-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SSYqDsOpdKmx7C2bQu5qP569bq5ZO5+XfuTQ0YTcp9M1j5uJsPLkk4/4Y/h7z06n 32GCuZ/kaDZPAbjyr7w0ow== 0000890566-98-000353.txt : 19980318 0000890566-98-000353.hdr.sgml : 19980318 ACCESSION NUMBER: 0000890566-98-000353 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980317 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIDE INTERNATIONAL INC CENTRAL INDEX KEY: 0000833081 STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389] IRS NUMBER: 760069030 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13289 FILM NUMBER: 98567530 BUSINESS ADDRESS: STREET 1: 5847 SAN FELIPE ST ST 3300 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7138718567 MAIL ADDRESS: STREET 1: 1500 CITY WEST BLVD STREET 2: SUITE 400 CITY: HOUSTON STATE: TX ZIP: 77042 FORMER COMPANY: FORMER CONFORMED NAME: PRIDE PETROLEUM SERVICES INC DATE OF NAME CHANGE: 19920703 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER: 1-13289 ------------------------ PRIDE INTERNATIONAL, INC. (FORMERLY PRIDE PETROLEUM SERVICES, INC.) (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) LOUISIANA 76-0069030 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 5847 SAN FELIPE, SUITE 3300 HOUSTON, TEXAS 77057 (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 789-1400 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ------------------------------------- ----------------------------------------- Common Stock, no par value New York Stock Exchange 6 1/4% Convertible Subordinated New York Stock Exchange Debentures due 2006 Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if 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. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant at March 12, 1998, based on the closing price on the New York Stock Exchange on such date, was $910,554,536. (The officers and directors of the registrant are considered affiliates for the purposes of this calculation.) The number of shares of the registrant's Common Stock outstanding on March 12, 1998 was 50,068,048. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's definitive proxy statement for the Annual Meeting of Shareholders to be held in May 1998 are incorporated by reference into Part III of this report. ================================================================================ TABLE OF CONTENTS PART I PAGE ---- Forward-Looking Statements ............................................... 1 Item 1. Business ........................................................ 1 Item 2. Property ........................................................ 12 Item 3. Legal Proceedings ............................................... 12 Item 4. Submission of Matters to a Vote of Security Holders ............. 12 Executive Officers of the Registrant ..................................... 13 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters ........................................... 14 Item 6. Selected Financial Data ......................................... 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ........................... 16 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ............................................. 20 Item 8. Financial Statements and Supplementary Data ..................... 21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .......................................... 45 PART III Item 10. Directors and Executive Officers of the Registrant .............. 45 Item 11. Executive Compensation .......................................... 45 Item 12. Security Ownership of Certain Beneficial Owners and Management .. 45 Item 13. Certain Relationships and Related Transactions .................. 45 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 45 i FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K includes certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements, other than statements of historical facts, included in this Annual Report on Form 10-K that address activities, events or developments that the Company expects, projects, believes or anticipates will or may occur in the future, including such matters as future capital expenditures and investments in the construction, acquisition and refurbishment of rigs (including the amount and nature thereof and the timing of completion thereof), repayment of debt, expansion and other development trends of the contract drilling industry, business strategies, expansion and growth of operations and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by management of the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, including those discussed herein, general economic and business conditions, prices of crude oil and natural gas, foreign exchange controls and currency fluctuations, the business opportunities (or lack thereof) that may be presented to and pursued by the Company, changes in laws or regulations, the ability to obtain shipyard contracts and other factors, many of which are beyond the control of the Company. See "Business -- Other Considerations." Prospective investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. PART I ITEM 1. BUSINESS UNLESS THE CONTEXT INDICATES OTHERWISE, REFERENCES IN THIS ANNUAL REPORT ON FORM 10-K TO THE "COMPANY" OR "PRIDE" ARE TO PRIDE INTERNATIONAL, INC. (FORMERLY PRIDE PETROLEUM SERVICES, INC.) AND ITS SUBSIDIARIES. GENERAL Pride is a leading international provider of contract drilling and related services, operating both offshore and on land. In recent years, the Company has focused its growth strategy on the higher margin offshore and international drilling markets. Offshore and international markets, where the Company now focuses its operations, generally have greater profit potential than domestic land-based markets, primarily as a result of less competition, higher utilization rates and stronger demand resulting from a general trend by major oil and gas companies to shift expenditures to exploration and development activities abroad and in the Gulf of Mexico. For these reasons, the Company has actively sought to diversify beyond its former domestic land-based operations, which prior to mid-1993 accounted for substantially all of the Company's revenues and earnings. Since 1993, the Company has completed acquisitions adding more than 250 rigs to its offshore and international fleet and has further expanded its international operations by deploying more than 40 underutilized rigs from its former U.S. land-based fleet to Argentina and Venezuela. During 1997, the Company realigned its operations to concentrate on more profitable offshore and international drilling markets through the following strategic transactions: o DIVESTITURE OF U.S. LAND-BASED OPERATIONS. In February 1997, the Company completed the divestiture of its domestic land-based well servicing operations, which included 407 workover rigs operating in Texas, California, New Mexico and Louisiana, for approximately $136 million in cash. The Company retained 14 of its larger land-based rigs for redeployment to international markets, ten of which have since been redeployed to South America. The divested operations generated the Company's lowest operating margins. o FORASOL ACQUISITION. In March 1997, the Company acquired the operating subsidiaries of Forasol-Foramer N.V. (collectively, "Forasol") for approximately $113 million in cash and 11 million 1 shares of Common Stock. The transaction provided entry into new international markets while contributing additional capacity in the Company's existing South American markets, as well as a deepwater asset base and expertise. Forasol provides drilling, workover and engineering services in more than 15 countries, including substantial operations in South America, West Africa, the Middle East and Southeast Asia. o PURCHASE OF JACKUP RIGS. In May 1997, the Company purchased 13 mat-supported jackup rigs for approximately $269 million. The purchase of these rigs positioned the Company as the second largest operator in the Gulf of Mexico of mat-supported jackup rigs capable of operating in water depths of 200 feet or greater. o PURCHASE OF ADDITIONAL OFFSHORE ASSETS. In April 1997, the Company purchased a tender-assisted rig, which has been upgraded and deployed to Southeast Asia. In October 1997, the Company purchased an independent-leg, cantilevered jackup rig for approximately $35 million. The jackup rig, capable of operating in water depths of up to 300 feet, is currently under contract in Southeast Asia. Currently, the Company operates a global fleet of 295 rigs, including two semisubmersible rigs, 17 jackup rigs, nine tender-assisted rigs, seven barge rigs, 23 offshore platform rigs, 78 land-based drilling rigs and 159 land-based workover rigs. The significant diversity of the Company's rig fleet enables the Company to provide a broad range of services and to take advantage of market upturns while reducing its exposure to sharp downturns in any particular market sector or geographic region. Most recently, the Company has focused on increasing the size of its fleet capable of drilling in deeper waters. The Company is participating in the following new offshore rig construction projects: o AMETHYST JOINT VENTURES. A newly organized, special purpose subsidiary of the Company is participating in joint ventures to construct, own and operate six Amethyst-class dynamically positioned semisubmersible drilling rigs. The rigs will be operated under charter and service contracts with Petroleo Brasileiro S.A. ("Petrobras") having initial terms of six to eight years. The total estimated cost to construct, equip and mobilize the six rigs is approximately $1 billion, approximately 90% of which is expected to be provided from the proceeds of project finance obligations of the ventures without recourse to the joint venture participants. Delivery of the rigs is expected during late 1999 and 2000. The Company estimates that its total equity investment in the project will be approximately $30 million, which will represent a 30% ownership interest. o PRIDE AFRICA JOINT VENTURE. A subsidiary of the Company has entered into a joint venture to construct, own and operate the PRIDE AFRICA, an ultra-deepwater drillship currently under construction in South Korea. The PRIDE AFRICA, which will be capable of operating in water depths of up to 10,000 feet, is contracted to work for Elf Exploration Angola for a term of five years. It is anticipated that the PRIDE AFRICA will commence operations in mid-1999. The joint venture has entered into a financing arrangement with a group of banks providing that, upon delivery of the drillship, approximately 80% of the estimated construction cost of $235 million will be financed by loans that are without recourse to the joint venture participants. The Company estimates that its total equity investment in the project will be approximately $12 million, which will represent a 51% ownership interest. See "Management's Discussion and Analysis of Financial Condition and Results of Operation -- Liquidity and Capital Resources." o NAVIS JOINT VENTURE. In March 1998, the Company entered into an agreement with a Norwegian company pursuant to which they will jointly market the drillship NAVIS EXPLORER, an ultra-deepwater dynamically positioned drillship currently under construction in South Korea. If the joint venture is successful in obtaining a suitable long-term contract, the Company may acquire up to a 51% ownership interest in the vessel. The Company will continue to pursue expansion of its offshore and international drilling operations through acquisitions, rig upgrades and redeployment of assets to active geographic regions, as well as through participation in strategic new construction projects such as those described above. 2 Pride is a Louisiana corporation with its principal executive offices located at 5847 San Felipe, Suite 3300, Houston, Texas 77057. Its telephone number at such address is (713) 789-1400. OPERATIONS SOUTH AMERICA Through a series of acquisitions and the deployment of underutilized assets, the Company has significantly expanded its South American operations and now operates one semisubmersible rig, three jackup rigs, two tender-assisted rigs, six floating barge rigs and 215 land-based rigs in the region. BRAZIL. In September 1997, the Company's semisubmersible rig NYMPHEA began drilling offshore Brazil for Petrobras. The rig is working under a four-year contract with two one-year renewal options. In addition, a newly organized, special purpose subsidiary of the Company is participating in joint ventures to construct, own and operate six Amethyst-class dynamically positioned semisubmersible drilling rigs. The rigs are to be operated offshore Brazil under charter and service contracts with Petrobras with initial terms of six to eight years, with delivery of the rigs expected during late 1999 and 2000. The Company's interest in the project will be approximately 30%. VENEZUELA. The Company's offshore fleet in Venezuela includes three jackup rigs, two tender-assisted rigs and six barge rigs operating on Lake Maracaibo. Two of the jackup rigs that the Company operates under contracts expiring in 1999 are owned by Petroleos de Venezuela, S.A. ("PDVSA"). The other jackup rig is owned by the Company and operates under a contract expiring in December 2000. In 1995, the Company placed two floating barge rigs into service on Lake Maracaibo that are working under ten-year contracts with PDVSA. The Company also operates four other floating barge rigs and two tender-assisted rigs under management contracts with PDVSA. The Company's land-based fleet in Venezuela currently consists of 47 rigs, of which 14 are drilling rigs and 33 are workover rigs. In recent years, PDVSA has entered into numerous exploitation agreements with international oil companies to reactivate and develop selected oilfields. Development of these fields is providing additional demand for the Company's rig services in Venezuela. ARGENTINA. In Argentina, the Company currently operates 148 land-based rigs, which the Company believes represent more than 50% of the land-based rigs in the Argentine market. Of these rigs, 38 are drilling rigs and 110 are workover rigs. The Argentine oil and gas production market has experienced improved conditions in recent years as a result of general economic reform, sales of certain state-owned fields to private operators and the privatization of the state-owned oil company, the predecessor of YPF Sociedad Anonima ("YPF"). These improved conditions have resulted in additional demand for rig services. Argentine rig operations are generally conducted in remote regions of the country and require substantial fixed infrastructure and operating support costs. The Company believes that its established infrastructure and scale of operations provide it with a competitive advantage in this market. COLOMBIA. The Company currently operates 14 land-based drilling rigs and six land-based workover rigs in Colombia. The Colombian government has recently enacted policies to encourage oil and gas exploration and production activities and awarded additional properties for development to major international oil operators under production sharing contracts. The Company believes it is well positioned to capitalize on these opportunities in Colombia. BOLIVIA. The Company has recently agreed to mobilize seven land-based rigs from Argentina to Bolivia to work under contracts with two customers. Demand for rig services has increased in Bolivia as a result of the privatization of components of the Bolivian national oil company, as well as significant sales of exploration blocks to private-sector operators. Exploration activity for natural gas in Bolivia is currently increasing as a result of the ongoing construction of a major gas pipeline from Bolivia to markets in Brazil. GULF OF MEXICO In May 1997, the Company acquired 13 mat-supported jackup rigs, 11 of which are currently located in the Gulf of Mexico. The remaining two rigs are located in West Africa and Southeast Asia. This 3 acquisition positioned the Company as the second largest operator in the Gulf of Mexico of mat-supported jackup rigs capable of operating in water depths of 200 feet or greater. The Company also operates a fleet of 23 offshore modular platform rigs in the Gulf of Mexico. In recent years, the Company has made substantial capital improvements in this fleet and believes its fleet is one of the most technologically advanced fleets in the industry, which the Company believes has led to higher dayrates and increased utilization of these rigs. OTHER INTERNATIONAL OFFSHORE. The Company's semisubmersible rig SOUTH SEAS DRILLER, which was recently upgraded, is currently operating offshore South Africa under contracts extending through early 2000. The Company also operates four tender-assisted rigs in Africa and the Middle East. The BARRACUDA is currently contracted through November 1998, with a six-month option. Through a joint venture, the Company owns a 12.5% interest in the self-erecting tender-assisted rig AL BARAKA I. In addition to its ownership interest, the Company also manages the rig, which is contracted through November 1998, with a six-month option. The ALLIGATOR is presently being upgraded at a shipyard in South Africa. The rig is expected to commence operations in Cabinda in May 1998. The CORMORANT is currently under contract through mid-1998. In Nigeria, the Company operates one swamp barge rig, the BINTANG KALIMANTAN, as well as a shallow-water jackup rig, the PRIDE UTAH. The BINTANG KALIMANTAN is currently contracted through April 1999, with a 12-month option. The PRIDE UTAH is contracted through March 2000. In Southeast Asia, the Company operates two jackup rigs and two tender-assisted rigs. LAND-BASED. The Company currently operates six land-based rigs in North Africa, three in the Middle East and two in Pakistan. 4 RIG FLEET OFFSHORE RIGS The following table sets forth, as of March 1, 1998, certain information concerning the Company's offshore rig fleet: OFFSHORE RIGS
BUILT/UPGRADED WATER DRILLING OR EXPECTED DEPTH DEPTH RIG NAME RIG TYPE/DESIGN COMPLETION RATING RATING LOCATION - ------------------------------------- -------------------------- -------------- ------ -------- -------------- DRILLSHIP - 1 Pride Africa(1) Gusto 10,000 1999 10,000 30,000 Korea SEMISUBMERSIBLE RIGS - 8 Nymphea F&G Pacesetter 1987 1,500 25,000 Brazil South Seas Driller Aker H-3 1977/1997 1,000 20,000 South Africa Amethyst 2(1) Amethyst Class 1999 5,000 25,000 Canada Amethyst 3(1) Amethyst Class 1999 5,000 25,000 Canada Amethyst 4(2) Amethyst Class 2000 5,000 25,000 TBD Amethyst 5(2) Amethyst Class 2000 5,000 25,000 TBD Amethyst 6(2) Amethyst Class 2000 5,000 25,000 TBD Amethyst 7(2) Amethyst Class 2000 5,000 25,000 TBD JACKUP RIGS - 17 Pride Pennsylvania Independent leg cantilever 1973/1998 300 20,000 Indonesia Ile du Levant Independent leg cantilever 1991 270 20,000 Venezuela GP-19(3) Independent leg cantilever 1987 150 20,000 Venezuela GP-20(3) Independent leg cantilever 1987 200 20,000 Venezuela Pride Alabama Mat supported cantilever 1982 200 25,000 Gulf of Mexico Pride Alaska Mat supported cantilever 1982 250 25,000 Gulf of Mexico Pride Arkansas Mat supported cantilever 1982 200 25,000 Gulf of Mexico Pride Colorado Mat supported cantilever 1982 200 25,000 Gulf of Mexico Pride Kansas Mat supported cantilever 1998 250 25,000 Gulf of Mexico Pride Mississippi Mat supported cantilever 1990 200 25,000 Gulf of Mexico Pride New Mexico Mat supported cantilever 1982 200 25,000 Gulf of Mexico Pride Texas Mat supported cantilever 1998 300 20,000 Gulf of Mexico Pride California Mat supported slot 1997 250 20,000 Malaysia Pride Louisiana Mat supported slot 1981 250 25,000 Gulf of Mexico Pride Oklahoma Mat supported slot 1996 250 20,000 Gulf of Mexico Pride Wyoming Mat supported slot 1976 250 25,000 Gulf of Mexico Pride Utah Mat supported slot 1990/1998 45 20,000 Nigeria TENDER-ASSISTED RIGS - 9 Alligator Self-erecting barge 1992/1998 330 20,000 South Africa Barracuda Self-erecting barge 1992 330 20,000 Middle East Al Baraka I(4) Self-erecting barge 1994 650 20,000 Middle East Ile de Sein Self-erecting barge 1990/1997 450 16,000 Malaysia Piranha Self-erecting barge 1978/1998 600 20,000 Brunei Cormorant Converted ship 1991 300 16,400 Angola Ile de la Martinique Converted ship 1985 400 16,000 UAE GP-14(3) Tender barge 1985 150 20,000 Venezuela GP-18(3) Tender barge 1985 150 20,000 Venezuela BARGE RIGS - 7 Pride I Floating cantilever 1995 150 20,000 Venezuela Pride II Floating cantilever 1995 150 20,000 Venezuela GP-10(3) Floating cantilever 1967 120 15,000 Venezuela GP-23(3) Floating cantilever 1992 150 20,000 Venezuela GP-24(3) Floating cantilever 1992 150 20,000 Venezuela Galileo II(3) Floating cantilever 1992/1997 150 20,000 Venezuela Bintang Kalimantan Posted swamp barge 1995 N/A 16,000 Nigeria
RIG NAME STATUS - ------------------------------------- ------------- DRILLSHIP - 1 Pride Africa(1) Shipyard SEMISUBMERSIBLE RIGS - 8 Nymphea Working South Seas Driller Working Amethyst 2(1) Shipyard Amethyst 3(1) Shipyard Amethyst 4(2) Design Amethyst 5(2) Design Amethyst 6(2) Design Amethyst 7(2) Design JACKUP RIGS - 17 Pride Pennsylvania Working Ile du Levant Working GP-19(3) Working GP-20(3) Working Pride Alabama Working Pride Alaska Working Pride Arkansas Working Pride Colorado Working Pride Kansas Shipyard Pride Mississippi Working Pride New Mexico Working Pride Texas Shipyard Pride California Working Pride Louisiana Working Pride Oklahoma Working Pride Wyoming Working Pride Utah Working TENDER-ASSISTED RIGS - 9 Alligator Refurbishment Barracuda Working Al Baraka I(4) Working Ile de Sein Working Piranha Working Cormorant Working Ile de la Martinique Cold Stacked GP-14(3) Working GP-18(3) Working BARGE RIGS - 7 Pride I Working Pride II Working GP-10(3) Working GP-23(3) Working GP-24(3) Working Galileo II(3) Working Bintang Kalimantan Working (TABLE CONTINUED ON FOLLOWING PAGE) 5
BUILT/UPGRADED WATER DRILLING OR EXPECTED DEPTH DEPTH RIG NAME RIG TYPE/DESIGN COMPLETION RATING RATING LOCATION - ------------------------------------- -------------------------- -------------- ------ -------- -------------- PLATFORM RIGS - 23 Rig 1501E Heavy electrical 1996 N/A 25,000 Gulf of Mexico Rig 1502E Heavy electrical 1998 N/A 25,000 Gulf of Mexico Rig 1002E Heavy electrical 1996 N/A 20,000 Gulf of Mexico Rig 1003E Heavy electrical 1996 N/A 20,000 Gulf of Mexico Rig 1004E Heavy electrical 1997 N/A 20,000 Gulf of Mexico Rig 1005E Heavy electrical 1998 N/A 20,000 Gulf of Mexico Rig 750E Heavy electrical 1992 N/A 16,500 Gulf of Mexico Rig 751E Heavy electrical 1995 N/A 16,500 Gulf of Mexico Rig 650E Intermediate electrical 1994 N/A 15,000 Gulf of Mexico Rig 651E Intermediate electrical 1995 N/A 15,000 Gulf of Mexico Rig 653E Intermediate electrical 1995 N/A 15,000 Gulf of Mexico Rig 951 Heavy mechanical 1995 N/A 18,000 Gulf of Mexico Rig 952 Heavy mechanical 1995 N/A 18,000 Gulf of Mexico Rig 30 Intermediate mechanical 1986 N/A 15,000 Gulf of Mexico Rig 100 Intermediate mechanical 1990 N/A 15,000 Gulf of Mexico Rig 110 Intermediate mechanical 1990 N/A 15,000 Gulf of Mexico Rig 130 Intermediate mechanical 1991 N/A 15,000 Gulf of Mexico Rig 170 Intermediate mechanical 1991 N/A 15,000 Gulf of Mexico Rig 200 Intermediate mechanical 1993 N/A 15,000 Gulf of Mexico Rig 210 Intermediate mechanical 1996 N/A 15,000 Gulf of Mexico Rig 220 Intermediate mechanical 1995 N/A 15,000 Gulf of Mexico Rig 14 Light mechanical 1994 N/A 10,000 Gulf of Mexico Rig 15 Light mechanical 1994 N/A 10,000 Gulf of Mexico
RIG NAME STATUS - ------------------------------------- ------------- PLATFORM RIGS - 23 Rig 1501E Working Rig 1502E Working Rig 1002E Working Rig 1003E Working Rig 1004E Working Rig 1005E Working Rig 750E Working Rig 751E Working Rig 650E Working Rig 651E Working Rig 653E Working Rig 951 Working Rig 952 Working Rig 30 Stacked Rig 100 Available Rig 110 Stacked Rig 130 Working Rig 170 Stacked Rig 200 Available Rig 210 Working Rig 220 Working Rig 14 Working Rig 15 Stacked - ------------ (1) Currently under construction. See "Business -- General -- Amethyst Joint Ventures" and "-- PRIDE AFRICA Joint Venture." (2) To be constructed pursuant to arrangements with Petrobras. The Company is currently negotiating shipyard contracts for the construction of these rigs. See "Business -- General -- Amethyst Joint Ventures." (3) Operated but not owned by the Company. (4) Owned by a joint venture in which the Company has a 12.5% interest. DRILLSHIPS. The PRIDE AFRICA, which is currently under construction, is an ultra-deepwater self-propelled drillship that will be positioned over a drill site through the use of a computer-controlled thruster (dynamic positioning) system. Drillships normally require water depths of at least 200 feet to conduct operations. Drillships are suitable for deepwater drilling in moderate weather environments and in remote locations because of their mobility and large load-carrying capacity. SEMISUBMERSIBLE RIGS. The Company's semisubmersible rigs are floating platforms that, by means of a water ballasting system, can be submerged to a predetermined depth so that a substantial portion of the lower hulls, or pontoons, is below the water surface during drilling operations. The rig is "semisubmerged," remaining afloat in a position where the lower hull is about 60 to 80 feet below the water line and the upper deck protrudes well above the surface. This type of rig maintains its position over the well through the use of an anchoring system or computer-controlled thruster system. JACKUP RIGS. The jackup rigs currently operated by the Company are mobile, self-elevating drilling platforms equipped with legs that can be lowered to the ocean or lake floor until a foundation is established to support the drilling platform. The rig legs may have a lower hull or mat attached to the bottom to provide a more stable foundation in soft bottom areas. Independent leg rigs are better suited for harsher or uneven seabed conditions. Jackup rigs are generally subject to a maximum water depth of approximately 350 to 400 feet, while some jackup rigs may drill in water depths as shallow as ten feet. The water depth limit of a particular rig is determined by the length of its legs and the operating environment. Moving a rig from one drill site to another involves lowering the hull into the water until it is afloat and then jacking up its legs with the hull floating on the surface of the water. The hull is then towed to the new drilling site. A cantilever jackup has a feature that allows the drilling platform to be extended out from the hull, allowing it to perform drilling or workover operations over a pre-existing platform or structure. Certain cantilever jackup rigs have "skid-off" capability, which allows the derrick equipment to be skidded onto an adjacent platform, thereby increasing the operational capacity of the rig. Slot-type jackup rigs are configured for drilling operations to take place through a slot in the hull. Slot-type rigs are usually used for exploratory drilling because their configuration makes them difficult to position over existing platforms or structures. 6 TENDER-ASSISTED RIGS. The Company's tender-assisted rigs are generally non-self-propelled barges moored alongside a platform and containing crew quarters, mud pits, mud pumps and power generation systems. The only equipment transferred to the platform for drilling or workover operations is the derrick equipment set consisting of the substructure, drillfloor, derrick and drawworks. As a result, tender-assisted rigs are less hazardous and allow smaller, less costly platforms to be used for development projects. Self-erecting tenders carry their own derrick equipment set and have a crane capable of erecting the derrick on the platform, thereby eliminating the cost associated with a separate derrick barge and related equipment. BARGE RIGS. The Company operates barge rigs on Lake Maracaibo, Venezuela that have been designed to work in a floating mode with a cantilever feature and a mooring system that enables the rig to operate in waters up to 150 feet deep. In Nigeria, the Company operates a posted "swamp" barge rig. The rig is held on location by legs or posts that are jacked down into the sea floor before commencement of work. PLATFORM RIGS. The Company's platform rigs in the Gulf of Mexico consist of well servicing equipment and machinery arranged in modular packages that are transported to and assembled and installed on fixed offshore platforms owned by the customer. Fixed offshore platforms are steel, tower-like structures that stand on the ocean floor, with the top portion, or platform, above the water level, providing the foundation upon which the platform rig is placed. Platform rigs often provide drilling and horizontal reentry services using portable top drives, enhanced pumps and solids control equipment for drilling fluids, as well as workover services. LAND-BASED RIGS The following table sets forth, as of March 1, 1998, certain information concerning the Company's land-based rig fleet: LAND-BASED RIGS COUNTRY TOTAL DRILLING WORKOVER - ------------------------------------- ----- -------- -------- SOUTH AMERICA -- 215 Argentina*...................... 148 38 110 Venezuela....................... 47 14 33 Colombia........................ 20 14 6 AFRICA/MIDDLE EAST -- 9 Algeria......................... 4 4 -- Libya........................... 2 1 1 Oman............................ 2 2 -- Bahrain......................... 1 1 -- OTHER -- 13.......................... 13 4 9 ----- --- --- Total Land Rigs............ 237 78 159 ===== === === - ------------ * Includes seven rigs to be deployed to Bolivia. A land-based drilling rig consists of engines, drawworks, a mast, substructure, pumps to circulate the drilling fluid, blowout preventers, drill string and related equipment. The engines power a rotary table that turns the drill string, causing the drill bit to bore through the subsurface rock layers. Rock cuttings are carried to the surface by the circulating drilling fluid. The intended well depth and the drilling site conditions are the principal factors that determine the size and type of rig most suitable for a particular drilling job. A land-based well servicing rig consists of a mobile carrier, engine, drawworks and derrick. The primary function of a well servicing rig is to act as a hoist so that pipe, rods and down-hole equipment can be run into and out of a well. All of the Company's well servicing rigs can be readily moved between well sites and between geographic areas of operations. 7 SERVICES PROVIDED DRILLING SERVICES The Company provides contract drilling services to oil and gas exploration and production companies through the use of mobile offshore and land-based drilling rigs. Generally, land-based rigs and offshore platform rigs operate with crews of six to 17 persons while semisubmersible rigs, jackup rigs, tender- assisted rigs and barge rigs operate with crews of 15 to 25 persons. The Company provides the rig and drilling crew and is responsible for the payment of operating and maintenance expenses. Mobilization expenses are generally paid by the customer. MAINTENANCE AND WORKOVER SERVICES Maintenance services are required on producing oil and gas wells to ensure efficient, continuous operation. These services consist of mechanical repairs necessary to maintain production from the well, such as repairing parted sucker rods, replacing defective down-hole pumps in an oil well or replacing defective tubing in a gas well. The Company provides the rigs, equipment and crews for these maintenance services, which are performed on both oil and gas wells but which are more often required on oil wells. Many of the Company's rigs also have pumps and tanks that can be used for circulating fluids into and out of the well. Typically, maintenance jobs are performed on a series of wells in geographic proximity and require little, if any, revenue-generating equipment other than a rig. In addition to periodic maintenance, producing oil and gas wells occasionally require major repairs or modifications, called "workovers." Workover services include the opening of new producing zones in an existing well, recompletion of a well in which production has declined, drilling out plugs and packers and the conversion of a producing well to an injection well during enhanced recovery operations. These extensive workover operations are normally performed by a well servicing rig with additional specialized accessory equipment, which may include rotary drilling equipment, mud pumps, mud tanks and blowout preventers, depending upon the particular type of workover operation. Most of the Company's rigs are designed and equipped to handle the more complex workover operations. ENGINEERING SERVICES The Company believes that its engineering and design expertise has become an important factor in the growth and success of its business. The Company employs a technical staff dedicated to industry research and development and to designing specialized drilling equipment to fulfill specific customer requirements. The engineering staff has designed and managed the fabrication of many rigs in the Company's offshore rig fleet and is actively involved in the Company's newbuild projects. The Company also employs an engineering staff that provides turnkey and project management services, reservoir drainage analysis and well engineering, which enhances the Company's contract drilling services. COMPETITION Competition in the international markets in which the Company operates ranges from large multinational competitors offering a wide range of well servicing and drilling services to smaller, locally owned businesses. The Company believes that it is competitive in terms of pricing, performance, equipment, safety, availability of equipment to meet customer needs and availability of experienced, skilled personnel in those international areas in which it operates. Currently, the Company has strong market positions in South America, the Gulf of Mexico and Africa/Middle East. In periods of low rig utilization, drilling contracts are generally awarded on a competitive bid basis and, while an operator may consider quality of service and equipment, intense price competition is the primary factor in determining which contractor, among those with suitable rigs, is awarded a job. Certain of the Company's competitors have greater financial resources than the Company, which may enable them to better withstand periods of low utilization, to compete more effectively on the basis of price, to build new rigs or to acquire existing rigs. 8 CUSTOMERS The Company provides services for large multinational oil and gas companies, government-owned oil and gas companies and independent operators. During 1997, PDVSA accounted for approximately 14% of the Company's consolidated revenues. No other customer accounted for more than 10% of the Company's consolidated revenues. CONTRACTS The Company's drilling contracts are awarded through competitive bidding or on a negotiated basis. The contract terms and rates vary depending on competitive conditions, the geographical area, the geological formation to be drilled, the equipment and services to be supplied, the on-site drilling conditions and the anticipated duration of the work to be performed. Oil and gas well drilling contracts are carried out on either a dayrate, footage or turnkey basis. Under dayrate contracts, the Company charges the customer a fixed charge per day regardless of the number of days needed to drill the well. In addition, dayrate contracts usually provide for a reduced dayrate (or lump sum amount) for mobilizing the rig to the well location and for assembling and dismantling the rig. Under dayrate contracts, the Company ordinarily bears no part of the costs arising from down-hole risks (such as time delays for various reasons, including a stuck or broken drill string or blowouts). Most of the Company's contracts are on a dayrate basis. Other contracts provide for payment on a footage basis, whereby the Company is paid a fixed amount for each foot drilled regardless of the time required or the problems encountered in drilling the well. The Company may also enter into turnkey contracts, whereby it agrees to drill a well to a specific depth for a fixed price and to bear some of the well equipment costs. Compared to dayrate contracts, footage and turnkey contracts involve a higher degree of risk to the Company and, accordingly, normally provide greater profit potential. Two of the Company's jackup rigs are currently operating under turnkey contracts. In international markets, contracts generally provide for longer terms than contracts in domestic offshore markets. When contracting abroad, the Company is faced with the risks of currency fluctuation and, in certain cases, exchange controls. Typically, the Company limits these risks by obtaining contracts providing for payment in U.S. dollars or freely convertible foreign currency. To the extent possible, the Company seeks to limit its exposure to potentially devaluating currencies by matching its acceptance thereof to its expense requirements in such local currencies. There can be no assurance that the Company will be able to continue to take such actions in the future, thereby exposing the Company to foreign currency fluctuations that could have a material adverse effect upon its results of operations and financial condition. There can be no assurances, however, that the local monetary authorities in the countries in which the Company operates will not implement exchange controls in the future. SEASONALITY In general, the Company's business activities are not significantly affected by seasonal fluctuations. The Company's rigs are located in geographical areas that are not subject to severe weather that would halt operations for prolonged periods. EMPLOYEES The Company currently employs approximately 8,400 employees. Approximately 1,600 of the employees are located in the United States and 6,800 are located abroad. Hourly rig crew members constitute the vast majority of employees. None of the Company's U.S. employees are represented by a collective bargaining unit. Many of the Company's international employees are subject to industry-wide labor contracts within their respective countries. Management believes that the Company's employee relations are good. SEGMENT INFORMATION Information with respect to revenues, earnings from operations and identifiable assets attributable to the Company's industry segments and geographic areas of operations for the last three fiscal years is 9 presented in Note 13 of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this report. OTHER CONSIDERATIONS INDUSTRY CONDITIONS The contract drilling industry is a highly competitive and cyclical business characterized by high capital and maintenance costs. The Company's current business and operations are substantially dependent upon conditions in the oil and gas industry and, specifically, the exploration and production expenditures of oil and gas companies. The demand for contract drilling and related services is directly influenced by oil and gas prices, expectations about future prices, the cost of producing and delivering oil and gas, government regulations, local and international political and economic conditions, including the ability of the Organization of Petroleum Exporting Countries ("OPEC") to set and maintain production levels and prices, the level of production by non-OPEC countries and the policies of the various governments regarding exploration and development of their oil and gas reserves. There can be no assurance that current levels of exploration and production expenditures of oil and gas companies will be maintained or that demand for the Company's services will reflect the level of such activities. INTERNATIONAL OPERATIONS A significant portion of the Company's revenues are attributable to international operations. Risks associated with operating in international markets include foreign exchange restrictions and currency fluctuations, foreign taxation, political instability, foreign and domestic monetary and tax policies, expropriation, nationalization, nullification, modification or renegotiation of contracts, war and civil disturbances and other risks that may limit or disrupt markets. Additionally, the ability of the Company to compete in international contract drilling markets may be adversely affected by foreign governmental regulations that favor or require the awarding of such contracts to local contractors, or by regulations requiring foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Furthermore, the Company's foreign subsidiaries may face governmentally imposed restrictions from time to time on their ability to transfer funds to the Company. No predictions can be made as to what foreign governmental regulations may be applicable to the Company's operations in the future. From time to time, certain foreign subsidiaries of the Company operate in countries such as Libya and Iran that are subject to sanctions and embargoes imposed by the U.S. Government. Although these sanctions and embargoes do not prohibit such subsidiaries from completing existing contracts or from entering into new contracts to provide drilling services in such countries, they do prohibit the Company and its domestic subsidiaries, as well as employees of the Company's foreign subsidiaries who are U.S. citizens, from participating in or approving any aspect of the business activities in such countries. The Company is unable to predict whether such constraints on its ability to have U.S. persons provide managerial oversight and supervision will adversely affect the financial or operating performance of such business activities. RISKS RELATED TO NEW CONSTRUCTION, UPGRADE AND REFURBISHMENT PROJECTS The Company intends to make significant expenditures to construct new rigs and to upgrade and refurbish other rigs that are not currently under contract. These projects are subject to the risks of delay or cost overruns inherent in large construction and refurbishment projects, including shipyard availability, shortages of materials or skilled labor, unforeseen engineering problems, work stoppages, weather interference, unanticipated cost increases, nonavailability of necessary equipment and inability to obtain any of the requisite permits or approvals. Significant delays could also have a material adverse effect on the Company's marketing plans for such rigs and could jeopardize the contracts under which the Company plans to operate such rigs. ACQUISITION-RELATED RISKS A substantial portion of the Company's growth has resulted from the acquisition of other oilfield services businesses and assets. There can be no assurance, however, that the Company will be able to 10 continue to identify attractive acquisition opportunities, negotiate acceptable acquisition terms, obtain financing for acquisitions on satisfactory terms or successfully acquire identified targets. The ability of the Company to pursue acquisition opportunities may be affected by the limitations on its financing flexibility imposed by the Company's current financing arrangements. Moreover, there can be no assurance that competition for acquisition opportunities in the industry will not escalate, thereby increasing the cost to the Company of making further acquisitions or causing the Company to refrain from making further acquisitions. In addition, no assurance can be given that the Company will be successful in integrating acquired businesses and assets into its existing operations. Such integration may result in unforeseen operational difficulties or require a disproportionate amount of management's attention. The Company's failure to achieve consolidation savings, to incorporate the acquired businesses and assets into its existing operations successfully or to minimize any unforeseen operational difficulties could have a material adverse effect on the Company. LEVERAGE AND DEBT COVENANTS As of December 31, 1997, the Company had approximately $523.9 million in long-term indebtedness, net of current portion, approximately $52.5 million of which was represented by subordinated debentures that are convertible into Common Stock at a conversion price of $12.25 per share. The level of the Company's indebtedness will have several important effects on the Company's future operations, including among others, (i) a significant portion of the Company's cash flow from operations will be dedicated to the payment of principal of and interest on its indebtedness and will not be available for other purposes, (ii) covenants contained in the Company's existing financing arrangements require the Company to meet certain financial tests, which may affect the Company's flexibility in planning for, and reacting to, changes in its business, and (iii) the Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate and other purposes may be limited. The Company's ability to meet its debt service obligations and to reduce its total indebtedness will be dependent upon the Company's future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting the operations of the Company, many of which are beyond its control. OPERATING RISKS AND INSURANCE The Company's operations are subject to the many hazards inherent in the oilfield services industry. Contract drilling and well servicing require the use of heavy equipment and exposure to hazardous conditions, which may subject the Company to liability claims by employees, customers and third parties. These hazards can cause personal injury or loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage and suspension of operations. The Company's offshore fleet is also subject to hazards inherent in marine operations, either while on site or during mobilization, such as capsizing, sinking and damage from severe weather conditions. In certain instances, contractual indemnification of customers or others is required of the Company. The Company maintains workers' compensation insurance for its employees and other insurance coverage for normal business risks, including general liability insurance. Although the Company believes its insurance coverages to be adequate and in accordance with industry practice against normal risks in its operations, there can be no assurance that any insurance protection will be sufficient or effective under all circumstances or against all hazards to which the Company may be subject. The occurrence of a significant event against which the Company is not fully insured, or of a number of lesser events against which the Company is insured, but subject to substantial deductibles, could materially and adversely affect the Company's operations and financial condition. Moreover, no assurance can be given that the Company will be able to maintain adequate insurance in the future at rates or on terms it considers reasonable or acceptable. GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS Many aspects of the Company's operations are affected by domestic and foreign political developments and are subject to numerous governmental regulations that may relate directly or indirectly to the contract drilling and well servicing industries. The Company's operations routinely involve the handling of waste materials, some of which are classified as hazardous substances. Consequently, the regulations 11 applicable to the Company's operations include those with respect to containment, disposal and controlling the discharge of hazardous oilfield waste and other non-hazardous waste material into the environment, requiring removal and cleanup under certain circumstances, or otherwise relating to the protection of the environment. Laws and regulations protecting the environment have become more stringent in recent years and may in certain circumstances impose strict liability, rendering a party liable for environmental damage without regard to negligence or fault on the part of such party. Such laws and regulations may expose the Company to liability for the conduct of, or conditions caused by, others or for acts of the Company which were in compliance with all applicable laws at the time such acts were performed. The application of these requirements or the adoption of new requirements could have a material adverse effect on the Company. In addition, the modification of existing laws or regulations or the adoption of new laws or regulations curtailing exploratory or development drilling for oil and gas for economic, environmental or other reasons could have a material adverse effect on the Company's operations by limiting future contract drilling opportunities. ITEM 2. PROPERTY The Company's property consists primarily of offshore mobile and land-based drilling rigs, well servicing rigs and ancillary equipment, most of which are owned by the Company. Certain rigs are operated by the Company pursuant to joint venture arrangements or operating agreements. The Company also owns and operates transport and winch trucks, pumps, generators, power swivels and similar ancillary equipment. The Company owns approximately 750 vehicles and leases approximately 75 others. The corporate office in Houston, Texas occupies approximately 34,600 square feet of leased space under a lease that expires in February 2005. In Argentina, the Company leases 4,500 square feet of office space in Buenos Aires and owns five operating bases and leases three others. In Venezuela, the Company leases two operating bases with an office facility at one. In Colombia, the Company leases office space in Bogota and two operating bases. In France, the Company leases approximately 18,000 square feet of office space. Shore-based operations for the Company's Gulf of Mexico operations are conducted from its owned facility in Houma, Louisiana. The shore facility is located on the Intracoastal waterway and provides direct access to the Gulf of Mexico. ITEM 3. LEGAL PROCEEDINGS The Company is routinely involved in litigation incidental to its business, which often involves claims for significant monetary amounts, some of which would not be covered by insurance. In the opinion of management, none of the existing litigation will have a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1997. 