving Loans and
Letters of Credit up to the Borrowing Base, as described in Sections 2.2 and 2.4.
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Section 2.2 Revolving Loans.
(a) Amounts. Subject to the satisfaction of the conditions precedent set forth in Article 10, each Lender severally, but not
jointly, agrees, upon a Borrower's request from time to time on any Business Day during the period from the Closing Date to
the Termination Date, to make revolving loans (the "Revolving Loans") to the Borrowers in amounts not to exceed (except for
the Bank with respect to Non-Ratable Loans or for the Agent with respect to Agent Advances) such Lender's Pro Rata Share
of the Borrowing Base. The Lenders, however, in their unanimous discretion, may elect to make Revolving Loans or issue or
arrange to have issued Letters of Credit in excess of the Availability on one or more occasions, but if they do so, neither the
Agent nor the Lenders shall be deemed thereby to have changed the limits of the Borrowing Base or to be obligated to exceed
such limits on any other occasion. If the Aggregate Revolver Outstandings exceed the Borrowing Base, the Lenders may refuse
to make or otherwise restrict the making of Revolving Loans as the Lenders determine until such excess has been eliminated,
subject to the Agent's authority, in its sole discretion, to make Agent Advances pursuant to the terms of
Section 2.2(i).
(b) Procedure for Borrowing.
(i) Each Borrowing shall be made upon a Borrower's irrevocable written notice delivered to the Agent in the form of a notice of
borrowing (a "Notice of Borrowing") which must be received by the Agent prior to 11:00 a.m. (Dallas, Texas time) (y) three
(3) Business Days prior to the requested Funding Date, in the case of LIBOR Rate Loans and (z) no later than 11:00 a.m. on
the requested Funding Date, in the case of Base Rate Loans, specifying:
(A) the amount of the Borrowing (which, if a LIBOR Revolving Loan, shall be in an amount that is not less than $500,000 or
that is in an integral multiple of $100,000 in excess thereof);
(B) the requested Funding Date, which shall be a Business Day;
(C) whether the Revolving Loans requested are to be Base Rate Revolving Loans or LIBOR Revolving Loans; and
(D) the duration of the Interest Period if the requested Revolving Loans are to be LIBOR Revolving Loans. If the Notice of
Borrowing fails to specify the duration of the Interest Period for any Borrowing comprised of LIBOR Rate Loans, such Interest
Period shall be one month;
provided, however, that with respect to any Borrowing to be made on the Closing Date (if any), such Borrowing will consist of
Base Rate Revolving Loans.
(ii) With respect to any request for Base Rate Revolving Loans, in lieu of delivering the above-described Notice of Borrowing a
Borrower may give the Agent
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telephonic notice of such request by the required time, with such telephonic notice to be confirmed in writing within 24 hours of
the giving of such notice but the Agent shall be entitled to rely on the telephonic notice in making such Revolving Loans.
(c) Reliance upon Authority. On or prior to the Closing Date and thereafter prior to any change with respect to any of the
information contained in the following clauses (i) and (ii), the Borrowers shall deliver to the Agent a writing setting forth (i) the
account of the Borrowers to which the Agent is authorized to transfer the proceeds of the Revolving Loans requested pursuant
to this Section
2.2, and (ii) the names of the individuals authorized to request Revolving Loans on behalf of each Borrower, and shall provide
the Agent with a specimen signature of each such individual. The Agent shall be entitled to rely conclusively on any such
individual's authority to request Revolving Loans on behalf of a Borrower, the proceeds of which are to be transferred to the
account specified by the Borrowers pursuant to the immediately preceding sentence or disbursed in such other manner as such
individual requesting such Borrowing may direct to the Agent, until the Agent receives written notice to the contrary. The Agent
shall have no duty to verify the identity of any individual representing him or herself as one of the officers authorized by any
Borrower to make such requests on its behalf. Each Borrower, as to itself, hereby irrevocably appoints each other Borrower as
its attorney, with power to make withdrawals and transfers from, and deliver to the Agent instructions in respect of, the account
of the Borrowers referenced in clause (i) preceding, and hereby irrevocably authorizes the Agent to rely upon the acts and
instructions of each such other Borrower in accordance with the authority delegated pursuant to this sentence.
(d) No Liability. The Agent shall not incur any liability to the Loan Parties as a result of acting upon any notice referred to in
Sections 2.2(b) and (c), which notice the Agent believes in good faith to have been given by an officer duly authorized by a
Borrower to request Revolving Loans on its behalf or for otherwise acting in good faith under this Section 2.2, and the crediting
of Revolving Loans to the Borrower's deposit account, or transmittal to such Person as the Borrower shall direct, shall
conclusively establish the obligation of the Borrowers to repay such Revolving Loans as provided herein.
(e) Notice Irrevocable. Any Notice of Borrowing (or telephonic notice in lieu thereof) made pursuant to Section 2.2(b) shall be
irrevocable and the Borrowers shall be bound to borrow the funds requested therein in accordance therewith.
(f) The Agent's Election. Promptly after receipt of a Notice of Borrowing (or telephonic notice in lieu thereof) pursuant to
Section
2.2(b), the Agent shall elect, in its discretion, (i) to have the terms of Section 2.2(g) apply to such requested Borrowing, or (ii)
to request the Bank to make a Non-Ratable Loan pursuant to the terms of Section
2.2(h) in the amount of the requested Borrowing; provided, however, that if the Bank declines in its sole discretion to make a
Non-Ratable Loan pursuant to Section 2.2(h), the Agent shall elect to have the terms of Section 2.2(g) apply to such requested
Borrowing.
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(g) Making of Revolving Loans.
(i) In the event that the Agent shall elect to have the terms of this Section 2.2(g) apply to a requested Borrowing as described in
Section 2.2(f), then promptly after receipt of a Notice of Borrowing or telephonic notice pursuant to Section 2.2(b), the Agent
shall notify the Lenders by telecopy, telephone or other similar form of transmission, of the requested Borrowing. Each Lender
shall make the amount of such Lender's Pro Rata Share of the requested Borrowing available to the Agent in immediate
available funds, to such account of the Agent as the Agent may designate, not later than 2:00 p.m., (Dallas, Texas time) on the
Funding Date applicable thereto. After the Agent's receipt of the proceeds of such Revolving Loans, upon satisfaction of the
applicable conditions precedent set forth in Article 10, the Agent shall make the proceeds of such Revolving Loans available on
the applicable Funding Date by transferring same day funds equal to the proceeds of such Revolving Loans received by the
Agent to the account designated pursuant to clause (i) of Section
2.2(c) or disbursing such funds in such other manner as the Borrower requesting such Borrowing may direct to the Agent;
provided, however, that the amount of Revolving Loans so made on any date shall in no event result in Availability of less than
zero Dollars ($0).
(ii) Unless the Agent receives notice from a Lender on or prior to the Closing Date or, with respect to any Borrowing after the
Closing Date, at least one Business Day prior to the date of such Borrowing, that such Lender will not make available as and
when required hereunder to the Agent for the account of the Borrowers the amount of that Lender's Pro Rata Share of the
Borrowing, the Agent may assume that each Lender has made such amount available to the Agent in immediately available
funds on the Funding Date and the Agent may (but shall not be so required), in reliance upon such assumption, make available
to the Borrower on such date a corresponding amount. If and to the extent any Lender shall not have made its full amount
available to the Agent in immediately available funds and the Agent in such circumstances has made available to the Borrower
such amount, that Lender shall on the Business Day following such Funding Date make such amount available to the Agent,
together with interest at the Federal Funds Rate for each day during such period. A notice by the Agent submitted to any
Lender with respect to amounts owing under this subsection shall be conclusive, absent manifest error. If such amount is so
made available, such payment to the Agent shall constitute such Lender's Revolving Loan for all purposes of this Agreement. If
such amount is not made available to the Agent on the Business Day following the Funding Date, the Agent will notify the
Borrower of such failure to fund and, upon demand by the Agent, the Borrower shall pay such amount to the Agent for the
Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum
equal to the Interest Rate applicable at the time to the Revolving Loans comprising such Borrowing. The failure of any Lender
to make any Revolving Loan on any Funding Date (any such Lender, prior to the cure of such failure, being hereinafter referred
to as a "Defaulting Lender") shall not relieve any other Lender of
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any obligation hereunder to make a Revolving Loan on such Funding Date, but no Lender shall be responsible for the failure of
any other Lender to make the Revolving Loan to be made by such other Lender on any Funding Date.
(iii) The Agent shall not be obligated to transfer to a Defaulting Lender any payments made by any Borrower to the Agent for
the Defaulting Lender's benefit; nor shall a Defaulting Lender be entitled to the sharing of any payments hereunder. Amounts
payable to a Defaulting Lender shall instead be paid to or retained by the Agent. The Agent may hold and, in its discretion,
re-lend to any Borrower the amount of all such payments received or retained by it for the account of such Defaulting Lender.
Any amounts so re-lent to a Borrower shall bear interest at the rate applicable to Base Rate Revolving Loans and for all other
purposes of this Agreement shall be treated as if they were Revolving Loans, provided, however, that for purposes of voting or
consenting to matters with respect to the Loan Documents and determining Pro Rata Shares, such Defaulting Lender shall be
deemed not to be a "Lender". Until a Defaulting Lender cures its failure to fund its Pro Rata Share of any Borrowing (A) such
Defaulting Lender shall not be entitled to any portion of the Unused Line Fee and (B) the Unused Line Fee shall accrue in favor
of the Lenders which have funded their respective Pro Rata Shares of such requested Borrowing and shall be allocated among
such performing Lenders ratably based upon their relative Commitments. This Section shall remain effective with respect to
such Lender until such time as the Defaulting Lender shall no longer be in default of any of its obligations under this Agreement.
The terms of this Section shall not be construed to increase or otherwise affect the Commitment of any Lender, or relieve or
excuse the performance by any Borrower of its duties and obligations hereunder.
(h) Making of Non-Ratable Loans.
(i) In the event the Agent shall elect, with the consent of the Bank, to have the terms of this Section 2.2(h) apply to a requested
Borrowing as described in Section 2.2(f), the Bank shall make a Revolving Loan in the amount of such Borrowing (any such
Revolving Loan made solely by the Bank pursuant to this Section 2.2(h) being referred to as a "Non-Ratable Loan" and such
Revolving Loans being referred to collectively as "Non-Ratable Loans") available to a Borrower on the Funding Date
applicable thereto by transferring same day funds to an account of such Borrower, designated in writing by such Borrower and
acceptable to the Agent. Each Non-Ratable Loan is a Revolving Loan hereunder and shall be subject to all the terms and
conditions applicable to other Revolving Loans except that all payments thereon shall be payable to the Bank solely for its own
account (and for the account of the holder of any participation interest with respect to such Revolving Loan). The Agent shall
not request the Bank to make any Non-Ratable Loan if (A) the Agent shall have received written notice from any Lender that
one or more of the applicable conditions precedent set forth in Article 10 will not be satisfied on the requested Funding Date
for the applicable Borrowing, or (B) the requested Borrowing would exceed the Availability on such Funding Date. The Bank
shall not otherwise be required to
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determine whether the applicable conditions precedent set forth in Article 10 have been satisfied or the requested Borrowing
would exceed the Availability on the Funding Date applicable thereto prior to making, in its sole discretion, any Non-Ratable
Loan.
(ii) The Non-Ratable Loans shall be secured by the Agent's Liens in and to the Collateral, shall constitute Revolving Loans and
Obligations hereunder, and shall bear interest at the rate applicable to the Revolving Loans from time to time.
(i) Agent Advances.
(i) Subject to the limitations set forth in the provisos contained in this Section 2.2(i), the Agent is hereby authorized by the
Borrowers and the Lenders, from time to time in the Agent's sole discretion, (A) after the occurrence of a Default or an Event
of Default, or (B) at any time that any of the other applicable conditions precedent set forth in Article 10 have not been
satisfied, to make Base Rate Revolving Loans to any Borrower on behalf of the Lenders which the Agent, in its reasonable
business judgment, deems necessary or desirable
(1) to preserve or protect the Collateral, or any portion thereof, (2) to enhance the likelihood of, or maximize the amount of,
repayment of the Loans and other Obligations, or
(3) to pay any other amount chargeable to the Borrowers pursuant to the terms of this Agreement, including costs, fees and
expenses as described in Section 15.7 (any of the advances described in this Section 2.2(i) being hereinafter referred to as
"Agent Advances"); provided, that the Required Lenders may at any time revoke the Agent's authorization contained in this
Section 2.2(i) to make Agent Advances, any such revocation to be in writing and to become effective prospectively upon the
Agent's receipt thereof;
(ii) The Agent Advances shall be repayable on demand and secured by the Agent's Liens in and to the Collateral, shall
constitute Revolving Loans and Obligations hereunder, and shall bear interest at the rate applicable to Base Rate Revolving
Loans from time to time. The Agent shall notify each Lender in writing of each such Agent Advance.
(j) Settlement. It is agreed that each Lender's funded portion of the Revolving Loans is intended by the Lenders to be equal at
all times to such Lender's Pro Rata Share of the outstanding Revolving Loans. Notwithstanding such agreement, the Agent, the
Bank, and the other Lenders agree (which agreement shall not be for the benefit of or enforceable by the Borrowers) that in
order to facilitate the administration of this Agreement and the other Loan Documents, settlement among them as to the
Revolving Loans, the Non-Ratable Loans and the Agent Advances shall take place on a periodic basis in accordance with the
following provisions:
(i) The Agent shall request settlement ("Settlement") with the Lenders on at least a weekly basis, or on a more frequent basis if
so determined by the Agent, (A) on behalf of the Bank, with respect to each outstanding Non-Ratable Loan,
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(B) for itself, with respect to each Agent Advance, and (C) with respect to collections received, in each case, by notifying the
Lenders of such requested Settlement by telecopy, telephone or other similar form of transmission, of such requested
Settlement, no later than 11:00 a.m. (Dallas, Texas time) on the date of such requested Settlement (the "Settlement Date").
Each Lender (other than the Bank, in the case of Non-Ratable Loans and the Agent in the case of Agent Advances) shall make
the amount of such Lender's Pro Rata Share of the outstanding principal amount of the Non-Ratable Loans and Agent
Advances with respect to which Settlement is requested available to the Agent, to such account of the Agent as the Agent may
designate, not later than 2:00 p.m. (Dallas, Texas time), on the Settlement Date applicable thereto, which may occur before or
after the occurrence or during the continuation of a Default or an Event of Default and whether or not the applicable conditions
precedent set forth in Article 10 have then been satisfied. Such amounts made available to the Agent shall be applied against the
amounts of the applicable Non-Ratable Loan or Agent Advance and, together with the portion of such Non-Ratable Loan or
Agent Advance representing the Bank's Pro Rata Share thereof, shall constitute Revolving Loans of such Lenders. If any such
amount is not made available to the Agent by any Lender on the Settlement Date applicable thereto, the Agent shall be entitled
to recover such amount on demand from such Lender together with interest thereon at the Federal Funds Rate for the first three
(3) days from and after the Settlement Date and thereafter at the Interest Rate then applicable to the Revolving Loans.
(ii) Notwithstanding the foregoing, not more than one
(1) Business Day after demand is made by the Agent (whether before or after the occurrence of a Default or an Event of
Default and regardless of whether the Agent has requested a Settlement with respect to a Non-Ratable Loan or Agent
Advance), each other Lender (A) shall irrevocably and unconditionally purchase and receive from the Bank or the Agent, as
applicable, without recourse or warranty, an undivided interest and participation in such Non-Ratable Loan or Agent Advance
equal to such Lender's Pro Rata Share of such Non-Ratable Loan or Agent Advance and (B) if Settlement has not previously
occurred with respect to such Non-Ratable Loans or Agent Advances, upon demand by the Bank or the Agent, as applicable,
shall pay to the Bank or the Agent, as applicable, as the purchase price of such participation an amount equal to one-hundred
percent (100%) of such Lender's Pro Rata Share of such Non-Ratable Loans or Agent Advances. If such amount is not in fact
made available to the Agent by any Lender, the Agent shall be entitled to recover such amount on demand from such Lender
together with interest thereon at the Federal Funds Rate for the first three (3) days from and after such demand and thereafter
at the Interest Rate then applicable to Base Rate Revolving Loans.
(iii) From and after the date, if any, on which any Lender purchases an undivided interest and participation in any Non-Ratable
Loan or Agent Advance pursuant to clause (ii) preceding, the Agent shall promptly distribute to such Lender at such address as
such Lender may request in writing, such Lender's Pro Rata Share
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of all payments of principal and interest and all proceeds of Collateral received by the Agent in respect of such Non-Ratable
Loan or Agent Advance.
(iv) Between Settlement Dates, the Agent, to the extent no Agent Advances or Non-Ratable Loans are outstanding, may pay
over to the Bank any payments received by the Agent, which in accordance with the terms of this Agreement would be applied
to the reduction of the Revolving Loans, for application to the Bank's Revolving Loans. If, as of any Settlement Date,
collections received since the immediately preceding Settlement Date have been applied to the Bank's Revolving Loans (other
than to Non-Ratable Loans or Agent Advances in which such Lender has not yet funded its purchase of a participation
pursuant to Section 2.2(j)(ii)), as provided for in the previous sentence, the Bank shall pay to the Agent for the accounts of the
Lenders, to be applied to the outstanding Revolving Loans of such Lenders, an amount such that each Lender shall, upon
receipt of such amount, have, as of such Settlement Date, its Pro Rata Share of the Revolving Loans. During the period
between Settlement Dates, the Bank with respect to Non-Ratable Loans, the Agent with respect to Agent Advances, and each
Lender with respect to the Revolving Loans other than Non-Ratable Loans and Agent Advances, shall be entitled to interest at
the applicable rate or rates payable under this Agreement on the actual average daily amount of funds employed by the Bank,
the Agent and the other Lenders.
(k) Notation. The Agent shall record on its books the principal amount of the Revolving Loans owing to each Lender, including
the Non-Ratable Loans owing to the Bank, and the Agent Advances owing to the Agent, from time to time. In addition, each
Lender is authorized, at such Lender's option, to note the date and amount of each payment or prepayment of principal of such
Lender's Revolving Loans in its books and records, including computer records, such books and records constituting
presumptive evidence, absent manifest error, of the accuracy of the information contained therein.
(l) Lenders' Failure to Perform. All Revolving Loans (other than Non-Ratable Loans and Agent Advances) shall be made by
the Lenders simultaneously and in accordance with their Pro Rata Shares. It is understood that (i) no Lender shall be
responsible for any failure by any other Lender to perform its obligation to make any Revolving Loans hereunder, nor shall any
Commitment of any Lender be increased or decreased as a result of any failure by any other Lender to perform its obligation to
make any Revolving Loans hereunder, (ii) no failure by any Lender to perform its obligation to make any Revolving Loans
hereunder shall excuse any other Lender from its obligation to make any Revolving Loans hereunder, and (iii) the obligations of
each Lender hereunder shall be several, not joint and several.
(m) Revolving Notes. The Borrowers shall execute and deliver to the Agent, on behalf of each Lender, effective as of the
Closing Date and on the date of the assignment of any portion of any Lender's Revolving Loans, a Revolving Note, to evidence
such Lender's Revolving Loans, in the principal amount equal to the amount of such Lender's Commitment with respect to the
Revolving Loans.
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Section 2.3 Reserved.
Section 2.4 Letters of Credit.
(a) Agreement to Issue or Cause To Issue. Subject to the terms and conditions of this Agreement, and in reliance upon the
representations and warranties of the Loan Parties herein set forth, the Agent agrees (i) to issue or cause to be issued for the
account of any Borrower one or more commercial/documentary and standby letters of credit ("Letters of Credit") and (ii) to
provide credit support or other enhancement to a Letter of Credit Issuer acceptable to the Agent, which issues Letters of
Credit for the account of a Borrower (any such credit support or enhancement being herein referred to as a "Credit Support")
in accordance with this Section 2.4 from time to time during the term of this Agreement.
(b) Amounts; Outside Expiration Date. The Agent shall not have any obligation to take steps to issue or cause to be issued any
Letter of Credit or to provide Credit Support for any Letter of Credit at any time if: (i) the maximum undrawn amount of the
requested Letter of Credit is greater than the Unused Letter of Credit Subfacility at such time; (ii) the maximum undrawn
amount of the requested Letter of Credit and all commissions, fees, and charges due from the Borrower in connection with the
opening thereof exceed the Availability at such time; or (iii) such Letter of Credit has an expiration date later than thirty (30)
days prior to the Stated Termination Date or more than twelve (12) months from the date of issuance.
(c) Other Conditions. In addition to being subject to the satisfaction of the applicable conditions precedent contained in Article
10, the obligation of the Agent to issue or to cause to be issued any Letter of Credit or to provide Credit Support for any
Letter of Credit is subject to the following conditions precedent having been satisfied in a manner satisfactory to the Agent:
(i) The Letter of Credit Issuer shall have received, at such times and in such manner as such Letter of Credit Issuer may
prescribe, an application in form and substance satisfactory to such Letter of Credit Issuer and the Agent for the issuance of the
Letter of Credit and such other documents as may be required pursuant to the terms thereof, and the form and terms of the
proposed Letter of Credit shall be satisfactory to the Agent and the Letter of Credit Issuer; and
(ii) As of the date of issuance, no order of any court, arbitrator or Governmental Authority shall purport by its terms to enjoin
or restrain money center banks generally from issuing letters of credit of the type and in the amount of the proposed Letter of
Credit, and no law, rule or regulation applicable to money center banks generally and no request or directive (whether or not
having the force of law) from any Governmental Authority with jurisdiction over money center banks generally shall prohibit, or
request that the proposed Letter of Credit Issuer refrain from, the issuance of letters of credit generally or the issuance of such
Letters of Credit.
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(d) Issuance of Letters of Credit.
(i) Request for Issuance. Any Borrower that wishes to cause the issuance of a Letter of Credit shall give the Agent two (2)
Business Days prior written notice of the request for the issuance of such Letter of Credit. Such notice shall be irrevocable and
shall specify the original face amount of the Letter of Credit requested, the effective date (which date shall be a Business Day)
of issuance of such requested Letter of Credit, whether such Letter of Credit may be drawn in a single or in partial draws, the
date on which such requested Letter of Credit is to expire (which date shall be a Business Day), the purpose for which such
Letter of Credit is to be issued, and the beneficiary of the requested Letter of Credit and, in addition, shall include as an
attachment the proposed form of the Letter of Credit.
(ii) Responsibilities of the Agent; Issuance. The Agent shall determine, as of the Business Day immediately preceding the
requested effective date of issuance of the Letter of Credit set forth in the notice from a Borrower pursuant to Section 2.4(d)(i),
(A) the amount of the applicable Unused Letter of Credit Subfacility and (B) the Availability as of such date. If (Y) the undrawn
amount of the requested Letter of Credit is not greater than the Unused Letter of Credit Subfacility and (Z) the issuance of such
requested Letter of Credit and all commissions, fees, and charges due from the Borrower in connection with the opening
thereof would not exceed the Availability the Agent shall, so long as the other conditions hereof are met, issue or cause the
Letter of Credit Issuer, if not the Bank, to issue the requested Letter of Credit on such requested effective date of issuance.
(iii) Notice of Issuance. On each Settlement Date, the Agent shall give notice to each Lender of the issuance of all Letters of
Credit issued since the last Settlement Date.
(iv) No Extensions or Amendment. The Agent shall not be obligated to extend or amend any Letter of Credit issued hereunder
unless the requirements of this Section 2.4 are met as though a new Letter of Credit were being requested and issued. With
respect to any Letter of Credit which contains any "evergreen" or automatic renewal provision, each Lender shall be deemed to
have consented to any such extension or renewal unless any such Lender shall have provided to the Agent, not less than sixty
(60) days prior to the last date on which the applicable issuer can in accordance with the terms of the applicable Letter of
Credit decline to extend or renew such Letter of Credit, written notice that it declines to consent to any such extension or
renewal; provided, that if all of the requirements of this Section 2.4 are met and no Default or Event of Default exists, no
Lender shall decline to consent to any such extension or renewal.
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(e) Payments Pursuant to Letters of Credit.
(i) Payment of Letter of Credit Obligations. The Borrower on whose account any Letter of Credit is issued agrees to reimburse
immediately the Letter of Credit Issuer for any draw under any such Letter of Credit and the Agent for the account of the
Lenders upon any payment pursuant to any related Credit Support immediately upon demand, and to pay the Letter of Credit
Issuer the amount of all other obligations and other amounts payable to such Letter of Credit Issuer under or in connection with
any Letter of Credit immediately when due, irrespective of any claim, setoff, defense or other right which such Borrower may
have at any time against such issuer or any other Person.
(ii) Revolving Loans to Satisfy Reimbursement Obligations. In the event that the Letter of Credit Issuer of any Letter of Credit
honors a draw under such Letter of Credit or the Agent shall have made any payment pursuant to any Credit Support and the
Borrower on whose account such Letter of Credit was issued shall not have repaid such amount to the Letter of Credit Issuer
of such Letter of Credit or the Agent, as applicable, pursuant to Section 2.4(e)(i), the Agent shall, upon receiving notice of such
failure, notify each Lender of such failure, and each Lender shall unconditionally pay to the Agent, for the account of the Letter
of Credit Issuer or the Agent, as applicable, as and when provided hereinbelow, an amount equal to such Lender's Pro Rata
Share of the amount of such payment in Dollars and in same day funds. If the Agent so notifies the Lenders prior to 11:00 a.m.
(Dallas, Texas time) on any Business Day, each Lender shall make available to the Agent the amount of such payment, as
provided in the immediately preceding sentence, on such Business Day. Such amounts paid by the Lenders to the Agent shall
constitute Revolving Loans which shall be deemed to have been requested by such Borrower pursuant to Section 2.2 as set
forth in
Section 4.7.
(f) Participations.
(i) Purchase of Participations. Immediately upon issuance of any Letter of Credit in accordance with Section
2.4(d), each Lender shall be deemed to have irrevocably and unconditionally purchased and received without recourse or
warranty, an undivided interest and participation equal to such Lender's Pro Rata Share of the face amount of such Letter of
Credit or the Credit Support provided through the Agent to the Letter of Credit Issuer, if not the Agent, in connection with the
issuance of such Letter of Credit (including all obligations with respect thereto of the Borrower for whose account such Letter
of Credit was issued, with respect thereto, and any security therefor or guaranty pertaining thereto).
(ii) Sharing of Reimbursement Obligation Payments. Whenever the Agent receives a payment from a Borrower on account of
reimbursement obligations in respect of a Letter of Credit or Credit Support as to which the Agent has previously received for
the account of the Letter of Credit Issuer thereof payment from a Lender
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pursuant to Section 2.4(e)(ii), the Agent shall promptly pay to such Lender such Lender's Pro Rata Share of such payment
from such Borrower in Dollars. Each such payment shall be made by the Agent on the Business Day on which the Agent
receives immediately available funds paid to such Person pursuant to the immediately preceding sentence, if received prior to
2:00
p.m. (Dallas, Texas time) on such Business Day and otherwise on the next succeeding Business Day.
(iii) Documentation. Upon the request of any Lender, the Agent shall furnish to such Lender copies of any Letter of Credit,
reimbursement agreements executed in connection therewith, application for any Letter of Credit and credit support or
enhancement provided through the Agent in connection with the issuance of any Letter of Credit, and such other documentation
as may reasonably be requested by such Lender.
(iv) Obligations Irrevocable. The obligations of each Lender to make payments to the Agent with respect to any Letter of
Credit or with respect to any Credit Support provided through the Agent with respect to a Letter of Credit, and the obligations
of the Borrower for whose account such Letter of Credit was issued to make payments to the Agent, for the account of the
Lenders, shall be irrevocable, not subject to any qualification or exception whatsoever (except, in the case of any such
obligations of such Borrower, as may be specifically provided in any agreement executed in connection with such Letter of
Credit by such Borrower and the Letter of Credit Issuer) including any of the following circumstances:
(A) any lack of validity or enforceability of this Agreement or any of the other Loan Documents;
(B) the existence of any claim, setoff, defense or other right which such Borrower may have at any time against a beneficiary
named in a Letter of Credit or any transferee of any Letter of Credit (or any Person for whom any such transferee may be
acting), any Lender, the Agent, the issuer of such Letter of Credit, or any other Person, whether in connection with this
Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying
transactions between such Borrower or any other Person and the beneficiary named in any Letter of Credit);
(C) any draft, certificate or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate in any respect;
(D) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan
Documents; or
(E) the occurrence of any Default or Event of Default.
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(g) Recovery or Avoidance of Payments. In the event any payment by or on behalf of any Borrower received by the Agent
with respect to any Letter of Credit or Credit Support provided for any Letter of Credit and distributed by the Agent to the
Lenders on account of their respective participations therein is thereafter set aside, avoided or recovered from the Agent in
connection with any receivership, liquidation or bankruptcy proceeding, the Lenders shall, upon demand by the Agent, pay to
the Agent their respective Pro Rata Shares of such amount set aside, avoided or recovered, together with interest at the rate
required to be paid by the Agent upon the amount required to be repaid by it.
(h) Compensation for Letters of Credit.
(i) Letter of Credit Fee. Each Borrower for whose account any Letter of Credit is issued agrees to pay to the Agent with
respect to each such Letter of Credit, for the account of the Lenders, the Letter of Credit Fee specified in, and in accordance
with the terms of, Section 3.5.
(ii) Issuer Fees and Charges. Each Borrower for whose account any Letter of Credit is issued shall pay to the Letter of Credit
Issuer of any such Letter of Credit, or to the Agent for the account of the Letter of Credit Issuer of any such Letter of Credit,
solely for such Letter of Credit Issuer's account, such fees and other charges as are charged by such Letter of Credit Issuer for
letters of credit issued by it, including its standard fees for issuing, administering, amending, renewing, paying and canceling
letters of credit and all other fees associated with issuing or servicing letters of credit, as and when assessed.
(i) Indemnification; Exoneration; Power of Attorney.
(i) Indemnification. IN ADDITION TO AMOUNTS PAYABLE
AS ELSEWHERE PROVIDED IN THIS SECTION 2.4, EACH LOAN PARTY HEREBY AGREES TO PROTECT,
INDEMNIFY, PAY AND SAVE THE LENDERS AND THE AGENT HARMLESS FROM AND AGAINST ANY AND
ALL CLAIMS, DEMANDS, LIABILITIES, DAMAGES, LOSSES, COSTS, CHARGES AND EXPENSES
(INCLUDING REASONABLE ATTORNEYS' FEES) WHICH ANY LENDER OR THE AGENT (OTHER THAN THE
AGENT IN ITS CAPACITY AS LETTER OF CREDIT ISSUER) MAY INCUR OR BE SUBJECT TO AS A
CONSEQUENCE, DIRECT OR INDIRECT, OF THE ISSUANCE OF ANY LETTER OF CREDIT OR THE
PROVISION OF ANY CREDIT SUPPORT OR ENHANCEMENT IN CONNECTION THEREWITH OTHER THAN
ANY CLAIMS, DEMANDS, LIABILITIES, DAMAGES, LOSSES, COSTS, CHARGES, AND EXPENSES
RESULTING SOLELY FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY SUCH
INDEMNIFIED PERSON. THE AGREEMENT IN THIS SECTION 2.4(i)(i) SHALL SURVIVE PAYMENT OF ALL
OBLIGATIONS. NOTHING CONTAINED IN THIS AGREEMENT IS INTENDED TO LIMIT ANY BORROWER'S
RIGHTS, IF ANY, WITH RESPECT TO THE LETTER OF
LOAN AND SECURITY AGREEMENT - Page 44
52
CREDIT ISSUER WHICH ARISE BY OPERATION OF LAW OR AS A RESULT OF THE LETTER OF CREDIT
APPLICATION AND RELATED DOCUMENTS EXECUTED BY AND BETWEEN ANY BORROWER AND THE
LETTER OF CREDIT ISSUER.