12 EXECUTIVE OFFICERS OF THE REGISTRANT The following table and descriptions set forth certain information as of March 1, 1998 with respect to the executive officers of the Company. Officers are elected annually by the Board of Directors and serve until their successors are chosen or until their resignation or removal. NAME AGE POSITION - --------------------- --- ------------------------------------------------- Ray H. Tolson........ 63 Chairman of the Board and Chief Executive Officer Paul A. Bragg........ 42 President and Chief Operating Officer James W. Allen....... 54 Senior Vice President -- Operations Gerard Godde......... 55 Senior Vice President -- Forasol Operations John O'Leary......... 42 Vice President -- International Marketing Steven R. Tolson..... 40 Vice President -- U.S. Operations -- Offshore Robert W. Randall.... 55 Vice President -- General Counsel and Secretary Earl W. McNiel....... 39 Vice President and Chief Financial Officer RAY H. TOLSON was elected Chairman of the Board in December 1993. He has served as a director since August 1988 and Chief Executive Officer of the Company and its predecessor since 1975. Mr. Tolson was President of the Company from February 1975 to February 1997. PAUL A. BRAGG has been President of the Company since February 1997. He joined the Company in July 1993 as its Vice President and Chief Financial Officer. From 1988 until he joined the Company, Mr. Bragg was an independent business consultant and managed private investments. He previously served as Vice President and Chief Financial Officer of Energy Service Company, Inc. (now ENSCO International Inc.) ("ENSCO"), an oilfield services company, from 1983 through 1987. JAMES W. ALLEN joined the Company in January 1993 as its Vice President -- International Operations. In February 1996, he was named Senior Vice President -- Operations. From 1988 through 1992, Mr. Allen was an independent business consultant and managed private investments. From 1984 to 1988, he was Vice President Latin America for ENSCO. Mr. Allen has 29 years of oilfield experience with several different companies. GERARD GODDE was named Senior Vice President of the Company in March 1997 in connection with the Forasol transaction. Mr. Godde has served as Senior Vice President and Chief Operating Officer of Forasol since April 1996 and Managing Director of Forasol since 1987. Mr. Godde joined Forasol in 1968 and has been involved with the management of its various offshore and land operations in Africa, the Middle East and North America. JOHN O'LEARY was named Vice President -- International Marketing in March 1997 in connection with the Forasol transaction. Mr. O'Leary had been Manager, Marketing and Business Development of Forasol since June 1993, with primary responsibility for worldwide business development. Mr. O'Leary joined Forasol S.A. in August 1985. STEVEN R. TOLSON was named Vice President -- U.S. Operations -- Offshore in February 1997. Mr. Tolson has held various management and engineering positions with the Company since 1994. Prior to 1994, Mr. Tolson held various engineering positions with Conoco Inc. Ray Tolson is Steven Tolson's father. ROBERT W. RANDALL has been Vice President and General Counsel of the Company since May 1991. He was elected Secretary of the Company in 1993. Prior to 1991, he was Senior Vice President, General Counsel and Secretary for Tejas Gas Corporation, a natural gas transmission company. EARL W. MCNIEL has been Vice President and Chief Financial Officer of the Company since February 1997. He joined the Company in September 1994 as its Chief Accounting Officer. From 1990 to 1994, Mr. McNiel served as Chief Financial Officer of several publicly owned waste management companies. From 1987 to 1990, he was employed by ENSCO as Manager, Finance. 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's Common Stock is listed on the New York Stock Exchange under the symbol "PDE." Prior to September 10, 1997, the Common Stock traded on The Nasdaq Stock Market's National Market under the symbol "PRDE." As of March 12, 1998, there were 2,004 shareholders of record of the Common Stock. The following table sets forth the range of high and low sales prices of the Common Stock for the periods shown: PRICE ---------------------- HIGH LOW ------- ----------- 1996 First Quarter........................ $14 3/8 $ 9 1/8 Second Quarter....................... 18 13 5/8 Third Quarter........................ 16 1/4 11 5/8 Fourth Quarter....................... 23 1/4 13 1/8 1997 First Quarter........................ $24 $ 16 3/4 Second Quarter....................... 24 16 11/16 Third Quarter........................ 36 3/4 23 Fourth Quarter....................... 37 1/4 20 5/8 The Company has not paid any cash dividends on the Common Stock since becoming a publicly held corporation in September 1988. The Company currently has a policy of retaining all available earnings for the development and growth of its business and does not anticipate paying dividends on the Common Stock at any time in the foreseeable future. The ability of the Company to pay cash dividends in the future is restricted by the Company's $100 million secured credit facility and covenants contained in the indenture governing $325 million principal amount of Senior Notes. The desirability of paying such dividends could also be materially affected by U.S. and foreign tax considerations. 14 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial information as of December 31, 1997 and 1996, and for each of the years in the three years in the period ended December 31, 1997, has been derived from the audited consolidated financial statements of the Company included elsewhere herein. This information should be read in conjunction with such consolidated financial statements and the notes thereto. The selected consolidated financial information as of December 31, 1995, 1994 and 1993, and for each of the years in the two years in the period ended December 31, 1994, has been derived from audited consolidated financial statements of the Company, that have previously been included in the Company's reports under the Exchange Act, that are not included herein. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31, ----------------------------------------------------------- 1993 1994 1995 1996 1997 ---------- ---------- ---------- ---------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Revenues............................. $ 127,099 $ 182,336 $ 263,599 $ 407,174 $ 699,788 Operating costs...................... 100,305 139,653 187,203 292,599 458,861 Depreciation and amortization........ 6,407 9,550 16,657 29,065 58,661 Selling, general and administrative..................... 17,572 25,105 32,418 45,368 73,881 ---------- ---------- ---------- ---------- ----------- Earnings from operations............. 2,815 8,028 27,321 40,142 108,385 Other income (expense) net(1)........ 504 106 (4,898) (9,323) 47,249 ---------- ---------- ---------- ---------- ----------- Earnings before income taxes(1)...... 3,319 8,134 22,423 30,819 155,634 Income tax provision (benefit)(2).... (2,621) 1,920 7,064 8,091 51,639 ---------- ---------- ---------- ---------- ----------- Net earnings(1)(2)................... $ 5,940 $ 6,214 $ 15,359 $ 22,728 $ 103,995 ========== ========== ========== ========== =========== Net earnings per share(1)(2)(3) Basic........................... $ .37 $ .30 $ .63 $ .85 $ 2.42 ========== ========== ========== ========== =========== Diluted......................... $ .36 $ .30 $ .61 $ .77 $ 2.16 ========== ========== ========== ========== =========== Weighted average shares outstanding(3) Basic........................... 16,133 20,418 24,551 26,719 43,036 Diluted......................... 16,360 20,650 25,128 33,755 49,143 BALANCE SHEET DATA (AS OF DECEMBER 31): Working capital...................... $ 21,758 $ 26,640 $ 31,302 $ 62,722 $ 103,733 Property and equipment, net.......... 62,823 139,899 178,488 375,249 1,171,647 Total assets......................... 109,981 205,193 257,605 542,062 1,541,501 Long-term debt, net of current portion............................ 200 42,096 61,136 106,508 435,100 Convertible subordinated debentures......................... -- -- -- 80,500 52,500 Shareholders' equity................. 69,126 111,385 131,239 201,797 685,157
- ------------ (1) Other income (expense) net, earnings before income taxes and net earnings for the year ended December 31, 1997 include a pretax gain on the divestiture of the Company's U.S. land-based well servicing business of $83,553,000. The gain was partially offset by non-recurring charges totaling $4,182,000, net of estimated income taxes, relating principally to the induced conversion of $28,000,000 principal amount of the Company's convertible subordinated debentures. Excluding such non-recurring items, net earnings for the year ended December 31, 1997 were $54,724,000, or $1.16 per share. (2) Income tax provision (benefit) and net earnings for the year ended December 31, 1993 include $3,835,000 ($0.23 per share) cumulative effect of change in accounting for income taxes. (3) Net earnings per share for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 and weighted average shares outstanding as of such dates have been restated to comply with the requirements of Statement of Financial Accounting Standards No. 128, "Earnings per Share." 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements as of December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996 and 1995, included elsewhere herein. The following information contains forward-looking statements. For a discussion of certain limitations inherent in such statements, see "Forward-Looking Statements." GENERAL The Company's operations and future results have been and will be significantly affected by a series of strategic transactions that have transformed the Company from the second largest provider of land-based workover and related well services in the United States into a diversified drilling contractor operating both offshore and onshore in international markets and offshore in the U.S. Gulf of Mexico. With the sale of its domestic land-based well servicing operations in February 1997, the Company has ceased to provide rig services onshore in the United States. As a result of its recent acquisition activity, the Company expects to continue to experience revenue growth. International drilling and well servicing activity is affected by fluctuations in oil and gas prices, but historically to a lesser extent than domestic activity. International rig services contracts are typically for terms of one year or more, while domestic contracts are typically for one well or multiple wells. Accordingly, international rig services activities generally are not as sensitive to short-term changes in oil and gas prices as domestic operations. Since 1993, the Company has entered into a number of transactions that have significantly expanded its international and domestic offshore operations, including the following: o In January 1995, the Company commenced operating two barge rigs on Lake Maracaibo, Venezuela. The barge rigs were constructed during 1994 pursuant to ten-year operating contracts entered into with PDVSA, the Venezuelan national oil company. o In April 1996, the Company acquired Quitral-Co S.A.I.C. ("Quitral-Co") from Perez Companc S.A. and other shareholders. The 23 land-based drilling and 57 land-based workover rigs in Argentina and seven land-based drilling and 23 land-based workover rigs in Venezuela operated by Quitral-Co were combined with the Company's existing land-based operations in those countries. The Company has further expanded international operations by deploying more than 40 rigs from its former U.S. land-based fleet, primarily to Argentina and Venezuela, and by acquiring four rigs from an Argentina competitor. o In October 1996, the Company expanded its Colombian operations to 20 rigs through the acquisition of Ingeser de Colombia, S.A. ("Ingeser"), which operated seven land-based drilling rigs and six land-based workover rigs in Colombia. o In November 1996, the Company added three land-based drilling rigs and support assets to its operations in Argentina through the acquisition of the assets of another contractor. o In February 1997, the Company completed the divestiture of its domestic land-based well servicing operations, which included 407 workover rigs operating in Texas, California, New Mexico and Louisiana. o In March 1997, the Company completed the Forasol acquisition, adding two semisubmersible rigs, three jackup rigs, seven tender-assisted rigs, four barge rigs and 29 land-based rigs operating in various locations in South America, North Africa, the Middle East and Southeast Asia. o In May 1997, the Company purchased 13 mat-supported jackup drilling rigs, 11 of which are currently operating in the Gulf of Mexico, one of which is currently operating in West Africa and one of which is being mobilized to Malaysia. 16 RESULTS OF OPERATIONS The following table sets forth selected consolidated financial information of the Company by operating segment for the periods indicated:
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 1995 1996 1997 --------------------- --------------------- --------------------- (DOLLARS IN THOUSANDS) Revenues: United States land.............. $ 113,115 42.9% $ 117,142 28.8% $ 16,485 2.4% United States offshore.......... 49,595 18.8 57,450 14.1 135,281 19.3 International land.............. 100,889 38.3 218,562 53.7 385,590 55.1 International offshore.......... -- -- 14,020 3.4 162,432 23.2 ---------- --------- ---------- --------- ---------- --------- Total revenues............. $ 263,599 100.0% $ 407,174 100.0% $ 699,788 100.0% ========== ========= ========== ========= ========== ========= Earnings from operations: United States land.............. $ 7,906 28.9% $ 7,808 19.5% $ 519 .5% United States offshore.......... 6,785 24.9 6,983 17.4 40,965 37.8 International land.............. 12,630 46.2 23,372 58.2 42,500 39.2 International offshore.......... -- -- 1,979 4.9 24,401 22.5 ---------- --------- ---------- --------- ---------- --------- Total earnings from operations.............. $ 27,321 100.0% $ 40,142 100.0% $ 108,385 100.0% ========== ========= ========== ========= ========== =========
1997 COMPARED WITH 1996 REVENUES. Revenues for 1997 increased $292.6 million, or 72%, as compared to 1996. This increase was due primarily to the expansion of the Company's Gulf of Mexico and international operations as follows: (i) $201.3 million was related to the operations acquired in the Forasol acquisition in March 1997, (ii) $70.2 million was related to the operations of the mat-supported jackup rigs acquired in May 1997 and (iii) $50.0 million was related to the incremental full-year effect of the operations acquired in the April 1996 acquisition of Quitral-Co. The remaining increase in revenue was due to the net addition of five land-based drilling rigs and two barge rigs in South America combined with increased contract drilling dayrates from ongoing operations. This increase was partially offset by a reduction of $100.0 million in revenue related to the divestiture of the Company's domestic land-based well servicing operations. OPERATING COSTS. Operating costs for 1997 increased $166.3 million, or 64%, as compared to 1996. This increase was due primarily to the acquisitions and asset purchases discussed above as follows: (i) $130.4 million was related to the operations acquired in the Forasol acquisition in March 1997, (ii) $30.1 million was related to the operations of the mat-supported jackup rigs acquired in May 1997 and (iii) $20.0 million was related to the incremental full-year effect of the operations acquired in the April 1996 acquisition of Quitral-Co. The remaining increase in operating costs was due to the net addition of four land-based drilling rigs and two barge rigs in South America combined with increased labor costs from ongoing operations in Venezuela. This increase in operating costs was partially offset by a reduction of $90.0 million related to the divestiture of the Company's domestic land-based well servicing operations. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for 1997 increased $26.0 million, or 93%, compared to 1996, primarily as a result of the acquisitions of Forasol, Quitral-Co and the mat-supported jackup rigs, and depreciation of new, refurbished and upgraded rigs placed in service during the year, which increase was partially offset by the sale of the Company's domestic land-based well servicing operations. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative costs in 1997 increased approximately $28.5 million, or 63%, as compared to 1996, primarily as a result of the acquisitions of Forasol, Quitral-Co and the mat-supported jackup rigs, which increase was partially offset by the sale of the Company's domestic land-based well servicing operations. As a percentage of revenues, total selling, general and administrative costs decreased from 11.1% for 1996 to 10.5% for 1997. OTHER INCOME (EXPENSE). Other income (expense) resulted in income of $47.0 million in 1997 as compared to expense of $9.0 million in 1996. Other income and expense included interest income, interest 17 expense, net gains or losses from sale of assets, minority interests, foreign exchange gains or losses and other sources. The Company incurred a gain of $83.6 million from the sale of its domestic land-based well servicing operations in February 1997. This gain was partially offset by a charge of approximately $4.0 million relating to the induced conversion of $28.0 million of the Company's 6 1/4% convertible subordinated debentures and other charges. Interest expense for 1997 increased $21 million, or 61%, compared to 1996. This increase was due primarily to the issuance of $325 million in Senior Notes by the Company in May 1997. During 1997 the Company capitalized approximately $6.0 million in interest expense related to its capital expenditures, as compared to approximately $2.0 million in 1996. INCOME TAX PROVISION (BENEFIT). The Company's consolidated effective income tax rate for 1997 was approximately 33%, as compared to approximately 26% for 1996. The increase in the effective tax rate resulted from the effects of (i) certain non-deductible amounts, primarily $3.7 million of costs related to induced conversion of convertible subordinated debentures, (ii) an estimated effective combined U.S. federal and state income tax rate of 36% on the gain from the sale of the Company's U.S. land-based well servicing operations and (iii) an estimated effective income tax rate of 29% on ongoing operations. 1996 COMPARED WITH 1995 REVENUES. Revenues for 1996 increased $143.6 million, or 54%, as compared to 1995. Of this increase, $131.7 million was a result of expansion of the Company's international operations, primarily due to the acquisition of Quitral-Co in April 1996. Revenues from domestic land operations increased $4.0 million, primarily as a result of the inclusion of operating results of X-Pert Enterprises, Inc. ("X-Pert") (the operations of which were sold in February 1997) for 12 months in 1996 as compared to only ten months in 1995. Revenues attributable to domestic offshore operations increased $7.9 million, due primarily to an increased number of the Company's offshore platform rigs working in 1996. OPERATING COSTS. Operating costs for 1996 increased $105.4 million, or 56%, as compared to 1995. Of this increase, $94.0 million was a result of expansion of the Company's international operations and $3.0 million was attributable to domestic land-based operations, primarily due to the inclusion of the operating results of X-Pert for the full period, which offset a $2.4 million reduction of workers' compensation expense recorded in the fourth quarter of 1996. Operating costs related to domestic offshore operations increased $7.6 million due to an increased number of offshore platform rigs working, as discussed above, and a related increase in mobilization costs. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for 1996 increased $12.4 million, or 74%, as compared to 1995, primarily as a result of the Quitral-Co acquisition and additional expansion of the Company's international and domestic offshore assets. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses for 1996 increased $13.0 million, or 40%, as compared to 1995, primarily due to the inclusion of such costs for Quitral-Co. During 1996, the Company incurred certain nonrecurring expenses in connection with consolidation of acquired operations with its existing operations in Argentina and Venezuela. As a percentage of revenues, total selling, general and administrative costs were 11% for 1996 as compared to 11% for 1995. EARNINGS FROM OPERATIONS. Earnings from operations for 1996 increased by $12.8 million, or 47%, as compared to 1995. Of this increase, $12.7 million was attributable to international expansion, including the Quitral-Co acquisition. Domestic offshore utilization also improved, resulting in a $198,000 increase in earnings from operations. Earnings from domestic land operations were essentially unchanged between 1996 and 1995. OTHER INCOME (EXPENSE). Other income (expense) for 1996 included net gains from asset sales, foreign exchange transactions and other sources. Other income (expense) for 1995 consisted primarily of miscellaneous gains of $638,000 from asset sales, insurance recoveries, foreign exchange transactions and other sources. Interest income increased to $2.4 million for 1996 from $740,000 for 1995 due to an increase in cash available for investment. Interest expense for 1996 increased by $7.4 million over 1995, as a result of interest accrued on the convertible subordinated debentures and borrowings related to the Quitral-Co acquisition and other additions to property and equipment. During 1996 and 1995, the Company capitalized $1.9 million and $250,000, respectively, of interest expense in connection with construction projects. 18 INCOME TAX PROVISION (BENEFIT). The Company's consolidated effective income tax rate for 1996 was approximately 26%, as compared to approximately 32% for 1995. The decrease was attributable to the increase in foreign income, which is taxed at a lower statutory rate, and the reduction in U.S. income, which is taxed at a higher statutory rate. The decrease was also due to recognition in 1996 of $2.2 million of foreign net operating loss carryforwards, including net operating loss carryforwards of acquired businesses. The Company had previously provided a valuation allowance for certain foreign net operating loss carryforwards, due to uncertainties regarding the Company's ability to realize such tax benefits. LIQUIDITY AND CAPITAL RESOURCES The Company had net working capital of $121.2 million and $62.7 million at December 31, 1997 and 1996, respectively. The Company's current ratio was 1.6 at both December 31, 1997 and December 31, 1996. In March 1997, the Company entered into a revolving credit facility with a group of banks (as amended and restated in December 1997, the "Credit Facility") which provides for availability of up to $100.0 million (including $25.0 million for letters of credit). Availability under the Credit Facility is limited to a borrowing base based on the value of collateral. The Credit Facility is collateralized by the accounts receivable, inventory and intangibles of the Company and its domestic subsidiaries, two-thirds of the stock of the Company's foreign subsidiaries, the stock of the Company's domestic subsidiaries and certain other assets. The Credit Facility terminates in December 2000. Borrowings under the Credit Facility bear interest at a variable rate based on either the prime rate or LIBOR. The Credit Facility limits the ability of the Company and its subsidiaries to incur additional indebtedness, create liens, enter into mergers and consolidations, pay cash dividends on its capital stock, make acquisitions, sell assets or change its business without prior consent of the lenders. Under the Credit Facility, the Company must maintain certain financial ratios, including (i) funded debt to pro forma EBITDA, (ii) funded debt to capitalization, (iii) adjusted EBITDA to debt service and (iv) minimum tangible net worth. In May 1997, the Company issued $325.0 million of 9 3/8% Senior Notes due May 1, 2007 (the "Senior Notes"). Interest on the Senior Notes is payable semiannually on May 1 and November 1 of each year, commencing November 1, 1997. The Senior Notes are not redeemable prior to May 1, 2002, after which they will be redeemable, in whole or in part, at the option of the Company at redemption prices starting at 104.688% and declining to 100% by May 1, 2005. In the event the Company consummates a public equity offering on or prior to May 1, 2000, the Company at its option may use all or a portion of the proceeds from such public equity offering to redeem up to $108.3 million principal amount of the Senior Notes at a redemption price equal to 109.375% of the aggregate principal amount thereof, together with accrued and unpaid interest to the date of redemption. The Indenture governing the Senior Notes (as amended and supplemented, the "Indenture") contains provisions which limit the ability of the Company and its subsidiaries to incur additional indebtedness, create liens, enter into mergers and consolidations, pay cash dividends on its capital stock, make acquisitions, sell assets or change its business. A newly organized, special purpose subsidiary of the Company is participating in joint ventures to construct, own and operate six Amethyst-class dynamically positioned semisubmersible drilling rigs. The rigs will be operated under charter and service contracts with Petrobras having initial terms of six to eight years. The total estimated cost to construct, equip and mobilize the six rigs is approximately $1 billion, approximately 90% of which is expected to be provided from the proceeds of project finance obligations of the ventures without recourse to the joint venture participants. Delivery of the rigs is expected during late 1999 and 2000. The Company estimates that its total equity investment in the project will be approximately $30 million, which will represent a 30% ownership interest. A subsidiary of the Company has entered into a joint venture to construct, own and operate the PRIDE AFRICA, an ultra-deepwater drillship currently under construction in South Korea. The PRIDE AFRICA, which will be capable of operating in water depths of up to 10,000 feet, is contracted to work for Elf Exploration Angola for a term of five years. It is anticipated that the PRIDE AFRICA will commence operations in mid-1999. The joint venture has entered into a financing arrangement with a group of banks providing that, upon delivery of the drillship, approximately 80% of the estimated construction cost of $235 million will be 19 financed by loans that are without recourse to the joint venture participants. The Company estimates that its total equity investment in the project will be approximately $12.0 million, which will represent a 51% ownership interest. The Company has obtained a commitment from a group of banks to provide up to $110.0 million in loans to finance its acquisition of certain equipment to be installed on the PRIDE AFRICA. The loans will be secured by such equipment and will bear interest at a rate of LIBOR plus 1.25% per annum. The Company has agreed to sell such equipment to the joint venture formed to construct, own and operate the rig on or before the date Elf Exploration Angola accepts delivery of the rig under the charter, which is anticipated to be mid-1999, and expects to repay such loan from such sales proceeds. The joint venture intends to draw on its financing arrangement described above to finance its payment to the Company. The Company has filed a "shelf" registration statement under the Securities Act pursuant to which it may issue up to $500.0 million of securities consisting of any combination of debt securities, Common Stock and Preferred Stock. Management believes that the cash generated from the Company's operations, together with borrowings under the Credit Facility and issuances of securities pursuant to the shelf registration statement, will be adequate to fund the rig construction discussed above and the Company's normal ongoing capital expenditure, working capital and debt service requirements. The Company is active in reviewing possible expansion and acquisition opportunities relating to all of its business segments. While the Company has no definitive agreements to acquire additional equipment other than those discussed above, suitable opportunities may arise in the future. The timing, size or success of any acquisition effort and the associated potential capital commitments are unpredictable. From time to time, the Company has one or more bids outstanding for contracts that could require significant capital expenditures and mobilization costs. The Company expects to fund acquisitions and project opportunities primarily through a combination of working capital, cash flow from operations and full or limited recourse debt or equity financing. ACCOUNTING MATTERS The Company will adopt Statement of Financial Accounting Standards ("FAS") No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits," FAS No. 131 "Disclosures about Segments of an Enterprise and Related Information," and FAS No. 130 "Reporting Comprehensive Income" for the year ended December 31, 1998. The Company does not anticipate that the adoption of these disclosure standards will have a material impact on its consolidated financial statements. YEAR 2000 MATTERS Year 2000 issues result from the inability of computer programs or computerized equipment to accurately calculate, store or use a date subsequent to December 31, 1999. The erroneous date can be interpreted in a number of different ways; typically, the year 2000 is represented as the year 1900. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business. The Company is in the process of implementing new financial reporting, operational reporting and computer systems. The first phase of implementation was completed in February 1998. The remaining phases are scheduled for implementation and completion within the next two years. In addition, the Company is assessing the use of less critical software systems and various types of equipment. The Company is using both internal and external resources to complete tasks and perform testing necessary to address year 2000 issues. The Company believes that the potential impact, if any, of these systems not being year 2000 compliant will at most require employees to manually complete otherwise automated tasks or calculations and that it should not affect the Company's ability to continue drilling or sales activities. The Company has initiated formal communication with its significant suppliers, business partners and customers to determine the extent to which the Company is vulnerable to those third parties' failure to correct their own year 2000 issues. There can be no assurances that the systems of other companies on which the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable. 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Pride International, Inc.: We have audited the consolidated balance sheet of Pride International, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, changes in the shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Pride International, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Houston, Texas March 16, 1998 21 PRIDE INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AMOUNTS) DECEMBER 31, -------------------------- 1997 1996 ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents....... $ 73,539 $ 10,310 Short-term investments.......... 856 460 Trade receivables, net.......... 194,973 99,531 Parts and supplies.............. 26,899 27,642 Deferred income taxes........... 2,252 1,778 Other current assets............ 35,691 16,686 ------------ ------------ Total current assets....... 334,210 156,407 ------------ ------------ PROPERTY AND EQUIPMENT, AT COST...... 1,273,327 514,903 ACCUMULATED DEPRECIATION............. (101,680) (139,654) ------------ ------------ Net property and equipment.............. 1,171,647 375,249 ------------ ------------ OTHER ASSETS Investments in and advances to affiliates..................... 9,092 -- Goodwill and other intangibles, net............................ 3,623 3,134 Other assets.................... 22,929 7,272 ------------ ------------ Total other assets......... 35,644 10,406 ------------ ------------ $ 1,541,501 $ 542,062 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable................ $ 101,318 $ 31,918 Accrued expenses................ 58,412 25,785 Short-term borrowings........... 21,055 3,300 Current portion of long-term debt........................... 39,356 32,682 Current portion of long-term lease obligations.............. 10,336 -- ------------ ------------ Total current liabilities............ 230,477 93,685 ------------ ------------ OTHER LONG-TERM LIABILITIES.......... 28,911 12,134 LONG-TERM DEBT, net of current portion............................ 435,100 106,508 LONG-TERM LEASE OBLIGATIONS, net of current portion.................... 36,275 -- CONVERTIBLE SUBORDINATED DEBENTURES......................... 52,500 80,500 DEFERRED INCOME TAXES................ 72,313 47,438 MINORITY INTEREST.................... 768 -- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock, no par value; 100,000,000 shares authorized; 50,097,120 and 28,571,876 shares issued and 50,042,900 and 28,517,656 shares outstanding, respectively...... 1 1 Paid-in capital................. 522,946 143,581 Treasury stock, at cost......... (191) (191) Retained earnings............... 162,401 58,406 ------------ ------------ Total shareholders' equity................. 685,157 201,797 ------------ ------------ $ 1,541,501 $ 542,062 ============ ============ The accompanying notes are an integral part of the consolidated financial statements. 22 PRIDE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED DECEMBER 31, ---------------------------------- 1997 1996 1995 ---------- ---------- ---------- REVENUES............................. $ 699,788 $ 407,174 $ 263,599 OPERATING COSTS...................... 458,861 292,599 187,203 ---------- ---------- ---------- Gross Margin.................... 240,927 114,575 76,396 DEPRECIATION AND AMORTIZATION........ 58,661 29,065 16,657 SELLING, GENERAL AND ADMINISTRATIVE....................... 73,881 45,368 32,418 ---------- ---------- ---------- EARNINGS FROM OPERATIONS............. 108,385 40,142 27,321 ---------- ---------- ---------- OTHER INCOME (EXPENSE) Other income.................... 77,844 1,902 638 Interest income................. 3,773 2,410 740 Interest expense................ (34,368) (13,635) (6,276) ---------- ---------- ---------- Total other income (expense), net.......... 47,249 (9,323) (4,898) ---------- ---------- ---------- EARNINGS BEFORE INCOME TAXES......... 155,634 30,819 22,423 INCOME TAX PROVISION................. 51,639 8,091 7,064 ---------- ---------- ---------- NET EARNINGS......................... $ 103,995 $ 22,728 $ 15,359 ========== ========== ========== NET EARNINGS PER SHARE Basic........................... $ 2.42 $ .85 $ .63 Diluted......................... $ 2.16 $ .77 $ .61 WEIGHTED AVERAGE SHARES OUTSTANDING Basic........................... 43,036 26,719 24,551 Diluted......................... 49,143 33,755 25,128 The accompanying notes are an integral part of the consolidated financial statements. 23 PRIDE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS)
COMMON STOCK TREASURY TOTAL ---------------- PAID-IN STOCK RETAINED SHAREHOLDERS' SHARES AMOUNT CAPITAL AT COST EARNINGS EQUITY ------ ------ -------- -------- -------- ------------- BALANCE -- DECEMBER 31, 1994............ 24,028 $ 1 $ 91,256 $ (191) $ 20,319 $ 111,385 Net earnings....................... -- -- -- -- 15,359 15,359 Issuance of common stock in connection with acquisition...... 525 -- 3,279 -- -- 3,279 Exercise of stock options.......... 256 -- 739 -- -- 739 Tax benefit of non-qualified stock options.......................... -- -- 477 -- -- 477 ------ ------ -------- -------- -------- ------------- BALANCE -- DECEMBER 31, 1995............ 24,809 1 95,751 (191) 35,678 131,239 Net earnings....................... -- -- -- -- 22,728 22,728 Issuance of common stock in public offerings, net of offering costs............................ 3,450 -- 45,641 -- -- 45,641 Issuance of common stock in connection with acquisition...... 4 -- 29 -- -- 29 Exercise of stock options.......... 255 -- 1,338 -- -- 1,338 Tax benefit of non-qualified stock options.......................... -- -- 822 -- -- 822 ------ ------ -------- -------- -------- ------------- BALANCE -- DECEMBER 31, 1996............ 28,518 1 143,581 (191) 58,406 201,797 Net earnings....................... -- -- -- -- 103,995 103,995 Issuance of common stock in public offerings, net of offering costs............................ 7,257 -- 168,400 -- -- 168,400 Issuance of common stock in connection with acquisition...... 11,099 -- 172,422 -- -- 172,422 Issuance of common stock in connection with conversion of debentures....................... 2,286 -- 27,463 -- -- 27,463 Exercise of stock options.......... 883 -- 6,138 -- -- 6,138 Tax benefit of non-qualified stock options.......................... -- -- 4,942 -- -- 4,942 ------ ------ -------- -------- -------- ------------- BALANCE -- DECEMBER 31, 1997............ 50,043 $ 1 $522,946 $ (191) $162,401 $ 685,157 ====== ====== ======== ======== ======== =============