(ii) Assumption of Risk by the Loan Parties. As among the Loan Parties, the Lenders, and the Agent, the Loan Parties assume
all risks of the acts and omissions of, or misuse of any of the Letters of Credit by, the respective beneficiaries of such Letters of
Credit. In furtherance and not in limitation of the foregoing, the Lenders and the Agent shall not be responsible for: (A) the
form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any Person in connection with the
application for and issuance of and presentation of drafts with respect to any of the Letters of Credit, even if it should prove to
be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (C) the failure of the beneficiary of any
Letter of Credit to comply duly with conditions required in order to draw upon such Letter of Credit; (D) errors, omissions,
interruptions, or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not
they be in cipher; (E) errors in interpretation of technical terms; (F) any loss or delay in the transmission or otherwise of any
document required in order make a drawing under any Letter of Credit or of the proceeds thereof; (G) the misapplication by
the beneficiary of any Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (H) any consequences
arising from causes beyond the control of the Lenders or the Agent, including any act or omission, whether rightful or wrongful,
of any present or future de jure or de facto Governmental Authority. None of the foregoing shall affect, impair or prevent the
vesting of any rights or powers of the Agent or any Lender under this Section 2.4(i).
(iii) Exoneration. In furtherance and extension, and not in limitation, of the specific provisions set forth above, any action taken
or omitted by the Agent or any Lender under or in connection with any of the Letters of Credit or any related certificates, if
taken or omitted in good faith, shall not put the Agent or any Lender under any resulting liability to any Loan Party or relieve
any Loan Party of any of its obligations hereunder to any such Person.
(iv) Indemnification by Lenders. The Lenders agree to indemnify the Letter of Credit Issuer (to the extent not reimbursed by the
Borrowers and without limiting the obligations of the Borrowers hereunder) ratably in accordance with their respective Pro
Rata Shares, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses
(including attorneys' fees) or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted
against the Letter of Credit Issuer in any way relating to or arising out
LOAN AND SECURITY AGREEMENT - Page 45
53
of any Letter of Credit or the transactions contemplated thereby or any action taken or omitted by the Letter of Credit Issuer
under any Letter of Credit or any Loan Document in connection therewith; provided that no Lender shall be liable for any of the
foregoing to the extent it arises from the gross negligence or willful misconduct of the Person to be indemnified. Without
limitation of the foregoing, each Lender agrees to reimburse the Letter of Credit Issuer promptly upon demand for its Pro Rata
Share of any costs or expenses payable by any Borrower to the Letter of Credit Issuer, to the extent that the Letter of Credit
Issuer is not promptly reimbursed for such costs and expenses by a Loan Party. The agreement contained in this section shall
survive payment in full of all Obligations.
(v) Power of Attorney. In connection with all Inventory financed by Letters of Credit, each Borrower hereby appoints the
Agent, or the Agent's designee, as its attorney, with full power and authority: (A) to sign and/or endorse such Borrower's name
upon any warehouse or other receipts; (B) to sign such Borrower's name on bills of lading and other negotiable and
non-negotiable documents; (C) to clear Inventory through customs in the Agent's or such Borrower's name, and to sign and
deliver to customs officials powers of attorney in such Borrower's name for such purpose; (D) to complete in such Borrower's
or the Agent's name, any order, sale, or transaction, obtain the necessary documents in connection therewith, and collect the
proceeds thereof; and (E) to do such other acts and things as are necessary in order to enable the Agent to obtain possession
or control of the Inventory and to obtain payment of the Obligations. Neither the Agent nor its designee, as such Borrower's
attorney, will be liable for any acts or omissions, nor for any error of judgement or mistakes of fact or law. This power, being
coupled with an interest, is irrevocable until all Obligations have been paid and satisfied.
(vi) Account Party. Each Borrower hereby authorizes and directs any Letter of Credit Issuer to name any Borrower as the
"Account Party" therein and to deliver to the Agent all instruments, documents and other writings and property received by the
Letter of Credit Issuer pursuant to the Letter of Credit, and to accept and rely upon the Agent's instructions and agreements
with respect to all matters arising in connection with the Letter of Credit or the application therefor.
(vii) Control of Inventory. In connection with all Inventory financed by Letters of Credit, each Borrower for whose account
such Letter of Credit was issued will, at the Agent's request, instruct all suppliers, carriers, forwarders, warehouses or others
receiving or holding cash, checks, Inventory, documents or instruments in which the Agent holds a security interest to deliver
them to the Agent and/or subject to the Agent's order, and if they shall come into such Borrower's possession, to deliver them,
upon request, to the Agent in their original form. Each such Borrower shall also, at the Agent's request, designate the Agent as
the consignee on all bills of lading and other negotiable and non-negotiable documents.
LOAN AND SECURITY AGREEMENT - Page 46
54
(j) Supporting Letter of Credit; Cash Collateral. If, notwithstanding the provisions of Section 2.4(b) and Section 12.1 any
Letter of Credit is outstanding upon the termination of this Agreement, then upon such termination the Borrower for whose
account such Letter of Credit was issued shall deposit with the Agent, for the ratable benefit of the Agent and the Lenders, with
respect to each Letter of Credit then outstanding, as the Majority Lenders in their discretion shall specify, either (i) a standby
letter of credit (a "Supporting Letter of Credit") in form and substance satisfactory to the Agent, issued by an issuer satisfactory
to the Agent in an amount equal to the greatest amount for which such Letter of Credit may be drawn plus any fees and
expenses associated with such Letter of Credit, under which Supporting Letter of Credit the Agent is entitled to draw amounts
necessary to reimburse the Agent and the Lenders for payments to be made by the Agent and the Lenders under such Letter of
Credit or under any credit support or enhancement provided through the Agent with respect thereto and any fees and expenses
associated with such Letter of Credit, or (ii) cash in amounts necessary to reimburse the Agent and the Lenders for payments
made by the Agent or the Lenders under such Letter of Credit or under any credit support or enhancement provided through
the Agent with respect thereto and any fees and expenses associated with such Letter of Credit. Such Supporting Letter of
Credit or deposit of cash shall be held by the Agent, for the ratable benefit of the Agent and the Lenders, as security for, and to
provide for the payment of, the aggregate undrawn amount of such Letters of Credit remaining outstanding. Interest shall accrue
on any such cash deposit at a rate acceptable to the Bank, which accrued interest shall be for the account of the Borrowers,
subject to this Agreement.
Section 2.5 Bank Products. Any Loan Party may request and the Bank may, in its sole and absolute discretion, arrange for
such Loan Party to obtain from the Bank or the Bank's Affiliates Bank Products although no Loan Party is required to do so.
Each Loan Party agrees to indemnify and hold the Bank and the Lenders harmless from any and all obligations now or hereafter
owing to any other Person by the Bank or any of the Lenders or the Bank's Affiliates arising from or related to such Bank
Products. Each Loan Party acknowledges and agrees that the obtaining of Bank Products from the Bank or the Bank's
Affiliates (a) is in the sole and absolute discretion of the Bank or the Bank's Affiliates, and
(b) is subject to all rules and regulations of the Bank or the Bank's Affiliates.
ARTICLE 3
INTEREST AND FEES
Section 3.1 Interest.
(a) Interest Rates. All outstanding Obligations shall bear interest on the unpaid principal amount thereof (including, to the extent
permitted by law, on interest thereon not paid when due) from the date made until paid in full in cash at a rate determined by
reference to the Base Rate or the LIBOR Rate and Sections 3.1(a)(i) or
(ii), as applicable, but not to exceed the Maximum Rate described in
Section 3.3. Subject to the provisions of Section 3.2, any of the Loans may be converted into, or continued as, Base Rate
Loans or LIBOR Rate
LOAN AND SECURITY AGREEMENT - Page 47
55
Loans in the manner provided in Section 3.2. If at any time Loans are outstanding with respect to which notice has not been
delivered to the Agent in accordance with the terms of this Agreement specifying the basis for determining the interest rate
applicable thereto, then those Loans shall be Base Rate Loans and shall bear interest at a rate determined by reference to the
Base Rate until notice to the contrary has been given to the Agent in accordance with this Agreement and such notice has
become effective. Except as otherwise provided herein, the outstanding Obligations shall bear interest as follows:
(i) For all Base Rate Revolving Loans and other Obligations (other than LIBOR Rate Loans) at a fluctuating per annum rate
equal to the lesser of (A) the Base Rate plus the Applicable Margin or (B) the Maximum Rate; and
(ii) For all LIBOR Revolving Loans at a per annum rate equal to the lesser of (A) the LIBOR Rate plus the Applicable Margin
or (B) the Maximum Rate.
Each change in the Base Rate shall be reflected in the interest rate described in clause (i) above as of the effective date of such
change. Subject to Section 3.7, all interest charges shall be computed on the basis of a year of 360 days and actual days
elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). Interest accrued on all
Loans will be payable in arrears (A) with respect to Base Rate Loans, on the next Business Day following the last day of each
calendar month and (B) with respect to LIBOR Rate Loans, on the last day of each corresponding Interest Period (and in the
case of an Interest Period of greater than three (3) months, at three-month intervals after the first day of such Interest Period),
in each case continuing until all Obligations have been irrevocably paid in full.
(b) Default Rate. If any Default or Event of Default occurs and is continuing and the Majority Lenders in their discretion so
elect, then, while any such Default or Event of Default is outstanding, all of the Obligations shall bear interest at a per annum
rate equal to the lesser of (A) the Default Rate applicable thereto or (B) the Maximum Rate.
Section 3.2 Conversion and Continuation Elections.
(a) The Borrowers may, upon irrevocable written notice to the Agent in accordance with Section 3.2(b):
(i) elect, as of any Business Day, in the case of Base Rate Loans to convert any such Loans (or any part thereof in an amount
not less than $500,000, or that is in an integral multiple of $100,000 in excess thereof) into LIBOR Rate Loans; or
(ii) elect, as of the last day of the applicable Interest Period, to continue any LIBOR Rate Loans having Interest Periods
expiring on such day (or any part thereof in an amount not less than $500,000, or that is in an integral multiple of $100,000 in
excess thereof);
LOAN AND SECURITY AGREEMENT - Page 48
56
provided, that if at any time the aggregate amount of LIBOR Rate Loans in respect of any Borrowing is reduced, by payment,
prepayment, or conversion of part thereof to be less than $500,000, such LIBOR Rate Loans shall automatically convert into
Base Rate Loans, and on and after such date the right of the Borrowers to continue such Loans as, and convert such Loans
into, LIBOR Rate Loans, as the case may be, shall terminate.
(b) The Borrowers shall deliver a notice of conversion/continuation ("Notice of Conversion/Continuation") to be received by
the Agent not later than 11:00 a.m. (Dallas, Texas time) at least three (3) Business Days in advance of the
Conversion/Continuation Date, if the Loans are to be converted into or continued as LIBOR Rate Loans and specifying:
(i) the proposed Conversion/Continuation Date;
(ii) the aggregate amount of Loans to be converted or renewed;
(iii) the type of Loans resulting from the proposed conversion or continuation; and
(iv) the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to LIBOR Rate Loans, the Borrowers have failed to select timely a
new Interest Period to be applicable to LIBOR Rate Loans or if any Default or Event of Default then exists, the Borrowers
shall be deemed to have elected to convert such LIBOR Rate Loans into Base Rate Loans effective as of the expiration date of
such Interest Period.
(d) The Agent will promptly notify each Lender of its receipt of a Notice of Conversion/Continuation. All conversions and
continuations shall be made ratably according to the respective outstanding principal amounts of the Loans with respect to
which the notice was given held by each Lender.
(e) During the existence of a Default or Event of Default, the Borrowers may not elect to have a Loan converted into or
continued as a LIBOR Rate Loan.
(f) After giving effect to any conversion or continuation of Loans, there may not be more than six (6) different Interest Periods
in effect hereunder.
Section 3.3 Maximum Interest Rate. If, in any month, any interest rate, absent such limitation, would have exceeded the
Maximum Rate, then the interest rate for that month shall be the Maximum Rate, and, if in future months, that interest rate
would otherwise be less than the Maximum Rate, then that interest rate shall remain at the Maximum Rate until such time as the
amount of interest paid hereunder equals the amount of interest which would have been paid if the same had not been limited by
the Maximum Rate. In the event that, upon payment in full of the Obligations, the total amount of interest paid or accrued under
the terms of this Agreement is less than the total
LOAN AND SECURITY AGREEMENT - Page 49
57
amount of interest which would, but for this Section 3.3, have been paid or accrued if the interest rates otherwise set forth in
this Agreement had at all times been in effect, then the Borrowers shall, to the extent permitted by applicable law, pay the
Agent, for the account of the Lenders, an amount equal to the excess of (a) the lesser of (i) the amount of interest which would
have been charged if the Maximum Rate had, at all times, been in effect or (ii) the amount of interest which would have accrued
had the interest rates otherwise set forth in this Agreement, at all times, been in effect over (b) the amount of interest actually
paid or accrued under this Agreement.
Section 3.4 Unused Line Fee. Until the Loans have been paid in full and the Agreement terminated, the Borrowers agree to
pay, on the first day of each month and on the Termination Date, to the Agent, for the account of the Lenders, in accordance
with their respective Pro Rata Shares, an unused line fee (the "Unused Line Fee") equal to the Unused Line Fee Percentage
times the amount by which the Maximum Revolver Amount exceeded the sum of the average daily outstanding amount of
Revolving Loans and the average daily undrawn face amount of all outstanding Letters of Credit, during the immediately
preceding month or shorter period if calculated on the Termination Date. The Unused Line Fee shall be computed on the basis
of a 360-day year for the actual number of days elapsed. All payments received by the Agent on account of Accounts or as
proceeds of other Collateral shall be deemed to be credited to the Borrowers' Loan Account immediately upon receipt for
purposes of calculating the Unused Line Fee pursuant to this Section 3.4.
Section 3.5 Letter of Credit Fee. The Borrowers agree to pay to the Agent, for the account of the Lenders, in accordance with
their respective Pro Rata Shares, for each Letter of Credit, a fee (the "Letter of Credit Fee") equal to the Letter of Credit Fee
Percentage per annum of the undrawn face amount of each Letter of Credit, plus all out-of-pocket costs, fees and expenses
incurred by the Agent in connection with the application for, processing of, issuance of, or amendment to any Letter of Credit,
which costs, fees and expenses could include a "fronting fee" payable to such issuer. The Letter of Credit Fee shall be payable
monthly in arrears on the first day of each month following any month in which a Letter of Credit was issued and/or in which a
Letter of Credit remains outstanding. The Letter of Credit Fee shall be computed on the basis of a 360-day year for the actual
number of days elapsed.
Section 3.6 Other Fees. The Borrowers agree to pay all other fees and expenses set forth in the certain letter agreement, dated
as of the Closing Date among the Agent, the Borrowers and the Parent.
Section 3.7 Interest Limitation. The Agent, the Lenders and the Loan Parties each acknowledges, agrees and declares that it is
its intention to expressly comply with all Requirements of Law in respect of limitations on the amount or rate of interest that can
legally be contracted for, charged or received under or in connection with the Loan Documents. Notwithstanding anything to
the contrary contained in any Loan Document (even if any such provision expressly declares that it controls all other provision
of the Loan Documents), in no contingency or event whatsoever shall the amount of interest (including the aggregate of all
charges, fees, benefits or other compensation which constitutes interest under any Requirement of Law) under the Loan
Documents paid by any Borrower, received by the Agent, the Letter of Credit Issuer or any Lender, agreed to be paid by any
Borrower, or requested or demanded to be paid by the Agent, the Letter of Credit Issuer or any
LOAN AND SECURITY AGREEMENT - Page 50
58
Lender, exceed the Maximum Rate, and all provisions of the Loan Documents in respect of the contracting for, charging, or
receiving compensation for the use, forbearance, or detention of money shall be limited as provided by this Section
3.7. In the event any such interest is paid to the Agent, the Letter of Credit Issuer or any Lender by the Borrowers, or any of
them, in an amount or at a rate which would exceed the Maximum Rate, the Agent, the Letter of Credit Issuer or such Lender,
as the case may be, shall automatically apply such excess to any unpaid amount of the Obligations other than interest, in inverse
order of maturity, or if the amount of such excess exceeds said unpaid amount, such excess shall be paid to the paying
Borrowers or Borrower, as applicable. All interest paid, or agreed to be paid, by any Borrower, or taken, reserved or
received by the Agent, the Letter of Credit Issuer or any Lender, shall be amortized, prorated, spread, and allocated in respect
of the Obligations throughout the full term of this Agreement. Notwithstanding any provision contained in any of the Loan
Documents, or in any other related documents executed pursuant hereto, neither the Agent, the Letter of Credit Issuer nor any
Lender shall ever be entitled to charge, receive, take, reserve, collect, or apply as interest any amount which, together with all
other interest under the Loan Documents would result in a rate of interest under the Loan Documents in excess of the Maximum
Rate and, in the event the Agent, the Letter of Credit Issuer or any Lender ever charges, receives, takes, reserves, collects, or
applies any amount in respect of the Borrowers, or any of them, that otherwise would, together with all other interest under the
Loan Documents, be in excess of the Maximum Rate, such amount shall automatically be deemed to be applied in reduction of
the unpaid principal balance of the Obligations and, if such principal balance is paid in full, any remaining excess shall forthwith
be paid to the applicable Borrowers or Borrower. The Borrowers, the Agent, the Letter of Credit Issuer and the Lenders shall,
to the maximum extent permitted under any Requirement of Law, (i) characterize any non-principal payment as a standby fee,
commitment fee, prepayment charge, delinquency charge, expense or reimbursement for a third-party expense rather than as
interest and (ii) exclude prepayments, acceleration and the effect thereof. Nothing in any Loan Document shall be construed or
so operate as to require or obligate the Borrowers, or any of them, to pay any interest, fees, costs, or charges greater than is
permitted by any Requirement of Law. Subject to the foregoing, the Borrowers hereby agree that the actual effective rate of
interest from time to time existing under the Loan Documents, including all amounts agreed to by the Borrowers or charged or
received by the Agent, the Letter of Credit Issuer or the Lenders pursuant to and in accordance with the Loan Documents,
which may be deemed to be interest under any Requirement of Law, shall be deemed to be a rate which is agreed to and
stipulated by the Borrowers and the Lenders in accordance with Requirements of Law.
ARTICLE 4
PAYMENTS AND PREPAYMENTS
Section 4.1 Revolving Loans. The Borrowers shall repay the outstanding principal balance of the Revolving Loans, plus all
accrued but unpaid interest thereon, on the Termination Date. The Borrowers may prepay Revolving Loans at any time, and
reborrow subject to the terms of this Agreement; provided, however, that with respect to any LIBOR Revolving Loans prepaid
prior to the expiration date of the Interest Period applicable thereto, the Borrowers promise to pay to the Agent for account of
the Lenders the amounts described in Section
5.4. In addition, and without limiting the generality of the foregoing, upon demand the Borrowers promise to pay to the Agent,
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59
for account of the Lenders, the amount, without duplication, by which the Aggregate Revolver Outstanding exceeds the
Borrowing Base.
Section 4.2 Reduction of Commitments; Termination of Facility.
(a) The Borrowers may reduce the Maximum Revolver Amount to an amount, not less than $40,000,000, as may be
designated by the Borrowers at any time effective upon thirty (30) days prior written notice thereof to the Agent and the
Lenders, provided, that (i) the first of any such reductions shall be in an amount of at least $5,000,000 and any such subsequent
reduction shall be in an amount of at least $1,000,000 or any integral multiple of $1,000,000 in excess thereof and (ii) each
such reduction shall be permanent. The Lenders shall have no obligation at any time to increase the Maximum Revolver Amount
following any such reduction. No notice of reduction shall be effective to reduce the Maximum Revolver Amount to an amount
less than $40,000,000.
(b) The Borrowers may terminate this Agreement upon at least thirty (30) Business Days' notice to the Agent and the Lenders,
upon
(a) the payment in full of all outstanding Revolving Loans, together with accrued interest thereon, and the cancellation and return
of all outstanding Letters of Credit, (b) the payment of the early termination fee set forth in the next sentence, (c) the payment in
full in cash of all other Obligations together with accrued interest thereon, and (d) with respect to any LIBOR Rate Loans
prepaid in connection with such termination prior to the expiration date of the Interest Period applicable thereto, the payment of
the amounts described in Section
5.4. If this Agreement is terminated at any time prior to the Stated Termination Date, whether pursuant to this Section or
pursuant to
Section 11.2, the Loan Parties shall pay to the Agent, for the account of the Lenders, an early termination fee determined in
accordance with the following table:
Period during which early termination occurs Early Termination Fee
-------------------------------------------- ---------------------
On or prior to the first Anniversary Date 0.75% of the average Loans and
Letters of Credit outstanding during
the 180 days (or lesser period if
within 180 days of the Closing Date)
prior to the date of termination.
After the first Anniversary Date but on 0.50% of the average Loans and
or prior to the second Anniversary Date Letters of Credit outstanding during
the 180 days prior to the date of
termination.
After the second Anniversary Date but 0.25% of the average Loans and
prior to the third Anniversary Date Letters of Credit outstanding during
the 180 days prior to the date of
termination.
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60
Notwithstanding the foregoing, no such early termination fee shall be payable in the event this Agreement is terminated at any
time after the first Anniversary Date in connection with refinancing the Obligations in a transaction in which the Bank or any of
its Affiliates is administrative agent and a lender.
Section 4.3 Reserved.
Section 4.4 Prepayments from Capex Reimbursements. An amount equal to all Capex Reimbursements shall be paid to the
Agent, promptly upon receipt thereof, for application to the Obligations in such manner as the Agent shall determine in its sole
discretion.
Section 4.5 Prepayments from Asset Dispositions. All proceeds or other cash payments received by any Loan Party or
Restricted Subsidiary pursuant to any transaction of merger, reorganization, consolidation, transfer, sale, assignment, lease or
other disposition allowed by clauses (a) and (c) through
(g) of Section 9.9, net of reasonable costs and expenses, shall be paid to the Agent, promptly upon such receipt, for application
to the Obligations in such manner as the Agent shall determine in its sole discretion.
Section 4.6 Payments by the Borrower.
(a) All payments to be made by the Borrowers shall be made without setoff, recoupment or counterclaim. Except as otherwise
expressly provided herein, all payments by the Borrowers shall be made to the Agent for the account of the Lenders at the
Agent's address set forth in Section 15.8, and shall be made in Dollars and in immediately available funds, no later than 2:00
p.m. (Dallas, Texas time) on the date specified herein. Any payment received by the Agent later than 2:00 p.m. (Dallas, Texas
time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to
accrue.
(b) Subject to the provisions set forth in the definition of "Interest Period" herein, whenever any payment is due on a day other
than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case
be included in the computation of interest or fees, as the case may be.
(c) Unless the Agent receives notice from the Borrowers prior to the date on which any payment is due to the Lenders that the
Borrowers will not make such payment in full as and when required, the Agent may assume that the Borrowers have made such
payment in full to the Agent on such date in immediately available funds and the Agent may (but shall not be so required), in
reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such
Lender. If and to the extent the Borrowers have not made such payment in full to the Agent, each Lender shall repay to the
Agent on demand such amount distributed to such Lender, together with interest thereon at the Federal Funds Rate for each
day from the date such amount is distributed to such Lender until the date repaid.
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61
Section 4.7 Payments as Revolving Loans. All payments of principal, interest, reimbursement obligations in connection with
Letters of Credit, fees, premiums and other sums payable hereunder, including all reimbursement for expenses pursuant to
Section 15.7, may, at the option of the Agent, in its sole discretion, subject only to the terms of this Section 4.7, be paid from
the proceeds of Revolving Loans made hereunder, whether made following a request by the Borrowers pursuant to Section 2.2
or a deemed request as provided in this
Section 4.7. The Borrowers hereby irrevocably authorize the Agent to charge the Loan Account for the purpose of paying
principal, interest, reimbursement obligations in connection with Letters of Credit, fees, premiums and other sums payable
hereunder, including reimbursing expenses pursuant to Section 15.7, and agrees that all such amounts charged shall constitute
Revolving Loans (including Non-Ratable Loans and Agent Advances) and that all such Revolving Loans so made shall be
deemed to have been requested by Borrowers pursuant to Section 2.2.
Section 4.8 Apportionment, Application and Reversal of Payments. Aggregate principal and interest payments shall be
apportioned ratably among the Lenders (according to the unpaid principal balance of the Loans to which such payments relate
held by each Lender) and payments of the fees shall, as applicable, be apportioned ratably among the Lenders. All payments
shall be remitted to the Agent and all such payments not relating to principal or interest of specific Loans, or not constituting
payment of specific fees, and all proceeds of Accounts or other Collateral received by the Agent, shall be applied, ratably,
subject to the provisions of this Agreement, first, to pay any fees, indemnities or expense reimbursements then due to the Agent
from the Borrowers; second, to pay any fees or expense reimbursements then due to the Lenders from the Borrowers; third, to
pay interest due in respect of all Revolving Loans, including Non-Ratable Loans and Agent Advances; fourth, to pay or prepay
principal of the Non-Ratable Loans and Agent Advances; fifth, to pay or prepay principal of the Revolving Loans (other than
Non-Ratable Loans and Agent Advances) and unpaid reimbursement obligations in respect of Letters of Credit; sixth, to the
payment of any other Obligation due to the Agent or any Lender by the Borrowers; and seventh, to the payment of all
Obligations, if any, arising from or in connection with Bank Products. Notwithstanding anything to the contrary contained in this
Agreement, unless so directed by a Borrower, or unless an Event of Default is outstanding, neither the Agent nor any Lender
shall apply any payments which it receives to any LIBOR Revolving Loan, except
(a) on the expiration date of the Interest Period applicable to any such LIBOR Rate Loan, or (b) in the event, and only to the
extent, that there are no outstanding Base Rate Revolving Loans. The Agent shall promptly distribute to each Lender, pursuant
to the applicable wire transfer instructions received from each Lender in writing, such funds as it may be entitled to receive,
subject to a Settlement delay as provided for in Section 2.2(j). The Agent and the Lenders shall have the continuing and
exclusive right to apply and reverse and reapply any and all such proceeds and payments to any portion of the Obligations.
Section 4.9 Indemnity for Returned Payments. If after receipt of any payment which is applied to the payment of all or any part
of the Obligations, the Agent or any Lender is for any reason compelled to surrender such payment or proceeds to any Person
because such payment or application of proceeds is invalidated, declared fraudulent, set aside, determined to be void or
voidable as a preference, impermissible setoff, or a diversion of trust funds, or for any other reason, then the Obligations or part
thereof intended to be satisfied shall be revived and continued and this Agreement shall continue in full force as if such payment
or proceeds had not been received by the Agent or such
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Lender and the Loan Parties shall be liable to pay to the Agent and the Lenders, and each Loan Party hereby does indemnify
the Agent and the Lenders and hold the Agent and the Lenders harmless for the amount of such payment or proceeds
surrendered. The provisions of this Section 4.9 shall be and remain effective notwithstanding any contrary action which may
have been taken by the Agent or any Lender in reliance upon such payment or application of proceeds, and any such contrary
action so taken shall be without prejudice to the Agent's and the Lenders' rights under this Agreement and shall be deemed to
have been conditioned upon such payment or application of proceeds having become final and irrevocable. The provisions of
this Section 4.9 shall survive the termination of this Agreement.
Section 4.10 The Agent's and the Lenders' Books and Records; Monthly Statements. The Loan Parties agree that the Agent's
and each Lender's books and records showing the Obligations and the transactions pursuant to this Agreement and the other
Loan Documents shall be admissible in any action or proceeding arising therefrom, and shall constitute rebuttably presumptive
proof thereof, irrespective of whether any Obligation is also evidenced by a promissory note or other instrument. The Agent will
provide to the Borrowers a monthly statement of Loans, payments, and other transactions pursuant to this Agreement. Such
statement shall be deemed correct, accurate, and binding on the Borrowers and an account stated (except for reversals and
reapplications of payments made as provided in Section 4.8 and corrections of errors discovered by the Agent), unless a
Borrower notifies the Agent in writing to the contrary within thirty
(30) days after such statement is rendered. In the event a timely written notice of objections is given by a Borrower, only the
items to which exception is expressly made will be considered to be disputed.
ARTICLE 5
TAXES, YIELD PROTECTION AND ILLEGALITY
Section 5.1 Taxes.
(a) Any and all payments by or on behalf of the Borrowers, or any of them, to each Lender or the Agent under this Agreement
and any other Loan Document shall be made free and clear of, and without deduction or withholding for any Taxes. In addition,
the Borrowers shall pay all Other Taxes.
(b) The Borrowers agree to indemnify and hold harmless each Lender and the Agent for the full amount of Taxes or Other
Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section) paid by the
Lender or the Agent and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this
indemnification shall be made within 30 days after the date the Lender or the Agent makes written demand therefor.
(c) If the Borrowers shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum
payable hereunder to any Lender or the Agent, then:
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(i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including
deductions and withholdings applicable to additional sums payable under this Section) such Lender or the Agent, as the case
may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made;
(ii) the Borrowers shall make such deductions and withholdings;
(iii) the Borrowers shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in
accordance with applicable law; and
(iv) the Borrowers shall also pay to each Lender or the Agent for the account of such Lender, at the time interest is paid, all
additional amounts which the respective Lender specifies as necessary to preserve the after-tax yield the Lender would have
received if such Taxes or Other Taxes had not been imposed.
(d) Within 30 days after the date of any payment by the Borrowers of Taxes or Other Taxes, the Borrowers shall furnish the
Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the
Agent.
(e) If the Borrowers are required to pay additional amounts to any Lender or the Agent pursuant to subsection (c) of this
Section, then such Lender shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the
jurisdiction of its lending office so as to eliminate any such additional payment by the Borrowers which may thereafter accrue, if
such change in the judgment of such Lender is not otherwise disadvantageous to such Lender.
Section 5.2 Illegality.
(a) If any Lender determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in
the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other
Governmental Authority has asserted that it is unlawful, for any Lender or its applicable lending office to make LIBOR Rate
Loans, then, on notice thereof by the Lender to the Borrowers through the Agent, any obligation of that Lender to make
LIBOR Rate Loans shall be suspended until the Lender notifies the Agent and the Borrowers that the circumstances giving rise
to such determination no longer exist.
(b) If a Lender determines that it is unlawful to maintain any LIBOR Rate Loan, the Borrowers shall, upon receipt of notice of
such fact and demand from such Lender (with a copy to the Agent), prepay in full such LIBOR Rate Loans of that Lender then
outstanding, together with interest accrued thereon and amounts required under Section 5.4, either on the last day of the
Interest Period thereof, if the Lender may lawfully continue to maintain such LIBOR Rate Loans to such day, or immediately, if
the Lender may not lawfully continue to
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maintain such LIBOR Rate Loan. If the Borrowers are required to so prepay any LIBOR Rate Loans, then concurrently with
such prepayment, the Borrowers shall borrow from the affected Lender, in the amount of such repayment, a Base Rate Loan.
Section 5.3 Increased Costs and Reduction of Return.
(a) If any Lender determines that due to either (i) the introduction of or any change in the interpretation of any law or regulation
or (ii) the compliance by that Lender with any guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the cost to such Lender of agreeing to make or making,
funding or maintaining any LIBOR Rate Loans, then the Borrowers shall be liable for, and shall from time to time, upon demand
(with a copy of such demand to be sent to the Agent), pay to the Agent for the account of such Lender, additional amounts as
are sufficient to compensate such Lender for such increased costs.
(b) If any Lender shall have determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any
Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any
central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by
the Lender or any corporation or other entity controlling the Lender with any Capital Adequacy Regulation, affects or would
affect the amount of capital required or expected to be maintained by the Lender or any corporation or other entity controlling
the Lender and (taking into consideration such Lender's or such corporation's or other entity's policies with respect to capital
adequacy and such Lender's desired return on capital) determines that the amount of such capital is increased as a consequence
of its Commitments, loans, credits or obligations under this Agreement, then, upon demand of such Lender to the Borrowers
through the Agent, the Borrowers shall pay to the Lender, from time to time as specified by the Lender, additional amounts
sufficient to compensate the Lender for such increase.