The accompanying notes are an integral part of the consolidated financial statements. 24 PRIDE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) YEAR ENDED DECEMBER 31, ------------------------------------- 1997 1996 1995 ----------- ----------- ----------- OPERATING ACTIVITIES Net earnings.................... $ 103,995 $ 22,728 $ 15,359 Adjustments to reconcile net earnings to net cash provided by operating activities -- Depreciation and amortization............ 58,661 29,065 16,657 Gain on sale of assets..... (83,845) (815) (1,544) Effect of exchange rates... 3,736 (437) (142) Deferred tax provision..... 13,692 5,882 4,602 Changes in assets and liabilities, net of effects of acquisitions -- Trade receivables..... (37,963) (16,438) (4,493) Parts and supplies.... 743 (2,303) (2,866) Other assets.......... (11,696) (2,330) (1,914) Accounts payable...... 38,886 (735) 119 Accrued expenses and other.............. (25,645) (13,400) 1,391 ----------- ----------- ----------- Net cash provided by operating activities.... 60,564 21,217 27,169 ----------- ----------- ----------- INVESTING ACTIVITIES Purchase of net assets of acquired entities, including acquisition costs, less cash acquired...................... (369,432) (119,067) (8,144) Purchases of property and equipment..................... (268,307) (61,711) (40,636) Proceeds from dispositions of property and equipment........ 131,536 14,438 6,862 Proceeds from sales of short-term investments........ 836 6,047 1,250 Purchases of short-term investments................... (686) (1,045) (360) Other........................... -- (733) (485) ----------- ----------- ----------- Net cash used in investing activities.... (506,053) (162,071) (41,513) ----------- ----------- ----------- FINANCING ACTIVITIES Proceeds from issuance of common stock......................... 168,400 45,641 -- Proceeds from exercise of stock options....................... 6,138 1,338 739 Proceeds from issuance of convertible subordinated debentures.................... -- 77,585 -- Proceeds from debt borrowings... 533,145 89,362 27,535 Reduction of debt............... (198,965) (72,066) (10,410) Other........................... -- 9 (195) ----------- ----------- ----------- Net cash provided by financing activities.... 508,718 141,869 17,669 ----------- ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS........................ 63,229 1,015 3,325 CASH AND CASH EQUIVALENTS, beginning of period.......................... 10,310 9,295 5,970 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, end of period............................. $ 73,539 $ 10,310 $ 9,295 =========== =========== =========== The accompanying notes are an integral part of the consolidated financial statements. 25 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BASIS OF PRESENTATION Pride International, Inc. (the "Company") is a Louisiana corporation which was organized in 1988 as the successor to a company originally incorporated in 1968. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Certain reclassifications have been made to prior year amounts to conform with the current year presentation. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments having maturities of three months or less at the date of purchase to be cash equivalents. SHORT-TERM INVESTMENTS Short-term investments include marketable securities, which in the case of debt instruments have maturities in excess of three months but less than one year at the date of purchase, are classified as available for sale and are carried at the lower of cost or market value. There were no material differences between cost and fair market value as of December 31, 1997 and 1996. PARTS AND SUPPLIES Parts and supplies consist of spare rig parts and supplies held for use in operations and are valued at the lower of weighted average cost or market value. PROPERTY AND EQUIPMENT Property and equipment are carried at original cost or adjusted net realizable value, as applicable. Major renewals and improvements are capitalized and depreciated over the respective asset's useful life. Maintenance and repair costs are charged to expense as incurred. When assets are sold or retired, the remaining costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income. For financial reporting purposes, depreciation of property and equipment is provided using the straight line method based upon expected useful lives of each class of assets. Estimated useful lives of the assets for financial reporting purposes are as follows: YEARS --------- Rigs and rig equipment............... 5-25 Transportation equipment............. 3-7 Buildings and improvements........... 10-20 Furniture and fixtures............... 5 Rigs and rig equipment have salvage values ranging from $150,000 to $8,000,000 with such values not exceeding 10% of the cost of the rig. GOODWILL AND OTHER INTANGIBLES Goodwill represents the cost in excess of fair value of the net assets of businesses acquired and is being amortized using the straight line method over 15 years. Other intangible assets represent costs allocated to service contracts, employment contracts and covenants not to compete acquired in business acquisitions. Other intangible assets are being amortized using the straight line method over their estimated useful lives, which range from three to ten years. 26 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) REVENUE RECOGNITION The Company recognizes revenue as services are performed based upon contracted day rates and the number of operating days during the period. INCOME TAXES The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement and the tax bases of assets and liabilities using enacted tax rates. FOREIGN CURRENCY TRANSLATION The Company accounts for translation of foreign currency in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation." The Company's Venezuelan operations are in a "highly inflationary" economy resulting in the use of the U.S. dollar as the functional currency. Therefore, certain assets of these operations are translated at historical exchange rates and all translation gains or losses are reflected in the period's results of operations. In the other countries in which the Company operates the local currency is considered the functional currency. Translation of assets and liabilities in those countries is made at the prevailing exchange rate as of the balance sheet date. Revenues and expenses are translated at the average rate of exchange during the period. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments in U.S. Government securities and other high quality financial instruments. By policy, the Company limits the amount of credit exposure to any one financial institution or issuer. The Company's customer base consists primarily of major integrated and government-owned international oil companies as well as smaller independent oil and gas producers. Management believes the credit quality of its customers is generally high. The Company has in place insurance to cover certain exposure in its foreign operations and provides allowances for potential credit losses when necessary. MANAGEMENT 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. While it is believed that such estimates are reasonable, actual results could differ from those estimates. CONDITIONS AFFECTING ONGOING OPERATIONS The Company's current business and operations are substantially dependent upon conditions in the oil and gas industry and, specifically, the exploration and production expenditures of oil and gas companies. The demand for contract drilling and related services is influenced by oil and gas prices, expectations about future prices, the cost of producing and delivering oil and gas, government regulations and local and international political and economic conditions. There can be no assurance that current levels of exploration and production expenditures of oil and gas companies will be maintained or that demand for the Company's services will reflect the level of such activities. STOCK-BASED COMPENSATION The Company accounts for compensation cost for stock option plans in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." 27 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. PROPERTY AND EQUIPMENT Property and equipment as of December 31, 1997 and 1996 consisted of the following: DECEMBER 31, -------------------------- 1997 1996 ------------ ------------ (IN THOUSANDS) Land................................. $ 2,812 $ 3,462 Rigs and rig equipment............... 1,170,783 445,220 Transportation equipment............. 12,612 17,570 Buildings............................ 8,374 10,984 Other................................ 828 1,757 Construction-in-progress............. 77,918 35,910 ------------ ------------ 1,273,327 514,903 Accumulated depreciation and amortization....................... (101,680) (139,654) ------------ ------------ Net property and equipment...... $ 1,171,647 $ 375,249 ============ ============ As of December 31, 1997, construction-in-progress included approximately $38,000,000 of costs related to the acquisition and refurbishment of a tender-assisted rig and a drillship, $15,000,000 of costs related to the construction or refurbishment of three offshore platform rigs and three land-based drilling and workover rigs and $17,000,000 of costs related to the refurbishment of certain newly-acquired offshore jackup drilling rigs. Construction-in-progress as of December 31, 1996 included approximately $21,000,000 of costs related to the acquisition or refurbishment of 11 land-based drilling rigs, $5,400,000 of costs related to upgrading the rig fleet and equipment acquired from Quitral-Co S.A.I.C. ("Quitral-Co") and $6,400,000 of costs related to the construction of an offshore platform workover rig. The Company capitalizes interest applicable to the construction of significant additions to property and equipment. For the years ended December 31, 1997, 1996 and 1995, total interest incurred was $40,018,000, $15,550,000 and $6,526,000, respectively, of which $5,650,000, $1,915,000 and $250,000, respectively, was capitalized. During the years ended December 31, 1997, 1996 and 1995, maintenance and repair costs included in operating costs on the accompanying consolidated statement of operations were $51,429,000, $32,698,000 and $20,776,000, respectively. 3. ACQUISITIONS AND DISPOSITIONS In May 1997, the Company acquired 13 mat-supported jackup drilling rigs (the "Jackup Rigs") for approximately $269,000,000 in cash. The acquisition was financed through the sale of Senior Notes and common stock, which was completed concurrently with the acquisition. In March 1997, the Company acquired the operating subsidiaries of Forasol-Foramer N.V. (collectively, "Forasol") for aggregate consideration of $285,644,000, consisting of $113,222,000 in cash and 11,099,191 shares of common stock valued at $172,422,000, based on the approximate market value of the common stock immediately prior to the date of the agreement of $15.50 per share. 28 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The assets acquired and liabilities assumed in the Forasol acquisition, based on the Company's preliminary purchase price allocation, were as follows: ASSETS (LIABILITIES) --------------------- (IN THOUSANDS) Cash and cash equivalents............ $ 13,438 Trade receivables.................... 56,831 Deferred income taxes................ 2,012 Other current assets................. 18,624 Property and equipment............... 369,527 Investments in affiliates............ 9,431 Other assets......................... 5,227 Accounts payable..................... (30,514) Accrued expenses..................... (57,053) Short-term borrowings................ (15,354) Long-term debt....................... (31,361) Long-term lease obligations.......... (35,514) Other long-term liabilities.......... (4,805) Deferred income taxes................ (12,721) Minority interest.................... (2,124) --------------------- Net assets acquired............. $ 285,644 ===================== In February 1997, the Company sold substantially all of the assets used in its U.S. land-based well servicing operations for $135,650,000 in cash. After federal and state income taxes of approximately $42,100,000, repayment of $3,877,000 of indebtedness collateralized by certain of the assets sold and $65,000 of interest accrued thereon, and repayment of $3,960,000 of lease payments on transferred assets subject to operating leases, the net proceeds to the Company were $85,648,000. The Company recognized a pretax gain on the sale of $83,553,000, which amount is included in other income on the accompanying consolidated statement of operations. In November 1996, the Company acquired three land-based drilling rigs and other support assets from another contractor in Argentina for $8,900,000 cash. In October 1996, the Company acquired all of the outstanding capital stock of Ingeser de Colombia, S.A. ("Ingeser") for aggregate consideration of $5,500,000, consisting of $4,000,000 cash and a contingent note payable to the sellers for $1,500,000. Based on the debt assumed and the working capital position of Ingeser, the transaction was valued at approximately $12,000,000. Ingeser operates seven drilling rigs and six workover rigs in the Republic of Colombia. In April 1996, the Company acquired all of the outstanding capital stock of Quitral-Co for an aggregate purchase price of $140,000,000, consisting of $110,000,000 in cash and a $30,000,000 installment note payable to the selling shareholders. In connection with the acquisition of Quitral-Co, the Company paid a commission of $310,000 to a director of the Company. 29 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The assets acquired and liabilities assumed in the Quitral-Co acquisition were as follows: ASSETS (LIABILITIES) -------------------- (IN THOUSANDS) Cash and cash equivalents............ $ 5,564 Short-term investments............... 2,851 Trade receivables.................... 35,189 Parts and supplies................... 15,618 Deferred income taxes................ 1,300 Other current assets................. 3,814 Property and equipment............... 161,420 Other assets......................... 2 Accounts payable..................... (21,710) Accrued expenses..................... (23,462) Long-term debt....................... (13,936) Deferred income taxes................ (26,650) -------------------- Net assets acquired............. $140,000 ==================== Each of the acquisitions discussed above was recorded using the purchase method of accounting. The operating results of each acquisition have been included in the Company's consolidated results of operations from the date of acquisition. Unaudited pro forma results of operations assuming the acquisitions of Quitral-Co, Forasol and the Jackup Rigs and the sale of the Company's U.S. land-based well servicing operations had occurred on January 1, 1996, are as follows: YEAR ENDED DECEMBER 31, ---------------------- 1997 1996 ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues............................. $ 755,952 $ 622,712 Net earnings......................... $ 52,050 $ 16,994 Earnings per share Basic........................... $ 1.12 $ .45 Diluted......................... $ 1.03 $ .45 The pro forma results of operations presented above do not purport to be indicative of the results of operations of the Company that might have occurred if such transactions had occurred as of January 1, 1996, nor are they indicative of future results. 4. DEBT SHORT-TERM BORROWINGS The Company has agreements with several banks for short-term lines of credit denominated in U.S. dollars, French francs and Argentine pesos. The facilities are renewable annually and bear interest at variable rates based on LIBOR for the U.S. dollar and Argentine peso denominated facilities, and PIBOR for the French franc denominated facilities. The interest rates on such borrowings at December 31, 1997 ranged from 6.25% to 9.00%. As of December 31, 1997, $21,055,000 was outstanding under these facilities and $11,445,000 was available. 30 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) LONG-TERM DEBT Long-term debt at December 31, 1997 and 1996 consisted of the following: DECEMBER 31, ---------------------- 1997 1996 ---------- ---------- (IN THOUSANDS) Senior Notes......................... $ 325,000 $ -- Collateralized term loans............ 79,009 46,169 Limited-recourse collateralized term loans................................ 35,210 38,935 Other notes payable Note payable to sellers......... 11,000 23,000 Eximbank notes payable.......... 6,533 8,900 Notes payable................... 13,667 4,033 Loan obligations to customers... 4,037 -- Acquisition note payable........ -- 3,877 Secured bank facility........... -- 14,276 Credit Facility...................... -- -- ---------- ---------- 474,456 139,190 Current portion of long-term debt.... 39,356 32,682 ---------- ---------- Long-term debt, net of current portion............ $ 435,100 $ 106,508 ========== ========== Based on rates currently available to the Company for debt with similar terms and remaining maturities, the Company believes that the recorded value of all its long-term debt approximates fair market value as of December 31, 1997 and 1996. SENIOR NOTES In May 1997, the Company issued $325,000,000 of 9 3/8% Senior Notes due May 1, 2007 (the "Senior Notes"). Interest on the Senior Notes is payable semi-annually on May 1 and November 1 of each year, commencing November 1, 1997. The Senior Notes are not redeemable prior to May 1, 2002, after which they will be redeemable, in whole or in part, at the option of the Company at redemption prices starting at 104.688% and declining to 100% by May 1, 2005. In the event the Company consummates a public equity offering on or prior to May 1, 2000, the Company at its option may use all or a portion of the proceeds from such public equity offering to redeem up to $108,333,000 principal amount of the Senior Notes at a redemption price equal to 109.375% of the aggregate principal amount thereof, together with accrued and unpaid interest to the date of redemption. The indenture governing the Senior Notes contains provisions which limit the ability of the Company and its subsidiaries to incur additional indebtedness, create liens, enter into mergers and consolidations, pay cash dividends on its capital stock, make acquisitions, sell assets or change its business. Net proceeds from the issuance of Senior Notes totaled approximately $316,600,000, after deducting underwriting discounts and estimated offering expenses. COLLATERALIZED TERM LOANS In April 1996, the Company completed two separate financing arrangements with lending institutions pursuant to which it borrowed an aggregate amount of $40,000,000 and an additional $6,500,000 in November 1996. The collateralized term loans bore interest initially at a floating rate of prime plus 0.5% and are repayable in monthly installments of principal and interest over a period of five to six years. In December 1996, the Company elected to convert the interest on the term loans to a fixed rate basis. As a 31 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) result, the collateralized term loans currently bear interest at fixed rates ranging from 7.95% to 8.50% per annum. The loans are collateralized by certain of the Company's domestic offshore rig fleet and ancillary equipment. The loan agreements include restrictive financial covenants with respect to cash flow coverage and tangible net worth. In connection with the March 1997 Forasol acquisition, the Company assumed certain borrowing arrangements with various banks, including a $20 million bank loan, payable in semi-annual installments each August and February through 2002. The loan bears interest at a stated rate of six-month LIBOR plus a margin ranging from 1.25% to 2.50%. In conjunction with this loan, Forasol simultaneously entered into an interest rate swap agreement with a notional amount of $20 million, which fixed the rate of interest on this loan at 7.55% over the term of the debt agreement. A semisubmersible rig is pledged as security for this loan. The Company also assumed a $30 million bank loan, secured by another semisubmersible rig, payable in semi-annual installments beginning May 1997 through 2003, which bears interest at a rate of LIBOR plus a margin ranging from 1.00% to 2.00%. LIMITED-RECOURSE COLLATERALIZED TERM LOANS During 1994, the Company entered into long-term financing arrangements with two Japanese trading companies in connection with the construction and operation of two floating barge rigs. The term loans are collateralized by the barge rigs and related charter contracts. The loans are being repaid from the proceeds of the related charter contracts in equal monthly installments of principal and interest through July 2004. In addition, a portion of contract proceeds is being held in trust to assure that timely payment of future debt service obligations is made. At December 31, 1997, $2,435,000 of such contract proceeds, which amount is included in cash and cash equivalents on the accompanying consolidated balance sheet, are being held in trust as security for the lenders, and are not presently available for use by the Company. OTHER NOTES PAYABLE Other notes payable consists of an acquisition note payable to sellers, Eximbank loans for the purchase and import of goods manufactured in the United States into other countries, notes payable in connection with financed insurance premiums and miscellaneous loan obligations to customers. CREDIT FACILITY In March 1997, the Company entered into a senior secured revolving credit facility with a group of banks (as amended and restated in December 1997, the "Credit Facility") under which up to $100 million (including $25 million for letters of credit) is available. Availability under the Credit Facility is limited to a borrowing base based on the fair market value of collateral. The Credit Facility is collateralized by the accounts receivable, inventory and intangibles of the Company and its domestic subsidiaries, two-thirds of the stock of the Company's foreign subsidiaries, the stock of the Company's domestic subsidiaries and certain other assets. The Credit Facility terminates in December 2000. Borrowings under the Credit Facility bear interest at a variable rate based on either the prime rate or LIBOR. The Credit Facility limits the ability of the Company and its subsidiaries to incur additional indebtedness, create liens, enter into mergers and consolidations, pay cash dividends on its capital stock, make acquisitions, sell assets or change its business without prior consent of the lenders. Under the Credit Facility, the Company must maintain certain financial ratios, including: (i) funded debt to pro forma EBITDA, (ii) funded debt to capitalization, (iii) adjusted EBITDA to debt service and (iv) minimum tangible net worth. CONVERTIBLE SUBORDINATED DEBENTURES In January 1996, the Company completed the public sale of $80,500,000 principal amount of 6 1/4% convertible subordinated debentures. The debentures, which are due February 15, 2006, are convertible into 32 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) common stock of the Company at a price of $12.25 per share. The debentures are redeemable at the option of the Company, in whole or in part, at any time on or after March 1, 1999, at an initial redemption price of 103.125% of the principal amount and declining to 100% of the principal amount by February 15, 2002. Interest is payable semi-annually on February 15 and August 15 of each year, commencing August 15, 1996. During 1997, an aggregate of $28,000,000 principal amount of the debentures was converted into 2,285,712 shares of common stock. In connection therewith, the Company paid an aggregate of $3,732,000 in cash to induce such conversions. Such amount has been included in other income in the accompanying consolidated statement of operations. As of December 31, 1997, the remaining $52,500,000 principal amount of the debentures had a fair value of $108,214,000, based on quoted market prices. Future maturities of long-term debt are as follows: AMOUNT -------------- (IN THOUSANDS) 1998................................. $ 39,356 1999................................. 26,845 2000................................. 25,206 2001................................. 21,735 2002................................. 16,702 Thereafter........................... 344,612 -------------- Total long-term debt....... $474,456 ============== In addition to the above, subsequent to December 31, 1997, the Company obtained a commitment from a group of banks to provide up to $110,000,000 in loans to finance its acquisition of certain equipment to be installed on the drillship more fully described in Note 11. The loans will be secured by such equipment and will bear interest at a rate of LIBOR plus 1.25% per annum. The Company has agreed to sell such equipment to the joint venture formed to construct, own and operate the drillship on or before the date the customer accepts delivery of the drillship under the charter, which is anticipated to be mid-1999, and expects to repay such loan from such sales proceeds. 5. FINANCIAL INSTRUMENTS The Company's operations are subject to foreign exchange risks principally related to the Argentine peso, the Venezuelan bolivar, the Colombian peso and the French franc. The Company attempts to limit its exposure to foreign currency exchange risks by obtaining contracts providing for payment in U.S. dollars or freely convertible foreign currency. Moreover, the Company purchases forward exchange contracts to hedge its French franc denominated expenses. These contracts are accounted for as hedges to the extent they relate to anticipated expenses. Realized and unrealized gains or losses on forward exchange contracts which are designated as, and are effective as, hedges are deferred and are recognized in results of operations when expenses are recognized. The cash flows from these transactions are classified consistent with the cash flows for the transaction being hedged. Deferred gains and losses are recognized in results of operations if the hedge is no longer effective. Gains or losses on forward exchange contracts that are not hedges are reported in results of operations as exchange rates change. As of December 31, 1997, the Company had approximately $41,000,000 notional amount of forward exchange contracts, principally French francs, to buy foreign currency to hedge anticipated expenses in 1998. The exchange rate on the contracts ranges from 5.34 to 6.01 French francs to the U.S. dollar. The 33 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) exchange rate as of December 31, 1997 was 5.99 French francs to the U.S. dollar. The fair market value of all forward exchange contracts based on quoted market prices of comparable instruments was a liability of $2,278,000 as of December 31, 1997. The value of the contracts upon ultimate settlement is dependent upon actual currency exchange rates at the various maturity dates during 1998. There were no such contracts outstanding as of December 31, 1996. 6. LEASES The Company has entered into agreements with a financial institution for the sale and leaseback of up to $22,000,000 of equipment to be used in the Company's business. The Company has received aggregate proceeds of $15,900,000 pursuant to these facilities attributable to two offshore platform rigs placed in service in 1996. The Company has purchase and lease renewal options at projected future fair market values under the agreements. The leases have been classified as operating leases for financial statement purposes. The net book value of the equipment has been removed from the balance sheet and the excess of funding over such net book value has been deferred and is being amortized as a reduction of lease expense over the maximum lease term of five years. Rentals on these transactions total $3,071,000 annually. In connection with the acquisition of Forasol, the Company assumed capital lease obligations pursuant to a sale and leaseback agreement of three tender-assisted rigs. The obligations are payable in semi-annual installments through October 2002, and bear interest at 7.67%. In October 1997, the lease was expanded by $11,000,000 in respect of the financing of a new derrick set for a tender-assisted rig. The additional obligation is repayable in semi-annual installments through October 2002, and bears interest at 7.80%. Future maturities of capital lease obligations are as follows: AMOUNT -------------- (IN THOUSANDS) 1998................................. $ 11,201 1999................................. 11,201 2000................................. 11,201 2001................................. 11,200 2002................................. 11,200 Thereafter........................... 1,427 -------------- 57,430 Less amounts representing interest... (10,819) -------------- 46,611 Current portion of long-term lease obligations........................ 10,336 -------------- Long-term lease obligations, net of current portion............ $ 36,275 ============== Rental expense for operating leases for equipment, vehicles and various facilities of the Company for the years ended December 31, 1997, 1996 and 1995 was $26,760,000, $19,449,000 and $9,503,000, respectively. 34 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. INCOME TAXES The components of the income tax provision were as follows: YEAR ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 --------- --------- --------- (IN THOUSANDS) United States: Federal: Current.................... $ 27,221 $ (243) $ 1,650 Deferred................... 6,427 2,762 3,616 --------- --------- --------- Total -- Federal...... 33,648 2,519 5,266 --------- --------- --------- State: Current.................... 1,601 (14) 89 Deferred................... 378 203 201 --------- --------- --------- Total -- State 1,979 189 290 --------- --------- --------- Total -- United States.............. 35,627 2,708 5,556 --------- --------- --------- Foreign: Current......................... 9,125 2,466 723 Deferred........................ 6,887 2,917 785 --------- --------- --------- Total Foreign......... 16,012 5,383 1,508 --------- --------- --------- Income tax provision..... $ 51,639 $ 8,091 $ 7,064 ========= ========= ========= The difference between the effective federal income tax rate reflected in the income tax provision and the amounts which would be determined by applying the statutory federal tax rate to earnings before income taxes is summarized as follows: YEAR ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 --------- --------- --------- U.S. statutory rate.................. 35.0% 34.0% 34.0% Foreign.............................. (3.1) (8.0) (7.1) State and local taxes................ 1.3 0.6 1.3 Other................................ -- (0.3) 3.3 --------- --------- --------- Effective tax rate......... 33.2% 26.3% 31.5% ========= ========= ========= The domestic and foreign components of earnings before income taxes were as follows: YEAR ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 ---------- --------- --------- (IN THOUSANDS) Domestic............................. $ 96,560 $ 8,076 $ 13,302 Foreign.............................. 59,074 22,743 9,121 ---------- --------- --------- Earnings before income taxes................... $ 155,634 $ 30,819 $ 22,423 ========== ========= ========= 35 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax liabilities and deferred tax assets as of December 31, 1997 and 1996 were as follows: DECEMBER 31, -------------------- 1997 1996 --------- --------- Deferred tax liabilities: Depreciation.................... $ 71,524 $ 50,704 Other........................... 2,792 2,085 --------- --------- Total deferred tax liabilities............. 74,316 52,789 --------- --------- Deferred tax assets: Foreign net operating loss carryforwards................. (8,256) (3,883) Insurance claims................ (318) (461) Other........................... (1,930) (3,291) --------- --------- Total deferred tax assets.................. (10,504) (7,635) Valuation allowance for deferred tax assets.................... 6,249 506 --------- --------- Net deferred tax assets.... (4,255) (7,129) --------- --------- Net deferred tax liability............... $ 70,061 $ 45,660 ========= ========= The Company has recognized a valuation allowance as of December 31, 1997 and 1996 for certain foreign net operating loss carryforwards due to uncertainties regarding the Company's ability to realize such tax benefits. The change in the valuation allowance is the result of such additional allowance. Applicable U.S. income taxes have not been provided on approximately $71,400,000 of undistributed earnings of the Company's foreign subsidiaries. The Company considers such earnings to be permanently invested outside the U.S. These earnings could be subject to U.S. income tax if distributed to the Company as dividends or otherwise. The Company anticipates that foreign tax credits would substantially reduce the amount of U.S. income tax that would be payable if these earnings were to be repatriated. 8. NET EARNINGS PER SHARE In 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share"("SFAS No. 128"). Accordingly, earnings per share in the consolidated financial statements has been restated for all periods presented to comply with the requirements of SFAS No. 128. In accordance with SFAS No. 128, basic net earnings per share has been computed based on the weighted average number of shares of common stock outstanding during the applicable period. Diluted net earnings per share has been computed based on the weighted average number of shares of common stock and common stock equivalents outstanding during the period, as if the convertible subordinated debentures were converted into common stock on the date of sale, after giving retroactive effect to the elimination of interest expense, net of income tax effect, applicable to the convertible subordinated debentures. 36 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table presents information necessary to calculate basic and diluted net earnings per share: YEAR ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 ---------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net earnings (numerator)............. $ 103,995 $ 22,728 $ 15,359 Interest expense on convertible subordinated debentures............ 3,700 4,955 -- Income tax effect.................... (1,335) (1,784) -- ---------- --------- --------- Adjusted net earnings (numerator)................... $ 106,360 $ 25,899 $ 15,359 ========== ========= ========= Weighted average shares outstanding (denominator)...................... 43,036 26,719 24,551 Convertible subordinated debentures......................... 4,779 6,106 -- Stock options and warrants........... 1,328 932 577 ---------- --------- --------- Adjusted weighted average shares outstanding (denominator)..... 49,143 33,757 25,128 ========== ========= ========= Basic earnings per share... $ 2.42 $ .85 $ .63 ========== ========= ========= Diluted earnings per share................... $ 2.16 $ .77 $ .61 ========== ========= ========= 9. EMPLOYEE BENEFITS The Company has a salary deferral plan covering its employees whereby employees may elect to contribute up to 15% of their annual compensation. The Company may at its discretion make matching contributions with respect to an employee's salary contribution of up to $1,000 or 6.00% of compensation, whichever is less. The Company made matching contributions to the plan for the years ended December 31, 1997, 1996, and 1995 totaling $817,000, $219,000, and $229,000, respectively. In 1993, the Company established a deferred compensation plan providing officers and key employees with the opportunity to participate in an unfunded deferred compensation program titled the "401(k) Restoration Plan." The 401(k) Restoration Plan is a non-qualified plan which allows certain employees to defer up to 100% of base compensation and bonuses earned. 10. SHAREHOLDERS' EQUITY COMMON STOCK In July 1996, the Company completed the public sale of 3,450,000 shares of common stock, which resulted in net proceeds to the Company of approximately $45,641,000. Approximately $20,200,000 of such net proceeds was used to repay outstanding indebtedness, approximately $12,000,000 was used to finance the construction of two platform rigs for the Company's offshore fleet and approximately $7,000,000 was used to fund various capital projects for Quitral-Co, including rig upgrades and expansion of its rig transportation fleet. The balance of the net proceeds, $6,441,000, was used for general working capital needs of the Company. In May 1997, concurrently with the issuance of the Senior Notes, the Company also sold 4,391,505 shares of common stock in a public offering. Net proceeds from the public sale of common stock totaled approximately $70,881,000, after deducting underwriting discounts and estimated offering expenses. Of such net proceeds, approximately $45,000,000 was used to repay the balance outstanding under the Credit Facility and approximately $5,000,000 was used to repay certain other indebtedness. The balance of the proceeds from the offerings was used for general corporate purposes, including capital projects. 37 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In November 1997, the Company sold 2,865,000 shares of common stock in a public offering. Net proceeds from the public sale of common stock were approximately $97,000,000 after deducting underwriting discounts and estimated offering expenses. The Company used approximately $40,000,000 of such net proceeds to repay certain indebtedness, including $25,000,000 to repay borrowings under the Credit Facility, $30,000,000 of such net proceeds to fund the construction of three land rigs to be deployed in Venezuela and the balance for general corporate purposes. STOCK OPTION PLANS The Company has a Long-Term Incentive Plan which provides for the granting or awarding of stock options, restricted stock, stock appreciation rights and stock indemnification rights to officers and other key employees. The number of shares authorized and reserved for issuance under the Long-Term Incentive Plan is limited to 13.00% of total issued and outstanding shares, subject to adjustment in the event of certain changes in the Company's corporate structure or capital stock. Stock options may be exercised in whole or in part beginning six months after termination of employment or one year after retirement, total disability or death of an employee. In 1993, the shareholders of the Company approved and ratified the 1993 Directors' Stock Option Plan. The purpose of the plan is to afford the Company's directors who are not full-time employees of the Company or any subsidiary of the Company an opportunity to acquire a greater proprietary interest in the Company. A maximum of 200,000 shares of the Company's common stock is to be available for purchase upon the exercise of options granted pursuant to the 1993 Directors' Stock Option Plan. The exercise price of options is the fair market value per share on the date the option is granted. Directors' stock options vest over two years at the rate of 50% per year and expire ten years from date of grant. Stock option transactions pursuant to the Long-Term Incentive Plan and the 1993 Directors' Stock Option Plan for the last three years are summarized as follows:
LONG-TERM INCENTIVE PLAN 1993 DIRECTORS' PLAN ------------------------------ ----------------------------- PRICE SHARES PRICE SHARES ----------------- ----------- ------------------ --------- Outstanding as of December 31, 1994...... 1,926,350 39,000 Granted.............. $6.875 483,000 $8.375 - $9.125 19,000 Exercised............ $2.25 - $6.875 (256,000) -- -- ----------- --------- Outstanding as of December 31, 1995...... 2,153,350 58,000 Granted.............. $9.125 - $14.125 924,000 $17.875 12,000 Exercised............ $2.25 - $6.875 (255,200) -- -- ----------- --------- Outstanding as of December 31, 1996...... 2,822,150 70,000 Granted.............. $17.25 - $22.75 1,849,200 $19.875 - $20.625 32,000 Exercised............ $2.25 - $14.125 (883,479) -- -- ----------- --------- Outstanding as of December 31, 1997...... 3,787,871 102,000 =========== ========= Exercisable as of December 31, 1997...... 2,431,449 64,000 =========== =========
The weighted average fair values per share of options granted during the years ended December 31, 1997, 1996 and 1995 were $8.60 and $5.12 and $3.05, respectively. The fair values were estimated using the Black-Scholes option-pricing model with the following weighted average assumptions for each of the three years in the period ended December 31, 1997: dividend yield of 0.00%; volatility of approximately 37.00% for all years; risk free rate of interest ranging from 6.35% to 6.56%, 5.27% to 6.90% and 5.24% to 6.89%, respectively; and an expected term of five years for all years. 38 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes information on stock options outstanding and exercisable as of December 31, 1997 pursuant to the Long-term Incentive Plan:
OPTIONS OUTSTANDING ------------------------------------------- WGTD. AVG. OPTIONS EXERCISABLE REMAINING ----------------------------- RANGE OF SHARES CONTR. WGTD. AVG. SHARES WGTD. AVG. EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - ------------------ ----------- ---------- -------------- ----------- -------------- $2.25 - $ 5.00.... 394,750 1.40 $ 2.57 394,750 $ 2.57 $5.01 - $ 7.00.... 1,421,353 7.22 $ 7.44 1,294,071 $ 7.31 $7.01 - $22.75.... 1,971,768 9.23 $19.98 742,628 $18.06 ----------- ----------- $2.25 - $22.75.... 3,787,871 7.66 $13.48 2,431,449 $ 9.83 =========== ===========
The following table summarizes information on stock options outstanding and exercisable as of December 31, 1997 pursuant to the 1993 Directors' Stock Option Plan:
OPTIONS OUTSTANDING ------------------------------------------- WGTD. AVG. OPTIONS EXERCISABLE REMAINING ----------------------------- RANGE OF SHARES CONTR. WGTD. AVG. SHARES WGTD. AVG. EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - ------------------ ----------- ---------- -------------- ----------- -------------- $ 4.25 - $10.00... 58,000 6.25 $ 6.28 58,000 $ 6.28 $10.01 - $20.623......... 44,000 9.02 $19.53 6,000 $17.88 ----------- ----------- $ 4.25 - $20.623......... 102,000 7.45 $12.00 64,000 $ 7.37 =========== ===========
If the fair value based method of accounting prescribed by SFAS No. 123 had been applied, the Company's net earnings and earnings per share would approximate the pro forma amounts indicated below. The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. YEAR ENDED DECEMBER 31, -------------------- 1997 1996 --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Pro forma net earnings............... $ 97,424 $ 20,658 Pro forma net earnings per share Basic........................... $ 2.26 $ .77 Diluted......................... $ 2.03 $ .71 11. COMMITMENTS AND CONTINGENCIES The Company is from time to time involved in litigation incidental to its business, which at times involves claims for significant monetary amounts, some of which would not be covered by insurance. In the opinion of management, none of the Company's existing litigation should have any material adverse effect on the Company's financial position or results of operations. The Company's international land rigs are insured, with deductibles of generally $25,000 per occurrence. Nineteen of the Company's 23 offshore platform rigs and all of its other offshore rigs are insured with deductibles of $50,000 and $150,000, respectively. Presently, the Company has insurance deductibles of $100,000 for general liability claims. The Company maintains statutory insurance coverages on its offshore platform rig workers and its maritime employees, with deductibles of up to $50,000 per occurrence. Coverages with respect to foreign operations for workers' compensation and automobile claims are subject to deductibles of generally $40,000 to $100,000 per occurrence. As of December 31, 1997 and 1996, the Company had accrued approximately $4,643,000 and $4,853,000, respectively, for estimated claims liabilities, of which $3,746,000 and $3,713,000, respectively, was included in current liabilities and $897,000 and $1,140,000, respectively, was included in other long- 39 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) term liabilities in the accompanying consolidated balance sheet. As of December 31, 1997, the Company had letters of credit outstanding totaling $8,330,000. These letters of credit principally guarantee the funding of the Company's share of insured claims. During 1997, the Company entered into a joint venture to construct, own and operate an ultra-deepwater drillship currently under construction in South Korea. The drillship is contracted to work offshore Angola for a term of five years. It is anticipated that the drillship will commence operations in mid- 1999. Subsequent to December 31, 1997, the joint venture entered into a financing arrangement with a group of banks providing that, upon delivery of the drillship, approximately 80% of the drillship's estimated construction cost of $235 million will be provided by loans that are without recourse to the joint venture participants. The Company estimates that its total equity investment in the project will be approximately $12 million, which will represent a 51% ownership interest. Also during 1997, a newly organized special purpose subsidiary of the Company agreed to participate in joint ventures to construct, own and operate six Amethyst-class dynamically positioned semisubmersible drilling rigs. The rigs will be operated under charter and service contracts with initial terms of six to eight years. The total estimated cost to construct, equip and mobilize the six rigs is approximately $1 billion, approximately 90% of which is expected to be provided from the proceeds of project finance obligations of the ventures without recourse to the joint venture participants. Delivery of the rigs is expected during late 1999 and 2000. The Company estimates that its total equity investment in the project will be approximately $30 million, which will represent a 30% ownership interest. 12. SUPPLEMENTAL FINANCIAL INFORMATION OTHER CURRENT ASSETS Other current assets as of December 31, 1997 and 1996 consisted of the following: DECEMBER 31, -------------------- 1997 1996 --------- --------- (IN THOUSANDS) Other receivables.................... $ 21,376 $ 7,743 Prepaid expenses..................... 14,315 8,943 --------- --------- Total other current assets...... $ 35,691 $ 16,686 ========= ========= GOODWILL AND OTHER INTANGIBLES Goodwill and other intangibles as of December 31, 1997 and 1996 consisted of the following: DECEMBER 31, -------------------- 1997 1996 --------- --------- (IN THOUSANDS) Goodwill............................. $ 2,944 $ 2,944 Other intangibles.................... 1,373 2,097 --------- --------- 4,317 5,041 Accumulated amortization............. (694) (1,907) --------- --------- Total goodwill and other intangibles................... $ 3,623 $ 3,134 ========= ========= Amortization expense amounted to $198,000, $198,000 and $196,000 for the years ended December 31, 1997, 1996 and 1995, respectively. 40 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) OTHER ASSETS Other assets as of December 31, 1997 and 1996 consisted of the following: DECEMBER 31, -------------------- 1997 1996 --------- --------- (IN THOUSANDS) Prepaid expenses..................... $ 1,156 $ 3,898 Deferred financing costs............. 9,014 1,449 Mobilization costs................... 5,974 -- Other................................ 6,785 1,925 --------- --------- Total other assets.............. $ 22,929 $ 7,272 ========= ========= ACCRUED EXPENSES Accrued expenses as of December 31, 1997 and 1996 consisted of the following: DECEMBER 31, -------------------- 1997 1996 --------- --------- (IN THOUSANDS) Insurance............................ $ 3,872 $ 3,713 Payroll.............................. 5,504 7,019 Taxes, other than income............. 10,537 8,826 Foreign social benefits.............. 30,707 3,073 Other................................ 7,792 3,154 --------- --------- Total accrued expenses.......... $ 58,412 $ 25,785 ========= ========= OTHER LONG-TERM LIABILITIES Other long-term liabilities as of December 31, 1997 and 1996 consisted of the following: DECEMBER 31, -------------------- 1997 1996 --------- --------- (IN THOUSANDS) Foreign social benefits.............. $ 25,210 $ 9,502 Insurance............................ 897 1,140 Deferred compensation................ 2,583 1,142 Deferred lease benefit............... 221 350 --------- --------- Total other long-term liabilities................... $ 28,911 $ 12,134 ========= ========= OPERATING EXPENSES Operating expenses for the years ended December 31, 1997 and 1996 include gains on insurance recoveries from damaged or destroyed rigs of $1,800,000 and $1,085,000, respectively. There were no insurance recoveries during the year ended December 31, 1995. OTHER INCOME Other income for the years ended December 31, 1997 included a gain of $83,553,000 as a result of the sale of substantially all of the Company's assets used in its U.S. land-based well servicing operations. Foreign exchange transaction (gains) losses included in other income were $(3,736,000), $437,000 and $142,000 for the years ended December 31, 1997, 1996 and 1995, respectively. 41 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CASH FLOW INFORMATION Cash paid (received) for interest and income taxes during the years ended December 31, 1997, 1996, and 1995 was as follows: YEAR ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 --------- --------- --------- (IN THOUSANDS) Cash paid (received) during the year for: Interest, net of amounts capitalized................... $ 32,810 $ 11,220 $ 4,316 Income taxes -- U.S. ........... 34,117 (472) 500 Income taxes -- foreign......... 8,433 5,844 16 13. FINANCIAL DATA OF DOMESTIC AND INTERNATIONAL OPERATIONS The following table sets forth certain consolidated information with respect to the Company and its subsidiaries by operating segment:
UNITED STATES INTERNATIONAL --------------------- --------------------- LAND OFFSHORE LAND OFFSHORE TOTAL -------- --------- -------- --------- ---------- (IN THOUSANDS) 1997 - ------------------------------------- Revenues............................. $ 16,485 $ 135,281 $385,590 $ 162,432 $ 699,788 Earnings from operations............. 519 40,965 42,500 24,401 108,385 Identifiable assets.................. 1,503 395,598 687,789 456,611 1,541,501 Capital expenditures, including acquisitions....................... 8,465 330,252 132,729 418,538 889,984 Depreciation and amortization........ 818 13,076 33,801 10,966 58,661 1996 - ------------------------------------- Revenues............................. $117,142 $ 57,450 $218,562 $ 14,020 $ 407,174 Earnings from operations............. 7,808 6,983 23,372 1,979 40,142 Identifiable assets.................. 94,559 61,251 331,462 54,790 542,062 Capital expenditures, including acquisitions....................... 8,666 18,618 211,834 17 239,135 Depreciation and amortization........ 5,738 3,665 12,677 6,985 29,065 1995 - ------------------------------------- Revenues............................. $113,115 $ 49,595 $100,889 $ -- $ 263,599 Earnings from operations............. 7,906 6,785 12,630 -- 27,321 Identifiable assets.................. 77,243 50,978 129,384 -- 257,605 Capital expenditures, including acquisitions....................... 14,502 15,066 28,940 -- 58,508 Depreciation and amortization........ 5,578 3,091 7,988 -- 16,657
42 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth certain information with respect to the Company and its subsidiaries by geographic area:
NORTH SOUTH OTHER AMERICA AMERICA INTERNATIONAL TOTAL -------- -------- -------------- ----------- (IN THOUSANDS) 1997 - ------------------------------------- Revenues............................. $151,766 $451,693 $ 96,329 $ 699,788 Earnings from operations............. 41,484 53,302 13,599 108,385 Identifiable assets.................. 397,101 720,126 424,274 1,541,501 Capital expenditures, including acquisitions....................... 338,717 119,932 419,366 878,015 Depreciation and amortization........ 13,894 34,478 10,289 58,661 1996 - ------------------------------------- Revenues............................. $174,592 $231,038 $ 1,544 $ 407,174 Earnings from operations............. 14,791 25,799 (448) 40,142 Identifiable assets.................. 155,810 384,165 2,087 542,062 Capital expenditures, including acquisitions....................... 27,284 211,851 -- 239,135 Depreciation and amortization........ 9,403 19,394 268 29,065 1995 - ------------------------------------- Revenues............................. $162,710 $ 98,382 $ 2,507 $ 263,599 Earnings from operations............. 14,691 12,448 182 27,321 Identifiable assets.................. 128,221 125,939 3,445 257,605 Capital expenditures, including acquisitions....................... 29,568 28,940 -- 58,508 Depreciation and amortization........ 8,669 7,611 377 16,657
SIGNIFICANT CUSTOMERS One customer accounted for approximately 14% of consolidated revenues for the year ended December 31, 1997 and one customer accounted for approximately 16% and 17% of consolidated revenues for the years ended December 31, 1996 and 1995, respectively. Another customer accounted for approximately 54% of revenues from domestic offshore operations during 1995. Revenues from such customer and its affiliates from both land and offshore operations accounted for approximately 13% of consolidated revenues during such period. 43 PRIDE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Summarized quarterly financial data for the years ended December 31, 1997 and 1996 were as follows:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 Revenues............................. $131,376 $174,537 $182,908 $210,967 Earnings from operations............. 15,198 26,899 29,947 36,341 Net earnings......................... 57,494 13,053 14,032 19,416 Net earnings per share Basic........................... 1.82 .29 .30 .40 Diluted......................... 1.49 .27 .28 .37 Weighted average shares outstanding Basic........................... 31,569 44,884 46,809 48,652 Diluted......................... 39,046 50,293 52,621 54,358 1996 Revenues............................. $ 66,235 $101,989 $115,369 $123,581 Earnings from operations............. 5,358 9,361 11,971 13,452 Net earnings......................... 2,780 4,795 6,879 8,274 Net earnings per share Basic........................... .11 .19 .24 .29 Diluted......................... .11 .17 .22 .25 Weighted average shares outstanding Basic........................... 24,846 25,038 28,438 28,516 Diluted......................... 30,345 32,599 35,913 36,124
44 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with the Company's independent accountants regarding accounting and financial disclosure matters. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference to the Company's definitive proxy statement, which is to be filed with the Commission pursuant to the Exchange Act within 120 days of the end of the Company's fiscal year on December 31, 1997. Certain information with respect to the executive officers of the Company is set forth under the caption "Executive Officers of the Registrant" in Part I of the report. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the Company's definitive proxy statement, which is to be filed with the Commission pursuant to the Exchange Act within 120 days of the end of the Company's fiscal year on December 31, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to the Company's definitive proxy statement, which is to be filed with the Commission pursuant to the Exchange Act within 120 days of the end of the Company's fiscal year on December 31, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to the Company's definitive proxy statement, which is to be filed with the Commission pursuant to the Exchange Act within 120 days of the end of the Company's fiscal year on December 31, 1997. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are included as part of this report: (1) Financial Statements: PAGE ---- Report of Independent Accountants ....................... 21 Consolidated Balance Sheet -- December 31, 1997 and 1996 22 Consolidated Statement of Operations -- Years ended December 31, 1997, 1996 and 1995 ..................... 23 Consolidated Statement of Changes in Shareholders' Equity -- Years ended December 31, 1997, 1996 and 1995 24 Consolidated Statement of Cash Flows -- Years ended December 31, 1997, 1996 and 1995 ......... 25 Notes to Consolidated Financial Statements ............. 26 (2) Consolidated Financial Statement Schedules: All financial statement schedules have been omitted because they are not applicable or not required, or the information required thereby is included in the consolidated financial statements or the notes thereto included in this report. 45 (3) Exhibits:
EXHIBIT NO. DESCRIPTION - ------------------------ ------------------------------------------------------------------------------------------ 3.1 -- Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 0-16961). 3.2 -- Amendment to Restated Articles of Incorporation (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 0-16961). 3.3 -- Amendment to Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 0-16961). 3.4 -- Amendment to Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 dated September 8, 1997, Registration No. 333-35089). 3.5 -- Bylaws of the Company, as amended (incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-8 dated September 8, 1997, Registration No. 333-35089). 4.1 -- Form of Common Stock Certificate (incorporated by reference to Exhibit 4(b) to the Company's Registration Statement on Form S-1 dated January 29, 1990, Registration No. 33-33233). 4.2 -- Sale and Financing Contract for Lake Maracaibo Drilling Barge dated November 30, 1994, by and between Perforaciones Western, C.A., Nittetsu Shoji Co., Ltd. and Marubeni Corporation (incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-16961). 4.3 -- Supplemental, Amended and Restated Agented Multiple Lender Loan Agreement dated February 9, 1995, by and between Pride Offshore, Inc., the Company and First National Bank of Commerce, The CIT Group/Equipment Financing, Inc., Argent Bank (incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-16961). 4.4 -- Indenture dated as of January 26, 1996 by and between the Company and Marine Midland Bank, as Trustee, relating to $80,500,000 principal amount of 6 1/4% Convertible Subordinate Debentures due 2006 (incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 0-16961). 4.5 -- Loan Agreement dated as of April 30, 1996 among The CIT Group/Equipment Financing, Inc., as agent, The CIT Group/Equipment Financing, Inc. and The Frost National Bank, as borrowers, and the Company, Pride Petroleum Services of California, Inc. and Pride Petroleum Services of Louisiana, Inc. (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-3 dated June 4, 1996, Registration No. 333-05137). 4.6 -- Loan Agreement dated as of April 30, 1996 among Heller Financial Inc., the Company, Pride Petroleum Services of California, Inc. and Pride Petroleum Services of Louisiana, Inc. (incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-3 dated June 4, 1996, Registration No. 333-05137). 4.7 -- Credit Agreement dated as of March 6, 1997 among the Company, each of the banks that are or may be a party thereto, First National Bank of Commerce, as arranger and syndication agent, and Wells Fargo Bank (Texas), National Association, as administrative and documentation agent (incorporated by reference to Exhibit 4.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 0-16961). 46 EXHIBIT NO. DESCRIPTION - ------------------------ ------------------------------------------------------------------------------------------ *4.8 -- Amended and Restated Credit Agreement dated as of December 22, 1997 among the Company, each of the banks that are or may be a party thereto, First National Bank of Commerce, as arranger and syndication agent, and Wells Fargo Bank (Texas), National Association, as administrative agent and documentation agent. 4.9 -- Indenture, dated as of May 1, 1997, by and between the Company and The Chase Manhattan Bank, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File No. 0-16961). 4.10 -- First Supplemental Indenture, dated as of May 1, 1997, by and between the Company and The Chase Manhattan Bank, as trustee, relating to $325,000,000 principal amount of 9 3/8% Senior Notes due 2007 (incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File No. 0-16961). The Company is a party to several debt instruments under which the total amount of securities authorized does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(a) of Item 601(b) of Regulation S-K, the Company agrees to furnish a copy of such instruments to the Commission upon request. +10.1 -- Form of Indemnity Agreement between the Company and certain executive officers and directors (incorporated by reference to Exhibit 10(g) to the Company's Registration Statement on Form S-1 dated January 29, 1990, Registration No. 33-33233). +10.2 -- Pride International, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 4A to the Company's Registration Statement on Form S-8 dated February 6, 1989, Registration No. 33-26854). +10.3 -- First Amendment to Pride International, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form S-8 dated September 8, 1997, Registration No. 333-35089). +10.4 -- Second Amendment to Pride International, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 4.8 to the Company's Registration Statement on Form S-8 dated September 8, 1997, Registration No. 333-35089). *+10.5 -- Third Amendment to Pride International, Inc. Long-Term Incentive Plan. +10.6 -- Pride Petroleum Services, Inc. Salary Deferral Plan (incorporated by reference to Exhibit 10(I) to the Company's Registration Statement on Form S-1 dated January 29, 1990, Registration No. 33-33233). +10.7 -- Summary of Pride Petroleum Services, Inc. Group Life Insurance and Accidental Death and Dismemberment Insurance (incorporated by reference to Exhibit 10(j) to the Company's Registration Statement on Form S-1 dated January 29, 1990, Registration No. 33-33233). +10.8 -- Pride International, Inc. 1993 Directors' Stock Option Plan (incorporated by reference to Exhibit 10(j) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, File No. 0-16961). +10.9 -- First Amendment to Pride International, Inc. 1993 Directors' Stock Option Plan (incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form S-8 dated September 8, 1997, Registration No. 333-35093). *+10.10 -- Second Amendment to Pride International, Inc. 1993 Directors' Stock Option Plan. *+10.11 -- Third Amendment to Pride International, Inc. 1993 Directors' Stock Option Plan. +10.12 -- Pride Petroleum Services, Inc. 401(k) Restoration Plan (incorporated by reference to Exhibit 10(k) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 0-16961). +10.13 -- Pride Petroleum Services, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 filed June 26, 1996, Registration No. 333-06825). *+10.14 -- First Amendment to Pride International, Inc. Employee Stock Purchase Plan. *+10.15 -- Pride International, Inc. Supplemental Executive Retirement Plan. 47 EXHIBIT NO. DESCRIPTION - ------------------------ ------------------------------------------------------------------------------------------ *+10.16 -- First Amendment to Pride International, Inc. Supplemental Executive Retirement Plan. *+10.17 -- Second Amendment to Pride International, Inc. Supplemental Executive Retirement Plan. 10.18 -- Well Drilling and/or Reconditioning Agreement dated May 1, 1994, by and between Lagoven, S.A. and Perforaciones Western, C.A. (incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-16961). +10.19 -- Employment/Non-Competition/Confidentiality Agreement dated August 26, 1994, between the Company and Ray H. Tolson (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1994, File No. 0-16961). +10.20 -- Employment/Non-Competition/Confidentiality Agreement dated August 26, 1994, between the Company and Paul A. Bragg (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1994, File No. 0-16961). +10.21 -- Employment/Non-Competition/Confidentiality Agreement dated August 26, 1994, between the Company and James W. Allen (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1994, File No. 0-16961). *+10.22 -- Employment/Non-Competition/Confidentiality Agreement dated October 1,1997, between the Company and Steven R. Tolson. *+10.23 -- Employment/Non-Competition/Confidentiality Agreement dated October 1,1997, between the Company and Robert W. Randall. *+10.24 -- Employment/Non-Competition/Confidentiality Agreement dated October 1,1997, between the Company and Earl W. McNiel. 10.25 -- Stock Purchase Agreement dated April 30, 1996 among the Company, Perez Company S.A., Astra C.A.P.S.A. and others (incorporated by reference to Exhibit 2 to the Company's Current Report on Form 8-K filed May 15, 1996, File No. 0-16961). 10.26 -- Purchase Agreement, dated as of December 23, 1996, by and between the Company and Dawson Production Services, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed March 7, 1997, File No. 0-16961). 10.27 -- First Amendment to Purchase Agreement, dated as of February 20, 1997, by and between the Company and Dawson Production Services, Inc. (incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed March 7, 1997, File No. 0-16961). 10.28 -- Purchase Agreement dated as of December 16, 1996 by and among the Company, Forasol-Former N.V. and certain shareholders of Forasol-Foramer N.V. (incorporated by reference to Appendix A of the Company's Proxy Statement/Prospectus dated January 31, 1997, File No. 0-16961). 10.29 -- Asset Purchase Agreement dated as of February 19, 1997 by and between the Company and Noble Drilling Corporation, Noble Drilling (U.S.) Inc., Noble Offshore Corporation, Noble Drilling (Mexico) Inc. and NN-1 Limited Partnership (incorporated by reference to Exhibit 10.19 of the Company's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 0-16961). 10.30 -- First Amendment to Asset Purchase Agreement, dated as of May 7, 1997, by and among Noble Drilling Corporation, Noble Drilling (U.S.) Inc., Noble Offshore Corporation, Noble Drilling (Mexico) Inc., NN-1 Limited Partnership and Mexico Drilling Partners Inc., and Pride Petroleum Services, Inc., Pride Offshore, Inc. and Forasol S.A. (incorporated by reference to Exhibit 2.2 of the Company's Current Report on Form 8-K dated May 22, 1997, File No. 0-16961). *21 -- Subsidiaries of the Company. *22 -- Consent of Coopers & Lybrand L.L.P. *27 -- Financial Data Schedule.
48 - ------------ * Filed herewith. + Compensatory plan or arrangement (b) Reports on Form 8-K In a current Report on Form 8-K filed on November 7, 1997, the Company announced that it had completed the sale of 2,865,000 shares of common stock to the public. 49 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, in the City of Houston, State of Texas, on March 16, 1998. PRIDE INTERNATIONAL, INC. By: /s/ RAY H. TOLSON RAY H. TOLSON CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on March 16, 1998. SIGNATURE TITLE - -------------------------------------------------------------------------- /s/RAY H. TOLSON Chairman of the Board, Chief RAY H. TOLSON Executive Officer and Director (PRINCIPAL EXECUTIVE OFFICER) /s/PAUL A. BRAGG President and Chief Operating Officer PAUL A. BRAGG (PRINCIPAL EXECUTIVE OFFICER) /s/EARL W. MCNIEL Vice President and Chief Financial EARL W. MCNIEL Officer (PRINCIPAL FINANCIAL OFFICER) /s/M. TERRY MAY Chief Accounting Officer M. TERRY MAY (PRINCIPAL ACCOUNTING OFFICER) /s/CHRISTIAN J. BOON FALLEUR Director CHRISTIAN J. BOON FALLEUR /s/JAMES B. CLEMENT Director JAMES B. CLEMENT /s/REMI DORVAL Director REMI DORVAL /s/JORGE E. ESTRADA M. Director JORGE E. ESTRADA M. /s/RALPH D. MCBRIDE Director RALPH D. MCBRIDE /s/THOMAS H. ROBERTS, JR. Director THOMAS H. ROBERTS, JR. /s/JAMES T. SNEED Director JAMES T. SNEED 50 EX-4.8 2 EXHIBIT 4.8 ***************************************************************************** CREDIT AGREEMENT Dated as of December 22, 1997 among PETROLEUM SUPPLY COMPANY, PRIDE INTERNATIONAL HOLDINGS, INC. RANGER WELL SERVICE, INC., PRIDE OFFSHORE, INC., RANGER CORPORATION, as Borrowers, PRIDE INTERNATIONAL, INC., as Guarantor, FIRST NATIONAL BANK OF COMMERCE, as Arranger and Syndication Agent, and WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, as Administrative and Documentation Agent $100,000,000 OF CREDIT FACILITIES ************************************************************************** TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS................................ 2 Section 1.1 DEFINITIONS................................................ 2 Section 1.2 OTHER DEFINITIONAL PROVISIONS.............................. 22 ARTICLE II ADVANCES.................................. 22 Section 2.1 ADVANCES................................................... 22 Section 2.2 NOTES...................................................... 23 Section 2.3 REPAYMENT OF ADVANCES...................................... 23 Section 2.4 INTEREST................................................... 23 Section 2.5 BORROWING PROCEDURE........................................ 24 Section 2.6 CONVERSIONS AND CONTINUATIONS.............................. 24 Section 2.7 USE OF PROCEEDS............................................ 25 Section 2.8 COMMITMENT FEE............................................. 25 Section 2.9 VOLUNTARY REDUCTION OR TERMINATION OF COMMITMENTS.......... 25 Section 2.10 MANDATORY PRINCIPAL PAYMENTS............................... 26 Section 2.11 ADMINISTRATIVE FEE......................................... 26 Section 2.12 CO-BORROWERS; JOINT AND SEVERAL LIABILITY.................. 26 ARTICLE III LETTERS OF CREDIT............................. 31 Section 3.1 LETTERS OF CREDIT.......................................... 31 Section 3.2 PROCEDURE FOR ISSUING LETTERS OF CREDIT.................... 31 Section 3.3 PARTICIPATION BY LENDERS................................... 32 Section 3.4 PAYMENTS CONSTITUTE ADVANCES AND PARENT REIMBURSEMENT OBLIGATIONS................................................ 32 Section 3.5 LETTER OF CREDIT FEE....................................... 32 Section 3.6 ISSUER'S RESPONSIBILITIES.................................. 33 Section 3.7 LETTER OF CREDIT DOCUMENTS................................. 34 ARTICLE IV PAYMENTS.................................. 34 Section 4.1 METHOD OF PAYMENT.......................................... 34 Section 4.2 VOLUNTARY PREPAYMENT....................................... 34 -i- TABLE OF CONTENTS (continued) PAGE Section 4.3 MANDATORY PREPAYMENT....................................... 34 Section 4.4 PRO RATA TREATMENT......................................... 35 Section 4.5 NON-RECEIPT OF FUNDS....................................... 35 Section 4.6 WITHHOLDING TAXES.......................................... 35 Section 4.7 WITHHOLDING TAX EXEMPTION.................................. 36 Section 4.8 AUTOMATIC PAYMENT.......................................... 36 ARTICLE V YIELD PROTECTION; LIMITATIONS ON ADVANCES; CAPITAL ADEQUACY........ 37 Section 5.1 ADDITIONAL COSTS........................................... 37 Section 5.2 LIMITATION ON TYPES OF ADVANCES............................ 38 Section 5.3 ILLEGALITY................................................. 39 Section 5.4 SUBSTITUTE BASE RATE ADVANCES.............................. 39 Section 5.5 COMPENSATION............................................... 39 Section 5.6 CAPITAL ADEQUACY........................................... 40 Section 5.7 ADDITIONAL COSTS IN RESPECT OF LETTERS OF CREDIT........... 40 ARTICLE VI SECURITY.................................. 41 Section 6.1 COLLATERAL................................................. 41 Section 6.2 FURTHER ASSURANCES......................................... 42 Section 6.3 EXISTING LIENS TO CONTINUE................................. 42 Section 6.4 SETOFF..................................................... 42 Section 6.5 OTHER SUBSIDIARIES......................................... 42 ARTICLE VII CONDITIONS PRECEDENT............................ 43 Section 7.1 INITIAL EXTENSION OF CREDIT................................ 43 Section 7.2 ALL EXTENSIONS OF CREDIT................................... 46 ARTICLE VIII REPRESENTATIONS AND WARRANTIES....................... 46 Section 8.1 EXISTENCE AND AUTHORITY.................................... 46 Section 8.2 FINANCIAL STATEMENTS....................................... 46 -ii- TABLE OF CONTENTS (continued) PAGE Section 8.3 CORPORATE ACTION; NO BREACH................................ 47 Section 8.4 OPERATION OF BUSINESS...................................... 47 Section 8.5 LITIGATION AND JUDGMENTS................................... 47 Section 8.6 RIGHTS IN PROPERTIES; LIENS................................ 47 Section 8.7 ENFORCEABILITY............................................. 48 Section 8.8 APPROVALS.................................................. 48 Section 8.9 DEBT....................................................... 48 Section 8.10 TAXES...................................................... 48 Section 8.11 USE OF PROCEEDS; MARGIN SECURITIES......................... 48 Section 8.12 ERISA...................................................... 48 Section 8.13 DISCLOSURE................................................. 49 Section 8.14 SUBSIDIARIES; FOREIGN AFFILIATES........................... 49 Section 8.15 AGREEMENTS................................................. 49 Section 8.16 COMPLIANCE WITH LAWS....................................... 50 Section 8.17 INVESTMENT COMPANY ACT..................................... 50 Section 8.18 PUBLIC UTILITY HOLDING COMPANY ACT......................... 50 Section 8.19 ENVIRONMENTAL MATTERS...................................... 50 ARTICLE IX AFFIRMATIVE COVENANTS........................... 50 Section 9.1 REPORTING REQUIREMENTS..................................... 50 Section 9.2 MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS.............. 52 Section 9.3 MAINTENANCE OF PROPERTIES.................................. 52 Section 9.4 TAXES AND CLAIMS........................................... 53 Section 9.5 INSURANCE.................................................. 53 Section 9.6 INSPECTION RIGHTS.......................................... 53 Section 9.7 KEEPING BOOKS AND RECORDS.................................. 53 Section 9.8 COMPLIANCE WITH LAWS AND AGREEMENTS........................ 54 Section 9.9 FURTHER ASSURANCES......................................... 54 Section 9.10 ERISA...................................................... 54 ARTICLE X NEGATIVE COVENANTS............................. 54 Section 10.1 DEBT....................................................... 54 Section 10.2 LIMITATION ON LIENS........................................ 55 Section 10.3 MERGERS, ACQUISITIONS, ETC................................. 56 -iii- TABLE OF CONTENTS (continued) PAGE Section 10.4 RESTRICTED PAYMENTS........................................ 57 Section 10.5 LOANS AND INVESTMENTS...................................... 57 Section 10.6 TRANSACTIONS WITH AFFILIATES............................... 58 Section 10.7 DISPOSITION OF ASSETS...................................... 58 Section 10.8 SALE AND LEASEBACK......................................... 59 Section 10.9 NATURE OF BUSINESS......................................... 59 Section 10.10 ENVIRONMENTAL PROTECTION................................... 59 Section 10.11 ACCOUNTING................................................. 59 ARTICLE XI FINANCIAL COVENANTS............................ 59 Section 11.1 FUNDED DEBT TO EBITDA...................................... 60 Section 11.2 FUNDED DEBT TO CAPITALIZATION.............................. 60 Section 11.3 COVERAGE RATIO............................................. 60 Section 11.4 TANGIBLE NET WORTH......................................... 60 ARTICLE XII DEFAULT.................................. 61 Section 12.1 EVENTS OF DEFAULT.......................................... 61 Section 12.2 REMEDIES UPON DEFAULT...................................... 63 Section 12.3 CASH COLLATERAL............................................ 64 Section 12.4 PERFORMANCE BY THE ADMINISTRATIVE AGENT.................... 64 ARTICLE XIII THE AGENTS................................. 64 Section 13.1 APPOINTMENT, POWERS AND IMMUNITIES......................... 64 Section 13.2 RIGHTS OF AGENTS AS LENDERS................................ 66 Section 13.3 SHARING OF PAYMENTS, ETC................................... 66 SECTION 13.4 INDEMNIFICATION............................................ 67 Section 13.5 INDEPENDENT CREDIT DECISIONS............................... 67 Section 13.6 SEVERAL COMMITMENTS........................................ 68 Section 13.7 SUCCESSOR ADMINISTRATIVE AGENT............................. 68 -iv- TABLE OF CONTENTS (continued) PAGE ARTICLE XIV GUARANTY.................................. 68 Section 14.1 UNCONDITIONAL GUARANTY..................................... 69 Section 14.2 NO IMPAIRMENT; CUMULATIVE REMEDIES......................... 69 Section 14.3 REMEDIES; SUBORDINATION.................................... 69 Section 14.4 PAYMENT ON DEMAND.......................................... 69 Section 14.5 NO IMPAIRMENT OF OBLIGATIONS............................... 70 ARTICLE XV MISCELLANEOUS............................... 70 Section 15.1 EXPENSES................................................... 70 SECTION 15.2 INDEMNIFICATION............................................ 71 Section 15.3 LIMITATION OF LIABILITY.................................... 72 Section 15.4 NO FIDUCIARY RELATIONSHIP.................................. 72 Section 15.5 NO WAIVER; CUMULATIVE REMEDIES............................. 72 Section 15.6 SUCCESSORS AND ASSIGNS..................................... 72 Section 15.7 SURVIVAL................................................... 75 Section 15.8 ENTIRE AGREEMENT........................................... 76 Section 15.9 AMENDMENTS, ETC............................................ 76 Section 15.10 MAXIMUM INTEREST RATE...................................... 76 Section 15.11 NOTICES.................................................... 77 Section 15.12 GOVERNING LAW; VENUE; SERVICE OF PROCESS................... 77 Section 15.13 COUNTERPARTS............................................... 78 Section 15.14 SEVERABILITY............................................... 78 Section 15.15 HEADINGS................................................... 78 Section 15.16 NON-APPLICATION OF CHAPTER 346 OF TEXAS FINANCE CODE....... 78 Section 15.17 CONSTRUCTION............................................... 78 Section 15.18 INDEPENDENCE OF COVENANTS.................................. 78 Section 15.19 WAIVER OF JURY TRIAL....................................... 78 Section 15.20 ARBITRATION................................................ 79 Section 15.21 SPECIAL PROVISION.......................................... 80 Section 15.22 REFERENCE TO INDENTURE..................................... 81 -v- CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of December 22, 1997, is among PETROLEUM SUPPLY COMPANY, a Texas corporation, PRIDE INTERNATIONAL HOLDINGS, INC., a Delaware corporation, RANGER WELL SERVICE, INC., a Texas corporation, PRIDE OFFSHORE, INC., a Delaware corporation, RANGER CORPORATION, a Delaware corporation, each of the Subsidiaries of the Parent Guarantor (defined below) or any of the foregoing parties that may from time to time become a borrower hereunder and a signatory hereto pursuant to an Addendum and Assumption Agreement (hereinafter defined) (each individually, a "BORROWER," and, collectively, the "BORROWERS"), PRIDE INTERNATIONAL, INC., a Louisiana corporation (the "PARENT GUARANTOR"), each of the banks or other lending institutions which is or may from time to time become a signatory hereto or any successor or permitted assignee thereof (each a "LENDER" and, collectively, the "LENDERS"), FIRST NATIONAL BANK OF COMMERCE, a national banking association ("FNBC"), as arranger and syndication agent for the Lenders (in such capacity, together with its successors in such capacity, the "SYNDICATION AGENT"), and WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, a national banking association ("WELLS FARGO"), as administrative and documentation agent for the Lenders and as issuer of Letters of Credit hereunder (in such capacity, together with its successors in such capacity, the "ADMINISTRATIVE AGENT"). R E C I T A L S: The Parent Guarantor (formerly known as Pride Petroleum Services, Inc.), the Syndication Agent, the Administrative Agent and the Lenders entered into that certain Credit Agreement dated as of March 6, 1997 (as amended, modified, or supplemented, the "PRIOR CREDIT AGREEMENT") pursuant to which the Lenders extended credit to the Parent in the form of revolving credit advances and letters of credit. The Prior Credit Agreement was modified to release the Guarantors (as defined in the Prior Credit Agreement) upon completion of the Senior Notes transaction and to reduce the amount available thereunder to $15,000,000. The Borrowers have requested this new revolving credit facility for up to $100,000,000, which facility is available in the form of Advances and, to the extent of $25,000,000, standby letters of credit. NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows, intending to be legally bound: ARTICLE I DEFINITIONS Section 1.1 DEFINITIONS. As used in this Agreement, the following terms have the following meanings: "AAA" has the meaning specified in SECTION 15.20(B). "ADDENDUM AND ASSUMPTION AGREEMENT" means any Addendum and Assumption Agreement in substantially the form of EXHIBIT "A" hereto to be executed by each Material Subsidiary of the Parent Guarantor or any Borrower formed or acquired subsequent to the date hereof, as the same may be amended, supplemented, or modified from time to time. "ADDITIONAL COSTS" has the meaning specified in SECTION 5.1. "ADMINISTRATIVE AGENT" has the meaning specified in the introductory paragraph hereof. "ADVANCE" means an advance of funds by the Lenders or any one of them to the Borrowers pursuant to ARTICLE II or SECTION 3.4. "ADVANCE REQUEST FORM" means a certificate, in substantially the form of EXHIBIT "B" hereto, properly completed and signed by the Borrowers requesting an Advance. "AFFILIATE" means, as to any Person, any other Person that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such Person. The term "CONTROL" means the possession, directly or indirectly, of the power to direct or cause direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise; PROVIDED, however, in no event shall any Agent or any Lender be deemed an Affiliate of the Parent Guarantor, any of the Borrowers, any of the Subsidiaries, or any of the Foreign Affiliates. "AGENTS" means, collectively, the Administrative Agent and the Syndication Agent. "APPLICABLE RIG ADVANCE RATE" means (a) 50% from the date hereof through June 30, 1998, and (b) from July 1, 1998 and thereafter, the percentage indicated therefor in the table set forth below based on the trailing Funded Debt to EBITDA ratio of the Parent Guarantor and its Subsidiaries, on a consolidated basis, for the most recently ended Rolling Period demonstrated by the most recently delivered Compliance Certificate: RATIO OF APPLICABLE RIG FUNDED DEBT TO ADVANCE EBITDA RATE Less than 2.50 to 1.00 62.5% Greater than or equal to 2.50 to 1.00 50.0% ======================== ============== The Applicable Rig Advance Rate shall be adjusted 10 days after the Agent receives the Compliance Certificate for the period ending June 30, 1998 which is required to be delivered pursuant to SECTION 9.1(C) hereof, and 10 days after the Agent receives each Compliance Certificate delivered thereafter; provided, that, the Parent Guarantor and its Subsidiaries must maintain the required ratio, on a consolidated basis, for two consecutive fiscal quarters in order for the Applicable Rig Advance Rate to be increased. If the Borrowers fail to furnish to the Administrative Agent any Compliance Certificate by the date required by this Agreement, then the 50% Applicable Rig Advance Rate shall apply at all times after such date for all determinations of the Borrowing Base made after such date until the Borrowers furnish the required Compliance Certificate to the Administrative Agent. "APPLICABLE FOREIGN ADVANCE RATE" means the percentage of Eligible Foreign Accounts to be included in the Borrowing Base, as determined in accordance herewith and calculating the value of those not payable in Dollars at their Dollar-equivalent using the applicable Exchange Rate. From the date hereof until March 1, 1998, the Applicable Foreign Advance Rate for each of the following types of Eligible Foreign Accounts shall be the percentage indicated therefor in the table set forth below: ELIGIBLE FOREIGN APPLICABLE FOREIGN ACCOUNT ADVANCE RATE ------- ------------ Majors/Nationals 80% Argentina Accounts 50% Venezuela Accounts 40% Colombia Accounts 50% Other Countries Accounts 30% ======================== ================== On March 1, 1998 and on each September 1 and March 1 thereafter the Administrative Agent shall have the right to adjust the Applicable Foreign Advance Rates for the various types of Eligible Foreign Accounts and to identify other categories of Eligible Foreign Accounts with different Applicable Foreign Advance Rates. The adjustment and determination of the Applicable Foreign Advance Rates shall be made by the Administrative Agent using its reasonable business judgment, with the concurrence of the Lenders taking into account such factors and criteria as Administrative Agent shall reasonably deem relevant. The above-specified types of Eligible Foreign Accounts are defined below: "MAJORS/NATIONALS" means accounts receivable of any Borrower or a Subsidiary that are owing from foreign operations of major United States petroleum companies, national oil companies of various jurisdictions, other international oil companies and other major oil companies that have been pre-approved by the Administrative Agent at 80% Foreign Advance Rate, all as identified by the Borrowers on SCHEDULE 1.1A, together with such other petroleum companies as the Administrative Agent and the Lenders may approve in writing from time to time. "ARGENTINA ACCOUNTS" means accounts receivable of any Borrower or a Subsidiary that originate or arise in Argentina or are owed by an Argentina account debtor, other than Majors/Nationals. "VENEZUELA ACCOUNTS" means accounts receivable of any Borrower or a Subsidiary that originate or arise in Venezuela or are owed by a Venezuela account debtor, other than Majors/Nationals. "COLOMBIA ACCOUNTS" means accounts receivable of any Borrower or a Subsidiary that originate or arise in Colombia or are owed by a Colombia account debtor, other than Majors/Nationals. "OTHER COUNTRIES ACCOUNTS" means accounts receivable any Borrower or a Subsidiary that originate or arise in a country other than the United States, Argentina, Venezuela and Colombia, or are owed by an account debtor located or domiciled in such other country, other than Majors/Nationals. "APPLICABLE LENDING OFFICE" means for each Lender and each Type of Advance, the lending office of such Lender (or of an Affiliate of such Lender) designated for such Type of Advance below its name on the signature pages hereof or such other office of such Lender (or of an Affiliate of such Lender) as such Lender may from time to time specify to the Borrowers and the Administrative Agent as the office by which its Advances of such Type are to be made and maintained. "APPLICABLE MARGIN" means, for any day, (a) with respect to Eurodollar Advances, the marginal interest rate over the Eurodollar Rate that is applicable when any Applicable Rate based on the Eurodollar Rate is determined under this Agreement, and (b) with respect to Base Rate Advances, the marginal interest rate over the Base Rate that is applicable when any Applicable Rate based on the Base Rate is determined under this Agreement. The Applicable Margin shall be 2.0% for Eurodollar Advances and 0.50% for Base Rate Advances from the date hereof through December 31, 1997. Beginning January 1, 1998, the Applicable Margin is subject to adjustment (upwards or downwards, as appropriate), as indicated in the table and text set forth below:
S&P/MOODY'S RATING OF PARENT RATIO OF GUARANTOR'S APPLICABLE MARGIN APPLICABLE MARGIN FUNDED DEBT TO UNSECURED FOR EURODOLLAR FOR BASE EBITDA SENIOR DEBT ADVANCES RATE ADVANCES Less than 1.50 to 1.00 BBB-/Baa3 or higher 1.25% 0.50% Greater than or equal to 1.50 to BB to BB+/ 1.50% 0.50% 1.00, but less than 2.00 to 1.00 Ba2 to Ba3 Greater than or equal to 2.00 to BB-/Ba1 1.75% 0.50% 1.00, but less than 2.50 to 1.00 Greater than or equal to 2.50 to 1.00 B+/B1 2.00% 0.50% ================================ ==================== ==================== ===================
On January 1, 1998 and on each Quarterly Payment Date thereafter, the Applicable Margin shall be adjusted to reflect the Applicable Margin which is the lower of (a) the Applicable Margin prescribed above for the ratio of the Funded Debt to EBITDA of the Parent Guarantor and its Subsidiaries, on a consolidated basis, for the most recently ended Rolling Period demonstrated by the most recently delivered Compliance Certificate, or (b) the Applicable Margin prescribed above for the S&P and Moody's rating of the Parent Guarantor's unsecured senior debt as of such date as set forth in the most recently published ratings by S&P and Moody's then publicly available. In the event of a difference in rating between S&P and Moody's, the lower rating shall be used, which may result in a higher Applicable Margin. After each adjustment of the Applicable Margin in accordance herewith, the new Applicable Margin shall apply to all Advances made or outstanding thereafter until the next Quarterly Payment Date that another Applicable Margin is applicable. Upon the request of the Administrative Agent, the Borrowers must demonstrate to the reasonable satisfaction of the Administrative Agent the required applicable ratio in order to obtain an adjustment to a lower Applicable Margin. If the Borrowers fail to furnish to the Administrative Agent any Compliance Certificate by the date required by this Agreement, then the maximum Applicable Margin shall apply at all times after such date for all Advances made or outstanding after such date until the Borrowers furnish the required Compliance Certificate to the Administrative Agent. "APPLICABLE RATE" means: (i) during the period that an Advance is a Base Rate Advance, the Base Rate plus the Applicable Margin; and (ii) during the period that an Advance is a Eurodollar Advance, the Eurodollar Rate plus the Applicable Margin. "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by a Lender and its assignee and accepted by the Administrative Agent pursuant to SECTION 15.6, in substantially the form of EXHIBIT "C" hereto. "BASE RATE" means as of any date of determination, a rate per annum (rounded upwards, if necessary, to the nearest 1/16th of 1%) equal to the greater of (a) the Prime Rate in effect on such day, or (b) the sum of the Federal Funds Effective Rate in effect on such day plus 0.5%. If for any reason the Administrative Agent shall have determined (which determination shall be PRIMA FACIE correct) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure after diligent effort of the Administrative Agent to obtain sufficient quotations in accordance with the definition of Federal Funds Effective Rate, the Base Rate shall be determined without regard to clause (b) of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively, without notice to the Borrowers. "BASE RATE ADVANCES" means Advances that bear interest based upon the Base Rate. "BORROWER" and "BORROWERS" have the meaning specified in the introductory paragraph. "BORROWER PLEDGE AGREEMENT" means the Pledge Agreement of each of the Borrowers who owns capital stock of a Subsidiary in favor of the Administrative Agent in substantially the form of EXHIBIT "D" hereto, as the same may be amended, supplemented or modified from time to time. "BORROWING BASE" means, at any time, an amount equal to the sum of (a) 80% of Eligible Domestic Accounts, plus (b) the Applicable Foreign Advance Rate of each Eligible Foreign Account, plus (c) the lesser of (i) the amount equal to 50% of the aggregate amount of the Commitments or (ii) the Applicable Rig Advance Rate, multiplied by the Fair Market Value of all Eligible Rigs. "BUSINESS DAY" means (a) any day on which national banks in Houston, Texas and in San Francisco, California are open for the conduct of commercial banking business, and (b) with respect to all borrowings, payments, Conversions, Continuations, Interest Periods, and notices in connection with each Eurodollar Advance, any day which is a Business Day described in clause (a) above and which is also a day on which dealings in Dollar deposits are carried out in the London eurodollar interbank market. "CAPITAL LEASE OBLIGATIONS" means, as to any Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property, which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP. For purposes of this Agreement, the amount of such Capital Lease Obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "CAPITALIZATION" means the sum of Funded Debt plus Net Worth. "CHANGE IN CONTROL" means either (i) a "change of control" as defined in the Indenture or (ii) the acquisition by any Person or two or more Persons acting in concert of the beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or any successor provision thereto) of 50% or more of the voting stock and the other voting equity interests of the Parent Guarantor. "CODE" means the Internal Revenue Code of 1986, as amended, and the regulations promulgated and rulings issued thereunder. "COLLATERAL" has the meaning specified in SECTION 6.1. "COMMITMENT" means, as to each Lender, the obligation of such Lender to make Advances pursuant to SECTION 2.1 and issue or participate in Letters of Credit pursuant to SECTIONS 3.1 and 3.3 in an aggregate principal amount at any time outstanding up to but not exceeding the amount set forth opposite the name of such Lender on the signature pages hereto under the heading "Commitment", as such amount may be reduced pursuant to SECTION 2.9, 2.10 or 2.11 or terminated pursuant to SECTION 2.9, SECTION 12.2 or SECTION 15.21. "COMPLIANCE CERTIFICATE" means a certificate of the president, chief executive officer, chief financial officer, treasurer or corporate controller of the Parent Guarantor, in the form of EXHIBIT "E" hereto, with appropriate completions. "CONDITIONAL CONSENT" means the consent, at the request of the Borrowers or the Administrative Agent, of Lenders consisting of at least the Required Lenders to a waiver or amendment of SECTIONS 10.1 or 10.3, or both. "CONTINGENT LIABILITIES" means, as applied to any Person, those direct or indirect liabilities of that Person (other than non-monetary performance obligations) with respect to any Debt, lease, dividend, letter of credit or other obligation (the "PRIMARY OBLIGATIONS") of another Person (the "PRIMARY OBLIGOR"), including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligations or any property constituting direct or indirect security therefor, or (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, or (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof. The amount of any Contingent Liabilities shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Liabilities are made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the Borrowers in good faith. "CONTINUE", "CONTINUATION", and "CONTINUED" shall refer to the continuation pursuant to SECTION 2.6 of a Eurodollar Advance as a Eurodollar Advance from one Interest Period to the next Interest Period. "CONVERT", "CONVERSION", and "CONVERTED" shall refer to a conversion pursuant to SECTION 2.6 or ARTICLE V of one Type of Advance into another Type of Advance. "CONVERTIBLE SUBORDINATED DEBENTURES" means the 6 1/4% convertible subordinated debentures issued by the Parent Guarantor pursuant to the terms of that certain Indenture dated June 26, 1996 by and between the Parent Guarantor and Marine Midland Bank, as trustee. "COVERAGE RATIO" means, as of any date, the ratio of (a) EBIT for the Rolling Period then most recently ended on such date, minus dividends paid on common and preferred stock of the Parent Guarantor and treasury stock purchases of the Parent Guarantor and its Subsidiaries on a consolidated basis paid during such period to (b) interest expense of the Parent Guarantor and its Subsidiaries on a consolidated basis, for such period, plus the portion of long-term Debt of the Parent Guarantor and its Subsidiaries, on a consolidated basis, that was scheduled for repayment during such period. "DEBT" means as to any Person at any time (without duplication): (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, notes, debentures, or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable of such Person arising in the ordinary course of business (d) all Capital Lease Obligations of such Person, (e) all Debt Guaranteed by such Person, (f) all obligations secured by a Lien existing on property owned by such Person, whether or not the obligations secured thereby have been assumed by such Person or are non-recourse to the credit of such Person, (g) all Contingent Liabilities and reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, bankers' acceptances, surety or other bonds and similar instruments, and (h) all liabilities of such Person in respect of unfunded vested benefits under any Plan. "DEFAULT" means an Event of Default or the occurrence of an event or condition which with notice or lapse of time or both would become an Event of Default. "DEFAULT RATE" means the lesser of the Maximum Rate or the sum of the Base Rate in effect from day to day plus 5% per annum. "DISPUTE" has the meaning specified in SECTION 15.20(A). "DOLLARS" and "$" mean lawful money of the United States of America. "DOMESTIC ACCOUNTS" means all accounts receivable of the Borrowers and the Domestic Subsidiaries, or any of them, with respect to which the account debtor is domiciled or doing business in the United States of America. "DOMESTIC SUBSIDIARY" means each Subsidiary other than the Foreign Subsidiaries. "EBIT" means net income of the Parent Guarantor and its Subsidiaries, on a consolidated basis (less any non-cash income included in net income), plus, to the extent that any of the following