Section 5.4 Funding Losses. The Borrowers shall reimburse each Lender and hold each Lender harmless from any loss or
expense which the Lender may sustain or incur as a consequence of:
(a) the failure of the Borrowers to make on a timely basis any payment of principal of any LIBOR Rate Loan;
(b) the failure of the Borrowers to borrow, continue or convert a Loan after the Borrowers have given (or are deemed to have
given) a Notice of Borrowing or a Notice of Conversion/ Continuation;
(c) the prepayment or other payment (including after acceleration thereof) of any LIBOR Rate Loan on a day that is not the last
day of the relevant Interest Period;
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including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its LIBOR
Rate Loans or from fees payable to terminate the deposits from which such funds were obtained.
Section 5.5 Inability to Determine Rates. If the Agent determines that for any reason adequate and reasonable means do not
exist for determining the LIBOR Rate for any requested Interest Period with respect to a proposed LIBOR Rate Loan, or that
the LIBOR Rate for any requested Interest Period with respect to a proposed LIBOR Rate Loan does not adequately and
fairly reflect the cost to the Lenders of funding such Loan, the Agent will promptly so notify the Borrowers and each Lender.
Thereafter, the obligation of the Lenders to make or maintain LIBOR Rate Loans hereunder shall be suspended until the Agent
revokes such notice in writing. Upon receipt of such notice, the Borrowers may revoke any Notice of Borrowing or Notice of
Conversion/Continuation then submitted by it. If the Borrowers do not revoke such Notice, the Lenders shall make, convert or
continue the Loans, as proposed by the Borrowers, in the amount specified in the applicable notice submitted by the
Borrowers, but such Loans shall be made, converted or continued as Base Rate Loans instead of LIBOR Rate Loans.
Section 5.6 Certificates of Lenders. Any Lender claiming reimbursement or compensation under this Article 5 shall deliver to
the Borrowers (with a copy to the Agent) a certificate setting forth in reasonable detail the amount payable to the Lender
hereunder and such certificate shall be conclusive and binding on the Borrowers in the absence of manifest error.
Section 5.7 Survival. The agreements and obligations of the Borrower in this Article 5 shall survive the payment of all other
Obligations.
Section 5.8 Replacement of Affected Lender. Within thirty (30) days after receipt by the Borrowers of written notice and
demand from any Lender for any payment under the terms of Section 5.1 or Section 5.3 then, subject to this
Section 5.8, the Borrowers may, at their option, notify the Agent and such Lender (the "Affected Lender") of their intention to
obtain, at the Borrowers' sole expense, a replacement Lender ("Replacement Lender") to purchase the Affected Lender's
Revolving Loans and its obligations under the Loan Documents. Subject to this Section 5.8, the Borrowers shall, within thirty
(30) days following the delivery of such notice from the Borrowers, cause the Replacement Lender to purchase (and the
Affected Lender hereby agrees to sell and convey to such Replacement Lender) the Revolving Loans of the Affected Lender
and assume the Affected Lender's Commitment and obligations hereunder in accordance with the terms of an Assignment and
Acceptance for cash in an aggregate amount equal to the aggregate unpaid principal of the Revolving Loans held by such
Affected Lender, all unpaid interest and fees accrued thereon or with respect thereto, and all other Obligations owed to such
Affected Lender, including amounts owed under Section 5.1 or Section 5.3 (but excluding any amount pursuant to Section
4.2). Notwithstanding the foregoing, the (a) Borrowers shall continue to be obligated to pay to the Affected Lender in full all
amounts then demanded and due under Section 5.1 or Section 5.3 in accordance with the terms of this Agreement, (b) neither
the Agent nor any Lender shall have any obligation to find a Replacement Lender, (c) the Replacement Lender must be
acceptable to the Agent in its reasonable discretion and (d) the Bank may not be replaced under this Section 5.8 without its
consent.
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ARTICLE 6
COLLATERAL
Section 6.1 Grant of Security Interest.
(a) As security for all Obligations (excluding Existing Obligations in the case of property owned by a Newly Obligated Party),
each Loan Party hereby grants to the Agent, for the benefit of the Agent and the Lenders, a continuing security interest in, lien
on, assignment of and right of setoff against, all of the following property and assets of such Loan Party, whether now owned or
existing or hereafter acquired or arising, regardless of where located:
(i) all Accounts (including any credit enhancement therefor);
(ii) all Inventory;
(iii) all contract rights (excluding any contract rights which are expressly included within the Rig 75 Property), letters of credit,
chattel paper, instruments, notes, documents, and documents of title;
(iv) all General Intangibles (excluding any General Intangibles which are expressly included within the Rig 75 Property);
(v) all Rig Equipment;
(vi) all Investment Property, excluding (i) Investment Property listed in Part I (but only such Part I) of Schedule 8.31 as of the
Closing Date and (ii) Capital Stock issued by Unrestricted Subsidiaries; provided, that with respect to any Foreign Subsidiary
directly owned by a Loan Party, the amount of Capital Stock of such Foreign Subsidiary included in the Collateral shall be
limited to 65% of the issued and outstanding Capital Stock of such Foreign Subsidiary;
(vii) all money, cash, cash equivalents, securities and other property of any kind of such Loan Party held directly or indirectly by
the Agent or any Lender;
(viii) all of such Loan Party's deposit accounts, credits, and balances with and other claims against the Agent or any Lender or
any of their Affiliates or any other financial institution with which such Loan Party maintains deposits, including any Payment
Accounts;
(ix) all books, records and other property related to or referring to any of the foregoing, including books, records, account
ledgers, data processing records, computer software and other property and General Intangibles at any time evidencing or
relating to any of the foregoing; and
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(x) all accessions to, substitutions for and replacements, products and proceeds of any of the foregoing, including, but not
limited to, proceeds of any insurance policies, claims against third parties, and condemnation or requisition payments with
respect to all or any of the foregoing;
All of the property enumerated in this Section 6.1(a), together with all other property of such Loan Party in which the Agent or
any Lender may at any time be granted a Lien, is herein collectively referred to as the "Collateral."
(b) All of the Obligations (excluding Existing Obligations in the case of property owned by a Newly Obligated party) shall be
secured by all of the Collateral. Each Loan Party that is a Borrower acknowledges and expressly agrees with the Agent and
each Lender that the grant by such Borrower of the Agent's Lien in the Collateral of such Borrower as security for Obligations
of the other Loan Parties is required solely as a condition to, and is given solely as inducement for and in consideration of,
credit or accommodations extended or to be extended under the Loan Documents to any or all of the other Loan Parties and is
not required or given as a condition of extensions of credit to such Borrower.
Section 6.2 Perfection and Protection of Security Interest.
(a) Each Loan Party shall, at its expense, perform all steps requested by the Agent at any time to perfect, maintain, protect, and
enforce the Agent's Liens, including: (i) executing and filing financing or continuation statements, and amendments thereof, in
form and substance satisfactory to the Agent; (ii) executing and delivering the Maritime Security Documents; (iii) delivering to
the Agent the originals of all instruments, documents, and chattel paper, and all other Collateral of which the Agent determines it
should have physical possession in order to perfect and protect the Agent's security interest therein, duly pledged, endorsed or
assigned to the Agent without restriction; (iv) delivering to the Agent warehouse receipts covering any portion of the Collateral
located in warehouses and for which warehouse receipts are issued and certificates of title covering any portion of the collateral
for which certificates of title have been issued; (v) when an Event of Default exists, transferring Inventory to warehouses or
other locations designated by the Agent; (vi) placing notations on its books of account to disclose the Agent's security interest;
(vii) delivering to the Agent all letters of credit on which it is named beneficiary; and (viii) taking such other steps as are deemed
necessary or desirable by the Agent to maintain and protect the Agent's Liens. To the extent permitted by applicable law, the
Agent may file, without any Loan Party's signature, one or more financing statements disclosing the Agent's Liens. Each Loan
Party agrees that a carbon, photographic, photostatic, or other reproduction of this Agreement or of a financing statement is
sufficient as a financing statement.
(b) If any Collateral is at any time in the possession or control of any warehouseman, bailee or any Loan Party's agents or
processors, then such Loan Party shall notify the Agent thereof and shall, at the request of the Agent, notify such Person of the
Agent's security interest in such Collateral and instruct such Person to hold all such Collateral
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for the Agent's account subject to the Agent's instructions. If at any time any Collateral is located on any operating facility of a
Loan Party which is not owned by such Loan Party, then such Loan Party shall, at the request of the Agent, obtain written
subordinations, in form and substance satisfactory to the Agent, of all present and future Liens to which the owner or lessor of
such premises may be entitled to assert against the Collateral.
(c) From time to time, each Loan Party shall, upon the Agent's request, execute and deliver confirmatory written instruments
pledging to the Agent, for the ratable benefit of the Agent and the Lenders, the Collateral with respect to such Loan Party, but
the failure to do so shall not affect or limit any security interest or any other rights of the Agent or any Lender in and to the
Collateral with respect to such Loan Party. So long as this Agreement is in effect and until all Obligations have been fully
satisfied, the Agent's Liens shall continue in full force and effect in all Collateral (whether or not deemed eligible for the purpose
of calculating the Availability or as the basis for any advance, loan, extension of credit, or other financial accommodation).
(d) To the extent any Loan Party is or becomes the issuer of any Investment Property that is Collateral, each such Loan Party
(in such capacity, an "Issuer") agrees as follows with respect to such Investment Property:
(i) All such Investment Property issued by such Issuer, all warrants, and all non-cash dividends and other non-cash distributions
in respect thereof at any time registered in the name of, or otherwise deliverable to, any Loan Party, shall be delivered directly
to the Agent, for the account of such Loan Party, at the Agent's address for notices set forth in Section 15.8.
(ii) Such Issuer will not acknowledge any transfer or encumbrance in respect of such Investment Property to or in favor of any
Person other than the Agent or a Person designated by the Agent in writing.
(iii) With respect to any of such Investment Property at any time constituting an uncertificated security as defined by the UCC,
the Issuer will comply with instructions originated by the Agent without further consent by the registered owner thereof.
Section 6.3 Location of Collateral. Each Loan Party represents and warrants to the Agent and the Lenders that: Schedule 6.3
is a correct and complete list of such Loan Party's chief executive office, the location of its books and records, the locations of
the Collateral which is located within the United States (other than Rig Materials and Supplies which in the ordinary course of
business are located at drilling locations) and the locations of all of its other places of business. Each Loan Party covenants and
agrees that it will not (i) maintain any Collateral at any location other than those locations listed for such Loan Party on Schedule
6.3 (other than Rig Materials and Supplies which in the ordinary course of business are located at drilling locations), (ii)
otherwise change or add to any of such locations or (iii) change the location of its chief executive office from the location
identified in Schedule 6.3, unless it gives the Agent at least thirty (30) days' prior written notice
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thereof and executes any and all financing statements and other documents that the Agent requests in connection therewith.
Without limiting the foregoing, each Loan Party represents that all of its Inventory (other than Inventory in transit) is, and
covenants that all of its Inventory will be, located either (a) on premises owned by such Loan Party, (b) on premises leased by
such Loan Party provided that the Agent has, if requested by the Agent in its sole discretion, received an executed landlord
waiver from the landlord of such premises in form and substance satisfactory to the Agent, (c) in a warehouse or with a bailee,
provided that the Agent has, if requested by the Agent in its sole discretion, received an executed bailee letter from the
applicable Person in form and substance satisfactory to the Agent or (d) on site at drilling locations in the ordinary course of
business.
Section 6.4 Title to, Liens on, and Sale and Use of Collateral. Each Loan Party represents and warrants to the Agent and the
Lenders and agrees with the Agent and the Lenders that: (a) all of the Collateral is and will continue to be owned by such Loan
Party free and clear of all Liens whatsoever, except for Permitted Liens; (b) the Agent's Liens in the Collateral will not be
subject to any prior Lien; (c) such Loan Party will use, store, and maintain the Collateral with all reasonable care and will use
such Collateral for lawful purposes only; and (d) such Loan Party will not, without the Agent's prior written approval, sell, or
dispose of or permit the sale or disposition of any of the Collateral except for sales of Inventory in the ordinary course of
business and sales of Equipment as permitted by Section 6.11. The inclusion of proceeds in the Collateral shall not be deemed
to constitute the Agent's or any Lender's consent to any sale or other disposition of the Collateral except as expressly permitted
herein.
Section 6.5 Appraisals. Whenever a Default or Event of Default exists, and at such other times not more frequently than one
time per calendar year as the Agent requests, the Loan Parties shall, at their expense and upon the Agent's request, provide the
Agent with appraisals or updates thereof of any or all of the Collateral from an appraiser, and prepared on a basis, satisfactory
to the Agent, such appraisals and updates to include, without limitation, information required by applicable law and regulation
and by the internal policies of the Lenders.
Section 6.6 Access and Examination; Confidentiality.
(a) The Agent, accompanied by any Lender which so elects, may at all reasonable times during regular business hours (and at
any time when a Default or Event of Default exists and is continuing) have access to, examine, audit, make extracts from or
copies of and inspect any or all of the Loan Parties' records, files, and books of account and the Collateral, and discuss the
Loan Parties' affairs with the Loan Parties' officers and management. The Loan Parties will deliver to the Agent any instrument
necessary for the Agent to obtain records from any service bureau maintaining records for the Loan Parties. The Agent may,
and at the direction of the Majority Lenders shall, at any time when a Default or Event of Default exists, and at the Loan Parties'
expense, make copies of all of the Loan Parties' books and records, or require the Loan Parties to deliver such copies to the
Agent. The Agent may, without expense to the Agent, use such of the Loan Parties' respective personnel, supplies, and
premises as may be reasonably necessary for maintaining or enforcing the Agent's Liens. The Agent shall have the right, at any
time, in the Agent's name or in the name of a nominee of
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the Agent, to verify the validity, amount or any other matter relating to the Accounts, Inventory, or other Collateral, by mail,
telephone, or otherwise.
(b) The Loan Parties agree that, subject to their prior consent for uses other than in a traditional tombstone, which consent shall
not be unreasonably withheld or delayed, the Agent and each Lender may use any Parent's name in advertising and promotional
material and in conjunction therewith disclose the general terms of this Agreement. The Agent and each Lender severally agree
to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as
"confidential" or "secret" by any Loan Party and provided to the Agent or such Lender by or on behalf of such Loan Party,
under this Agreement or any other Loan Document, except to the extent that such information (i) was or becomes generally
available to the public other than as a result of disclosure by the Agent or such Lender, or (ii) was or becomes available on a
nonconfidential basis from a source other than the Loan Parties, provided that such source is not bound by a confidentiality
agreement with the Loan Parties known to the Agent or such Lender; provided, however, that the Agent and any Lender may
disclose such information
(1) at the request or pursuant to any requirement of any Governmental Authority to which the Agent or such Lender is subject
or in connection with an examination of the Agent or such Lender by any such Governmental Authority; (2) pursuant to
subpoena or other court process; (3) when required to do so in accordance with the provisions of any applicable Requirement
of Law; (4) to the extent reasonably required in connection with any litigation or proceeding (including, but not limited to, any
bankruptcy proceeding) to which the Agent, any Lender or their respective Affiliates may be party; (5) to the extent reasonably
required in connection with the exercise of any remedy hereunder or under any other Loan Document; (6) to the Agent's or
such Lender's independent auditors, accountants, attorneys and other professional advisors; (7) to any prospective Participant
or Assignee under any Assignment and Acceptance, actual or potential, provided that such prospective Participant or Assignee
agrees to keep such information confidential to the same extent required of the Agent and the Lenders hereunder; (8) as
expressly permitted under the terms of any other document or agreement regarding confidentiality to which any Loan Party is
party or is deemed party with the Agent or such Lender, and (9) to its Affiliates.