were deducted in calculating such net income, interest expense and tax expenses, but excluding all extraordinary items of income and loss. "EBITDA" means EBIT, plus, to the extent that any of the following were deducted in calculating net income, depreciation and amortization but excluding all extraordinary items of income and loss. "ELIGIBLE ACCOUNTS" means, at any time, all Domestic Accounts and Foreign Accounts created in the ordinary course of business that are acceptable to the Administrative Agent using its reasonable business judgment and satisfy the following conditions: (a) The account complies with all applicable laws, rules, and regulations, including, without limitation, usury laws, the Federal Truth in Lending Act, and Regulation Z of the Board of Governors of the Federal Reserve System; (b) The account has been billed and has not been outstanding for more than 90 days past the original date of invoice; (c) The account was created in connection with (i) the sale of goods by any Borrower or any Subsidiary in the ordinary course of business and such sale has been consummated and such goods have been shipped and delivered and received by the account debtor, or (ii) the performance of services by such Borrower or Subsidiary in the ordinary course of business and the portion of such services billed by such Borrower and its Subsidiaries have been completed and accepted by the account debtor; (d) The account arises from an enforceable contract, the performance of which has been completed by any Borrower or any Subsidiary for the portion billed; (e) The account does not include any progress billings for which billings the services have not been completed and accepted by the account debtor; (f) The account does not arise from the sale of any good that is on a bill-and-hold, guaranteed sale, sale-or-return, sale on approval, consignment, or any other repurchase or return basis; (g) A Borrower or any Subsidiary has good and indefeasible title to the account and the account is not subject to any Lien except Liens in favor of the Administrative Agent and Liens permitted by SECTION 10.2; (h) The account does not arise out of a contract with or order from an account debtor that prohibits or makes void or unenforceable the grant of a security interest by a Borrower or any Subsidiary to the Administrative Agent in and to such account; (i) The account is not subject to any setoff, counterclaim, defense, dispute, recoupment, or adjustment other than normal discounts for prompt payment or contra accounts as set forth below; (j) The account debtor is not insolvent or the subject of any bankruptcy or insolvency proceeding and has not made an assignment for the benefit of creditors, suspended normal business operations, dissolved, liquidated, terminated its existence, ceased to pay its debts as they become due, or suffered a receiver or trustee to be appointed for any of its assets or affairs; (k) The account is not evidenced by chattel paper or an instrument; (l) No payment default exists under the account by any party thereto; (m) The account debtor has not returned or refused to retain, or otherwise notified a Borrower or any Subsidiary of any dispute concerning, or claimed nonconformity of, any of the goods from the sale of which the account arose; (n) The account is not owed by an employee or Affiliate of any Borrower or any Subsidiary; (o) The account is payable in Dollars by the account debtor (except with respect to Eligible Foreign Accounts); (p) The account shall be ineligible if the account debtor is domiciled in any country other than the United States of America, unless the account is an Eligible Foreign Account; (q) All accounts owed by any account debtor shall be ineligible if more than 25% of the aggregate balances then outstanding on accounts owed by such account debtor and its Affiliates to the Borrowers and the Subsidiaries on a consolidated basis have been outstanding for more than 90 days past the dates of their original invoices; (r) If the aggregate balances then outstanding on accounts owed by any account debtor and its Affiliates to the Borrowers and the Subsidiaries on a consolidated basis constitute more than 15% of the total accounts receivable of the Borrowers and the Subsidiaries on a consolidated basis, then the portion of the accounts owed by such account debtor in excess of the 15% concentration limit shall be ineligible; (s) The account shall be ineligible if the account debtor is the United States of America or any department, agency, or instrumentality thereof subject to the Federal Assignment of Claims Act of 1940, as amended ("FACA"), and the FACA shall not have been complied with. The amount of the Eligible Accounts owed by an account debtor to a Borrower or any Subsidiary shall be reduced by the amount of all "contra accounts," past due credits and other obligations which are owed by such Borrower or any Subsidiary to such account debtor. "ELIGIBLE ASSIGNEE" means any commercial bank, savings and loan association, savings bank, finance company, insurance company, mutual fund, or other financial institution (whether a corporation, partnership, or other entity) acceptable to the Administrative Agent. "ELIGIBLE RIGS" means, at any time, all Rigs then owned by (and in the possession or under the control of) any Borrower or any Domestic Subsidiary, in which the Administrative Agent has a perfected, first priority preferred mortgage and Lien, subject to any Liens permitted by SECTION 10.2 hereof. For purposes of calculating the Borrowing Base hereunder, the Fair Market Value of Eligible Rigs shall be determined based on updated annual appraisals conducted pursuant to SECTION 9.1(I). If at any time the Borrowers fail to furnish to the Administrative Agent updated appraisals of the Eligible Rigs as required by SECTION 9.1(I) hereof, then the Fair Market Value of the Eligible Rigs shall be estimated by the Agents, in their sole discretion, at all times after such date for all determinations of the Borrowing Base made after such date until the Borrowers furnish the required appraisal to the Administrative Agent. "ELIGIBLE DOMESTIC ACCOUNTS" means all Eligible Accounts that are Domestic Accounts. "ELIGIBLE FOREIGN ACCOUNTS" means all Eligible Accounts that are Foreign Accounts that (a) constitute Eligible Accounts and (b) (i) are not subject to an enforceable contractual restrictions of the rights to assignment of the account thereunder, or (ii) a Borrower or a Subsidiary, as applicable, has obtained written consent to the assignment of the rights to payment thereunder from the account debtor. "ENVIRONMENTAL LAWS" means any and all United States of America federal, state, and local laws, regulations, and requirements pertaining to health, safety, or the environment. "ENVIRONMENTAL LIABILITIES" means all liabilities, obligations, responsibilities, remedial actions, losses, damages, punitive damages, consequential damages, treble damages, costs, expenses, fines, penalties, sanctions, and interest arising from environmental, health or safety conditions or the release or threatened release of a Hazardous Material into the environment, resulting from the past, present, or future operations of any Borrower or any Subsidiary. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and published interpretations thereunder. "ERISA AFFILIATE" means any corporation or trade or business which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as any Borrower or is under common control (within the meaning of Section 414(c) of the Code) with any Borrower. "EURODOLLAR ADVANCES" means Advances the interest rates on which are determined on the basis of the rates referred to in the definition of "Eurodollar Rate" in this SECTION 1.1. "EURODOLLAR RATE" means, for any Eurodollar Advance for any Interest Period therefor, an interest rate per annum determined by the Administrative Agent by DIVIDING: (i) the rate per annum (rounded upwards, if necessary, to the nearest 1/16th of 1%) determined by the Administrative Agent at or before 11:00 a.m. (London time) (or as soon thereafter as practicable) two Business Days before the first day of such Interest Period to be the rate of interest at which Dollar deposits in immediately available funds having a term comparable to such Interest Period and in an amount comparable to the principal amount of such Eurodollar Advance are offered to Administrative Agent in the London interbank eurodollar market for delivery on the first day of such Interest Period; by (ii) Statutory Reserves. "EXCHANGE RATE" means and refers to the nominal rate of exchange available to Agent in a chosen foreign exchange market for the purchase by the Administrative Agent at 11:00 a.m., Houston, Texas time, three Business Days prior to any date of determination, expressed as the number of units of such currency per one Dollar. "EXISTING CREDITS" means all existing letters of credit issued under and pursuant to the Prior Credit Agreement, which letters of credit are described on SCHEDULE 1.1(B) to this Agreement. "EVENT OF DEFAULT" has the meaning specified in SECTION 12.1. "FAIR MARKET VALUE" means the price at which such Rig could be sold by a willing seller to a willing purchaser in an arms-length transaction upon fair and reasonable terms, as such price shall be determined by methodology substantially similar to that used in the initial appraisal delivered by Borrowers pursuant to SECTION 7.1(A)(20) of this Agreement. "FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the weighted average of the rate on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, New York, or if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three Federal Funds brokers of recognized standing selected by the Administrative Agent in its sole discretion. "FINAL CONSENT" means either (a) a written consent or reaffirmation of the Required Lenders (without giving effect to the percentages held by the Nonconsenting Lenders requesting an Opt-Out Request) to the request for waiver or amendment granted in the Conditional Consent that is provided after knowledge of the Nonconsenting Lenders under the Conditional Consent, or (b) a Conditional Consent after which no Opt-Out Request is made. "FNBC" has the meaning specified in the introductory paragraph hereof. "FOREIGN ACCOUNTS" means all accounts receivable of the Parent Guarantor, the Borrowers and the Subsidiaries, or any of them, with respect to which the account debtor is domiciled and operates in any country other than the United States of America and all accounts receivable of any Foreign Subsidiary. "FOREIGN AFFILIATE" means any Person in which any Borrower or any Subsidiary has an equity or ownership interest equal to or less than 50% and which is organized under the laws of any jurisdiction outside the United States of America. "FOREIGN SUBSIDIARY" means any Subsidiary which is organized under the laws of any jurisdiction outside of the United States of America. "FUNDED DEBT" means, at any particular time, the sum of the following, calculated on a consolidated basis for the Parent Guarantor and its Subsidiaries in accordance with GAAP: (a) all obligations for borrowed money (whether as a direct obligor on a promissory note, bond, debenture or other similar instrument, as a reimbursement obligor with respect to an issued letter of credit or similar instrument, as an obligor under a Guarantee of borrowed money, or as any other type of direct or contingent obligor), including but not limited to senior bank debt, senior notes and subordinated debt, but excluding obligations of the Parent Guarantor pursuant to the Convertible Subordinated Debentures and Limited Recourse Debt of the Parent Guarantor and its Subsidiaries PLUS (but without duplication) (b) all Capital Lease Obligations (other than the interest component of such obligations). "GAAP" means generally accepted accounting principles, applied on a consistent basis, as set forth in Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board and/or their respective successors and which are applicable in the circumstances as of the date in question. Accounting principles are applied on a "consistent basis" when the accounting principles applied in a current period are comparable in all material respects to those accounting principles applied in a preceding period. "GOVERNMENTAL AUTHORITY" means any nation or government, any state or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory, or administrative functions of or pertaining to government. "GUARANTEE" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person and, without limiting the generality of the foregoing, any obligation for such Debt of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (b) entered into for the purpose of assuring in any other manner the obligee of such Debt of the payment thereof or to protect the obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "GUARANTEE" used as a verb has a corresponding meaning. "GUARANTEED OBLIGATIONS" means all of the Obligations (excluding the Parent Obligations), including any and all post-petition interest and expenses (including reasonable attorneys' fees) whether or not allowed under any bankruptcy, insolvency, or other similar law. "GUARANTOR SECURITY AGREEMENT" means the security agreement of the Parent Guarantor in favor of the Administrative Agent in substantially the form of EXHIBIT "F" hereto, as the same may be amended, supplemented, or modified from time to time. "HAZARDOUS MATERIAL" means any substance, product, waste, pollutant, material, chemical, contaminant, constituent, or other material which is or becomes listed, regulated, or addressed under any Environmental Law, including, without limitation, asbestos, petroleum, and polychlorinated biphenyls. "INDENTURE" means that certain Indenture dated as of May 1, 1997, between the Parent Guarantor and The Chase Manhattan Bank, as trustee, as supplemented by that certain First Supplemental Indenture dated as of May 1, 1997 and The Chase Manhattan Bank, as trustee, as the same may be amended, modified, or supplemented from time to time. "INTEREST PERIOD" means with respect to any Eurodollar Advances, each period commencing on the date such Advances are made or Converted from Base Rate Advances or, in the case of each subsequent, successive Interest Period applicable to a Eurodollar Advance, the last day of the next preceding Interest Period with respect to such Advance, and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Borrowers may select as provided in SECTION 2.5 or 2.6 hereof, except that each such Interest Period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (a) each Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, if such succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); (b) any Interest Period which would otherwise extend beyond the Termination Date shall end on the Termination Date; (c) no more than five Interest Periods for Eurodollar Advances shall be in effect at the same time; (d) no Interest Period for any Eurodollar Advances shall have a duration of less than one month and, if the Interest Period for any Eurodollar Advances would otherwise be a shorter period, such Advances shall not be available hereunder; and (e) no Interest Period may extend beyond a principal repayment date or Commitment reduction date unless, after giving effect thereto, the aggregate principal amount of the Eurodollar Advances having Interest Periods that end after such principal repayment date or Commitment reduction date plus the aggregate principal amount of Base Rate Advances shall be equal to or less than the Advances to be outstanding hereunder after such principal payment date or Commitment reduction date. "L/C APPLICATION" has the meaning specified in SECTION 3.1. "L/C DOCUMENTS" has the meaning specified in SECTION 3.1. "LENDER" and "LENDERS" have the meanings specified in the introductory paragraph hereof. "LETTER OF CREDIT" means any Existing Credit, any Parent Letter of Credit or any letter of credit issued by the Administrative Agent for the liability of the Parent Guarantor, a Borrower or a Subsidiary pursuant to ARTICLE III. "LETTER OF CREDIT LIABILITIES" means, at any time, the aggregate face amounts of all outstanding Letters of Credit. "LETTER OF CREDIT REQUEST FORM" means a certificate, in substantially the form of EXHIBIT "G" hereto, properly completed and signed by the Parent Guarantor or the Borrowers, as applicable, requesting the issuance of a Letter of Credit. "LIEN" means any lien, mortgage, security interest, tax lien, financing statement, pledge, charge, hypothecation, assignment, preference, priority, or other encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or title retention agreement), whether arising by contract, operation of law, or otherwise. "LIMITED RECOURSE DEBT" of a Person means Debt of such Person under the terms of which the recourse of the holder of such Debt is effectively limited to specified assets securing such Debt on terms acceptable to the Administrative Agent, in its sole discretion. "LOAN DOCUMENTS" means this Agreement and all promissory notes, security agreements, pledge agreements, assignments, letters of credit, guaranties, L/C Documents, and other instruments, documents, and agreements executed and delivered pursuant to or in connection with this Agreement, as such instruments, documents, and agreements may be amended, modified, renewed, extended, or supplemented from time to time. "MATERIAL ADVERSE EFFECT" means (a) any material adverse effect on (i) the business, condition (financial or otherwise), operations, prospects, or properties of the Parent Guarantor and its Subsidiaries taken as a whole, (ii) the ability of the Parent Guarantor and its Subsidiaries, taken as a whole, to carry out their business, or (iii) the ability of the Parent Guarantor and its Subsidiaries, taken as a whole, to perform the obligations under the Notes, this Agreement and the other Loan Documents in accordance with their respective obligations; or (b) an Event of Default hereunder. "MATERIAL SUBSIDIARY" means any Domestic Subsidiary of the Parent Guarantor or any Borrower. "MAXIMUM RATE" means, at any time, the maximum rate of interest under applicable law that the Lenders may charge the Borrowers. The Maximum Rate shall be calculated in a manner that takes into account any and all fees, payments, and other charges in respect of the Loan Documents that constitute interest under applicable law. Each change in any interest rate provided for herein based upon the Maximum Rate resulting from a change in the Maximum Rate shall take effect without notice to the Borrowers at the time of such change in the Maximum Rate. For purposes of determining the Maximum Rate under Texas law, the applicable rate ceiling shall be the applicable rate ceiling described in, and computed in accordance with, the Ship Mortgage Act and Article 5069-1D.001, Vernon's Texas Civil Statutes. "MOODY'S" means Moody's Investors Service, Inc. "MULTIEMPLOYER PLAN" means a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made by the Borrowers or any ERISA Affiliate and which is covered by Title IV of ERISA. "NET PROCEEDS" from any issuance, sale or other disposition of any shares of equity securities (or any securities convertible or exchangeable for any such shares, or any rights, warrants, or options to subscribe for or purchase any such shares) means the amount equal to (a) the aggregate gross cash proceeds of such issuance, sale or other disposition, less (b) the following: (i) placement agent fees, (ii) underwriting discounts and commissions, (iii) bank and other lender fees, and (iv) reasonable legal fees and other reasonable expenses payable by the issuer in connection with such issuance, sale or other disposition. "NET PROCEEDS" from any disposition of assets means the amount equal to (a) the aggregate gross cash proceeds of such disposition, less (b) the following: (i) sales or other similar taxes paid or payable by the seller in connection with such disposition, (ii) reasonable broker fees in connection with such disposition, (iii) reasonable legal fees and other reasonable expenses payable by the seller in connection with such disposition and (iv) the amount of any Debt secured by the assets that must be repaid in connection with such disposition so long as it is a Debt permitted under this Agreement. "NET WORTH" means, at any particular time, all amounts which, in conformity with GAAP, would be included as stockholder's equity on a consolidated balance sheet of the Parent Guarantor and its Subsidiaries. "NONCONSENTING LENDER" means a Lender that does not execute a Conditional Consent. "NOTES" means promissory notes of the Borrowers payable to the order of the Lenders, in substantially the form of EXHIBIT "H" hereto, and all extensions, renewals, replacements, and modifications thereof; "NOTE" means one of the Notes. "OBLIGATED PARTY" means any Person who is or becomes party to any agreement that guarantees or secures payment and performance of the Obligations or any part thereof. "OBLIGATIONS" means (a) the Parent Obligations, and (b) all obligations, indebtedness, and liabilities of the Borrowers to the Agents and the Lenders, or any of them, arising pursuant to any of the Loan Documents, now existing or hereafter arising, whether direct, indirect, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several, or joint and several (including, without limitation, all of the Borrowers' contingent reimbursement obligations in respect of Letters of Credit), and all interest accruing thereon and all attorneys' fees and other expenses incurred in the enforcement or collection thereof. "OPERATING LEASE" means any lease (other than a lease constituting a Capital Lease Obligation) of real or personal property. "OPT-OUT REQUEST" means a written request of a Nonconsenting Lender received by the Borrowers and the Administrative Agent not later than three Business Days after the granting of a Conditional Consent that requests that the Commitment of such Nonconsenting Lender be terminated on a date not earlier than 45 Business Days thereafter and that all Loans of such Nonconsenting Lender be paid in full on such date. "PARENT GUARANTOR" is defined in ARTICLE XIV hereof. "PARENT GUARANTOR PLEDGE AGREEMENT" means the Pledge Agreement of the Parent Guarantor in favor of the Administrative Agent in substantially the form of EXHIBIT "I" hereto, as the same may be amended, supplemented, or modified from time to time. "PARENT LETTERS OF CREDIT" has the meaning specified in SECTION 3.1 hereof. "PARENT OBLIGATIONS" means the Parent Reimbursement Obligations, interest on the Parent Reimbursement Obligations, Letter of Credit fees owing by the Parent Guarantor under SECTION 3.5(B), the obligations of the Parent Guarantor under ARTICLE XIV hereof, and other Indebtedness (as defined in the Indenture) of the Parent Guarantor relating to this Agreement and the Loan Documents. "PARENT REIMBURSEMENT OBLIGATIONS" has the meaning specified in SECTION 3.4 hereof. "PAYOR" has the meaning specified in SECTION 4.5. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to all or any of its functions under ERISA. "PERSON" means any individual, corporation, business trust, association, company, partnership, joint venture, Governmental Authority, or other entity. "PLAN" means any employee benefit or other plan established or maintained by the Borrowers or any ERISA Affiliate and which is covered by Title IV of ERISA. "PREFERRED SHIP MORTGAGE" means a United States first preferred ship mortgage executed by each Borrower which owns any of the Rigs in favor of the Administrative Agent with respect to each of the Rigs and dated on or about the date hereof, in substantially the form of EXHIBIT "J" hereto, as the same may be amended, supplemented, or modified from time to time. "PRIOR CREDIT AGREEMENT" has the meaning specified in the first recital hereof. "PRIME RATE" means at any time the rate of interest most recently announced within Wells Fargo at its principal office in San Francisco as its Prime Rate. The Borrowers understand that the Prime Rate may not be the best or lowest rate or a favored rate, and any statement, representation or warranty to that effect is expressly disclaimed by the Agents and the Lenders. "PRINCIPAL OFFICE" means the principal office of the Administrative Agent, presently located at 1000 Louisiana, Third Floor, Houston, Texas 77002. "PROHIBITED TRANSACTION" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Code. "QUARTERLY PAYMENT DATE" means the first day of each January, April, July and October of each year, the first of which shall be the first such day after the date of this Agreement. "REGULATION D" means Regulation D of the Board of Governors of the Federal Reserve System as the same may be amended or supplemented from time to time. "REGULATORY CHANGE" means, with respect to any Lender, any implementation, adoption or change after the date of this Agreement of United States federal, state, or foreign laws, rules or regulations (including Regulation D) or the adoption or making after such date of any interpretations, directives, or requests applying to a class of lenders including such Lender of or under any United States federal or state, or any foreign, laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "REGISTER" has the meaning specified in SECTION 14.6(D). "REPORTABLE EVENT" means any of the events set forth in Section 4043 of ERISA. "REQUIRED LENDERS" means, at any time while no Advances are outstanding, two or more Lenders having at least 66-2/3% of the aggregate amount of the Commitments and, at any time while Advances are outstanding, two or more Lenders holding at least 66-2/3% of the outstanding aggregate principal amount of the Advances. "REQUIRED PAYMENT" has the meaning specified in SECTION 4.5. "RESTRICTED PAYMENT" means, as to any Person, (a) the declaration or payment of any dividends or any other payment or distribution (in cash, property, or obligations) by a Person on account of such Person's capital stock, other than dividends paid in stock, (b) the redemption, purchase, retirement, or other acquisition by a Person of any of its capital stock, or (c) the setting apart of any money for a sinking fund or other analogous fund for any dividend or other distribution on such Person's capital stock or for any redemption, purchase, retirement, or other acquisition of any of such Person's capital stock. "RIGS" means jack-up drilling units listed on SCHEDULE 1.1C attached hereto which are documented as vessels under the laws and flag of the United States of America, together with any and all traveling and handling equipment, blowout prevention equipment, solids control equipment, mud mixing equipment, generators, ancillary equipment, communication equipment, special equipment and all other related equipment, machinery, spare parts and other property, whether onboard or ashore, including, without limitation, any and all attachments, accessories and additions thereto, and all substitutions, replacements, products and proceeds thereof. "ROLLING PERIOD" means, for each fiscal quarter of the Parent Guarantor and its Subsidiaries, such quarter and the three preceding fiscal quarters. "S&P" means Standard & Poor's Corporation. "SALE-LEASEBACK DEBT" means, as to any particular lease entered into in a Sale-Leaseback Transaction, at any date as of which the amount thereof is to be determined, the total net amount of rent required to be paid under such lease during the remaining term thereof, discounted from the respective due dates thereof to such date at the rate per annum which would then be used to determine the lease classification under GAAP. The net amount of rent required to be paid under any such lease for any such period shall be the aggregate amount of the rent payable by the lessee with respect to such period after excluding amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water rates, and similar charges. "SALE-LEASEBACK TRANSACTION" means any sale by any Borrower or any of the Subsidiaries to any Person (other than a Borrower or another of the Subsidiaries) of any property owned by such Borrower or such Subsidiary if, as part of the same transaction or series of transactions, any Borrower or any of the Subsidiaries shall lease as lessee the same property or other substantially equivalent property which it intends to use for substantially the same purposes. "SECURITY AGREEMENT" means the Security Agreement of each of the Borrowers in favor of the Administrative Agent in substantially the form of EXHIBIT "K" hereto, as the same may be amended, supplemented, or modified from time to time. "SENIOR DEBT" means Funded Debt (other than Limited Recourse Debt, Sale-Leaseback Debt and Guarantees) of the Parent Guarantor and its Subsidiaries, or any of them, which is not subordinated to any other Debt. "SENIOR NOTES" means up to $325,000,000 of 9-3/8% Senior Notes due 2007 issued by the Parent Guarantor pursuant to the terms of the Indenture upon the terms and conditions set forth therein. "SHIP MORTGAGE ACT" has the meaning specified in SECTION 15.10(A). "STATUTORY RESERVES" means the difference (expressed as a decimal) of the number one minus the aggregate of the actual reserve percentages (including, without limitation, any marginal, special, emergency, or supplemental reserves) expressed as a decimal established by the Board of Governors of the Federal Reserve System and any other banking authority to which the Administrative Agent is subject for Eurocurrency Liabilities (as defined in Regulation D). Such reserve percentages shall include, without limitation, those imposed under Regulation D. Eurodollar Advances shall be deemed to constitute Eurocurrency Liabilities and as such shall be deemed to be subject to such reserve requirements without benefit of or credit for proration, exceptions or offsets which may be available from time to time to the Administrative Agent under Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "SUBSIDIARY" means (a) any corporation of which at least a majority of the outstanding shares of stock having by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned or controlled, directly or indirectly, through one or more intermediaries, by a Person, by one or more of the Subsidiaries of such Person, or by such Person and the Subsidiaries, or both, and (b) any limited liability company, partnership or other entity (i) of which at least a majority of the ownership, equity or voting interests is at the time owned or controlled, directly or indirectly, through one or more intermediaries, by a Person, by one or more of the Subsidiaries of such Person, or by such Person and one or more of its Subsidiaries, or both, and (ii) which is treated as a subsidiary in accordance with GAAP. "SYNDICATION AGENT" has the meaning specified in the introductory paragraph hereof. "TANGIBLE NET WORTH" means Net Worth, less (a) any amount at which shares of capital stock of any Person appear as an asset on the balance sheet of such Person, (b) goodwill, including any amounts, however designated, that represent the excess of the purchase price paid for assets or stock over the value assigned thereto, (c) patents, trademarks, trade names, and copyrights, (d) deferred expenses, (e) loans and advances to or other obligations owing by any stockholder, director, officer, partner, or employee of the Parent Guarantor, any Borrower, any Subsidiary, or any Affiliate of the Parent Guarantor, any Borrower or any Subsidiary, and (f) all other assets which are properly classified as intangible assets under GAAP. "TERMINATION DATE" means 11:00 A.M. Houston, Texas time on (a) December 22, 2000, or (b) such earlier date on which the Commitments terminate as provided in this Agreement. "TYPE" means any type of Advance (i.e., Base Rate Advance or Eurodollar Advance). "UCC" means the Uniform Commercial Code as in effect in the State of Texas. "WELLS FARGO" has the meaning specified in the introductory paragraph hereof. Section 1.2 OTHER DEFINITIONAL PROVISIONS. All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. The words "hereof", "herein", and "hereunder" and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Historical financial results for Forasol-Foramer N.V., a Dutch corporation recently acquired by the Parent Guarantor and its Subsidiaries, shall be included in the relevant Rolling Periods for use in calculating compliance with the financial covenants hereunder. Compliance with SECTIONS 11.1, 11.2 and 11.3 will be tested quarterly commencing with the quarter ending December 31, 1997. Unless otherwise specified, all Article and Section references pertain to this Agreement. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. Terms used herein that are defined in the UCC, unless otherwise defined herein, shall have the meanings specified in the UCC. ARTICLE II ADVANCES Section 2.1 ADVANCES. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make one or more Advances to the Borrowers from time to time from the date hereof to and including the Termination Date in an aggregate principal amount at any time outstanding up to but not exceeding the amount of such Lender's Commitment as then in effect, PROVIDED that the aggregate amount of all Advances at any time outstanding shall not exceed, and the Lenders shall not be obligated to make any Advance which would cause the aggregate amount of all outstanding Advances to exceed, the amount equal to (a) the lesser of (i) the aggregate amount of the Commitments or (ii) the Borrowing Base, minus (b) the Letter of Credit Liabilities. Subject to the foregoing limitations, and the other terms and provisions of this Agreement, the Borrowers may borrow, repay, and reborrow hereunder. The Borrowers may borrow hereunder by means of Base Rate Advances or Eurodollar Advances and, until the Termination Date, Borrowers may Convert all or part of one Type of Advance into another Type of Advance or Continue all or part of any Eurodollar Advance. Advances of each Type made by each Lender shall be made and maintained at such Lender's Applicable Lending Office for Advances of such Type. Section 2.2 NOTES. The obligation of the Borrowers to repay each Lender for Advances made by such Lender and interest thereon shall be evidenced by a Note executed by the Borrowers, payable to the order of such Lender, in the principal amount of such Lender's Commitment as in effect on the date hereof, and initially dated the date hereof. On any date that a newly formed or acquired Material Subsidiary becomes a party to this Agreement pursuant to SECTION 6.5 hereof, the Borrowers shall execute new Notes payable to each Lender, in the principal amount of such Lender's Commitment as in effect on such date. Section 2.3 REPAYMENT OF ADVANCES. The Borrowers shall repay the unpaid principal amount of all Advances as provided in SECTIONS 2.9, 2.10, and 4.3 and on the Termination Date. Section 2.4 INTEREST. The unpaid principal amount of the Advances shall bear interest prior to maturity at a varying rate per annum equal from day to day to the lesser of (a) the Maximum Rate, or (b) the Applicable Rate. Interest shall be computed on the basis of a year of 360 days and the actual number of days elapsed (including the first day but excluding the last day) unless such calculation would result in a usurious rate, in which case interest shall be calculated on the basis of a year of 365 or 366 days, as the case may be. If at any time the Applicable Rate for any Advance shall exceed the Maximum Rate, thereby causing the interest accruing on such Advance to be limited to the Maximum Rate, then any subsequent reduction in the Applicable Rate for such Advance shall not reduce the rate of interest on such Advance below the Maximum Rate until the aggregate amount of interest accrued on such Advance equals the aggregate amount of interest which would have accrued on such Advance if the Applicable Rate had at all times been in effect. Accrued and unpaid interest on the Advances shall be due and payable as follows: (i) in the case of Base Rate Advances, on each Quarterly Payment Date; (ii) in the case of each Eurodollar Advance, on the last day of the Interest Period with respect thereto and, in the case of an Interest Period greater than three months, at three-month intervals after the first day of such Interest Period; (iii) upon the payment or prepayment of any Advance or the Conversion of any Advance to an Advance of another Type (but only on the principal amount so paid, prepaid, or Converted); and (iv) on the Termination Date. All past due principal and interest shall bear interest at the Default Rate. Interest payable at the Default Rate shall be payable from time to time on demand. Section 2.5 BORROWING PROCEDURE. The Borrowers shall give the Administrative Agent notice of each requested Advance, by means of an Advance Request Form, before 9:00 A.M. San Francisco, California time on the same Business Day as the requested date of each Base Rate Advance and before 9:00 A.M. San Francisco, California time at least three Business Days before the requested date of each Eurodollar Advance, specifying: (i) the requested date of such Advance (which shall be a Business Day), (ii) the amount of such Advance, (iii) the Type of the Advance, and (iv) in the case of a Eurodollar Advance, the duration of the Interest Period for such Advance. The Administrative Agent at its option may accept telephonic requests for Advances, provided that such acceptance shall not constitute a waiver of the Administrative Agent's right to delivery of an Advance Request Form in connection with subsequent Advances. Any telephonic request for an Advance by the Borrowers shall be promptly confirmed by submission of a properly completed Advance Request Form to the Administrative Agent. Each Advance shall be in a minimum principal amount of $5,000,000 or such greater amount which is an integral multiple of $5,000,000. The aggregate principal amount of Eurodollar Advances having the same Interest Period shall be at least equal to $5,000,000. The Administrative Agent shall notify each Lender of the contents of each such notice on the day such notice is received by Administrative Agent if received by 11:00 a.m. Houston, Texas time on a Business Day and otherwise on the next succeeding Business Day. Promptly on the date specified for each Advance hereunder, each Lender will make available to the Administrative Agent at the Principal Office in immediately available funds, for the account of the Borrowers, such Lender's pro rata share of each Advance. After the Administrative Agent's receipt of such funds and subject to the terms and conditions of this Agreement, the Administrative Agent will make each Advance available to the Borrowers by depositing the same, in immediately available funds, in an account of the Borrowers maintained with the Administrative Agent designated by the Borrowers or by wire transfer in accordance with written instructions from the Borrowers. All notices by the Borrowers to the Administrative Agent under this Section shall be irrevocable and shall be given not later than the time specified above for such notice on the day which is not less than the number of Business Days specified above for such notice. Section 2.6 CONVERSIONS AND CONTINUATIONS. The Borrowers shall have the right from time to time to Convert all or part of one Type of Advance into another Type of Advance or to Continue all or part of any Eurodollar Advance by giving the Administrative Agent written notice (by means of an Advance Request Form) at least one Business Day before Conversion into a Base Rate Advance, and at least three Business Days before Conversion into or Continuation of a Eurodollar Advance, specifying: (i) the Conversion or Continuation date, (ii) the amount of the Advance to be Converted or Continued, (iii) in the case of Conversions, the Type of Advance to be Converted into, and (iv) in the case of a Continuation of or Conversion into a Eurodollar Advance, the duration of the Interest Period applicable thereto; provided that (a) Eurodollar Advances may only be Converted on the last day of the Interest Period, (b) except for Conversions to Base Rate Advances, no Conversions shall be made while a Default has occurred and is continuing and no Continuations of any Eurodollar Advances shall be made while a Default has occurred and is continuing, unless such Conversion or Continuation has been approved by Required Lenders, and (c) the aggregate principal amount of Eurodollar Advances having the same Interest Period shall be at least equal to $5,000,000. All notices given under this Section shall be irrevocable and shall be given not later than 9:00 A.M. San Francisco, California time on the day which is not less than the number of Business Days specified above for such notice. If the Borrowers shall fail to give the Administrative Agent the notice as specified above for Continuation or Conversion of a Eurodollar Advance prior to the end of the Interest Period with respect thereto, such Eurodollar Advance shall automatically be Converted into a Base Rate Advance on the last day of the Interest Period for such Eurodollar Advance. Section 2.7 USE OF PROCEEDS. The proceeds of Advances shall be used by the Borrowers and their Subsidiaries for working capital in the ordinary course of business, for general corporate purposes, to refinance existing Debt, and to finance all or a portion of the purchase price for acquisitions permitted by SECTION 10.3 hereof. Section 2.8 COMMITMENT FEE. The Borrowers agree, jointly and severally, to pay to the Administrative Agent for the account of each Lender a commitment fee on the daily average unused amount of such Lender's Commitment at the rate of 0.375% per annum based on a 360 day year and the actual number of days elapsed. For the purpose of calculating the commitment fee hereunder, the Commitments shall be deemed utilized by the amount of all outstanding Advances and Letter of Credit Liabilities. Accrued commitment fees shall be payable in arrears on each Quarterly Payment Date and on the Termination Date. Section 2.9 VOLUNTARY REDUCTION OR TERMINATION OF COMMITMENTS. The Borrowers shall have the right to terminate in whole or reduce in part to $75,000,000 the unused portion of the Commitments upon at least five Business Days prior notice (which notice shall be irrevocable) to the Administrative Agent specifying the effective date thereof, whether a termination or reduction is being made, and the amount of any partial reduction, provided that each partial reduction shall be in a minimum amount of $5,000,000 or such greater amount which is an integral multiple of $5,000,000 and the Borrowers shall, jointly and severally, simultaneously prepay the amount by which the unpaid principal amount of the Advances exceeds the Commitments (after giving effect to such notice) plus accrued and unpaid interest on the principal amount so prepaid. The Commitments may not be reinstated after they have been terminated or reduced. Section 2.10 MANDATORY PRINCIPAL PAYMENTS. Within 365 days of the date of each sale of assets permitted hereunder (other than sales of inventory in the ordinary course of business) by any Borrower or any Subsidiary resulting in Net Proceeds which, when aggregated with the Net Proceeds from all other such permitted sales of assets in the same fiscal year, exceed $5,000,000, and which are not reinvested in or used to purchase assets of equivalent value and usefulness during such 365-day period (i) the Commitments shall automatically reduce by the amount of the Net Proceeds from the sale of assets occurring on such date, and (ii) such Borrower shall simultaneously prepay the amount by which the unpaid principal amount of the Advances exceeds the Commitments (after giving effect to such reduction) plus accrued and unpaid interest on the principal amount so prepaid. Section 2.11 ADMINISTRATIVE FEE. The Parent Guarantor has agreed to pay to the Administrative Agent, solely for its own account, an annual administrative fee as separately agreed between the Parent Guarantor and the Administrative Agent under the Prior Credit Agreement. The Parent Guarantor acknowledges that such obligation shall continue under this Agreement. Section 2.12 CO-BORROWERS; JOINT AND SEVERAL LIABILITY. (a) Each Borrower acknowledges and agrees that it has determined independently that, in light of the conduct of the business of Borrowers as an integrated operation and a common enterprise that requires financing on a basis permitting the availability of credit to each Borrower, it will benefit specifically, directly and materially from the advances of credit contemplated by Lenders' financing and that the value of the consideration it is receiving from the Advances made hereunder is reasonably worth at least the sum at which it is taken by such Borrower. (b) It is expressly agreed and understood by each Borrower that Agents and Lenders shall have no responsibility to inquire into the apportionment, allocation, or disposition of any Advances made to Borrowers. All Advances are to be made for the collective account of Borrowers. (c) Each Borrower hereby jointly, severally, irrevocably and unconditionally guarantees to Agents and Lenders the full and prompt payment of each of the obligations under the Loan Documents by each other Borrower and the performance by each other Borrower of such Borrower's obligations hereunder and thereunder and shall fully and promptly perform all of the Obligations (other than the Parent Obligations), and agrees, as a primary obligation, to indemnify Agents and Lenders on demand for and against any loss incurred by Agents and Lenders as a result of any voidable, unenforceable, or ineffective provision herein or in any of the Loan Documents, for any reason whatsoever, whether or not known to Agents any Lender, or any person, firm or entity, the amount of such loss being in the amount to which Agents and Lenders would otherwise have been entitled to recover from Borrowers. This is a guaranty of payment and of performance and not of collection. (d) Each Borrower consents and agrees that Agents and Lenders may, at any time and from time to time, without notice or demand, except as otherwise required herein, whether before or after any actual or purported termination, repudiation or revocation of any of the Loan Documents, including this Agreement, by any one or more Borrowers, and without affecting the enforceability or continuing effectiveness hereof as to each Borrower, agree with one or more Borrowers or any other person, firm or entity to: (i) supplement, restate, compromise, modify, amend, increase, decrease, extend, discharge, renew, accelerate or otherwise change the time for payment or the terms of the Obligations or any part thereof, including any increase or decrease of the rate(s) of interest thereon; (ii) supplement, restate, modify, amend, increase, decrease or waive, or enter into or give any agreement, approval or consent with respect to, the Obligations or any part thereof, or any of the Loan Documents or any additional security or guarantees, or any condition, covenant, default, remedy, right, representation or term thereof or thereunder; (iii) accept new or additional instruments, documents or agreements in exchange for or relative to any of the Loan Documents or the Obligations or any part thereof; (iv) accept partial payments on the Obligations; (v) receive and hold additional security or guarantees for the Obligations or any part thereof; (vi) release, reconvey, terminate, waive, abandon, fail to perfect, subordinate, exchange, substitute, transfer or enforce any security or guarantees, and apply any security and direct the order or manner of the sale thereof as Agents in their sole and absolute discretion may determine; (vii) release any person, firm or entity from any personal liability with respect to the Obligations or any part thereof; (viii) settle, discharge, release on terms satisfactory to the Agents and the Lenders or by operation of applicable laws or otherwise liquidate or enforce any Obligations and any security therefor or guaranty thereof in any manner, consent to the transfer of any security and bid and purchase at any sale; (ix) consent to the merger, change or any other restructuring or termination of the corporate existence of any Borrower and correspondingly restructure the Obligations, and any such merger, change, restructuring or termination shall not affect the liability of any Borrower or the continuing effectiveness hereof, or the enforceability hereof with respect to all or any part of the Obligations, or (x) take or refrain from taking any other action as Agents and Lenders, in their sole and absolute discretion, may elect, or any or some of the foregoing. (e) Agents and Lenders may enforce this Agreement independently as to each Borrower and the Parent Guarantor and independently of any other remedy or security Agents and Lenders at any time may have or hold in connection with the Obligations or the Loan Documents, or both, and it shall not be necessary for Agents and Lenders to marshal assets in favor of any Borrower or any other person, firm or entity or to proceed upon or against or exhaust any security or remedy before proceeding to enforce this Agreement. Each Borrower and the Parent Guarantor expressly waives any right to require Agents and Lenders to marshal assets in favor of any Borrower, the Parent Guarantor or any other person, firm or entity or to proceed against the Parent Guarantor, any other Borrower or any collateral provided by any person, firm or entity, and agrees that Agents and Lenders may proceed against the Parent Guarantor, one or more Borrowers or any Collateral in such order as it shall determine in its sole and absolute discretion. (f) If any Borrower makes a payment in respect of the Obligations (other than the Parent Obligations), it shall have the rights of contribution and reimbursement set forth below against the other Borrowers, and shall be indemnified as set forth below; PROVIDED that no Borrower shall enforce its rights to any payment by exercising its rights of contribution, reimbursement or indemnification unless and until all the Obligations shall have been paid in full. Each Borrower waives any right of subrogation, contribution, reimbursement, and other rights of indemnity it may have against the Parent Guarantor. (g) If any Borrower makes a payment in respect of the Obligations (other than the Parent Obligations) that is greater than its Pro Rata Percentage (hereinafter defined) of the Obligations (other than the Parent Obligations), calculated as of the date such payment is made, the Borrower making such payment shall have the right to receive from each of the other Borrowers, and the other Borrowers jointly and severally agree to pay to such Borrower, when permitted by paragraph (f) above, an amount such that the net payments made by the Borrowers in respect of the Obligations (other than the Parent Obligations) shall be shared among the Borrowers pro rata in proportion to their respective Pro Rata Percentages of the Obligations (other than the Parent Obligations). The Borrowers hereby jointly and severally indemnify each of the other Borrowers and jointly and severally agree to hold each of them harmless from and against any and all amounts which any such Borrower shall ever be required to pay in respect of the Obligations (other than the Parent Obligations) in excess of such Borrower's respective Pro Rata Percentage of the Obligations (other than the Parent Obligations). Notwithstanding anything to the contrary contained in this paragraph or in this Agreement, no liability or obligation of any Borrower that shall accrue pursuant to this Agreement shall be paid nor shall it be deemed owed pursuant to this Agreement or any Loan Documents unless and until all of the Obligations (other than the Parent Obligations) shall be paid in full. As used herein, the term "PRO RATA PERCENTAGE" shall mean, for each Borrower, the percentage derived by dividing (a) the amount by which the fair saleable value of its assets on December 22, 1997 exceeds its liabilities (such excess for each Borrower, its "NET WORTH"), by (b) the Net Worth of all of the Borrowers. (h) Agents and Lenders may file a separate action or actions against any Borrower, whether such action is brought or prosecuted with respect to any security or against any other person, firm or entity, or whether any other person, firm or entity is joined in any such action or actions. Each Borrower agrees that Agents and Lenders and any Borrower and any affiliate of any Borrower may deal with each other in connection with the Obligations or otherwise, or alter any contracts or agreements now or hereafter existing between any of them, in any manner whatsoever, all without in any way altering or affecting the continuing efficacy of this Agreement. (i) Agents and Lenders' rights hereunder shall be reinstated and revived, and the enforceability of this Agreement shall continue, with respect to any amount at any time paid on account of the Obligations that thereafter shall be required to be restored or returned by Agents and Lenders, all as though such amount had not been paid. The rights of Agents and Lenders created or granted herein and the enforceability of this Agreement at all times shall remain effective to cover the full amount of all the Obligations even though the Obligations, including any part thereof or any other security or guaranty therefor, may be or hereafter may become invalid or otherwise unenforceable as against the Parent Guarantor or any Borrower and whether or not the Parent Guarantor or any other Borrower shall have any personal liability with respect thereto. (j) To the maximum extent permitted by applicable law, the Parent Guarantor and each Borrower expressly waives any and all defenses now or hereafter arising or asserted by reason of (i) any disability or other defense of the Parent Guarantor or any other Borrower with respect to the Obligations, (ii) the unenforceability or invalidity of any security or guaranty for the Obligations or the lack of perfection or continuing perfection or failure of priority of any security for the Obligations, (iii) the cessation for any cause whatsoever of the liability of the Parent Guarantor or any other Borrower (other than by reason of the full payment and performance of all Obligations), (iv) any failure of Agents and Lenders to marshal assets in favor of the Parent Guarantor, any Borrower or any other person, firm or entity, (v) any failure of Agents and Lenders to give notice of sale or other disposition of Collateral to the Parent Guarantor, any Borrower or any other person, firm or entity or any defect in any notice that may be given in connection with any sale or disposition of collateral, (vi) any failure of Agents and Lenders to comply with applicable law in connection with the sale or other disposition of any Collateral or other security for any Obligation, including any failure of Agents and Lenders to conduct a commercially reasonable sale or other disposition of any Collateral or other security for any Obligation, (vii) any act or omission of Agents and Lenders or others that directly or indirectly results in or aids the discharge or release of any of the Parent Guarantor, any Borrower, or the Obligations or any security or guaranty therefor by operation of law or otherwise, (viii) any law which provides that the obligation of a surety or guarantor must neither be larger in amount nor in other respects more burdensome than that of the principal or which reduces a surety's or guarantor's obligation in proportion to the principal obligation, (ix) any failure of Agents and Lenders to file or enforce a claim in any bankruptcy or other proceeding with respect to any person, firm or entity, (x) the election by Agents and Lenders of the application or non-application of Section 1111(b)(2) of the Federal Bankruptcy Code, (xi) any extension of credit or the grant of any lien under Section 364 of the Federal Bankruptcy Code, (xii) any use of cash collateral under Section 363 of the Federal Bankruptcy Code, (xiii) any agreement or stipulation with respect to the provision of adequate protection in any bankruptcy proceeding of any person, firm or entity, (xiv) the avoidance of any lien in favor of Agents and Lenders for any reason, or (xv) any action taken by Agents and Lenders that is authorized by this Agreement or any Loan Document. Until such time, if any, as all of the Obligations have been paid and performed in full and no portion of any commitment of Agents and Lenders to the Parent Guarantor or any Borrower under any Loan Document remains in effect, no Borrower shall have any right of subrogation, contribution, reimbursement or indemnity, and each Borrower expressly waives any right to enforce any remedy that Agents and Lenders now has or hereafter may have against any other person, firm or entity and waives the benefit of, or any right to participate in, any Collateral now or hereafter held by Agents and Lenders. The Parent Guarantor and each Borrower expressly waive all presentments, demands for payment or performance, notices of nonpayment, notices of intent to accelerate, notices of acceleration and notices of nonperformance, protests, notices of protest, notices of dishonor and all other notices or demands of any kind or nature whatsoever with respect to the Obligations, and all notices of acceptance of this Agreement or of the existence, creation or incurring of new or additional Obligations. (k) To the fullest extent permitted by applicable law, each Borrower expressly waives any suretyship defenses to the enforcement of this Agreement or any rights of Agents and Lenders created or granted hereby or to the recovery by any such person, firm or entity, including the Parent Guarantor, against any Borrower, or any other person, firm or entity liable therefor of any deficiency after a judicial or nonjudicial foreclosure or sale, even though such a foreclosure or sale may impair the subrogation rights of Borrowers and may preclude Borrowers from obtaining reimbursement or contribution from the other Borrowers. Each Borrower expressly waives any defenses or benefits that may be derived pursuant to or from Rule 31 of the Texas Rules of Civil Procedure, Section 17.001 of the Civil Practice and Remedies Code and Chapter 34 of the Texas Business and Commerce Code, as amended, or comparable provisions of the laws of any other jurisdiction, and all other suretyship defenses it otherwise might or would have under Texas law or other applicable law. (l) The Parent Guarantor and each Borrower warrant and agree that each of the waivers and consents set forth in this SECTION 2.12 are made after consultation with legal counsel and with full knowledge of their significance and consequences, with the understanding that events giving rise to any defense or right waived may diminish, destroy or otherwise adversely affect rights which the Parent Guarantor or such Borrower otherwise may have against the Parent Guarantor, the other Borrowers, Agents and Lenders or others, or against Collateral, and that, under the circumstances, the waivers and consents herein given are reasonable and not contrary to public policy or law. If any of the waivers or consents herein are determined to be contrary to any applicable law or public policy, such waivers and consents shall be effective to the maximum extent permitted by law. (m) Each Borrower represents and warrants to Agents and Lenders that (i) such Borrower has established adequate means of obtaining from the other Borrowers on a continuing basis financial and other information pertaining to the business, operations, and condition (financial and otherwise) of the other Borrowers, and their property, and (ii) such Borrower now is and hereafter will be completely familiar with the business, operations and condition (financial and otherwise) of the other Borrowers, and their property. Each Borrower hereby waives and relinquishes any duty on the part of Agents and Lenders to disclose to such Borrower any matter, fact or thing relating to the business, operations or condition (financial or otherwise) of the other Borrowers, or the property of the other Borrowers, whether now or hereafter known by Agents and Lenders during the term of this Agreement. ARTICLE III LETTERS OF CREDIT Section 3.1 LETTERS OF CREDIT. Subject to the terms and conditions of this Agreement, the Administrative Agent agrees to issue, (i) at the request of the Borrowers, one or more standby Letters of Credit for the account of any Borrower or any Subsidiary and (ii) at the request of the Parent Guarantor, one or more standby Letters of Credit for the account of the Parent Guarantor (collectively, the "PARENT LETTERS OF CREDIT") from time to time from the date hereof to and including the Termination Date; PROVIDED, HOWEVER, that the outstanding Letter of Credit Liabilities shall not at any time exceed, and the Administrative Agent shall not be obligated to issue any Letter of Credit which would cause the outstanding Letter of Credit Liabilities to exceed, an amount equal to (a) the least of (1) $25,000,000, (2) the aggregate amount of the Commitments or (3) the Borrowing Base, minus (b) the outstanding Advances. Each Letter of Credit may be issued for the account of or used by the Parent Guarantor, any Borrower or any Subsidiary, but the Borrowers shall have full liability for each Letter of Credit other than the Parent Letters of Credit, for which the Borrowers shall have no liability. Each Letter of Credit shall have an expiration date that does not extend beyond the Termination Date, shall be payable in Dollars, shall have a minimum face amount of $50,000, must support a transaction that is entered into in the ordinary course of the Parent Guarantor's, any Borrower's or a Subsidiary's business, must support a transaction or purpose approved by the Administrative Agent in the exercise of its reasonable business judgment, must be reasonably satisfactory in form and substance to the Administrative Agent, and shall be issued pursuant to such documents and instruments (including, without limitation, the Administrative Agent's standard application for issuance of standby letters of credit, as the case may be, as then in effect [each an "L/C APPLICATION"]) as the Administrative Agent may require (collectively, the "L/C DOCUMENTS"). However, the form of L/C Application may be changed by the Administrative Agent from time to time without notice to the Borrowers or the Lenders. Section 3.2 PROCEDURE FOR ISSUING LETTERS OF CREDIT. Each Letter of Credit shall be issued on at least four Business Days prior notice from the Parent Guarantor or the Borrowers, as applicable, to the Administrative Agent by means of a Letter of Credit Request Form describing the transaction proposed to be supported thereby and specifying (a) the requested date of issuance (which shall be a Business Day), (b) the face amount of the Letter of Credit, (c) the expiration date of the Letter of Credit, (d) the name and address of the beneficiary, and (e) the name and address of the account party (which shall be the Parent Guarantor, a Borrower or a Subsidiary of a Borrower), (f) the purpose for which such Letter of Credit will be used, and (g) the form of the draft and any other documents required to be presented at the time of any drawing (such notice to set forth the exact wording of such documents or to attach copies thereof). The Administrative Agent shall notify each Lender of the contents of each such notice on the day such notice is received by Administrative Agent if received by 11:00 a.m. Houston, Texas time on a Business Day and otherwise on the next succeeding Business Day. Section 3.3 PARTICIPATION BY LENDERS. Immediately upon the Administrative Agent's issuance of any Letter of Credit on or after the date hereof, the Administrative Agent shall be deemed to have sold and transferred to each other Lender and each other Lender shall be deemed irrevocably and unconditionally to have purchased and received from the Administrative Agent, without recourse or warranty, an undivided interest and participation (to the extent of such Lender's pro rata share of the Commitments) in such Letter of Credit and all applicable rights of the Administrative Agent in such Letter of Credit. The Administrative Agent shall provide to each other Lender a copy of each Letter of Credit issued on or after the date hereof, promptly after issuance. Section 3.4 PAYMENTS CONSTITUTE ADVANCES AND PARENT REIMBURSEMENT OBLIGATIONS. Each payment by the Administrative Agent pursuant to a drawing under a Letter of Credit (excluding the Parent Letters of Credit) shall constitute and be deemed a Base Rate Advance by each Lender to the Borrowers under such Lender's Note and this Agreement as of the day and time such payment is made by the Administrative Agent and in the amount of such Lender's pro rata share of such payment. Each payment by the Administrative Agent pursuant to a drawing under a Parent Letter of Credit shall constitute and be deemed an advance of funds by each Lender to the Parent Guarantor as of the day and time such payment is made by the Administrative Agent and in the amount of such Lender's pro rata share of such payment. Promptly on the date of each payment by the Administrative Agent pursuant to a drawing under a Letter of Credit (including the Parent Letters of Credit) and after receipt of notice from the Administrative Agent as to the amount of such payment, each Lender will make available to the Administrative Agent at the Principal Office in immediately available funds, such Lender's pro rata share of such payment. The Parent Guarantor agrees to, immediately upon demand by the Administrative Agent, reimburse the Lenders for the full amount of each payment made by the Administrative Agent on a Parent Letter of Credit (collectively, the "PARENT REIMBURSEMENT OBLIGATIONS"). All past due Parent Reimbursement Obligations shall bear interest at the Default Rate. Section 3.5 LETTER OF CREDIT FEES. (a) The Borrowers shall, jointly and severally, pay to the Administrative Agent for the account of the Lenders a letter of credit fee in an amount equal to 0.75% per annum on the undrawn amount of each Letter of Credit (other than Parent Letters of Credit) based upon a year of 360 days for the period during which such Letter of Credit is outstanding, payable quarterly in advance on a non-refundable basis on the date each such Letter of Credit is issued and on each quarterly anniversary date thereof while such Letter of Credit remains outstanding. The Borrowers shall, jointly and severally, pay to the Administrative Agent, solely for its own account, a nonrefundable issuance and fronting fee for each Letter of Credit (other than Parent Letters of Credit) in an amount equal to 0.25% per annum of the face amount of such Letter of Credit for the period during which such Letter of Credit is outstanding, calculated on the basis of a year of 360 days and payable on the date each such Letter of Credit is issued. The Borrowers shall also, jointly and severally, pay to the Administrative Agent, solely for its own account as issuer of Letters of Credit, such amendment, transfer, negotiation and other fees as the Administrative Agent shall charge in accordance with its customary practices. (b) The Parent Guarantor shall pay to the Administrative Agent for the account of the Lenders a letter of credit fee in an amount equal to 0.75% per annum on the undrawn amount of each Parent Letter of Credit based upon a year of 360 days for the period during which such Parent Letter of Credit is outstanding, payable quarterly in advance on a non-refundable basis on the date each such Parent Letter of Credit is issued and on each quarterly anniversary date thereof while such Parent Letter of Credit remains outstanding. The Parent Guarantor shall pay to the Administrative Agent, solely for its own account, a nonrefundable issuance and fronting fee for each Parent Letter of Credit in an amount equal to 0.25% per annum of the face amount of such Parent Letter of Credit for the period during which such Parent Letter of Credit is outstanding, calculated on the basis of a year of 360 days and payable on the date each such Parent Letter of Credit is issued. The Parent Guarantor shall also pay to the Administrative Agent, solely for its own account as issuer of Letters of Credit, such amendment, transfer, negotiation and other fees as the Administrative Agent shall charge in accordance with its customary practices. Section 3.6 ISSUER'S RESPONSIBILITIES. The Administrative Agent agrees with each Lender that it will exercise and give the same care and attention to each Letter of Credit as it gives to its other letters of credit. Each Lender, the Parent Guarantor, and each Borrower agree that, in paying any draft or draw under any Letter of Credit, the Administrative Agent has no responsibility to obtain any document (other than any documents expressly required by the respective Letter of Credit) or to ascertain or inquire as to any document's validity, enforceability, sufficiency, accuracy or genuineness or the authority of any Person delivering it. Neither the Administrative Agent nor any of its representatives, directors, officers, employees, attorneys or agents shall be liable to any Lender, the Parent Guarantor, any Borrower or any Subsidiary for any Letter of Credit's use or for any beneficiary's acts or omissions. The Administrative Agent shall have no liability to the Parent Guarantor, any Borrower or any Lender for any action, inaction, error, delay or omission taken or suffered by the Administrative Agent or any of its representatives, directors, officers, employees, attorneys or agents in connection with any Letter of Credit, applicable draws, drafts or documents, or the transmission, dispatch or delivery of any related message or advice, if done, taken or made in accordance with the L/C Documents. Section 3.7 LETTER OF CREDIT DOCUMENTS. Certain additional provisions regarding the obligations, liabilities, rights, remedies and agreements of the Parent Guarantor, the Borrowers and the Administrative Agent relative to the Letters of Credit shall be set forth in the L/C Documents. The terms of this Agreement shall control any express conflict between the terms of this Agreement and the terms of any L/C Application. Omission of any term shall not be construed as an express conflict. ARTICLE IV PAYMENTS Section 4.1 METHOD OF PAYMENT. All payments of principal, interest, and other amounts to be made by the Borrowers under this Agreement and the other Loan Documents shall be made to the Administrative Agent at the Principal Office in Dollars and immediately available funds, without setoff, deduction, or counterclaim, not later than 11:00 A.M., Houston, Texas time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). The Borrowers shall, at the time of making each such payment, specify to the Administrative Agent the sums payable by the Borrowers under this Agreement and the other Loan Documents to which such payment is to be applied (and in the event the Borrowers fail to so specify, or if an Event of Default has occurred and is continuing, the Administrative Agent may apply such payment to the Obligations (other than the Parent Obligations) in such order and manner as it may elect in its sole discretion, subject to SECTION 4.4 hereof). Each payment received by the Administrative Agent under this Agreement or any other Loan Document for the account of a Lender shall be paid promptly to such Lender, in immediately available funds, for the account of such Lender's Applicable Lending Office. Whenever any payment under this Agreement or any other Loan Document shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of the payment of interest and commitment fee, as the case may be. Section 4.2 VOLUNTARY PREPAYMENT. The Borrowers may, upon at least three Business Days' prior notice to the Administrative Agent prepay the Advances in whole at any time or from time to time in part without premium or penalty, provided that Eurodollar Advances prepaid on other than the last day of the Interest Period for such Advances must also be accompanied by payment to the Administrative Agent for the account of each Lender the amounts required under SECTION 5.5 hereof. All notices under this Section shall be irrevocable and shall be given not later than 11:00 A.M. Houston, Texas time on the day which is not less than the number of Business Days specified above for such notice. Section 4.3 MANDATORY PREPAYMENT. If at any time the amount equal to the sum of (i) the outstanding principal amount of the Advances, plus (ii) the Letter of Credit Liabilities exceeds the Borrowing Base, the Borrowers shall, jointly and severally, promptly prepay the outstanding Advances by the amount of the excess plus accrued and unpaid interest on the amount so prepaid or, if no Advances are outstanding, the Borrowers shall immediately pledge to the Administrative Agent cash or cash equivalent investments acceptable to the Administrative Agent in an amount equal to the excess as security for the Obligations. Section 4.4 PRO RATA TREATMENT. Except to the extent otherwise provided herein: (a) each Advance shall be made by the Lenders under SECTION 2.1 or deemed made by the Lenders under SECTION 3.4, each payment of the commitment fee under SECTION 2.8 and each letter of credit fee under SECTION 3.5 shall be made for the account of the Lenders, each termination or reduction of the Commitments under SECTIONS 2.9 and 2.10 shall be applied to the Commitments of the Lenders, and each Letter of Credit shall be deemed participated in by the Lenders, pro rata according to the amounts of their respective Commitments; (b) the making, Conversion, and Continuation of Advances of a particular Type (other than Conversions provided for by SECTION 5.4) shall be made pro rata among the Lenders holding Advances of such Type according to the amounts of their respective Commitments; (c) each payment and prepayment of principal of or interest on Advances by the Borrowers of a particular Type shall be made to the Administrative Agent for the account of the Lenders holding Advances of such Type pro rata in accordance with the respective unpaid principal amounts of such Advances held by such Lenders; and (d) Interest Periods for Advances of a particular Type shall be allocated among the Lenders holding Advances of such Type pro rata according to the respective principal amounts held by such Lenders. Section 4.5 NON-RECEIPT OF FUNDS. Unless the Administrative Agent shall have been notified by a Lender or the Borrowers (the "PAYOR") prior to the date on which such Lender is to make payment to the Administrative Agent of the proceeds of an Advance to be made by it hereunder or the Borrowers are to make a payment to the Administrative Agent for the account of one or more of the Lenders, as the case may be (such payment being herein called the "REQUIRED PAYMENT"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Administrative Agent, the Administrative Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient on such date and, if the Payor has not in fact made the Required Payment to the Administrative Agent, the recipient of such payment shall, on demand, pay to the Administrative Agent the amount made available to it together with interest thereon in respect of the period commencing on the date such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to (a) the Federal Funds Effective Rate for such period if the recipient is a Lender or (b) the Applicable Rate for such period if the recipients are the Borrowers. Section 4.6 WITHHOLDING TAXES. All payments by the Borrowers of principal of and interest on the Advances and of all fees and other amounts payable under any Loan Document are payable without deduction for or on account of any present or future taxes, duties or other charges levied or imposed by the United States of America or by the government of any jurisdiction outside the United States of America or by any political subdivision or taxing authority of or in any of the foregoing through withholding or deduction with respect to any such payments. If any such taxes, duties or other charges are so levied or imposed, the Borrowers will, jointly and severally, pay additional interest or will, jointly and severally, make additional payments in such amounts so that every net payment of principal of and interest on the Advances and of all other amounts payable by it under any Loan Document, after withholding or deduction for or on account of any such present or future taxes, duties or other charges, will not be less than the amount provided for herein or therein, provided that the Borrowers shall have no obligation to pay such additional amounts to any Lender to the extent that such taxes, duties, or other charges are levied or imposed by reason of the failure of such Lender to comply with the provisions of SECTION 4.7. The Borrowers shall furnish promptly to the Administrative Agent for distribution to each affected Lender, as the case may be, official receipts evidencing any such withholding or reduction. Section 4.7 WITHHOLDING TAX EXEMPTION. Each Lender that is not incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to the Borrowers and the Administrative Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Lender is entitled to receive payments from the Borrowers under any Loan Document without deduction or withholding of any United States federal income taxes. Each Lender which so delivers a Form 1001 or 4224 further undertakes to deliver to Borrowers and the Administrative Agent two additional copies of such form (or a successor form) on or before the date such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Borrowers or the Administrative Agent, in each case certifying that such Lender is entitled to receive payments from the Borrowers under any Loan Document without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender advises the Borrowers and the Administrative Agent that it is not capable of receiving such payments without any deduction or withholding of United States federal income tax. Section 4.8 AUTOMATIC PAYMENT. In addition to the payment methods provided in ARTICLE IV hereof, the Administrative Agent shall have the right to automatically debit the account of Pride Offshore, Inc., Account No. 4311845432, for the payment of principal, interest, fees and other amounts to be made by the Borrowers under this Agreement and the other Loan Documents. In the event such automatic debit results in an overdraft, such overdraft shall be deemed to be an Advance, if available, under this Agreement, or if an Advance is not made hereunder, the Borrowers shall immediately deposit sufficient funds into such operating account to cover such overdraft. ARTICLE V YIELD PROTECTION; LIMITATIONS ON ADVANCES; CAPITAL ADEQUACY Section 5.1 ADDITIONAL COSTS. (a) The Borrowers shall, jointly and severally, pay directly to each Lender from time to time such amounts as such Lender may determine to be necessary to compensate it for any costs incurred by such Lender which such Lender determines are attributable to its making or maintaining of any Eurodollar Advances hereunder or its obligation to make such Advances hereunder, or any reduction in any amount receivable by such Lender hereunder in respect of any such Advances or such obligation (such increases in costs and reductions in amounts receivable being herein called "ADDITIONAL COSTS"), resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to such Lender under this Agreement or its Note in respect of any Eurodollar Advances (other than taxes imposed on the overall net income of such Lender or its Applicable Lending Office for any Eurodollar Advances by the jurisdiction in which such Lender has its principal office or such Applicable Lending Office); (ii) imposes or modifies any reserve, special deposit, minimum capital, capital ratio, or similar requirement relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Lender (including any Eurodollar Advances or any deposits referred to in the definition of "Eurodollar Rate" in SECTION 1.1 hereof); or (iii) imposes any other condition affecting this Agreement or its Note or any of such extensions of credit or liabilities or commitments. Each Lender will notify the Borrowers (with a copy to the Administrative Agent) of any event occurring after the date of this Agreement which will entitle such Lender to compensation pursuant to this SECTION 5.1(A) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation, and will designate a different Applicable Lending Office for Eurodollar Advances if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Lender, violate any law, rule, or regulation or be in any way disadvantageous to such Lender, provided that such Lender shall have no obligation to so designate an Applicable Lending Office located outside the United States of America. Each Lender will furnish to the Borrowers, within 120 days after the occurrence of the event resulting in Additional Costs, a certificate setting forth the basis and the amount of each request of such Lender for compensation under this SECTION 5.1(A). If any Lender requests compensation from the Borrowers under this SECTION 5.1(A), the Borrowers may, by notice to such Lender (with a copy to Administrative Agent), suspend the obligation of such Lender to make or Continue making, or Convert Advances into, Eurodollar Advances until the Regulatory Change giving rise to such request ceases to be in effect (in which case the provisions of SECTION 5.4 hereof shall be applicable) and may convert any Eurodollar Advance into a Base Rate Advance, subject to the provisions of SECTION 5.5. (b) Without limiting the effect of the foregoing provisions of this SECTION 5.1, in the event that, by reason of any Regulatory Change, any Lender either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Lender which includes deposits by reference to which the interest rate on Eurodollar Advances is determined as provided in this Agreement or a category of extensions of credit or other assets of such Lender which includes Eurodollar Advances or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Lender so elects by notice to the Borrowers the obligation of such Lender to make or Continue making, or Convert Advances into, Eurodollar Advances hereunder shall be suspended until such Regulatory Change ceases to be in effect (in which case the provisions of SECTION 5.4 hereof shall be applicable). (c) Determinations and allocations by any Lender for purposes of this SECTION 5.1 of the effect of any Regulatory Change on its costs of maintaining its obligations to make Advances or of making or maintaining Advances or on amounts receivable by it in respect of Advances, and of the additional amounts required to compensate such Lender in respect of any Additional Costs, shall be conclusive, provided that such determinations and allocations are made on a reasonable basis. Section 5.2 LIMITATION ON TYPES OF ADVANCES. Anything herein to the contrary notwithstanding, if with respect to any Eurodollar Advances for any Interest Period therefor: (a) The Administrative Agent determines using its reasonable business judgment (which determination shall be conclusive) that quotations of interest rates for the relevant deposits referred to in the definition of "Eurodollar Rate" in SECTION 1.1 hereof are not being provided in the relative amounts or for the relative maturities for purposes of determining the rate of interest for such Advances as provided in this Agreement; or (b) Required Lenders determine using their reasonable business judgment (which determination shall be conclusive) that the relevant rates of interest referred to in the definition of "Eurodollar Rate" in SECTION 1.1 hereof on the basis of which the rate of interest for such Advances for such Interest Period is to be determined do not accurately reflect the cost to the Lenders of making or maintaining such Advances for such Interest Period; then the Administrative Agent shall give the Borrowers prompt notice thereof specifying relevant amounts or periods, and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Eurodollar Advances or to Convert Base Rate Advances into Eurodollar Advances and the Borrowers shall, on the last day(s) of the then current Interest Period(s) for the outstanding Eurodollar Advances, either prepay such Eurodollar Advances or Convert such Eurodollar Advances into Base Rate Advances in accordance with the terms of this Agreement. Section 5.3 ILLEGALITY. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to (a) honor its obligation to make Eurodollar Advances hereunder or (b) maintain Eurodollar Advances hereunder, then such Lender shall promptly notify the Borrowers (with a copy to the Administrative Agent) thereof and such Lender's obligation to make or maintain Eurodollar Advances and to Convert Base Rate Advances into Eurodollar Advances hereunder shall be suspended until such time as such Lender may again make and maintain Eurodollar Advances (in which case the provisions of SECTION 5.4 hereof shall be applicable). Section 5.4 SUBSTITUTE BASE RATE ADVANCES. If the obligation of any Lender to make Eurodollar Advances shall be suspended pursuant to SECTION 5.1 or 5.3 hereof, all Advances which would be otherwise made by such Lender as Eurodollar Advances shall be made instead as Base Rate Advances and all Advances which would otherwise be Converted into Eurodollar Advances shall be Converted instead into (or shall remain as) Base Rate Advances (and, if an event referred to in SECTION 5.1(B) or 5.3 hereof has occurred and such Lender so requests by notice to the Borrowers (with a copy to the Administrative Agent), all Eurodollar Advances of such Lender then outstanding shall be automatically Converted into Base Rate Advances on the date specified by such Lender in such notice) and, to the extent that Eurodollar Advances are so made as (or Converted into) Base Rate Advances, all payments and prepayments of principal which would otherwise be applied to such Lender's Eurodollar Advances shall be applied instead to its Base Rate Advances. Section 5.5 COMPENSATION. The Borrowers shall, jointly and severally, pay to the Administrative Agent for the account of each Lender, upon the request of such Lender through the Administrative Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any actual loss, cost, or expense (other than loss of profit) incurred by it as a result of: (a) Any payment, prepayment or Conversion of a Eurodollar Advance for any reason (including, without limitation, the acceleration of outstanding Advances pursuant to SECTION 12.2) on a date other than the last day of an Interest Period for such Advance; or (b) Any failure by the Borrowers for any reason (including, without limitation, the failure of any conditions precedent specified in ARTICLE VII to be satisfied) to borrow, Convert, Continue, or prepay a Eurodollar Advance on the date for such borrowing, Conversion, Continuation, or prepayment, specified in the relevant notice of borrowing, Conversion, Continuation, or prepayment under this Agreement. Such compensation shall equal an amount equal to the excess, if any, of (i) the amount of interest which otherwise would have accrued on the principal amount so paid or Converted or not borrowed for the period from the date of such payment, Conversion, or failure to borrow to the last day of the Interest Period for such Advance (or, in the case of a failure to borrow, the Interest Period for such Advance which would have commenced on the date specified for such borrowing) at the applicable rate of interest for such Advance provided for herein over (ii) the interest component of the amount such Lender would have bid in the London interbank market for Dollar deposits of leading lenders and amounts comparable to such principal amount and with maturities comparable to such period. Each Lender which requests compensation under this SECTION 5.5 shall provide to the Borrowers, at the time of the request, a calculation of the compensation requested, together with a description of the method of calculation. Section 5.6 CAPITAL ADEQUACY. If after the date hereof, any Lender shall have determined that any Regulatory Change or compliance by such Lender (or its parent) with any guideline, request, or directive regarding capital adequacy (whether or not having the force of law) of any such central bank or other Governmental Authority, has or would have the effect of reducing the rate of return on such Lender's (or its parent's) capital as a consequence of its obligations hereunder or the transactions contemplated hereby to a level below that which such Lender (or its parent) could have achieved but for such Regulatory Change or compliance (taking into consideration such Lender's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, within 10 Business Days after demand by such Lender (with a copy to the Administrative Agent), the Borrowers shall, jointly and severally, pay to such Lender (or its parent) such additional amount or amounts as will compensate such Lender for such reduction. Each Lender will furnish to the Borrowers, within 120 days after such Lender actually incurs such reduction in its rate of return, a certificate of such Lender claiming compensation under this Section and setting forth the basis and the additional amount or amounts to be paid to it hereunder. Each such certificate shall be conclusive, provided that the determination of such amount or amounts is made on a reasonable basis. In determining such amount or amounts, such Lender may use any reasonable averaging and attribution methods. Section 5.7 ADDITIONAL COSTS IN RESPECT OF LETTERS OF CREDIT. If as a result of any Regulatory Change there shall be imposed, modified, or deemed applicable any tax, reserve, special deposit, or similar requirement against or with respect to or measured by reference to Letters of Credit issued or to be issued hereunder or the Commitments to issue or participate in Letters of Credit hereunder, and the result shall be to increase the cost to the Administrative Agent or any Lender of issuing, maintaining or participating in any Letter of Credit or its Commitment to issue or participate in Letters of Credit hereunder or reduce any amount receivable by the Administrative Agent or any Lender hereunder in respect of any Letter of Credit (which increase in cost, or reduction in amount receivable, shall be the result of the Administrative Agent's or such Lender's reasonable allocation of the aggregate of such increases or reductions resulting from such event), then, upon demand by the Administrative Agent or such Lender, the Borrowers, jointly and severally, agree to pay the Administrative Agent or such Lender, as the case may be, from time to time as specified by the Administrative Agent or such Lender, as the case may be, such additional amounts as shall be sufficient to compensate the Administrative Agent or such Lender for such increased costs or reductions in amount. Each Lender will furnish to the Borrowers, within 180 days after such Lender actually incurs such increase in cost or reduction in amount receivable, a certificate of such Lender claiming compensation under this Section and setting forth the basis and the additional amount or amounts to be paid to it hereunder. Each such certificate shall be conclusive, provided that the determination of such amount or amounts is made on a reasonable basis. ARTICLE VI SECURITY Section 6.1 COLLATERAL. The Parent Guarantor and each Borrower hereby acknowledge, agree and confirm that, as continuing security for the full and complete payment and performance of the Obligations and the Guaranteed Obligations, the Parent Guarantor and each Borrower has executed and delivered or will execute and deliver the documents described below covering the property and collateral described in this SECTION 6.1 (which, together with any other property and collateral which may now or hereafter secure the Obligations or any part thereof, is sometimes herein called the "COLLATERAL"): (a) a security agreement granting to the Administrative Agent, for the pro rata benefit of the Lenders, a first priority security interest in all of the Parent Guarantor's or such Borrower's accounts, accounts receivable, inventory, chattel paper, documents, instruments and general intangibles, whether now owned or hereafter acquired, and all products and proceeds thereof, to the extent provided in such security agreement. (b) a pledge agreement, granting to the Administrative Agent, for the pro rata benefit of the Lenders, a first priority security interest, to the extent provided in the pledge agreement, in (a) all of the Parent Guarantor's or such Borrower's shares of capital stock and other equity interests of each Domestic Subsidiary, whether now owned or hereafter acquired by the Parent Guarantor or such Borrower, and (b) 66% of the shares of voting stock and other voting equity interests and all of the shares of non-voting preferred stock and other non-voting equity interests of each direct Foreign Subsidiary, whether now owned or hereafter acquired by the Parent Guarantor or such Borrower. (c) a first preferred ship mortgage, granting to the Administrative Agent, for the pro rata benefit of the Lenders, a first priority