Section 6.7 Collateral Reporting. The Loan Parties shall provide, or cause to be provided, to the Agent the following
documents at the following times in form satisfactory to the Agent: (a) on or before the 20th day following the last day of each
calendar month, or more frequently if requested by the Agent or if Borrower elects in order to recalculate Availability, a
schedule of the Borrower's Accounts created since the last such schedule and a Borrowing Base Certificate; (b) on a monthly
basis, or more frequently if requested by the Agent, an aging of the Borrower's Accounts, together with a reconciliation to the
previous month's aging of such Borrower's Accounts and to its general ledger; (c) on a monthly basis, or more frequently if
requested by the Agent, an aging of each Borrower's accounts payable; (d) on a monthly basis, Inventory reports by category,
separately stating the Book Value of Rig Materials and Supplies as of the last day of the preceding calendar month (or, if
requested by the Agent, more frequently and prepared as of any other day of a calendar month, to the extent such reports
reasonably can be made available by the Loan Parties); (e) on a monthly basis, a Rig Report as of the last day of the preceding
calendar month, (f) on or before the
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20th day following the last day of each fiscal quarter of each Fiscal Year, a Drilling Contract Report, (g) upon request, copies
of invoices in connection with each Borrower's Accounts, customer statements, credit memos, remittance advices and reports,
deposit slips, shipping and delivery documents in connection with each Borrower's Accounts; (h) such other reports as to the
Collateral as the Agent shall reasonably request from time to time; and (i) with the delivery of each of the foregoing, a certificate
of the Loan Parties executed by an officer thereof certifying as to the accuracy and completeness of the foregoing. If any of the
Loan Parties' records or reports of the Collateral are prepared by an accounting service or other agent, each Loan Party
hereby authorizes such service or agent to deliver such records, reports, and related documents to the Agent, for distribution to
the Lenders. Each of the items required on a monthly basis by clauses (b) through (e) preceding shall be delivered to the Agent
not later than 20 days after the last day of each calendar month. The Borrowers represent and warrant that no Foreign
Currency Reimbursements are included in any Borrowing Base Certificate or otherwise reported to the Agent as being included
in the Borrowing Base.
Section 6.8 Accounts. Each Loan Party covenants, agrees, represents and warrants, as to itself, as follows:
(a) With respect to such Loan Parties' Accounts: (i) each existing Account represents, and each future Account will represent, a
bona fide sale or lease and delivery of goods by the Loan Party, or rendition of services by the Loan Party, in the ordinary
course of the Loan Party's business; (ii) each existing Account is, and each future Account will be, for a liquidated amount
payable by the Account Debtor thereon on the terms set forth in the invoice therefor or in the schedule thereof delivered to the
Agent, without any offset, deduction, defense, or counterclaim except those known to the Loan Party and disclosed to the
Agent and the Lenders pursuant to this Agreement;
(iii) no payment will be received with respect to any Account, and no credit, discount, or extension, or agreement therefor will
be granted on any Account, except as reported to the Agent and the Lenders in accordance with this Agreement; (iv) each
copy of an invoice delivered to the Agent by the Loan Party will be a genuine copy of the original invoice sent to the Account
Debtor named therein; and (v) all goods described in any invoice representing a sale of goods will have been delivered to the
Account Debtor and all services of the Loan Party described in each invoice will have been performed.
(b) The Loan Party shall not redate any invoice or sale or make sales on extended dating beyond that customary in the Loan
Party's business or extend or modify any Account. If the Loan Party becomes aware of any matter adversely affecting the
collectibility of any Account or Account Debtor involving an amount greater than $500,000, including information regarding the
Account Debtor's creditworthiness, the Loan Party will promptly so advise the Agent.
(c) The Loan Party shall not accept any note or other instrument (except a check or other instrument for the immediate payment
of money) with respect to any Account without the Agent's written consent. If the Agent consents to the acceptance of any
such instrument, it shall be considered as evidence of the Account and not payment thereof and the
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Loan Party will promptly deliver such instrument to the Agent, endorsed by the Loan Party to the Agent in a manner
satisfactory in form and substance to the Agent. Regardless of the form of presentment, demand, notice of protest with respect
thereto, the Loan Party shall remain liable thereon until such instrument is paid in full.
(d) The Loan Party shall notify the Agent promptly of all disputes and claims in excess of $500,000 with any Account Debtor,
and agrees to settle, contest, or adjust such dispute or claim at no expense to the Agent or any Lender. No discount, credit or
allowance shall be granted to any such Account Debtor without the Agent's prior written consent, except for discounts, credits
and allowances made or given in the ordinary course of the Loan Party's business when no Event of Default exists hereunder.
The Agent may, and at the direction of the Majority Lenders shall, at all times when an Event of Default exists hereunder, settle
or adjust disputes and claims directly with Account Debtors of any Loan Party for amounts and upon terms which the Agent or
the Majority Lenders, as applicable, shall consider advisable and, in all cases with respect to a Borrower, the Agent will credit
the Borrowers' Loan Account with only the net amounts received by the Agent in payment of any Accounts.
(e) If an Account Debtor returns any Inventory to the Loan Party when no Event of Default exists, then the Loan Party shall
promptly determine the reason for such return and shall issue a credit memorandum to the Account Debtor in the appropriate
amount. In the event any Account Debtor returns Inventory to the Loan Party when an Event of Default exists, the Loan Party,
upon request of the Agent, shall: (i) hold the returned Inventory in trust for the Agent; (ii) segregate all returned Inventory from
all of its other property; (iii) dispose of the returned Inventory solely according to the Agent's written instructions; and (iv) not
issue any credits or allowances with respect thereto without the Agent's prior written consent. All returned Inventory shall be
subject to the Agent's Liens thereon. Whenever any Inventory is returned, the related Account shall be deemed ineligible to the
extent of the amount owing by the Account Debtor with respect to such returned Inventory.
Section 6.9 Collection of Accounts; Payments.
(a) Until the Agent notifies the Loan Parties to the contrary, the Loan Parties shall make collection of all Accounts and other
Collateral for the Agent, shall receive all payments as the Agent's trustee, and shall immediately deliver all payments in their
original form duly endorsed in blank into a Payment Account established for the account of the Loan Parties at a Clearing Bank
acceptable to the Agent, subject to a Blocked Account Agreement. If the Agent requests, the Loan Parties shall establish a
lock-box service for collections of Accounts at a Clearing Bank acceptable to the Agent and subject to a Blocked Account
Agreement and other documentation acceptable to the Agent. If such lock-box service is established, the Loan Parties shall
instruct all Account Debtors to make all payments directly to the address established for such service. If, notwithstanding such
instructions, any Loan Party receives any proceeds of Accounts, it shall receive such payments as the Agent's trustee, and shall
immediately deliver such payments to the Agent in their original form duly endorsed in blank or deposit them into a Payment
Account, as the Agent may direct. All collections received
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in any lock-box or Payment Account or directly by any Loan Party or the Agent, and all funds in any Payment Account or
other account to which such collections are deposited shall be subject to the Agent's sole control and withdrawals by any Loan
Party shall not be permitted. Notwithstanding the foregoing, unless and until the Loan Parties are notified by the Agent to the
contrary, the Borrowers may retain payments of Foreign Currency Reimbursements for use in the ordinary course of business.
The Agent or the Agent's designee may, at any time after the occurrence of an Event of Default, notify Account Debtors that
the Accounts have been assigned to the Agent and of the Agent's security interest therein, and may collect them directly and
charge the collection costs and expenses to the Loan Account as a Revolving Loan. So long as an Event of Default has
occurred and is continuing, the Loan Parties, at the Agent's request, shall execute and deliver to the Agent such documents as
the Agent shall require to grant the Agent access to any post office box in which collections of Accounts are received.
(b) If sales of Inventory are made or services are rendered by any Loan Party for cash, such Loan Party shall immediately
deliver, or cause to be delivered to the Agent or deposit into a Payment Account the cash which such Loan Party receives.
(c) All payments, including immediately available funds received by the Agent at a bank designated by it, whether or not
received by the Agent on account of Accounts or as proceeds of other Collateral will be the Agent's sole property for its
benefit and the benefit of the Lenders and will be credited to the Loan Account (conditional upon final collection) after allowing
one (1) Business Day for collection; provided, however, that such payments shall be deemed to be credited to the Loan
Account immediately upon receipt for purposes of (i) determining Availability, (ii) calculating the Unused Line Fee pursuant to
Section 3.4, and (iii) calculating the amount of interest accrued thereon solely for purposes of determining the amount of interest
to be distributed by the Agent to the Lenders (but not the amount of interest payable by the Borrowers).
(d) In the event all of the Obligations are repaid upon the termination of this Agreement or upon acceleration of the Obligations,
other than through the Agent's receipt of payments on account of the Accounts or proceeds of the other Collateral, such
payment will be credited (conditional upon final collection) to the Borrowers' Loan Account one (1) Business Day after the
Agent's receipt of such funds.
Section 6.10 Inventory. Each Loan Party represents and warrants to the Agent and the Lenders and agrees with the Agent and
the Lenders that all of the Inventory owned by such Loan Party is and will be held for use and consumption in connection with
the rendition of services in the ordinary course of such Loan Party's business, and is and will be fit for such purposes. Each
Loan Party will keep its Inventory in good and usable condition, at its own expense. The Loan Parties will conduct a physical
count of the Inventory at least once per Fiscal Year, and after and during the continuation of an Event of Default, at such other
times as the Agent requests. The Loan Parties will not, without the Agent's written consent, sell any Inventory on a
bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment, or other repurchase or return basis.
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Section 6.11 Rig Equipment.
(a) Each Loan Party represents and warrants to the Agent and the Lenders and agrees with the Agent and the Lenders that all
of the Rig Equipment owned by such Loan Party is and will be used or held for use in such Loan Party's business, and is and
will be fit for such purposes. Each Loan Party shall keep and maintain its Rig Equipment in good operating condition and repair
(ordinary wear and tear excepted) and shall make all necessary replacements thereof.
(b) The Loan Parties shall not permit any Rig Equipment to become a fixture with respect to real property or to become an
accession with respect to other personal property with respect to which real or personal property the Agent does not have a
Lien. The Loan Parties will not, without the Agent's prior written consent, alter or remove any identifying symbol or number on
any Rig Equipment consisting of Collateral.
(c) The Loan Parties shall not, without the Agent's prior written consent, sell, lease as a lessor, or otherwise dispose of any Rig
Equipment.
Section 6.12 Reserved.
Section 6.13 Documents, Instruments, and Chattel Paper. Each Loan Party represents and warrants to the Agent and the
Lenders that (a) all documents, instruments, and chattel paper of such Loan Party describing, evidencing, or constituting
Collateral, and all signatures and endorsements thereon, are and will be complete, valid, and genuine, and (b) all goods
evidenced by such documents, instruments, and chattel paper are and will be owned by such Loan Party, free and clear of all
Liens other than Permitted Liens.
Section 6.14 Right to Cure. The Agent may, in its discretion, and shall, at the direction of the Majority Lenders, pay any
amount or do any act required of any Loan Party hereunder or under any other Loan Document in order to preserve, protect,
maintain or enforce the Obligations, the Collateral or the Agent's Liens therein, and which any Loan Party fails to pay or do,
including payment of any judgment against any Loan Party, any insurance premium, any warehouse charge, any finishing or
processing charge, any landlord's or bailee's claim, and any other Lien upon or with respect to the Collateral. All payments that
the Agent makes under this Section 6.14 and all out-of-pocket costs and expenses that the Agent pays or incurs in connection
with any action taken by it hereunder shall be charged to the Borrowers' Loan Account as a Revolving Loan. Any payment
made or other action taken by the Agent under this Section 6.14 shall be without prejudice to any right to assert an Event of
Default hereunder and to proceed thereafter as herein provided.
Section 6.15 Power of Attorney. Each Loan Party, as to itself, hereby appoints the Agent and the Agent's designee as its
attorney, with power: (a) to endorse such Loan Party's name on any checks, notes, acceptances, money orders, or other forms
of payment or security that come into the Agent's or any Lender's possession; (b) in connection with the Collateral, to sign such
Loan Party's name on any financing statements and other public records and to file any such financing statements by electronic
means with or without a signature as authorized or required by applicable law or filing
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procedure; (c) so long as any Event of Default has occurred and is continuing, to sign such Loan Party's name on any invoice,
bill of lading, warehouse receipt or other document of title relating to any Collateral, on drafts against customers, on
assignments of Accounts or on notices of assignment, and to notify the post office authorities to change the address for delivery
of such Loan Party's mail to an address designated by the Agent and to receive, open and dispose of all mail addressed to such
Loan Party; (d) to send requests for verification of Accounts to customers or Account Debtors; (e) to clear Inventory through
customs in such Loan Party's name, the Agent's name or the name of the Agent's designee, and to sign and deliver to customs
officials powers of attorney in such Loan Party's name for such purpose; and (f) to do all things necessary to carry out this
Agreement. Each Loan Party ratifies and approves all acts of such attorney. None of the Lenders or the Agent nor their
attorneys will be liable for any acts or omissions or for any error of judgment or mistake of fact or law. This power, being
coupled with an interest, is irrevocable until this Agreement has been terminated and the Obligations have been fully satisfied.
Section 6.16 The Agent's and Lenders' Rights, Duties and Liabilities. The Loan Parties assume all responsibility and liability
arising from or relating to the use, sale or other disposition of the Collateral. The Obligations shall not be affected by any failure
of the Agent or any Lender to take any steps to perfect the Agent's Liens or to collect or realize upon the Collateral, nor shall
loss of or damage to the Collateral release any Loan Party from any of the Obligations. Following the occurrence and
continuation of an Event of Default, the Agent may (but shall not be required to), and at the direction of the Majority Lenders
shall, without notice to or consent from any Loan Party, sue upon or otherwise collect, extend the time for payment of, modify
or amend the terms of, compromise or settle for cash, credit, or otherwise upon any terms, grant other indulgences, extensions,
renewals, compositions, or releases, and take or omit to take any other action with respect to the Collateral, any security
therefor, any agreement relating thereto, any insurance applicable thereto, or any Person liable directly or indirectly in
connection with any of the foregoing, without discharging or otherwise affecting the liability of any Loan Party for the
Obligations or under this Agreement or any other agreement now or hereafter existing between the Agent and/or any Lender
and any Loan Party.
Section 6.17 Site Visits, Observations and Testing. The Agent and its representatives will have the right at any reasonable time
to enter and visit the Premises and any other place where any property of any Loan Party is located for the purposes of
observing the Premises, taking and removing soil or groundwater samples, and conducting tests on any part of the Premises.
The Agent is under no duty, however, to visit or observe the Premises or to conduct tests, and any such acts by the Agent will
be solely for the purposes of protecting the Agent's Liens and preserving the Agent and the Lenders' rights under this
Agreement. No site visit, observation or testing by the Agent and the Lenders will result in a waiver of any Default or Event of
Default or impose any liability on the Agent or the Lenders. In no event will any site visit, observation or testing by the Agent be
a representation that hazardous substances are or are not present in, on or under the Premises, or that there has been or will be
compliance with any Environmental Law. Neither any Loan Party nor any other party is entitled to rely on any site visit,
observation or testing by the Agent. The Agent and the Lenders owe no duty of care to protect the Loan Parties or any other
party against, or to inform the Loan Parties or any other party of, any hazardous substances or any other adverse condition
affecting the Premises. The Agent may in its discretion disclose to the Loan Parties or to any other party if so required by law
any report or findings made as a result of, or in connection with, any site
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visit, observation or testing by the Agent. The Loan Parties understand and agree that the Agent makes no warranty or
representation to the Loan Parties or any other party regarding the truth, accuracy or completeness of any such report or
findings that may be disclosed. The Loan Parties also understand that depending on the results of any site visit, observation or
testing by the Agent and disclosed to the Loan Parties, the Loan Parties may have a legal obligation to notify one or more
environmental agencies of the results, that such reporting requirements are site-specific, and are to be evaluated by the Loan
Parties without advice or assistance from the Agent. In each instance, the Agent will give the Loan Parties reasonable notice
before entering the Premises or any other place the Agent is permitted to enter under this Section 6.17. The Agent will make
reasonable efforts to avoid interfering with the Loan Parties' use of the Premises or any other property in exercising any rights
provided hereunder.
Section 6.18 Guaranties; Loan Party Joinder. Each Loan Party shall guarantee payment and performance of the Obligations
(other than Obligations owing by itself in a case where such guaranteeing Loan Party is a Borrower and excluding Existing
Obligations in the case of any such guarantee by a Newly Obligated Party)) pursuant to a Guaranty Agreement, in form and
substance satisfactory to the Agent, duly executed by each such Loan Party. Each such guaranteeing Loan Party that is a
Borrower acknowledges and expressly agrees with the Agent and each Lender that the Guaranty by such Borrower is required
solely as a condition to, and is given solely as inducement for and in consideration of, credit or accommodations extended or to
be extended under the Loan Documents to any or all of the other Loan Parties and is not required or given as a condition to
extensions of credit to such Borrower. Promptly upon creation or acquisition of any Restricted Subsidiary, such Loan Party
shall cause such Restricted Subsidiary to become a Loan Party (but unless otherwise agreed by the Agent and the Lenders, not
as a Borrower) and guarantee the Obligations by executing and delivering to the Agent such Loan Documents and other
instruments, certificates, and agreements, in each case in form and substance satisfactory to the Agent, as the Agent may
request. Upon execution and delivery of such Loan Documents and other instruments, certificates, and agreements, such newly
created or acquired Restricted Subsidiary shall automatically become a Loan Party and thereupon shall have all of the rights,
benefits, duties, and obligations of a Loan Party under the Loan Documents.
Section 6.19 Voting Rights, Distributions, Etc. in Respect of Investment Property.
(a) So long as no Event of Default shall have occurred and be continuing (i) each Loan Party shall be entitled to exercise any
and all voting and other consensual rights (including, without limitation, the right to give consents, waivers, and notifications in
respect of any securities) pertaining to its Investment Property or any part thereof; provided, however, that without the prior
written consent of the Agent and the Majority Lenders, no vote shall be cast or consent, waiver, or ratification given or action
taken which would (A) be inconsistent with or violate any provision of this Agreement or any other Loan Document or (B)
amend, modify, or waive any material term, provision, or condition of the certificate of incorporation, bylaws, certificate of
formation, or other charter document or other agreement relating to, evidencing, providing for the issuance of, or securing any
such Investment Property, in any manner that would impair such Investment Property, the transferability thereof, or the Agent's
Liens therein, and (ii) each Loan Party shall be entitled to receive and
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retain any and all dividends and interest paid in respect of any of such Investment Property (unless otherwise required by this
Agreement).
(b) Upon the occurrence and during the continuance of an Event of Default, (i) the Agent may, without notice to any Loan
Party, transfer or register in the name of the Agent or any of its nominees, for the ratable benefit of the Agent and the Lenders,
any or all of the Collateral consisting of Investment Property, the proceeds thereof (in cash or otherwise), and all liens, security,
rights, remedies, and claims of any Loan Party with respect thereto (as used in this Section
6.19 collectively, the "Pledged Collateral") held by the Agent hereunder, and the Agent or its nominee may thereafter, after
delivery of notice to the applicable Loan Party, exercise all voting and corporate rights at any meeting of any corporation,
partnership, or other business entity issuing any of the Pledged Collateral and any and all rights of conversion, exchange,
subscription, or any other rights, privileges, or options pertaining to any of the Pledged Collateral as if it were the absolute
owner thereof, including, without limitation, the right to exchange at its discretion any and all of the Pledged Collateral upon the
merger, consolidation, reorganization, recapitalization, or other readjustment of any corporation, partnership, or other business
entity issuing any of such Pledged Collateral or upon the exercise by any such issuer or the Agent of any right, privilege, or
option pertaining to any of the Pledged Collateral, and in connection therewith, to deposit and deliver any and all of the Pledged
Collateral with any committee, depositary, transfer agent, registrar, or other designated agency upon such terms and conditions
as it may determine, all without liability except to account for property actually received by it, but the Agent shall have no duty
to exercise any of the aforesaid rights, privileges, or options, and the Agent shall not be responsible for any failure to do so or
delay in so doing, (ii) after the Agent's giving of the notice specified in clause (i) of this Section 6.19(b), all rights of any Loan
Party to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section
6.19(a)(i) shall be suspended until such Event of Default shall no longer exist, and all such rights shall, until such Event of Default
shall no longer exist, thereupon become vested in the Agent which shall thereupon have the sole right to exercise such voting
and other consensual rights, and
(iii) each Loan Party shall execute and deliver (or cause to be executed and delivered) to the Agent all such proxies and other
instruments as the Agent may reasonably request for the purpose of enabling the Agent to exercise the voting and other rights
which it is entitled to exercise pursuant to this Section 6.19(b). The foregoing shall not in any way limit the Agent's power and
authority granted pursuant to Section 6.15.
ARTICLE 7
BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES
Section 7.1 Books and Records. The Loan Parties shall maintain, at all times, correct and complete books, records and
accounts in which complete, correct and timely entries are made of their respective transactions in accordance with GAAP
applied consistently with the audited Financial Statements required to be delivered pursuant to Section 7.2(a). The Loan Parties
shall, by means of appropriate entries, reflect in such accounts and in all Financial Statements proper liabilities and reserves for
all taxes and proper provision for depreciation and amortization of property and bad
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debts, all in accordance with GAAP. The Loan Parties shall maintain at all times books and records pertaining to the Collateral
in such detail, form and scope as the Agent or any Lender shall reasonably require, including, but not limited to, records of (a)
all payments received and all credits and extensions granted with respect to the Accounts; (b) the return, rejections,
repossession, stoppage in transit, loss, damage, or destruction of any Inventory; and (c) all other dealings affecting the
Collateral.
Section 7.2 Financial Information. The Loan Parties shall promptly furnish to each Lender, all such financial information as the
Agent or any Lender shall reasonably request, and notify its auditors and accountants that the Agent, on behalf of the Lenders,
is authorized to obtain such information directly from them. Without limiting the foregoing, the Loan Parties will furnish, or cause
to be furnished, to the Agent, in sufficient copies for distribution by the Agent to each Lender, in such detail as the Agent or the
Lenders shall request, the following:
(a) As soon as available, but in any event not later than ninety (90) days after the close of each Fiscal Year, consolidated
audited and consolidating balance sheets, and statements of income and expense, cash flow and of stockholders' equity for the
Parent and its consolidated Subsidiaries for such Fiscal Year, and the accompanying notes thereto, setting forth in each case in
comparative form figures for the previous Fiscal Year, all in reasonable detail, fairly presenting the financial position and the
results of operations of the Parent and its consolidated Subsidiaries as at the date thereof and for the Fiscal Year then ended,
and prepared in accordance with GAAP. Such statements shall be examined in accordance with generally accepted auditing
standards by and, in the case of such statements performed on a consolidated basis, accompanied by a report thereon
unqualified as to scope of independent certified public accountants selected by the Parent and reasonably satisfactory to the
Agent. Each Loan Parent hereby authorizes the Agent to communicate directly with its certified public accountants and, by this
provision, authorizes those accountants to disclose to the Agent any and all financial statements and other supporting financial
documents and schedules relating to such Loan Party and to discuss directly with the Agent its finances and affairs. Each Loan
Party will authorize such independent public accountants in writing (with a copy to the Agent) to comply with the terms of this
Section 7.2(a).
(b) As soon as available, but in any event not later than thirty (30) days after the end of each month, consolidated and
consolidating unaudited balance sheets of the Parent and its consolidated Subsidiaries as at the end of such month, and
consolidated and consolidating unaudited statements of income and expense and cash flow for the Parent and its consolidated
Subsidiaries for such month and for the period from the beginning of the Fiscal Year to the end of such month, all in reasonable
detail, fairly presenting the financial position and results of operations of the Parent and its consolidated Subsidiaries as at the
date thereof and for such periods, and prepared in accordance with GAAP applied consistently with the audited Financial
Statements required to be delivered pursuant to Section 7.2(a). The Parent shall certify by a certificate signed by its chief
financial officer that all such statements have been prepared in accordance with GAAP and present fairly, subject to normal
quarter-end and year-end adjustments, the financial position of Parent and its consolidated Subsidiaries as at the dates thereof
and its results of operations for the periods then ended.
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(c) As soon as available, but in any event not later than forty-five (45) days after the close of each fiscal quarter other than the
fourth quarter of a Fiscal Year, consolidated and consolidating unaudited balance sheets of the Parent and its consolidated
Subsidiaries as at the end of such quarter, and consolidated and consolidating unaudited statements of income and expense and
statement of cash flows for the Parent and its consolidated Subsidiaries for such quarter and for the period from the beginning
of the Fiscal Year to the end of such quarter, all in reasonable detail, fairly presenting the financial position and results of
operation of the Parent and its consolidated Subsidiaries as at the date thereof and for such periods, prepared in accordance
with GAAP consistent with the audited Financial Statements required to be delivered pursuant to Section 7.2(a). The Parent
shall certify by a certificate signed by its chief financial officer that all such statements have been prepared in accordance with
GAAP and present fairly, subject to normal year-end adjustments, the financial position of Parent and its consolidated
Subsidiaries as at the dates thereof and its results of operations for the periods then ended.
(d) With each of the audited Financial Statements delivered pursuant to Section 7.2(a), a certificate of the independent certified
public accountants that examined such statement to the effect that they have reviewed and are familiar with this Agreement and
that, in examining such Financial Statements, they did not become aware of any fact or condition which then constituted a
Default or Event of Default, except for those, if any, described in reasonable detail in such certificate.
(e) With each of the annual audited Financial Statements delivered pursuant to Section 7.2(a), and within forty-five (45) days
after the end of each fiscal quarter, a certificate of the chief financial officer of the Parent (i) setting forth in reasonable detail the
calculations required to establish compliance with the covenants set forth in Section 9.23, Section 9.24, Section 9.25, and
Section 9.26 during the period covered in such Financial Statements and as at the end thereof, and (ii) stating that, except as
explained in reasonable detail in such certificate, (A) all of the representations and warranties of the Loan Parties contained in
this Agreement and the other Loan Documents are correct and complete in all material respects as at the date of such certificate
as if made at such time, except for those that speak as of a particular day, (B) the Loan Parties are, at the date of such
certificate, in compliance in all material respects with all of their respective covenants and agreements in this Agreement and the
other Loan Documents, (C) no Default or Event of Default then exists or existed during the period covered by such Financial
Statements, (D) describing and analyzing in reasonable detail all material trends, changes, and developments in each and all
Financial Statements, and (E) explaining the variances of the figures in the corresponding budgets and prior Fiscal Year financial
statements. If such certificate discloses that a representation or warranty is not correct or complete, or that a covenant has not
been complied with, or that a Default or Event of Default existed or exists, such certificate shall set forth what action the Loan
Parties have taken or propose to take with respect thereto.
(f) No sooner than sixty (60) days and not less than fifteen
(15) days prior to the beginning of each Fiscal Year, annual forecasts (to include forecasted consolidated and
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consolidating balance sheets, statements of income and expenses and statements of cash flow) for the Parent and its
consolidated Subsidiaries as at the end of and for each month of such Fiscal Year.
(g) Promptly after filing with the PBGC and the IRS, a copy of each annual report or other filing filed with respect to each Plan
of any Loan Party.
(h) Promptly upon the filing thereof, copies of all reports, if any, to or other documents filed by any Loan Party or any of its
Subsidiaries with the Securities and Exchange Commission under the Exchange Act, and all reports, notices, or statements sent
or received by the Borrower or any of its Subsidiaries to or from the holders of any equity interests of any Loan Party (other
than routine non-material correspondence sent by shareholders of any Loan Party) or any such Subsidiary or of any Debt for
Borrowed Money of any Loan Party or any of its Subsidiaries registered under the Securities Act of 1933 or to or from the
trustee under any indenture under which the same is issued.
(i) As soon as available, but in any event not later than 15 days after any Loan Party's receipt thereof, a copy of all management
reports and management letters prepared by any independent certified public accountants of Parent or any Borrower.
(j) Promptly after their preparation, copies of any and all proxy statements, financial statements, and reports which any Loan
Party makes available to its shareholders.
(k) Promptly upon request by the Agent at any time after filing with the IRS, a copy of each tax return filed by any Loan Party
or by any of its Subsidiaries.
(l) Such additional information as the Agent and/or any Lender may from time to time reasonably request regarding the financial
and business affairs of any Loan Party or any Subsidiary.
Section 7.3 Notices to the Lenders. The Loan Parties shall notify the Agent and the Lenders in writing of the following matters
at the following times:
(a) Immediately after becoming aware of any Default or Event of Default;
(b) Immediately after becoming aware of the assertion by the holder of any Capital Stock of any Loan Party or of any
Subsidiary or of any Debt that a default exists with respect thereto or that any Loan Party or such Subsidiary is not in
compliance with the terms thereof, or the threat or commencement by such holder of any enforcement action because of such
asserted default or non-compliance;
(c) Immediately after becoming aware of any Material Adverse Effect;
(d) Immediately after becoming aware of any pending or threatened action, suit, proceeding, or counterclaim by any Person, or
any pending or threatened investigation by a
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Governmental Authority, or of any pending or threatened action or investigation which may have a Material Adverse Effect;
(e) Immediately after becoming aware of any pending or threatened strike, work stoppage, unfair labor practice claim, or other
labor dispute affecting any Loan Party or any of its Subsidiaries in a manner which could reasonably be expected to have a
Material Adverse Effect;
(f) Immediately after becoming aware of any violation of any law, statute, regulation, or ordinance of a Governmental Authority
affecting any Loan Party or any Subsidiary which could reasonably be expected to have a Material Adverse Effect;
(g) Immediately after receipt of any notice of any violation by any Loan Party or any of its Subsidiaries of any Environmental
Law which could reasonably be expected to have a Material Adverse Effect or that any Governmental Authority has asserted
that any Loan Party or any Subsidiary is not in compliance with any Environmental Law or is investigating any Loan Party's or
such Subsidiary's compliance therewith, and the assertion or allegation, if true, could reasonably be expected to have a Material
Adverse Effect;
(h) Immediately after receipt of any written notice that any Loan Party or any of its Subsidiaries is or may be liable to any
Person as a result of the Release or threatened Release of any Contaminant or that any Loan Party or any Subsidiary is subject
to investigation by any Governmental Authority evaluating whether any remedial action is needed to respond to the Release or
threatened Release of any Contaminant which, in either case, is reasonably likely to give rise to liability in excess of
$1,000,000;
(i) Immediately after receipt of any written notice of the imposition of any Environmental Lien against any property of any Loan
Party or any of its Subsidiaries;
(j) Any change in any Loan Party's name, state of organization, or form of organization, trade names under which any Loan
Party will sell Inventory or create Accounts, or to which instruments in payment of Accounts may be made payable, in each
case at least thirty (30) days prior thereto;
(k) Within ten (10) Business Days after any Loan Party or any ERISA Affiliate knows or has reason to know, that an ERISA
Event or a non-exempt prohibited transaction (as defined in Sections 406 of ERISA and 4975 of the Code) has occurred
which could result in liability in excess of $1,000,000, and, when known, any action taken or threatened by the IRS, the DOL
or the PBGC with respect thereto;
(l) Upon request, or, in the event that such filing reflects a significant change with respect to the matters covered thereby, within
three (3) Business Days after the filing thereof with the PBGC, the DOL or the IRS, as applicable, copies of the following: (i)
each annual report (form 5500 series), including Schedule B thereto, filed with the PBGC, the DOL or the IRS with respect to
each Plan, (ii) a copy of each funding waiver request filed with the
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PBGC, the DOL or the IRS with respect to any Plan and all communications received by any Loan Party or any ERISA
Affiliate from the PBGC, the DOL or the IRS with respect to such request, and (iii) a copy of each other filing or notice filed
with the PBGC, the DOL or the IRS, with respect to each Plan of any Loan Party or any ERISA Affiliate;
(m) Promptly upon request by the Agent, copies of any filing with any Governmental Authority with respect to any Plan
(whether or not indicating any liabilities).