security interest, to the extent provided in the preferred ship mortgage, lien and mortgage in and to all of the Rigs. Section 6.2 FURTHER ASSURANCES. The Parent Guarantor and each Borrower shall execute and cause to be executed such further documents and instruments, including without limitation Uniform Commercial Code financing statements, as the Administrative Agent, in its sole discretion, deems necessary or desirable to create, evidence, preserve, and perfect its liens and security interest in the Collateral. Section 6.3 EXISTING LIENS TO CONTINUE. The Parent Guarantor and each Borrower hereby acknowledges, agrees and confirms that the Liens previously granted to the Administrative Agent, for the benefit of the Lenders, shall continue and survive the execution and delivery of this Agreement, and all of the rights granted to the Administrative Agent pursuant to the security documents shall also continue and survive the execution and delivery of this Agreement and the other Loan Documents executed in connection herewith; provided, however, that to the extent there is any conflict, of whatever nature, between the conditions, terms and provisions of the security documents and this Agreement and the other Loan Documents executed in connection herewith, this Agreement and such new Loan Documents shall govern, prevail and control any such conflict or inconsistency. Section 6.4 SETOFF. If an Event of Default shall have occurred and be continuing, each Lender shall have the right to set off and apply against the Obligations in such manner as such Lender may determine, at any time and without notice to the Parent Guarantor or the Borrowers, any and all deposits (general or special, time or demand, provisional or final) or other sums at any time credited by or owing from such Lender to the Parent Guarantor or any Borrower whether or not the Obligations are then due. Each Lender agrees to promptly notify the Administrative Agent after any such setoff and application. The rights and remedies of the Lenders hereunder are in addition to other rights and remedies (including, without limitation, other rights of setoff) which the Lenders may have. Section 6.5 OTHER SUBSIDIARIES. Within 10 Business Days of becoming a Material Subsidiary, each Person which hereafter becomes a Material Subsidiary shall execute and deliver to the Administrative Agent (a) an Addendum and Assumption Agreement in form and substance satisfactory to the Administrative Agent, pursuant to which such Material Subsidiary becomes a Borrower and assumes the Obligations applicable to a Borrower arising under this Agreement, (b) new Notes payable to each Lender in the principal amount of such Lender's Commitment as in effect on the date such Note is executed, (c) an addendum to the Security Agreement in form and substance satisfactory to the Administrative Agent, pursuant to which such Material Subsidiary grants to the Administrative Agent, for the pro rata benefit of the Lenders, a first priority security interest in all of such Material Subsidiary's personal property of the types described in SECTION 6.1(A), whether now owned or hereafter acquired, and all products and proceeds thereof, and (d) an addendum to the Borrower Pledge Agreement, if applicable, in form and substance satisfactory to the Administrative Agent, pursuant to which such Material Subsidiary grants to the Administrative Agent, for the pro rata benefit of the Lenders, a first priority security interest in (i) all of the capital stock and other equity interests of each other Material Subsidiary, whether now owned or hereafter acquired by such Material Subsidiary, and (ii) 66% of the shares of voting stock and other voting equity interests and all of the shares of non-voting preferred stock and other non-voting equity interests of each direct Foreign Subsidiary, whether now owned or hereafter acquired by such Material Subsidiary, (e) such further documents and instruments (including without limitation Uniform Commercial Code financing statements, stock certificates and stock powers) as the Administrative Agent in its sole discretion deems necessary or desirable to create, evidence, preserve, and perfect its Liens in the Collateral, and (f) such legal opinions, corporate and partnership documents and certificates as Administrative Agent or its counsel may require in connection with the documents executed and delivered pursuant to this Section. In addition, if the Material Subsidiary is a Subsidiary of the Parent Guarantor, then the Parent Guarantor hereby agrees to execute and deliver an amendment to the Parent Guarantor Pledge Agreement, in form and substance satisfactory to the Administrative Agent, pursuant to which the Parent Guarantor grants to the Administrative Agent, for the pro rata benefit of the Lenders, a first priority security interest in all of the capital stock and other equity interests of such Material Subsidiary. ARTICLE VII CONDITIONS PRECEDENT Section 7.1 INITIAL EXTENSION OF CREDIT. The obligation of the Lenders to make the initial Advance or issue the initial Letter of Credit hereunder is subject to the satisfaction in full of each of the following conditions precedent: (a) The Administrative Agent shall have received on or before the day of such Advance or Letter of Credit all of the following, each dated (unless otherwise indicated) the date hereof, in form and substance satisfactory to the Administrative Agent: (1) RESOLUTIONS. Resolutions of the Board of Directors of the Parent Guarantor and each Borrower certified by the Secretary or an Assistant Secretary of such Person which authorize the execution, delivery, and performance by such Person of this Agreement and the other Loan Documents to which such Person is or is to be a party; (2) INCUMBENCY CERTIFICATE. A certificate of incumbency certified by the Secretary or an Assistant Secretary of the Parent Guarantor and each Borrower certifying the names of the officers of such Person authorized to sign this Agreement and each of the other Loan Documents to which such Person is or is to be a party (including the certificates contemplated herein) together with specimen signatures of such officers; (3) ARTICLES OF INCORPORATION. The articles or certificate of incorporation of the Parent Guarantor and each Borrower, certified by the Secretary or Assistant Secretary of such Person; (4) BYLAWS. The bylaws of the Parent Guarantor and each Borrower certified by the Secretary or an Assistant Secretary of such Person; (5) GOVERNMENTAL CERTIFICATES. Certificates of the appropriate governmental officials of the respective states of incorporation of the Parent Guarantor and each Borrower as to the existence and good standing of such Persons and certificates of the appropriate governmental officials of each state where any such Persons own property, conduct business or employ any Persons as to the qualification and good standing of such Persons, respectively, in such jurisdictions, each dated within 10 days prior to the date hereof. (6) NOTES. The Note of each Lender executed by each Borrower; (7) BORROWER SECURITY AGREEMENT. The Security Agreement executed by each Borrower; (8) GUARANTOR SECURITY AGREEMENT. The Guarantor Security Agreement executed by the Parent Guarantor; (9) BORROWER PLEDGE AGREEMENT. The Borrower Pledge Agreement executed by the required Borrowers; (10) PARENT GUARANTOR PLEDGE AGREEMENT. The Parent Guarantor Pledge Agreement executed by the Parent Guarantor. (11) FINANCING STATEMENTS. Uniform Commercial Code financing statements executed by the Parent Guarantor and each Borrower and covering such Collateral as the Administrative Agent may request; (12) STOCK CERTIFICATES. Original certificates representing all shares of stock of Domestic Subsidiaries pledged pursuant to the Borrower Pledge Agreement and the Parent Guarantor Pledge Agreement, together with original stock powers duly executed in blank; (13) L/C DOCUMENTS. With respect to issuance of any Letter of Credit, all applicable L/C Documents, if any, as required by SECTION 3.1; (14) INSURANCE POLICIES. Copies of certificate of insurance with respect to all insurance policies required by SECTION 9.5; (15) UCC SEARCHES. The results of Uniform Commercial Code searches showing all financing statements and other documents or instruments on file against the Parent Guarantor and each Borrower in the office of the Secretary of State of the State of Texas and such other jurisdictions as the Administrative Agent may request, each such search to be as of a date no more than 10 days prior to the date hereof; (16) OPINION OF COUNSEL. A favorable opinion of legal counsel to the Parent Guarantor and the Borrowers, as to such matters as the Administrative Agent may reasonably request; (17) COMPLIANCE CERTIFICATE. An initial short-form Compliance Certificate as of September 30, 1997, based on a pro forma calculation of the financial covenants set forth in ARTICLE XI hereof, executed by the president, chief executive officer, chief financial officer or corporate controller of the Parent Guarantor; (18) BORROWING BASE REPORT. A Borrowing Base Report, based on a calculation of Eligible Accounts as of October 31, 1997 and the most recent appraisal provided with respect to the Rigs, in substantially the form of EXHIBIT "M" hereto, certified by the president, chief financial officer or corporate controller of the Parent Guarantor; (19) SOLVENCY CERTIFICATE. A certificate, in form and substance satisfactory to the Agent, executed by the chief financial officer of the Parent Guarantor and each Borrower as to the solvency of the Parent Guarantor and such Borrower; (20) APPRAISALS. Appraisals, satisfactory to the Agents in their sole discretion, of the fair market value of the Rigs performed by a qualified appraisal firm satisfactory to the Agents; (21) MATERIAL ADVERSE EFFECT. No change in the operations, business, or properties of the Parent Guarantor or any Borrower which would likely result in a Material Adverse Effect shall have occurred; and (22) PREFERRED FLEET MORTGAGE. A Preferred Fleet Mortgage executed by Pride Offshore, Inc. with respect to each Rig, in substantially the form of EXHIBIT J hereto; and (23) CERTIFICATE OF NO LIENS. A Certificate of No Liens with respect to each Rig pursuant to ss.31323 of the Ship Mortgage Act (as hereinafter defined) evidencing that such Rig is not subject to any Lien (other than Permitted Liens). (b) DUE DILIGENCE. The due diligence review of the Parent Guarantor, the Borrowers and the Subsidiaries by the Lenders and the Agents shall have been completed and the results thereof shall be satisfactory to the Agents and the Lenders in all respects, such review to include without limitation a review of and satisfaction with three-year financial projections, a pro-forma post-closing balance sheet, insurance coverage, contingent liabilities, material contracts and corporate legal structure. Section 7.2 ALL EXTENSIONS OF CREDIT. The obligation of the Lenders to make any Advance or issue any Letter of Credit (including the initial Advance and the initial Letter of Credit) is subject to the following additional conditions precedent: (a) REQUEST FOR ADVANCE OR LETTER OF CREDIT. The Administrative Agent shall have received in accordance with SECTION 2.5 or 3.2, as the case may be, an Advance Request Form or Letter of Credit Request Form dated the date of such Advance or Letter of Credit and executed by an authorized officer of the Borrowers; (b) L/C DOCUMENTS. With respect to any Letter of Credit, Administrative Agent shall have received all applicable L/C Documents as required by SECTION 3.1; (c) NO DEFAULT. No Default shall have occurred and be continuing, or would result from such Advance or Letter of Credit; and (d) REPRESENTATIONS AND WARRANTIES. All of the representations and warranties contained in ARTICLE VIII hereof and in the other Loan Documents shall be true and correct in all material aspects on and as of the date of such Advance with the same force and effect as if such representations and warranties had been made on and as of such date. ARTICLE VIII REPRESENTATIONS AND WARRANTIES To induce the Agents and the Lenders to enter into this Agreement, the Parent Guarantor and each Borrower represent and warrant to the Agents and the Lenders that: Section 8.1 EXISTENCE AND AUTHORITY. The Parent Guarantor, each Borrower and each Subsidiary (a) is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization; (b) has all requisite power and authority to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business in all jurisdictions in which the nature of its business makes such qualification necessary and where failure to so qualify would have a Material Adverse Effect. Each of the Parent Guarantor and each Borrower has the power and authority to execute, deliver, and perform its obligations under this Agreement and the other Loan Documents to which it is or may become a party. Section 8.2 FINANCIAL STATEMENTS. The Parent Guarantor has delivered to the Administrative Agent audited consolidated financial statements of the Parent Guarantor and its Subsidiaries as at and for the fiscal year ended December 31, 1996 and unaudited consolidated financial statements of the Parent Guarantor and its Subsidiaries for the nine-month period ended September 30, 1997. Such financial statements are true and correct, have been prepared in accordance with GAAP, and fairly and accurately present, on a consolidated basis, the financial condition of the Parent Guarantor and its Subsidiaries as of the respective dates indicated therein and the results of operations for the respective periods indicated therein. Neither the Parent Guarantor nor any of its Subsidiaries has any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments, or unrealized or anticipated losses from any unfavorable commitments that are material with respect to the Parent Guarantor and its Subsidiaries taken as a whole, except as referred to or reflected in such financial statements. There has been no material adverse change in the business, condition (financial or otherwise), operations, prospects, or properties of the Parent Guarantor, any Borrower or any of the Subsidiaries since the effective date of the most recent consolidated financial statements referred to in this Section. Section 8.3 CORPORATE ACTION; NO BREACH. The execution, delivery, and performance by the Parent Guarantor and each Borrower of this Agreement and the other Loan Documents to which they are party and compliance with the terms and provisions hereof and thereof, have been duly authorized by all requisite corporate and partnership action on the part of each such Person and do not and will not (a) violate or conflict with, or result in a breach of, or require any consent under (i) the articles of incorporation, certificate of incorporation, bylaws, partnership agreement or other organizational documents of any such Person, (ii) any applicable law, rule, or regulation or any order, writ, injunction, or decree of any Governmental Authority or arbitrator, or (iii) any material agreement or instrument to which any such Person is a party or by which any of them or any of their property is bound or subject, or (b) constitute a default under any such agreement or instrument, or result in the creation or imposition of any Lien (except as provided in ARTICLE VI) upon any of the revenues or assets of any such Person. Section 8.4 OPERATION OF BUSINESS. Each Borrower and each of the Subsidiaries possess all licenses, permits, franchises, patents, copyrights, trademarks, and tradenames, or rights thereto, necessary to conduct their respective businesses substantially as now conducted and as presently proposed to be conducted, and none of the Borrowers or the Subsidiaries is in violation of any valid rights of others with respect to any of the foregoing, the violation of which could have a Material Adverse Effect. Section 8.5 LITIGATION AND JUDGMENTS. Except as disclosed on SCHEDULE 8.5 hereto, there is no action, suit, investigation, or proceeding before or by any Governmental Authority or arbitrator pending, or to the knowledge of the Parent Guarantor or any Borrower, threatened against or affecting the Parent Guarantor, any Borrower, any Subsidiary, or any Foreign Affiliate that would, if adversely determined, have a Material Adverse Effect. On the date hereof, there are no outstanding judgments against the Parent Guarantor, any Borrower or any Subsidiary. Section 8.6 RIGHTS IN PROPERTIES; LIENS. The Parent Guarantor, each Borrower and each Subsidiary have good and marketable title to or valid leasehold interests in their respective properties and assets, real and personal, including the properties, assets, and leasehold interests reflected in the financial statements described in SECTION 8.2, and none of the properties, assets, or leasehold interests of the Parent Guarantor, any Borrower or any Subsidiary is subject to any Lien, except as permitted by SECTION 10.2. Section 8.7 ENFORCEABILITY. This Agreement constitutes, and the other Loan Documents when delivered, shall constitute legal, valid, and binding obligations of the Parent Guarantor and each Borrower, enforceable against such Persons, respectively, in accordance with their respective terms, except as limited by (i) bankruptcy, insolvency, or other laws of general application relating to the enforcement of creditors' rights, and (ii) general principles of equity, whether applied in a proceeding in equity or at law. Section 8.8 APPROVALS. No authorization, approval, or consent of, and no filing or registration with, any Governmental Authority or third party is or will be necessary for the execution, delivery, or performance by the Parent Guarantor or any Borrower of this Agreement and the other Loan Documents to which the Parent Guarantor or such Borrower is or may become a party or the validity or enforceability thereof, except for authorizations, approvals, consents, filings and registrations which have been made or obtained and for filing of any financing statements or similar instruments in connection with any of the Collateral. Section 8.9 DEBT. The Parent Guarantor, the Borrowers and the Subsidiaries have no Debt, except as disclosed on SCHEDULE 8.9 hereto or otherwise permitted by SECTION 10.1 hereof. Section 8.10 TAXES. The Parent Guarantor, each Borrower and each Subsidiary have filed all tax returns (federal, state, and local) required to be filed, including all income, franchise, employment, property, and sales tax returns, except for any state or local tax returns the nonfiling of which will not have a Material Adverse Effect. The Parent Guarantor, each Borrower and each Subsidiary have paid all of their respective liabilities for taxes, assessments, governmental charges, and other levies that are due and payable, except for any state or local taxes, assessments, governmental charges and levies which are not known by the Parent Guarantor, any Borrower or any Subsidiary to be due and payable if the nonpayment thereof will not have a Material Adverse Effect. Neither the Parent Guarantor nor any Borrower knows of any pending investigation of the Parent Guarantor, any Borrower or any Subsidiary by any taxing authority or of any pending but unassessed tax liability of the Parent Guarantor, any Borrower or any Subsidiary that could reasonably be expected to have a Material Adverse Effect. Section 8.11 USE OF PROCEEDS; MARGIN SECURITIES. None of the Parent Guarantor, the Borrowers or the Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations G, T, U, or X of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying margin stock. Section 8.12 ERISA. The Parent Guarantor, each Borrower and each Subsidiary are in compliance in all material respects with all applicable provisions of ERISA and the non-compliance with which could reasonably be expected to have a Material Adverse Effect. Neither a Reportable Event nor a Prohibited Transaction has occurred and is continuing with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. No notice of intent to terminate a Plan has been filed, nor has any Plan been terminated that could reasonably be expected to have a Material Adverse Effect. No circumstances exist which constitute grounds entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings. Neither the Parent Guarantor nor any Borrower nor any ERISA Affiliate has completely or partially withdrawn from a Multiemployer Plan. Each Borrower and each ERISA Affiliate have met their minimum funding requirements under ERISA with respect to all of their Plans, and the present value of all vested benefits under each Plan do not exceed the fair market value of all Plan assets allocable to such benefits, as determined on the most recent valuation date of the Plan and in accordance with ERISA. Neither the Parent Guarantor nor any Borrower nor any ERISA Affiliate has incurred any liability to the PBGC under ERISA that could reasonably be expected to have a Material Adverse Effect. Section 8.13 DISCLOSURE. No written statement, information, report, representation, or warranty made by the Parent Guarantor or any Borrower in this Agreement or in any other Loan Document or furnished to any Agent or any Lender in connection with this Agreement or any of the transactions contemplated hereby contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements herein or therein not materially misleading. There is no fact known to the Parent Guarantor or any Borrower (other than matters of a economic nature affecting business generally) which has a Material Adverse Effect, or which is likely to in the future have a Material Adverse Effect that has not been disclosed in writing to the Administrative Agent. Section 8.14 SUBSIDIARIES; FOREIGN AFFILIATES. On the date hereof, the Parent Guarantor and the Borrowers have no Subsidiaries other than those listed on SCHEDULE 8.14 hereto, and SCHEDULE 8.14 (a) sets forth the jurisdiction of incorporation or organization of each Subsidiary, (b) sets forth the percentage of the Parent Guarantor's, such Borrower's or such Subsidiary's ownership of the outstanding voting stock or other ownership or equity interests of each Subsidiary, and (c) designates the Foreign Subsidiaries. All of the outstanding capital stock of each Subsidiary has been validly issued, is fully paid, and is nonassessable. Borrowers shall, from time to time as necessary, deliver to the Administrative Agent an updated SCHEDULE 8.14 to this Agreement, together with a certificate of an authorized officer of Borrowers certifying that the information set forth in such schedule is true, correct, and complete as of such date. Section 8.15 AGREEMENTS. None of the Parent Guarantor, any Borrower or any of the Subsidiaries is a party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument, or subject to any charter or corporate restriction which could have a Material Adverse Effect. None of the Parent Guarantor, any Borrower or any of the Subsidiaries is in default in any material respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument material to its business to which it is a party. Section 8.16 COMPLIANCE WITH LAWS. None of the Parent Guarantor, the Borrowers, the Subsidiaries or, to the best of the Borrowers' and the Parent Guarantor's knowledge, the Foreign Affiliates is in violation in any material respect of any law, rule, regulation, order, or decree of any Governmental Authority or arbitrator, except to the extent that the failure to comply therewith will not have a Material Adverse Effect. Section 8.17 INVESTMENT COMPANY ACT. None of the Parent Guarantor, the Borrowers or the Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. Section 8.18 PUBLIC UTILITY HOLDING COMPANY ACT. None of the Parent Guarantor, the Borrowers or the Subsidiaries is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 8.19 ENVIRONMENTAL MATTERS. Except as disclosed on SCHEDULE 8.19 hereto, (a) there are no conditions or circumstances associated with the currently or previously owned or leased properties or operations of the Parent Guarantor, any Borrower or any Subsidiary that could reasonably be expected to give rise to any Environmental Liabilities of the Parent Guarantor, any Borrower or any Subsidiary which could reasonably be expected to have a Material Adverse Effect, and (b) no Lien arising under any Environmental Law has attached to any property or revenues of the Parent Guarantor, any Borrower or any Subsidiary. ARTICLE IX AFFIRMATIVE COVENANTS Each Borrower covenants and agrees that, as long as the Obligations or any part thereof are outstanding or any Lender has any Commitment hereunder, and the Parent Guarantor covenants and agrees that, so long as the Guaranteed Obligations or any part thereof are outstanding, such Person will perform and observe each of the following applicable affirmative covenants, unless the Required Lenders (or the Administrative Agent with the consent of the Required Lenders) shall otherwise consent in writing: Section 9.1 REPORTING REQUIREMENTS. The Parent Guarantor and the Borrowers will furnish to the Administrative Agent and each Lender: (a) ANNUAL CONSOLIDATED AND CONSOLIDATING FINANCIAL STATEMENTS. As soon as available, and in any event within 90 days after the end of each fiscal year of the Parent Guarantor, beginning with the fiscal year ending December 31, 1997, (i) a copy of the Parent Guarantor's annual report on Form 10-K as filed with the Securities and Exchange Commission and a copy of the annual audited financial report of the Parent Guarantor and its Subsidiaries for such fiscal year containing, on a consolidated basis, balance sheets and statements of operations, stockholders' equity, and cash flows as at the end of such fiscal year and for the 12-month period ending immediately before such date, in each case setting forth in comparative form the figures for the preceding fiscal year, all in reasonable detail and audited and certified by, and accompanied by the unqualified opinion of, independent certified public accountants of recognized standing acceptable to the Administrative Agent, to the effect that such report has been prepared in accordance with GAAP and presents fairly the consolidated financial condition and results of operations of the Parent Guarantor and its Subsidiaries at the date and for the periods indicated therein, and (ii) consolidating financial statements of the Parent Guarantor and its Subsidiaries, containing a balance sheet and statement of operations, all in reasonable detail; (b) QUARTERLY CONSOLIDATED AND CONSOLIDATING FINANCIAL STATEMENTS. As soon as available, and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Parent Guarantor, (i) a copy of an unaudited financial report of the Parent Guarantor and its Subsidiaries as of the end of such fiscal quarter and for the portion of the fiscal year then ended on Form 10-Q as filed with the Securities and Exchange Commission, containing, on a consolidated basis, balance sheets and statements of operations and cash flows, in each case setting forth in comparative form the figures for the corresponding period of the preceding fiscal year, all in reasonable detail and certified by the chief financial officer or corporate controller of the Parent Guarantor to have been prepared in accordance with GAAP and to fairly and accurately present (subject to year-end audit adjustments) the financial condition and results of operations of the Parent Guarantor and its Subsidiaries, on a consolidated basis, at the date and for the periods indicated therein, and (ii) consolidating financial statements of the Parent Guarantor and its Subsidiaries, containing a balance sheet and statement of operations, all in reasonable detail; (c) COMPLIANCE CERTIFICATE. Concurrently with the delivery of each of the financial statements referred to in subsections 9.1(a) and (b), a Compliance Certificate; (d) NOTICE OF LITIGATION. Promptly after the commencement thereof, notice of all actions, suits, and proceedings before any Governmental Authority or arbitrator affecting the Parent Guarantor, any Borrower, any Subsidiary or any Foreign Affiliate which, if determined adversely to the Parent Guarantor, such Borrower, such Subsidiary, or such Foreign Affiliate which could have a Material Adverse Effect; (e) NOTICE OF DEFAULT. As soon as possible and in any event within five days after the Parent Guarantor, any Borrower, any Subsidiary or any Foreign Affiliate obtains knowledge or becomes aware of the occurrence of any Default, a written notice setting forth the details of such Default and the action that Borrowers and such other Person have taken and propose to take with respect thereto; (f) NOTICE OF MATERIAL ADVERSE CHANGE. As soon as possible and in any event within five days after the Parent Guarantor, any Borrower, any Subsidiary or any Foreign Affiliate obtains knowledge or becomes aware of the occurrence of any matter that could have a Material Adverse Effect, written notice of such matter; (g) NOTICE OF CHANGE IN REPRESENTATION OR WARRANTY. As soon as possible and in any event within five days after the Parent Guarantor, any Borrower, any Subsidiary or any Foreign Affiliate obtains knowledge or becomes aware of any change in any material fact or circumstance represented or warranted in any of the Loan Documents, written notice of such change; (h) BORROWING BASE REPORT. As soon as available, and in any event within 45 days after the end of each calendar month, a Borrowing Base Report, in substantially the form of EXHIBIT "M" hereto, certified by the president, chief executive officer, chief financial officer or corporate controller of the Borrowers, together with an accounts receivable aging report in form and detail satisfactory to the Administrative Agent showing all accounts receivable of the Borrowers and the Subsidiaries divided into domestic and international categories and aged in 30-day intervals; and (i) UPDATED APPRAISALS. By December 31, 1997 and on the last day of each 12-month period thereafter, updated rig and equipment appraisals for the Borrowers' Rigs conducted by an appraisal firm satisfactory to the Agents, in their discretion. (j) GENERAL INFORMATION. Promptly, such other information concerning the Parent Guarantor, any Borrower, any Subsidiary or any Foreign Affiliate as any Agent or any Lender may from time to time reasonably request. All financial statements and reports, including Borrowing Base Reports, required to be delivered under this Section shall be due on the Business Day immediately following the specified due date if the specified due date is not a Business Day. Section 9.2 MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. The Parent Guarantor and each Borrower will preserve and maintain, and will cause each Subsidiary to preserve and maintain, its corporate or partnership existence and all of its leases, privileges, licenses, permits, franchises, qualifications, agreements and rights that are necessary or desirable in the ordinary conduct of its business. The Parent Guarantor and each Borrower will conduct, and will cause each Subsidiary, and will use its best efforts to cause each Foreign Affiliate to conduct, its business in an orderly and efficient manner in accordance with good business practices. Section 9.3 MAINTENANCE OF PROPERTIES. The Parent Guarantor and each Borrower will maintain, keep, and preserve, and cause each Subsidiary, and will use its best efforts to cause each Foreign Affiliate to maintain, keep, and preserve, in good working order and condition, all of its properties (tangible and intangible) which are useful in any material respect in the proper conduct of its business or are necessary in the proper conduct of its business. Section 9.4 TAXES AND CLAIMS. The Parent Guarantor and each Borrower will pay or discharge, and will cause each Subsidiary to pay or discharge, at or before the date on which penalties attach the following which, if unpaid, would become a Lien on its Property: (a) all taxes, levies, assessments, and governmental charges imposed on it or its income or profits or any of its property, and (b) all lawful claims for labor, material, and supplies, which, if unpaid, might become a Lien upon any of its property; PROVIDED, however, that none of the Parent Guarantor, the Borrowers or the Subsidiaries shall be required to pay or discharge any tax, levy, assessment, or governmental charge or any claim for labor, material, or supplies which is being contested in good faith by appropriate proceedings diligently pursued, and for which adequate reserves have been established. Section 9.5 INSURANCE. Each Borrower will maintain, and will cause each of the Subsidiaries to maintain, insurance with financially sound and reputable insurance companies in such amounts and covering such risks as is usually carried by corporations engaged in similar businesses and owning similar properties in the same general geographic areas in which the Borrowers and the Subsidiaries operate, provided that in any event each Borrower will maintain and cause each Subsidiary to maintain workmen's compensation insurance, property insurance, comprehensive general liability insurance, and products liability insurance reasonably satisfactory to the Administrative Agent. Each insurance policy covering Collateral shall name the Administrative Agent as loss payee and shall provide that such policy will not be cancelled or reduced without 15 days prior written notice to the Administrative Agent. Section 9.6 INSPECTION RIGHTS. At any reasonable time during normal business hours and from time to time, the Parent Guarantor and each Borrower each will permit, and will cause each Subsidiary, and will use its best efforts to cause each Foreign Affiliate to permit, representatives of the Administrative Agent and each Lender to examine, copy, and make extracts from its books and records, to visit and inspect its properties, and to discuss its business, operations, and financial condition with its officers, employees, and independent certified public accountants. Without in any way limiting the foregoing, the Administrative Agent may conduct (or cause a third party to conduct) annual audits of the Collateral and appraisals of equipment collateral at the expense of the Borrowers. Such audits may be performed by the Administrative Agent's in-house audit and asset management review staff. The Borrowers agree, jointly and severally, to pay to the Administrative Agent on demand all reasonable fees, charges and out-of-pocket expenses of the Administrative Agent in connection with each such audit. Notwithstanding the foregoing, the cost of equipment and rig appraisals more frequently than every 12-months (provided no Default then exists) will be borne by the Lenders. Section 9.7 KEEPING BOOKS AND RECORDS. The Parent Guarantor and each Borrower will maintain, and will cause each Subsidiary, and will use its best efforts to cause each Foreign Affiliate to maintain, proper books of record and account in which full, true, and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities; provided, however, that the Foreign Subsidiaries and the Foreign Affiliates shall be permitted to maintain day-to-day books of record and account in accordance with local statutory accounting practices rather than GAAP. Section 9.8 COMPLIANCE WITH LAWS AND AGREEMENTS. The Parent Guarantor and each Borrower will comply, and will cause each Subsidiary to comply, in all material respects with all applicable laws, rules, regulations, orders, and decrees of any Governmental Authority or arbitrator and all material agreements, contracts, and instruments binding on it or affecting its properties or business. Section 9.9 FURTHER ASSURANCES. The Parent Guarantor and each Borrower will, and will cause each Subsidiary, and will use its best efforts to cause each Foreign Affiliate to, execute and deliver such further agreements and instruments and take such further action as may be reasonably requested by the Administrative Agent to carry out the provisions and purposes of this Agreement and the other Loan Documents and to create, preserve, and perfect the Liens of the Administrative Agent in the Collateral. Section 9.10 ERISA. Each Borrower will comply, and will cause each Subsidiary to comply, with all minimum funding requirements, and all other material requirements, of ERISA, if applicable, so as not to give rise to any liability for failure to comply with the requirements of ERISA. ARTICLE X NEGATIVE COVENANTS Each Borrower covenants and agrees that, as long as the Obligations or any part thereof are outstanding or any Lender has any Commitment hereunder, and the Parent Guarantor covenants and agrees that, so long as the Guaranteed Obligations or any part thereof are outstanding, such Person will perform and observe each of the following applicable negative covenants, unless the Required Lenders (or the Administrative Agent with the consent of the Required Lenders) shall otherwise consent in writing: Section 10.1 DEBT. The Parent Guarantor and Borrowers will not incur, create, assume, or permit to exist, or permit any Subsidiary to incur, create, assume, or permit to exist, any Debt, except: (a) Debt to the Lenders hereunder; (b) Debt (other than Debt related to the Senior Notes described in subsection (c) below) existing on the date hereof and described on SCHEDULE 8.9 hereto, provided that any such Debt indicated on SCHEDULE 8.9 as "Debt to be Repaid" shall have been repaid on or before the date of the initial Advance hereunder; (c) Debt incurred in connection with the Senior Notes and the Indenture; (d) Demand intercompany Debt among the Parent Guarantor, the Borrowers and their Subsidiaries; (e) Debt incurred in connection with the upgrades of the PRIDE TEXAS, the PRIDE KANSAS, the PRIDE PENNSYLVANIA, the PIRANHA and the ILE DE SEIN drillset in an amount not to exceed $120,000,000 in the aggregate at any time outstanding; provided that no Default or Event of Default has occurred, is continuing or would result from any such borrowings; (f) Senior Debt (other than Debt described in subsections (a) through (e) above) in an amount not to exceed $20,000,000 in the aggregate at any time outstanding; (g) Limited Recourse Debt and Sale-Leaseback Debt (other than the Debt otherwise permitted under this SECTION 10.1) of the Parent Guarantor, the Borrowers and the Subsidiaries, or any of them, in an amount not to exceed $100,000,000 in the aggregate at any time outstanding; and (h) Guarantees by the Parent Guarantor, the Borrowers and the Subsidiaries existing on the date hereof and described on SCHEDULE 8.9 hereto, and Guarantees by the Parent Guarantor, the Borrowers and the Subsidiaries, or any of them, in an amount not to exceed $15,000,000 in the aggregate at any time. Section 10.2 LIMITATION ON LIENS. The Parent Guarantor and the Borrowers will not incur, create, assume, or permit to exist, or permit any Subsidiary to incur, create, assume, or permit to exist, any Lien upon any of its property, assets, or revenues, whether now owned or hereafter acquired, except: (a) Liens in favor of the Administrative Agent pursuant to the Loan Documents; (b) Liens disclosed on SCHEDULE 10.2 hereto, provided that any such Liens indicated on SCHEDULE 10.2 as a "Lien to be Released" shall have been released or provision satisfactory to the Agents for the release of such Liens shall have been made on or before the date of the initial Advance hereunder; (c) Encumbrances consisting of minor easements, zoning restrictions, or other restrictions on the use of real property that do not (individually or in the aggregate) materially affect the value of the assets encumbered thereby or materially impair the ability of the Parent Guarantor, the Borrowers or the Subsidiaries to use such assets in their respective businesses, and none of which is violated in any material respect by existing or proposed structures or land use; (d) Liens for taxes, assessments, or other governmental charges which are not delinquent or which are being contested in good faith and for which adequate reserves have been established; (e) Liens of landlords (for any location where a landlord's waiver is not required under the Loan Documents), mechanics, materialmen, warehousemen, carriers, or other similar statutory Liens securing obligations that (i) are not yet due and are incurred in the ordinary course of business or (ii) are being contested in good faith by appropriate proceedings diligently pursued, and for which adequate reserves have been established in accordance with GAAP; (f) Liens resulting from good faith deposits to secure payments of workmen's compensation, unemployment insurance or other social security programs or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, or contracts (other than for payment of Debt), or leases made in the ordinary course of business, or arising from litigation which are effectively stayed from execution and would not otherwise constitute a Default or cause an Event of Default; (g) Liens on specific assets securing the Debt permitted by SECTION 10.1(E), provided that such liens do not encumber any assets other than the specific assets for which such Debt was incurred. (h) Liens on specified assets securing any Limited Recourse Debt permitted by SECTION 10.1(G); (i) Liens on any assets which are the subject of a Sale-Leaseback Transaction, securing the Sale-Leaseback Debt resulting therefrom, provided such Sale-Leaseback Debt is permitted by SECTION 10.1(G); and (j) Liens securing any purchase money Senior Debt permitted by SECTION 10.1(F), provided that such Liens do not encumber any property other than the property for which such purchase money was incurred. Section 10.3 MERGERS, ACQUISITIONS, ETC. The Parent Guarantor and the Borrowers will not, and will not permit any Subsidiary to, become a party to a merger or consolidation, or purchase or otherwise acquire all or substantially all of the assets of any Person or any shares or other evidence of beneficial ownership of any Person, or wind-up, dissolve, or liquidate; provided, however, that (a) the Parent Guarantor, any Borrower or any Subsidiary shall be permitted to become a party to a merger or consolidation or acquire all or any part of the assets of any Person or any shares or other beneficial ownership of any Person, so long as (i) no Default is existing or would result therefrom, (ii) the Borrowers have given the Administrative Agent at least 20 days prior notice of such merger, consolidation or acquisition, (iii) the Borrowers have provided to the Lenders calculations demonstrating the pro forma compliance with all financial and other covenants contained herein, after giving effect to such merger, consolidation or acquisition, based on the most recently delivered financial statements, (iv) the total cash and non-cash consideration paid and Debt assumed or incurred by the Parent Guarantor, any Borrower or any Subsidiary in connection with all such mergers, consolidations or acquisitions shall not exceed $50,000,000 in the aggregate for any fiscal year, and (v) the Parent Guarantor, such Borrower or such Subsidiary, as the case may be, is the surviving corporation in such merger or consolidation. Section 10.4 RESTRICTED PAYMENTS. The Borrowers will not make and will not permit any Subsidiary to make, any Restricted Payment; provided, however, that the Subsidiaries shall be permitted to declare and pay dividends to the Borrowers or the Parent Guarantor, and the Borrowers shall be permitted to declare and pay dividends to the Parent Guarantor. Section 10.5 LOANS AND INVESTMENTS. The Parent Guarantor and the Borrowers will not make, and will not permit any Subsidiary to make, any advance, loan, extension of credit, or capital contribution to or investment in, or purchase, or permit any Subsidiary to purchase, any stock, bonds, notes, debentures, or other securities of, any Person, except: (a) readily marketable direct obligations of the United States of America or any agency thereof with maturities of one year or less from the date of acquisition; (b) certificates of deposit with maturities of one year or less from the date of acquisition issued by any commercial bank operating in the United States of America having capital and surplus in excess of $50,000,000; (c) commercial paper of a domestic issuer if at the time of purchase such paper is rated in one of the two highest rating categories of S&P or Moody's; (d) debt securities which shall have one of the two highest ratings from S&P or Moody's and which mature within one year from the date of acquisition; (e) investments in eurodollars placed through any financial institution having combined capital, surplus, and undivided profits of not less than $100,000,000; (f) repurchase agreements with any financial institution having combined capital, surplus, and undivided profits of not less than $100,000,000 for U.S. Government obligations maturing in less than 10 days; (g) investments in daily money market mutual funds having assets greater than $200,000,000 and limited in holdings to assets of the types described in subsections (a), (b) and (c) of this Section; (h) equity contributions, loans, and advances among the Parent Guarantor, the Borrowers, their Subsidiaries, and their Foreign Affiliates; provided that the aggregate outstanding amount of equity contributions, loans, and advances to its Foreign Affiliates does not exceed $60,000,000; (i) payroll advances made in the ordinary course of business; (j) accounts receivable in the ordinary course of business; (k) loans and advances made by the Parent Guarantor, any Borrower, any Subsidiary or any Foreign Affiliate to their respective officers and employees in the ordinary course of business not to exceed $1,000,000 in the aggregate outstanding at any time; (l) demand deposits at Brown Brothers Harriman & Co. or banks with capital surplus and undivided profits of at least $100,000,000 and whose deposits are insured by the Federal Deposit Insurance Corporation, maintained by the Parent Guarantor, any Borrower or any Subsidiary in the ordinary course of business for the purpose of paying operating expenses; and (m) short-term investments made in accordance with the investment guideline policy dated effective April 24, 1990 and revised through the date hereof, a true and correct copy of which has been delivered to the Administrative Agent. Section 10.6 TRANSACTIONS WITH AFFILIATES. The Parent Guarantor and Borrowers will not enter into, and will not permit any Subsidiary and will use its best efforts to not permit any Foreign Affiliate to enter into, any transaction, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate of the Parent Guarantor, such Borrower, such Subsidiary or such Foreign Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of