(n) Upon request, copies of each actuarial report for any Plan or Multi-employer Plan and annual report for any
Multi-employer Plan; and within three (3) Business Days after receipt thereof by any Loan Party or any ERISA Affiliate, copies
of the following: (i) any notices of the PBGC's intention to terminate a Plan or to have a trustee appointed to administer such
Plan; (ii) any favorable or unfavorable determination letter from the IRS regarding the qualification of a Plan under Section
401(a) of the Code; or (iii) any notice from a Multi-employer Plan regarding the imposition of withdrawal liability;
(o) Within three (3) Business Days after the occurrence thereof: (i) any changes in the benefits of any existing Plan which
increase any Loan Party's annual costs with respect thereto by an amount in excess of $1,000,000, or the establishment of any
new Plan or the commencement of contributions to any Plan to which any Loan Party or any ERISA Affiliate was not
previously contributing; or (ii) any failure by any Loan Party or any ERISA Affiliate to make a required installment or any other
required payment under Section 412 of the Code on or before the due date for such installment or payment; or
(p) Within three (3) Business Days after any Loan Party or any ERISA Affiliate knows or has reason to know that any of the
following events has or will occur: (i) a Multi-employer Plan has been or will be terminated; (ii) the administrator or plan
sponsor of a Multi-employer Plan intends to terminate a Multi-employer Plan; or (iii) the PBGC has instituted or will institute
proceedings under Section 4042 of ERISA to terminate a Multi-employer Plan.
Each notice given under this Section shall describe the subject matter thereof in reasonable detail, and shall set forth the action
that any Loan Party, its Subsidiary, or any ERISA Affiliate, as applicable, has taken or proposes to take with respect thereto.
Section 7.4 Revisions or Updates to Schedules. Should any of the information or disclosures provided on any of the schedules
originally attached hereto become outdated or incorrect in any material respect, the Loan Parties from time to time shall deliver
to the Agent and the Lenders, together with an officer's certificate of the type required pursuant to Section 7.2(e), such
revisions or updates to such schedule(s) as may be necessary or appropriate to update or correct such schedule(s), whereupon
such schedules shall be deemed to be amended by such revisions or updates, provided that, notwithstanding the foregoing, no
such revisions or updates to Schedules 1.1, 8.15, 8.17, 8.18,
8.21, 8.28 or 9.9 shall be deemed to have amended, modified or superseded any such schedules as originally attached hereto,
or to have cured any breach of warranty or representation
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resulting from the inaccuracy or incompleteness of any such schedules, unless and until the Agent and the Majority Lenders shall
have accepted in writing such revisions or updates to any such schedules.
ARTICLE 8
GENERAL WARRANTIES AND REPRESENTATIONS
Each Loan Party warrants and represents to the Agent and the Lenders that except as hereafter disclosed to and accepted by
the Agent and the Majority Lenders in writing:
Section 8.1 Authorization, Validity, and Enforceability of this Agreement and the Loan Documents; No Conflicts. Each Loan
Party has the power and authority to execute, deliver and perform this Agreement and the other Loan Documents, to incur the
Obligations, and to grant to the Agent Liens upon and security interests in the Collateral. Each Loan Party has taken all
necessary action (including obtaining approval of its stockholders, partners, general partner(s), members or other applicable
equity owners, if necessary) to authorize its execution, delivery, and performance of this Agreement and the other Loan
Documents to which it is a party. This Agreement and the other Loan Documents have been duly executed and delivered by
each Loan Party, and constitute the legal, valid and binding obligations of each Loan Party, enforceable against it in accordance
with their respective terms without defense, setoff or counterclaim. Each Loan Party's execution, delivery, and performance of
this Agreement and the other Loan Documents do not and will not conflict with, or constitute a violation or breach of, or
constitute a default under, or result in the creation or imposition of any Lien upon the property of any Loan Party or any of its
Subsidiaries by reason of the terms of (a) any contract, mortgage, Lien, lease, agreement, indenture (including, without
limitation, the Indentures), or instrument to which such Loan Party is a party or which is binding upon it, (b) any Requirement of
Law applicable to any Loan Party or any of its Subsidiaries, or (c) the certificate or articles of incorporation or by-laws of any
Loan Party or any of its Subsidiaries. The incurrence of "Indebtedness," as such term is defined in each of the Indentures,
respectively, resulting from each Borrowing is permitted by each of the Indentures, respectively.
Section 8.2 Validity and Priority of Security Interest. The provisions of this Agreement and the other Loan Documents create
legal and valid Liens on all the Collateral in favor of the Agent, for the ratable benefit of the Agent and the Lenders, and such
Liens constitute perfected and continuing Liens on all the Collateral, having priority over all other Liens on the Collateral,
securing all the Obligations, and enforceable against the Loan Parties and all third parties.
Section 8.3 Organization and Qualification. Each Loan Party (a) is duly formed and organized and validly existing in good
standing under the laws of the state of its formation and organization, (b) is qualified to do business as a foreign business entity
and is in good standing in the jurisdictions set forth on Schedule 8.3, which are the only jurisdictions in which qualification is
necessary in order for it to own or lease its property and conduct its business, except where the failure to qualify would not
cause a Material Adverse Effect and (c) has all requisite power and authority to conduct its business and to own its property.
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Section 8.4 Corporate Name; Prior Transactions. Except as set forth on Schedule 8.4, during the past five (5) years, no Loan
Party has been known by or used any other corporate or fictitious name, or been a party to any merger or consolidation, or
acquired all or substantially all of the assets of any Person, or acquired any of its property outside of the ordinary course of
business.
Section 8.5 Subsidiaries and Affiliates. Schedule 8.5 is a correct and complete list of the name and relationship to the Parent of
each and all of the Parent's Subsidiaries and other Affiliates. Each Subsidiary is (a) duly incorporated and organized and validly
existing in good standing under the laws of its state of formation and organization set forth on Schedule 8.5, and (b) qualified to
do business as a foreign business entity and in good standing in each jurisdiction in which the failure to so qualify or be in good
standing could reasonably be expected to have a Material Adverse Effect, and (c) has all requisite power and authority to
conduct its business and own its property.
Section 8.6 Financial Statements and Projections.
(a) The Parent has delivered to the Agent and the Lenders the audited balance sheet and related statements of income, retained
earnings, cash flows, and changes in stockholders equity for the Parent and its consolidated Subsidiaries as of August 31,
1998, and for the Fiscal Year then ended, accompanied by the report thereon of the Parent's independent certified public
accountants, PricewaterhouseCoopers LLP. The Parent has also delivered to the Agent and the Lenders the unaudited balance
sheet and related statements of income and cash flows for the Parent and its consolidated Subsidiaries as of June 30, 1999.
Such financial statements are attached hereto as Exhibit C. All such financial statements have been prepared in accordance with
GAAP (subject to normal year-end adjustments for such financial statements dated as of June 30, 1999) and present
accurately and fairly the financial position of the Parent and its consolidated Subsidiaries as at the dates thereof and their results
of operations for the periods then ended.
(b) The Latest Projections when submitted to the Lenders as required herein represent the Loan Parties' good faith estimate of
the future financial performance of the Loan Parties and their consolidated Subsidiaries for the periods set forth therein. The
Latest Projections have been prepared on the basis of the assumptions set forth therein, which the Loan Parties believe are fair
and reasonable in light of current and reasonably foreseeable business conditions at the time submitted to the Lender.
Section 8.7 Capitalization. On the Closing Date the Parent's authorized Capital Stock consists of 120,000,000 shares of
common stock, par value $0.16 2/3 per share, of which all shares outstanding are fully paid and non-assessable, and preferred
share rights entitling the holders of common Capital Stock to purchase one-one thousandth of a share of junior participating
preferred Capital Stock, par value $1.00 per share. Each Loan Party other than Parent is a Wholly-Owned Subsidiary of
Parent.
Section 8.8 Solvency. Each Loan Party is Solvent prior to and after giving effect to the making of the Loans to be made on the
Closing Date and the issuance of the Letters of Credit to be issued on the Closing Date, and shall remain Solvent during the
term of this Agreement.
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Section 8.9 Debt. After giving effect to the making of the Loans to be made on the Closing Date, the Loan Parties and their
Subsidiaries have no Debt, except (a) the Obligations, (b) Debt described on Schedules 8.9 and 8.9(a), (c) trade payables and
other contractual obligations arising in the ordinary course of business, (d) other Debt existing on the Closing Date and reflected
in the Financial Statements attached hereto as Exhibit C, and (e) after the Closing Date, Debt permitted under Section 9.13.
Section 8.10 Distributions. Since June 30, 1999, no Distribution has been declared, paid, or made upon or in respect of any
Capital Stock or other securities of the Loan Parties or any of their Subsidiaries.
Section 8.11 Title to Property. Each Loan Party has good and indefeasible title in fee simple to its real property listed in
Schedule 8.12 hereto, and has good, indefeasible, and merchantable title to all Collateral and all other material property
(including the assets reflected on the June 30, 1999 financial statements delivered to the Agent and the Lenders, except as
disposed of in the ordinary course of business since the date thereof), free of all Liens except Permitted Liens.
Section 8.12 Real Estate; Leases. Schedule 8.12 sets forth, as of the Closing Date, a correct and complete list of all Real
Estate owned by each Loan Party or any of its Subsidiaries, all leases and subleases of real or personal property by each Loan
Party or its Subsidiaries as lessee or sublessee (other than leases of personal property as to which it is lessee or sublessee for
which the value of such personal property is less than $1,000,000), and all leases and subleases of real or personal property by
each Loan Party or its Subsidiaries as lessor, lessee, sublessor or sublessee. Each of such leases and subleases is valid and
enforceable in accordance with its terms and is in full force and effect, and no default by any party to any such lease or sublease
exists.
Section 8.13 Reserved.
Section 8.14 Trade Names. All trade names or styles under which any of the Loan Parties will sell Inventory or create
Accounts, or to which instruments in payment of Accounts may be made payable, are listed on Schedule 8.14.
Section 8.15 Litigation. Except as set forth on Schedule 8.15, there is no pending or (to the best of any Loan Party's
knowledge) threatened, action, suit, proceeding, or counterclaim by any Person, or investigation by any Governmental
Authority, or any basis for any of the foregoing, which could reasonably be expected to cause a Material Adverse Effect.
Section 8.16 Restrictive Agreements. No Loan Party nor any of its Subsidiaries is a party to any contract or agreement, or
subject to any charter or other corporate restriction, which affects its ability to execute, deliver, and perform the Loan
Documents and repay the Obligations or which materially and adversely affects or, insofar as reasonably foreseen, could
reasonably be expected to materially and adversely affect, the property, business, operations, or condition (financial or
otherwise) of any Loan Party or such Subsidiary, or would in any respect cause a Material Adverse Effect.
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Section 8.17 Labor Disputes. Except as set forth on Schedule 8.17, (a) there is no collective bargaining agreement or other
labor contract covering employees of any Loan Party or any of its Subsidiaries, (b) no such collective bargaining agreement or
other labor contract is scheduled to expire during the term of this Agreement, (c) no union or other labor organization is seeking
to organize, or to be recognized as, a collective bargaining unit of employees of any Loan Party or any of its Subsidiaries or for
any similar purpose, and (d) there is no pending or (to the best of any Loan Party's knowledge) threatened, strike, work
stoppage, material unfair labor practice claim, or other material labor dispute against or affecting any Loan Party or its
Subsidiaries or their employees.
Section 8.18 Environmental Laws. Except as otherwise disclosed on Schedule 8.18:
(a) Each Loan Party and its Subsidiaries have complied in all material respects with all Environmental Laws applicable to its
Premises and business, and no Loan Party nor any Subsidiary nor any of its present Premises or operations, nor its past
property or operations, is subject to any enforcement order from or liability agreement with any Governmental Authority or
private Person respecting
(i) compliance with any Environmental Law or (ii) any potential liabilities and costs or remedial action arising from the Release
or threatened Release of a Contaminant.
(b) Each Loan Party and its Subsidiaries have obtained all permits necessary for their current operations under Environmental
Laws, and all such permits are in good standing and each Loan Party and its Subsidiaries are in compliance with all terms and
conditions of such permits.
(c) No Loan Party nor any of its Subsidiaries, nor, to the best of any Loan Party's knowledge, any of its predecessors in
interest, has in violation of applicable law stored, treated or disposed of any hazardous waste, as defined pursuant to 40 CFR
Part 261 or any equivalent Environmental Law, on any Premises.
(d) No Loan Party nor any of its Subsidiaries has received any summons, complaint, order or similar written notice indicating
that it is not currently in compliance with, or that any Governmental Authority is investigating its compliance with, any
Environmental Laws or that it is or may be liable to any other Person as a result of a Release or threatened Release of a
Contaminant.
(e) None of the present or past operations of any Loan Party or its Subsidiaries is the subject of any investigation by any
Governmental Authority evaluating whether any remedial action is needed to respond to a Release or threatened Release of a
Contaminant.
(f) There is not now, nor to the best of any Loan Party's knowledge has there ever been on or in the Premises:
(i) any underground storage tanks or surface impoundments,
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(ii) any asbestos-containing material, or
(iii) any polychlorinated biphenyls (PCBs) used in hydraulic oils, electrical transformers or other equipment.
(g) No Loan Party nor any of its Subsidiaries has filed any notice under any requirement of Environmental Law reporting a spill
or accidental and unpermitted Release or discharge of a Contaminant into the environment.
(h) No Loan Party nor any of its Subsidiaries has entered into any negotiations or settlement agreements with any Person
(including the prior owner of its property) imposing material obligations or liabilities on any Loan Party or any of its Subsidiaries
with respect to any remedial action in response to the Release of a Contaminant or environmentally related claim.
(i) No Loan Party, nor any Subsidiary of a Loan Party, manufactures, distributes or sells any product that contains asbestos
containing material.
(j) No Environmental Lien has attached to any Premises of any Loan Party or any of its Subsidiaries.
Section 8.19 No Violation of Law. No Loan Party nor any of its Subsidiaries is in violation of any law, statute, regulation,
ordinance, judgment, order, or decree applicable to it which violation could reasonably be expected to have a Material
Adverse Effect.
Section 8.20 No Default. No Loan Party nor any of its Subsidiaries is in default with respect to any note, indenture, loan
agreement, mortgage, lease, deed, or other agreement to which any such Loan Party or Subsidiary is a party or by which it is
bound, which default could reasonably be expected to have a Material Adverse Effect.
Section 8.21 ERISA Compliance. Except as specifically disclosed in Schedule 8.21:
(a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or
state law. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter
from the IRS and to the best knowledge of the Loan Parties, nothing has occurred which would cause the loss of such
qualification. Each Loan Party and each ERISA Affiliate has made all required contributions to any Plan subject to Section 412
of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the
Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of the Loan Parties, threatened claims, actions or lawsuits, or action by any
Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material
Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with
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respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension
Liability;
(iii) no Loan Party nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA
with respect to any Pension Plan (other than premiums due and not delinquent under
Section 4007 of ERISA); (iv) no Loan Party nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability
(and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under
Section 4201 or 4243 of ERISA with respect to a Multi-employer Plan; and (v) no Loan Party nor any ERISA Affiliate has
engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA.
Section 8.22 Taxes. Each Loan Party and its Subsidiaries have filed all federal and other tax returns and reports required to be
filed (or appropriate extensions have been timely filed), and have paid all federal and other taxes, assessments, fees and other
governmental charges levied or imposed upon them or their properties, income or assets or which otherwise are due and
payable (other than any such taxes, assessments, fees or governmental charges which, to the Loan Parties' knowledge are not
delinquent and in the aggregate do not exceed $100,000).
Section 8.23 Regulated Entities. No Loan Party, nor any Person controlling any Loan Party, is an "investment company" or a
company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940. No Loan Party
is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or a "public
utility" within the meaning of the Public Utility Holding Company Act of 1935, or is subject to regulation under the Federal
Power Act, the Interstate Commerce Act, any state public utilities code or law, or any other federal or state statute or
regulation limiting its ability to incur indebtedness.
Section 8.24 Use of Proceeds; Margin Regulations. The proceeds of the Loans are to be used solely for working capital
purposes. No Loan Party nor any Subsidiary is engaged in the business of purchasing or selling Margin Stock or extending
credit for the purpose of purchasing or carrying Margin Stock.
Section 8.25 Copyrights, Patents, Trademarks and Licenses, etc. Each Loan Party owns or is licensed or otherwise has the
right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, licenses, rights of
way, authorizations and other rights that are reasonably necessary for the operation of its businesses, without conflict with the
rights of any other Person. To the best knowledge of each Loan Party, no slogan or other advertising device, product, process,
method, substance, part or oth