the Parent Guarantor's, such Borrower's, such Subsidiary's or such Foreign Affiliate's business and upon fair and reasonable terms no less favorable to the Parent Guarantor, such Borrower, such Subsidiary or such Foreign Affiliate than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate of the Parent Guarantor, such Borrower, such Subsidiary or such Foreign Affiliate. Section 10.7 DISPOSITION OF ASSETS. Subject to the provisions of SECTION 10.1(D), SECTION 10.5(H), and SECTION 10.5(I) the Parent Guarantor and the Borrowers will not sell, lease, assign, transfer, or otherwise dispose of any of their assets, and will not permit any Subsidiary to do so with any of its assets, except (a) dispositions of inventory and entry into and performance of drilling contracts and bareboat charters in the ordinary course of business, (b) dispositions of equipment and fixtures having a fair market value not to exceed $50,000,000 in the aggregate during any fiscal year of the Parent Guarantor and the Borrowers, (c) dispositions of assets from one Borrower to another Borrower, provided, that any security interest of the Lenders in such asset is not affected by such disposition, (d) dispositions and transfers of assets among Foreign Subsidiaries of the Borrowers and the Parent Guarantor, (e) dispositions of assets (other than assets which constitute Collateral for the Obligations) from a Borrower to the Parent Guarantor or to a Foreign Affiliate or a Foreign Subsidiary of the Parent Guarantor or a Borrower (taken in the aggregate with all prior dispositions made after September 30, 1997), provided, that the aggregate book value of assets disposed of pursuant to this subsection (e) shall not exceed 20% of the aggregate book value of the total assets of the Borrowers, as set forth on the most recently delivered quarterly financial statements, and (f) dispositions and transfers of assets from the Parent Guarantor to any Borrower. Section 10.8 SALE AND LEASEBACK. The Parent Guarantor and the Borrowers will not enter into, and will not permit any Subsidiary to enter into, any Sale-Leaseback Transaction unless the amount of Sale-Leaseback Debt resulting therefrom, plus the aggregate of all other Sale-Leaseback Debt then existing, does not exceed the amount permitted by SECTION 10.1(G). Section 10.9 NATURE OF BUSINESS. The Parent Guarantor and the Borrowers will not, and will not permit any Subsidiary to, engage in any business substantially different than the businesses in which they are engaged as of the date hereof. Section 10.10 ENVIRONMENTAL PROTECTION. The Parent Guarantor and the Borrowers will not, and will not permit any Subsidiary to, (a) use (or permit any tenant to use) any of their respective properties or assets for the handling, processing, storage, transportation, or disposal of any Hazardous Material in violation of any Environmental Law that the violation of which could reasonably be expected to have a Material Adverse Effect, (b) generate any Hazardous Material in violation of any Environmental Law that the violation of which could reasonably be expected to have a Material Adverse Effect, (c) conduct any activity that causes a release or threatened release of any Hazardous Material that could reasonably be expected to have a Material Adverse Effect, or (d) otherwise conduct any activity or use any of their respective properties or assets in any manner that is likely to violate any Environmental Law that the violation of which could reasonably be expected to have a Material Adverse Effect or create any Environmental Liabilities for which the Parent Guarantor, any Borrower or any Subsidiary would be responsible that could reasonably be expected to have a Material Adverse Effect. Section 10.11 ACCOUNTING. The Parent Guarantor and the Borrowers will not, and will not permit any Subsidiary to, change its fiscal year or make any change (a) in accounting treatment or reporting practices, except as required by GAAP and disclosed to the Administrative Agent, or (b) in tax reporting treatment, except as required by law and disclosed to the Administrative Agent. ARTICLE XI FINANCIAL COVENANTS Each Borrower covenants and agrees that, as long as the Obligations or any part thereof are outstanding or any Lender has any Commitment hereunder, and the Parent Guarantor covenants and agrees that, so long as the Guaranteed Obligations or any part thereof are outstanding, such Person will perform and observe each of the following applicable financial covenants, unless the Required Lenders (or the Administrative Agent with the consent of the Required Lenders) shall otherwise consent in writing: Section 11.1 FUNDED DEBT TO EBITDA. The Parent Guarantor and the Borrowers will not permit the ratio of their Funded Debt, as of the date hereof and as of each fiscal quarter thereafter, to EBITDA, on a consolidated basis, for the most recent Rolling Period then ended, to exceed (a) 4.00 to 1.00 for each determination made during the period from and including the date hereof to and including the fiscal quarter ending June 30, 1998, and (b) 3.50 to 1.00 for each fiscal quarter ending thereafter. Section 11.2 FUNDED DEBT TO CAPITALIZATION. The Parent Guarantor and the Borrowers will not permit the ratio of Funded Debt to Capitalization, on a consolidated basis, as of the end of each fiscal quarter, for the most recent Rolling Period, to exceed (a) 0.55 for each determination made during the period from and including the date hereof to and including the fiscal quarter ending December 31, 1997, (b) 0.50 for each determination made during the period from and including January 1, 1998 to and including the fiscal quarter ending September 30, 1999, and (c) 0.45 for each fiscal quarter ending thereafter. Section 11.3 COVERAGE RATIO. The Parent Guarantor and the Borrowers will maintain, on a consolidated basis, at all times (measured at the end of each fiscal quarter), a Coverage Ratio of (a) not less than 1.35 to 1.00 for each determination made during the period from and including the date hereof to and including the fiscal quarter ending December 31, 1998 and(b) 1.50 to 1.00 for each fiscal quarter ending thereafter. Section 11.4 TANGIBLE NET WORTH. The Parent Guarantor and the Borrowers will at all times maintain or cause to be maintained, on a consolidated basis, Tangible Net Worth in an amount not less than the sum of (a) $620,000,000, plus (b) 75% of net income, after provision for income taxes, of the Parent Guarantor, the Borrowers and the Subsidiaries (without any deduction for losses), for each fiscal quarter of the Borrowers ended through the date of determination beginning with the fiscal quarter ended December 31, 1997, plus (c) 100% of the Net Proceeds received by the Parent Guarantor, any Borrower or any Subsidiary from any issuance, sale or other disposition of any shares of capital stock or other equity securities of the Borrowers of any class (or any securities convertible or exchangeable for any such shares, or any rights, warrants, or options to subscribe for or purchase any such shares) after the date of this Agreement. ARTICLE XII DEFAULT Section 12.1 EVENTS OF DEFAULT. Each of the following shall be deemed an "EVENT OF DEFAULT": (a) Any Borrower shall fail to pay any installment of principal or interest on any of the Notes, any fees, or any other portion of the Obligations (other than the Parent Obligations) when due. (b) The Parent Guarantor shall fail to pay any portion of the Parent Obligations or the Guaranteed Obligations. (c) Any representation or warranty made or deemed made by any Borrower or any Obligated Party (or any of their respective officers) in any Loan Document or in any certificate, report, notice, or financial statement furnished at any time in connection with this Agreement shall be false, misleading, or erroneous in any material respect when made or deemed to have been made. (d) Any Borrower or any Obligated Party shall (i) fail to perform, observe, or comply with any of the affirmative covenants contained in ARTICLE IX hereof (other than those in SECTIONS 9.1(E) and 9.1(F)) and such failure shall remain unremedied for 15 days after its occurrence, or (ii) fail to perform, observe, or comply with any other covenants contained in this Agreement. (e) Any Borrower or any Obligated Party shall fail to perform, observe, or comply with any (i) affirmative covenant, agreement, or term contained in any other Loan Document (except those described in subsections (a) and (c) of this Section) and such failure shall remain unremedied for 15 days after its occurrence, or (ii) negative or prohibitive covenant, agreement, or term contained in any other Loan Document. (f) Any Borrower, any Subsidiary, or any Obligated Party shall commence a voluntary proceeding seeking liquidation, reorganization, or other relief with respect to itself or its debts under any bankruptcy, insolvency, or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian, or other similar official of it or a substantial part of its property or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it or shall make a general assignment for the benefit of creditors or shall generally fail to pay its debts as they become due or shall take any corporate action to authorize any of the foregoing. (g) An involuntary proceeding shall be commenced against any Borrower, any Subsidiary, or any Obligated Party seeking liquidation, reorganization, or other relief with respect to it or its debts under any bankruptcy, insolvency, or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian, or other similar official for it or a substantial part of its property, and such involuntary proceeding shall remain undismissed and unstayed for a period of 60 days. (h) Any Borrower, any Subsidiary, or any Obligated Party shall fail to discharge or stay within a period of 30 days after the commencement thereof any attachment, sequestration, or similar proceeding or proceedings involving an aggregate amount in excess of $5,000,000 (exclusive of any amounts covered by applicable insurance, subject to a customary deductible consistent with the requirements of SECTION 9.5)against any of its assets or properties. (i) A final judgment or judgments for the payment of money in excess of $2,500,000 (exclusive of any amounts covered by applicable insurance, subject to a customary deductible consistent with the requirements of SECTION 9.5) in the aggregate shall be rendered by a court or courts against any Borrower, any Subsidiary, or any Obligated Party (other than in connection with any Limited Recourse Debt) and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the relevant Borrower, the relevant Subsidiary, or the relevant Obligated Party shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal. (j) (i) Any Borrower, any Subsidiary, or any Obligated Party shall fail to pay when due, after any applicable grace periods, any principal of or interest on any Debt in excess of $1,000,000 in the aggregate (other than the Obligations and any Limited Recourse Debt), or (ii) the maturity of any such Debt shall have been accelerated, or (iii) any such Debt shall have been required to be prepaid prior to the stated maturity thereof, or (iv) any event shall have occurred that permits (or, with the giving of notice or lapse of time or both, would permit) any holder or holders of such Debt or any Person acting on behalf of such holder or holders to accelerate the maturity thereof or require any such prepayment. (k) This Agreement or any other Loan Document shall cease to be in full force and effect or shall be declared null and void or the validity or enforceability thereof shall be contested or challenged by any Borrower, any Subsidiary, any Obligated Party or any of their respective shareholders, or any Borrower, any Subsidiary, or any Obligated Party shall deny that it has any further liability or obligation under any of the Loan Documents, or any lien or security interest created by the Loan Documents shall for any reason cease to be a valid, first priority perfected security interest in and lien upon any of the Collateral purported to be covered thereby. (l) Any of the following events shall occur or exist with respect to any Borrower, any Obligated Party or any ERISA Affiliate: (i) any Prohibited Transaction involving any Plan; (ii) any Reportable Event with respect to any Plan; (iii) filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (iv) any event or circumstance that might constitute grounds entitling the PBGC to institute proceedings under Section 4042 of ERISA for the termination of, or for the appointment of a trustee to administer, any Plan, or the institution by the PBGC of any such proceedings; or (v) complete or partial withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan or the reorganization, insolvency, or termination of any Multiemployer Plan; and in each case above, such event or condition, together with all other events or conditions, if any, have subjected or could in the reasonable opinion of the Required Lenders subject any Borrower or any Obligated Party to any tax, penalty, or other liability to a Plan, a Multiemployer Plan, the PBGC, or otherwise (or any combination thereof) which in the aggregate could reasonably be expected to have a Material Adverse Effect. (m) Any Change in Control shall occur. (n) Any Borrower, any Subsidiary, or any Obligated Party, or any of their properties, revenues, or assets in excess of $1,000,000 in the aggregate, shall become subject to an order of forfeiture, seizure, or divestiture and the same shall not have been discharged within 30 days from the date of entry thereof. Section 12.2 REMEDIES UPON DEFAULT. If any Event of Default shall occur and be continuing, the Administrative Agent may, with the consent of the Required Lenders (and if directed by the Required Lenders, shall), do any one or more of the following: (a) declare, upon written notice to the Borrowers or the Parent Guarantor, the Obligations or any part thereof to be immediately due and payable, and the same shall thereupon become immediately due and payable, without demand, presentment, notice of dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, protest, or other formalities of any kind, all of which are hereby expressly waived by the Borrowers, (b) terminate, upon written notice to the Borrowers, the Commitments, but without notice to any Subsidiary or any other Obligated Party, (c) reduce any claim to judgment, (d) foreclose or otherwise enforce any Lien granted to the Administrative Agent for the benefit of itself and the Lenders to secure payment and performance of the Obligations, and (e) exercise any and all rights and remedies afforded by the laws of the State of Texas or any other jurisdiction, by any of the Loan Documents, by equity, or otherwise; provided, however, that upon the occurrence of an Event of Default under SECTION 12.1(F) or SECTION 12.1(G), the Commitments of the Lenders shall automatically terminate, and the Obligations shall become immediately due and payable without notice, demand, presentment, notice of dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, protest, or other formalities of any kind, all of which are hereby expressly waived by each Borrower and the Parent Guarantor. Section 12.3 CASH COLLATERAL. If any Event of Default shall occur and be continuing, the Borrowers agree, jointly and severally, to, if requested by the Administrative Agent or the Required Lenders, immediately deposit with and pledge to the Administrative Agent cash or cash equivalent investments satisfactory to the Administrative Agent in its sole and absolute discretion in an amount equal to the outstanding Letter of Credit Liabilities as security for the Obligations, and the Administrative Agent may retain, as additional Collateral for the payment of the Obligations with respect to the Letters of Credit, any amounts received upon foreclosure, or in lieu of foreclosure, through offset, as proceeds of any Collateral or otherwise. Section 12.4 PERFORMANCE BY THE ADMINISTRATIVE AGENT. If the Parent Guarantor or any Borrower shall fail to perform any covenant or agreement contained in any of the Loan Documents, the Administrative Agent may perform or attempt to perform such covenant or agreement on behalf of the Borrowers. In such event, each Borrower agrees, jointly and severally, to, at the request of the Administrative Agent, promptly pay any amount expended by the Administrative Agent in connection with such performance or attempted performance to the Administrative Agent, together with interest thereon at the Default Rate from and including the date of such expenditure to but excluding the date such expenditure is paid in full. Notwithstanding the foregoing, it is expressly agreed that neither the Administrative Agent nor any Lender shall have any liability or responsibility for the performance of any obligation of the Parent Guarantor or any Borrower under this Agreement or any other Loan Document. ARTICLE XIII THE AGENTS Section 13.1 APPOINTMENT, POWERS AND IMMUNITIES. In order to expedite the various transactions contemplated by this Agreement, the Lenders hereby irrevocably appoint and authorize (1) Wells Fargo to act as their Administrative Agent hereunder and under each of the other Loan Documents and (2) FNBC to act as their Syndication Agent hereunder. Wells Fargo consents to such appointment and agrees to perform the duties of the Administrative Agent as specified herein. FNBC consents to such appointment and the Agents agree, in consultation with the Borrowers, to select a syndicate of Lenders to participate in the Commitments. The Lenders authorize and direct the Administrative Agent to take such action in their name and on their behalf under the terms and provisions of the Loan Documents and to exercise such rights and powers thereunder as are specifically delegated to or required of the Administrative Agent for the Lenders, together with such rights and powers as are reasonably incidental thereto. The Administrative Agent is hereby expressly authorized to act as the Administrative Agent on behalf of itself and the other Lenders: (a) To receive on behalf of each of the Lenders any payment of principal, interest, fees or other amounts paid pursuant to this Agreement and the Notes and to distribute to each Lender its pro rata share of all payments so received as provided in this Agreement; (b) To receive all documents and items to be furnished under the Loan Documents; (c) To act as nominee for and on behalf of the Lenders in and under the Loan Documents; (d) To arrange for the means whereby the funds of the Lenders are to be made available to the Borrowers; (e) To distribute to the Lenders information, requests, notices, payments, prepayments, documents and other items received from the Borrowers, the other Obligated Parties, and other Persons; (f) To execute and deliver to the Borrowers, the other Obligated Parties, and other Persons, all requests, demands, approvals, notices, and consents received from the Lenders; (g) To the extent permitted by the Loan Documents, to exercise on behalf of each Lender all rights and remedies of Lenders upon the occurrence of any Event of Default; (h) To accept, execute, and deliver the Guarantor Security Agreement, the Security Agreement, the Borrower Pledge Agreement, the Parent Guarantor Pledge Agreement and any other security documents as the secured party; and (i) To take such other actions as may be requested by Required Lenders. Neither the Administrative Agent nor any of its Affiliates, officers, directors, employees, attorneys, or agents shall be liable for any action taken or omitted to be taken by any of them hereunder or otherwise in connection with this Agreement or any of the other Loan Documents except for its or their own gross negligence or willful misconduct. Without limiting the generality of the preceding sentence, the Administrative Agent (i) may treat the payee of any Note as the holder thereof until the Administrative Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Administrative Agent; (ii) shall have no duties or responsibilities except those expressly set forth in this Agreement and the other Loan Documents, and shall not by reason of this Agreement or any other Loan Document be a trustee or fiduciary for any Lender; (iii) shall not be required to initiate any litigation or collection proceedings hereunder or under any other Loan Document except to the extent requested by Required Lenders; (iv) shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement or any other Loan Document, or any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Loan Document, or for the value, validity, effectiveness, enforceability, or sufficiency of this Agreement or any other Loan Document or any other document referred to or provided for herein or therein or for any failure by any Person to perform any of its obligations hereunder or thereunder; (v) may consult with legal counsel (including counsel for the Borrowers), independent public accountants, and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants, or experts; and (vi) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate, or other instrument or writing believed by it to be genuine and signed or sent by the proper party or parties. As to any matters not expressly provided for by this Agreement, the Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by Required Lenders, and such instructions of Required Lenders and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders; PROVIDED, however, that the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement or any other Loan Document or applicable law. Section 13.2 RIGHTS OF AGENTS AS LENDERS. With respect to its Commitment, the Advances made by it and the Note issued to it, Wells Fargo in its capacity as a Lender hereunder and FNBC in its capacity as a Lender hereunder shall each have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Administrative Agent or the Syndication Agent, as the case may be, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Administrative Agent and the Syndication Agent, each in its individual capacity. Each Agent and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, act as trustee under indentures of, provide merchant banking services to, and generally engage in any kind of business with the Borrowers, any of their Subsidiaries, any other Obligated Party, and any other Person who may do business with or own securities of any Borrower, any Subsidiary, or any other Obligated Party, all as if it were not acting as the Administrative Agent or the Syndication Agent and without any duty to account therefor to the Lenders. Section 13.3 SHARING OF PAYMENTS, ETC. If any Lender shall obtain any payment of any principal of or interest on any Advance made by it under this Agreement or payment of any other obligation under the Loan Documents then owed by any Borrower or any other Obligated Party to such Lender, whether voluntary, involuntary, through the exercise of any right of setoff, banker's lien, counterclaim or similar right, or otherwise, in excess of its pro rata share, such Lender shall promptly purchase from the other Lenders participations in the Advances held by them hereunder in such amounts, and make such other adjustments from time to time as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of the other Lenders in accordance with its pro rata portion thereof. To such end, all of the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if all or any portion of such excess payment is thereafter rescinded or must otherwise be restored. Each Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any Lender so purchasing a participation in the Advances made by the other Lenders may exercise all rights of setoff, banker's lien, counterclaim, or similar rights with respect to such participation as fully as if such Lender were a direct holder of Advances to the Borrowers in the amount of such participation. Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrowers. SECTION 13.4 INDEMNIFICATION. THE LENDERS HEREBY AGREE TO INDEMNIFY EACH AGENT FROM AND HOLD EACH AGENT HARMLESS AGAINST (TO THE EXTENT NOT REIMBURSED UNDER SECTIONS 15.1 AND 15.2, BUT WITHOUT LIMITING THE OBLIGATIONS OF THE BORROWERS UNDER SECTIONS 15.1 AND 15.2), RATABLY IN ACCORDANCE WITH THEIR RESPECTIVE COMMITMENTS, ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES), AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST SUCH AGENT IN ANY WAY RELATING TO OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY SUCH AGENT UNDER OR IN RESPECT OF ANY OF THE LOAN DOCUMENTS; PROVIDED, FURTHER, THAT NO LENDER SHALL BE LIABLE FOR ANY PORTION OF THE FOREGOING TO THE EXTENT CAUSED BY SUCH AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, IT IS THE EXPRESS INTENTION OF THE LENDERS THAT EACH AGENT SHALL BE INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES), AND DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF ANY AGENT. WITHOUT LIMITING ANY OTHER PROVISION OF THIS SECTION, EACH LENDER AGREES TO REIMBURSE EACH AGENT PROMPTLY UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF THE COMMITMENTS) OF ANY AND ALL OUT-OF-POCKET EXPENSES (INCLUDING ATTORNEYS' FEES) INCURRED BY SUCH AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO THE EXTENT THAT SUCH AGENT IS NOT REIMBURSED FOR SUCH EXPENSES BY THE BORROWERS OR ANY OTHER OBLIGATED PARTY. Section 13.5 INDEPENDENT CREDIT DECISIONS. Each Lender agrees that it has independently and without reliance on any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrowers' decision to enter into this Agreement and that it will, independently and without reliance upon any Agent or any other Lender, and based upon such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Loan Documents. Neither of the Agents shall be required to keep itself informed as to the performance or observance by the Borrowers or any Obligated Party of this Agreement or any other Loan Document or to inspect the properties or books of the Borrowers or any Obligated Party. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder or under the other Loan Documents, neither of the Agents shall have any duty or responsibility to provide any Lender with any credit or other financial information concerning the affairs, financial condition or business of the Borrowers or any Obligated Party (or any of their Affiliates) which may come into the possession of any Agent or any of its Affiliates. Section 13.6 SEVERAL COMMITMENTS. The Commitments and other obligations of the Lenders under this Agreement are several. The default by any Lender in making an Advance in accordance with its Commitment shall not relieve the other Lenders of their obligations under this Agreement. In the event of any default by any Lender in making any Advance, each nondefaulting Lender shall be obligated to make its Advance but shall not be obligated to advance the amount which the defaulting Lender was required to advance hereunder. In no event shall any Lender be required to advance an amount or amounts which shall in the aggregate exceed such Lender's Commitment. No Lender shall be responsible for any act or omission of any other Lender. Section 13.7 SUCCESSOR ADMINISTRATIVE AGENT. Subject to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by giving notice thereof to the Lenders and the Borrowers and the Administrative Agent may be removed at any time with or without cause by Required Lenders. Upon any such resignation or removal, Required Lenders will have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States of America or any State thereof and having combined capital and surplus of at least $100,000,000. Upon the acceptance of its appointment as successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all rights, powers, privileges, immunities, and duties of the resigning or removed Administrative Agent, and the resigning or removed Administrative Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After any Administrative Agent's resignation or removal as Administrative Agent, the provisions of this ARTICLE XIII shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was the Administrative Agent. ARTICLE XIV GUARANTY The Parent Guarantor hereby irrevocably and unconditionally guarantees to the Agents and the Lenders the full and prompt payment and performance of the Guaranteed Obligations, such Guarantee (the "PARENT GUARANTY") being upon the following terms: Section 14.1 UNCONDITIONAL GUARANTY. The Parent Guaranty shall be an absolute, continuing, irrevocable, and unconditional guaranty of payment and performance, and not a guaranty of collection, and the Parent Guarantor shall remain liable on its obligations hereunder until the payment and performance in full of the Guaranteed Obligations. No set-off, counterclaim, recoupment, reduction, or diminution of any obligation, or any defense of any kind or nature which any Borrower may have against any Agent, any Lender or any other party, or which the Parent Guarantor may have against any Borrower, any Agent, any Lender or any other party, shall be available to, or shall be asserted by, the Parent Guarantor against any Agent, any Lender or any subsequent holder of the Guaranteed Obligations or any part thereof or against payment of the Guaranteed Obligations or any part thereof. Section 14.2 NO IMPAIRMENT; CUMULATIVE REMEDIES. If the Parent Guarantor becomes liable for any indebtedness owing by Borrower to any Agent or any Lender by endorsement or otherwise, other than under this Parent Guaranty, such liability shall not be in any manner impaired or affected hereby, and the rights of the Agents and the Lenders hereunder shall be cumulative of any and all other rights that any of them may ever have against the Parent Guarantor. The exercise by any Agent or any Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy. Section 14.3 REMEDIES; SUBORDINATION. In the event of default by any Borrower in payment or performance of the Guaranteed Obligations, or any part thereof, when such Guaranteed Obligations becomes due, whether by its terms, by acceleration, or otherwise, the Parent Guarantor agrees to promptly pay the amount due thereon to the Administrative Agent, for the pro rata benefit of the Lenders, without notice or demand in lawful currency of the United States of America and it shall not be necessary for any Agent or any Lender, in order to enforce such payment by the Parent Guarantor, first to institute suit or exhaust its remedies against any Borrower or others liable on such Guaranteed Obligations, or to enforce any rights against any collateral which shall ever have been given to secure such Guaranteed Obligations. Notwithstanding anything to the contrary contained herein, the Parent Guarantor hereby irrevocably subordinates to the prior indefeasible payment in full of the Guaranteed Obligations, any and all rights the Parent Guarantor may now or hereafter have under any agreement or at law or in equity (including, without limitation, any law subrogating the Parent Guarantor to the rights of the Agents and the Lenders) to assert any claim against or seek contribution, indemnification or any other form of reimbursement from any Borrower or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made by the Parent Guarantor under or in connection with the Parent Guaranty or otherwise. Section 14.4 PAYMENT ON DEMAND. If acceleration of the time for payment of any amount payable by any Borrower under the Guaranteed Obligations is stayed upon the insolvency, bankruptcy, or reorganization of such Borrower, all such amounts otherwise subject to acceleration under the terms of the Guaranteed Obligations shall nonetheless be payable by the Parent Guarantor hereunder forthwith on demand by the Administrative Agent. Section 14.5 NO IMPAIRMENT OF OBLIGATIONS. The Parent Guarantor hereby agrees that its obligations under this Parent Guaranty shall not be released, discharged, diminished, impaired, reduced, or affected for any reason or by the occurrence of any event, including, without limitation, one or more of the following events, whether or not with notice to or the consent of the Parent Guarantor: (a) the taking or accepting of collateral as security for any or all of the Guaranteed Obligations or the release, surrender, exchange, or subordination of any collateral now or hereafter securing any or all of the Guaranteed Obligations; (b) the full or partial release of any other guarantor from liability for any or all of the Guaranteed Obligations; (c) any disability of any Borrower, or the dissolution, insolvency, or bankruptcy of any Borrower, the Parent Guarantor, or any other party at any time liable for the payment of any or all of the Guaranteed Obligations; (d) any renewal, extension, modification, waiver, amendment, or rearrangement of any or all of the Guaranteed Obligations or any instrument, document, or agreement evidencing, securing, or otherwise relating to any or all of the Guaranteed Obligations; (e) any adjustment, indulgence, forbearance, waiver, or compromise that may be granted or given by any Agent or any Lender to any Borrower, the Parent Guarantor, or any other party ever liable for any or all of the Guaranteed Obligations; (f) any neglect, delay, omission, failure, or refusal of any Agent or any Lender to take or prosecute any action for the collection of any of the Guaranteed Obligations or to foreclose or take or prosecute any action in connection with any instrument, document, or agreement evidencing, securing, or otherwise relating to any or all of the Guaranteed Obligations; (g) the unenforceability or invalidity of any or all of the Guaranteed Obligations or of any instrument, document, or agreement evidencing, securing, or otherwise relating to any or all of the Guaranteed Obligations; (h) any payment by any Borrower or any other party to any Agent or any Lender is held to constitute a preference under applicable bankruptcy or insolvency law or if for any other reason any Agent or any Lender is required to refund any payment or pay the amount thereof to someone else; (i) the settlement or compromise of any of the Guaranteed Obligations; (j) the non-perfection of any security interest or lien securing any or all of the Guaranteed Obligations; (k) any impairment of any collateral securing any or all of the Guaranteed Obligations; (l) the failure of any Agent or any Lender to sell any collateral securing any or all of the Guaranteed Obligations in a commercially reasonable manner or as otherwise required by law; (m) any change in the corporate existence, structure, or ownership of any Borrower; or (n) any other circumstance which might otherwise constitute a defense available to, or discharge of, any Borrower or the Parent Guarantor. ARTICLE XV MISCELLANEOUS Section 15.1 EXPENSES. The Borrowers hereby agree, jointly and severally, to pay on demand: (a) all reasonable costs and out-of-pocket expenses of the Agents in connection with the preparation, negotiation, execution, and delivery of this Agreement and the other Loan Documents and any and all amendments, modifications, renewals, extensions, and supplements thereof and thereto, including, without limitation, the reasonable fees and expenses of legal counsel for the Agents, (b) all reasonable costs and out-of-pocket expenses of the Agents and the Lenders, or any of them in connection with any Default and the enforcement of this Agreement or any other Loan Document, including, without limitation, the reasonable fees and expenses of legal counsel for the Agents and the Lenders, or any of them, (c) all transfer, stamp, documentary, or other similar taxes, assessments, or charges levied by any Governmental Authority in respect of this Agreement or any of the other Loan Documents, (d) all reasonable costs, out-of-pocket expenses, assessments, and other charges incurred in connection with any filing, registration, recording, or perfection of any security interest or Lien contemplated by this Agreement or any other Loan Document, and (e) all other reasonable costs and out-of-pocket expenses incurred by the Agents in connection with this Agreement or any other Loan Document, including, without limitation, all fees, costs, out-of-pocket expenses, and other charges incurred in connection with performing or obtaining any audit or appraisal in respect of the Collateral. SECTION 15.2 INDEMNIFICATION. EACH BORROWER HEREBY JOINTLY AND SEVERALLY AGREES TO INDEMNIFY EACH AGENT AND EACH LENDER AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE PARTNERS, OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, AGENTS, AND PARTICIPANTS FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, INTEREST, EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES), AND AMOUNTS PAID IN SETTLEMENT, OTHER THAN OBLIGATIONS OF THE PARENT GUARANTOR THAT, IN ACCORDANCE WITH THE INDENTURE WOULD CONSTITUTE A GUARANTEE OF INDEBTEDNESS (AS DEFINED IN THE INDENTURE) OF THE PARENT GUARANTOR, TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION, OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY ANY BORROWER OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN, OR AFFECTING ANY OF THE PROPERTIES OR ASSETS OF ANY BORROWER OR ANY SUBSIDIARY, (E) THE USE OR PROPOSED USE OF ANY LETTER OF CREDIT, (F) ANY AND ALL TAXES, LEVIES, DEDUCTIONS, AND CHARGES IMPOSED ON ANY AGENT OR ANY LENDER OR ANY OF THEIR RESPECTIVE CORRESPONDENTS IN RESPECT OF ANY LETTER OF CREDIT, OR (G) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, RELATING TO ANY OF THE FOREGOING; PROVIDED, HOWEVER THAT NO PERSON TO BE INDEMNIFIED HEREUNDER SHALL HAVE THE RIGHT TO BE INDEMNIFIED FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON. Section 15.3 LIMITATION OF LIABILITY. None of the Agents, Lenders, or any Affiliate, officer, director, employee, attorney, partner, or agent thereof shall have any liability with respect to, and each Borrower hereby waives, releases, and agrees not to sue any of them upon, any claim for any special, indirect, incidental, or consequential damages suffered or incurred by such Borrower in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents. Each Borrower hereby waives, releases, and agrees not to sue any Agent or any Lender or any of their respective Affiliates, partners, officers, directors, employees, attorneys, or agents for punitive damages in respect of any claim in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents. Section 15.4 NO FIDUCIARY RELATIONSHIP. The relationship between the Borrowers and each Lender with respect to the Loan Documents and the transactions governed thereby is solely that of debtor and creditor, and neither any Agent nor any Lender has any fiduciary or other special relationship with any Borrower with respect to the Loan Documents and the transactions governed thereby, and no term or condition of any of the Loan Documents shall be construed so as to deem the relationship between any Borrower and any Lender with respect to the Loan Documents and the transactions governed thereby to be other than that of debtor and creditor. Section 15.5 NO WAIVER; CUMULATIVE REMEDIES. No failure on the part of any Agent or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. The rights and remedies provided for in this Agreement and the other Loan Documents are cumulative and not exclusive of any rights and remedies provided by law. Section 15.6 SUCCESSORS AND ASSIGNS. (a) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. No Borrower shall be permitted to assign or transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and all of the Lenders. Any Lender may sell participations to one or more banks or other institutions in or to all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, all or a portion of its Commitments, the Advances owing to it and its share of Letter of Credit Liabilities); PROVIDED, however, that (i) such Lender's obligations under this Agreement and the other Loan Documents (including, without limitation, its Commitment) shall remain unchanged, (ii) such Lender shall remain solely responsible to the Borrowers for the performance of such obligations, (iii) such Lender shall remain the holder of its Note for all purposes of this Agreement, (iv) the Borrowers shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents, and (v) such Lender shall not sell a participation that conveys to the participant the right to vote or give or withhold consents under this Agreement or any other Loan Document, other than the right to vote upon or consent to (A) any increase of such Lender's Commitment, (B) any reduction of the principal amount of, or interest to be paid on, the Advances of such Lender, (C) any reduction of any commitment fee or other amount payable to such Lender under any Loan Document, (D) any postponement of any date for the payment of any amount payable in respect of the Advances of such Lender, or (E) any material release of Collateral other than releases contemplated in the Loan Documents as in effect on the date hereof and releases upon full payment and performance of the Obligations and termination of the Commitments. Such participants shall have no rights under the Loan Documents, other than certain voting rights as provided above. Subject to the following, each Lender may obtain (on behalf of its participants) the benefits of ARTICLE V with respect to all participations in its part of the Obligations outstanding from time to time. If a participant is entitled to the benefits of ARTICLE V or a Lender grants rights to its participants to vote or give or withhold consents respecting the matters described above, then that Lender must include a voting mechanism in the relevant participation agreement whereby a majority of its portion of the Obligations (whether held by it or participated) shall control the vote for all of that Lender's portion of the Obligations. Except in the case of the sale of a participating interest to another Lender, the relevant participation agreement shall prohibit the participant from transferring, pledging, assigning, selling participations in, or otherwise encumbering its portion of the Obligations. (b) Each Borrower and each of the Lenders agree that any Lender may at any time assign to one or more Eligible Assignees all, or a proportionate part of all, of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, its Commitment, Advances and Letter of Credit Liabilities); PROVIDED, however, that (i) each such assignment shall be of a consistent, and not a varying, percentage of all of the assigning Lender's rights and obligations under this Agreement and the other Loan Documents, (ii) except in the case of an assignment of all of a Lender's rights and obligations under this Agreement and the other Loan Documents, the amount of the Commitment of the assigning Lender being assigned pursuant to each assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000, and the amount of the Commitment of the assigning Lender remaining after each such assignment shall in no event be less than $5,000,000, and (iii) the parties to each such assignment shall execute and deliver to the Administrative Agent for its acceptance and recording in the Register (as defined below), an Assignment and Acceptance, together with the Note subject to such assignment, and a processing and recordation fee of $3,500. Upon such execution, delivery, acceptance, and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least 10 Business Days after the execution thereof, or, if so specified in such Assignment and Acceptance, the date of acceptance thereof by the Administrative Agent, (x) the assignee thereunder shall be a party hereto as a "Lender" and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and under the Loan Documents and (y) the Lender that is an assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement and the other Loan Documents (and, in the case of an Assignment and Acceptance covering all or the remaining portion of a Lender's rights and obligations under the Loan Documents, such Lender shall cease to be a party thereto). (c) By executing and delivering an Assignment and Acceptance, the Lender that is an assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties, or representations made in or in connection with the Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency, or value of the Loan Documents or any other instrument or document furnished pursuant thereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower or any Obligated Party or the performance or observance by any Borrower or any Obligated Party of its obligations under the Loan Documents; (iii) such assignee confirms that it has received a copy of the other Loan Documents, together with copies of the financial statements referred to in SECTION 8.2 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon any Agent or such assignor and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and exercise such powers under the Loan Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender. (d) The Administrative Agent may maintain at its Principal Office a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "REGISTER"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Agents, and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes under the Loan Documents. The Register shall be available for inspection by any Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and assignee representing that it is an Eligible Assignee, together with any Note subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of EXHIBIT "C" hereto and all requirements set forth in this Section have been satisfied, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register, if any, and (iii) give prompt written notice thereof to the Borrowers. Within five Business Days after its receipt of such notice, the Borrowers shall execute and deliver to the Administrative Agent in exchange for the surrendered Note a new Note payable to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Commitment, a new Note payable to the order of the assigning Lender in an amount equal to the Commitment retained by it hereunder (each such promissory note shall constitute a "Note" for purposes of the Loan Documents). Such new Notes shall be in an aggregate face amount of the surrendered Note, shall be dated the effective date of such Assignment and Acceptance, and shall otherwise be in substantially the form of EXHIBIT "C" hereto. (f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section, disclose to the assignee or participant or proposed assignee or participant, subject to the confidentiality agreements between the Borrowers and the Lenders, any information relating to the Borrowers, the Subsidiaries or the Foreign Affiliates furnished to such Lender by or on behalf of the Borrowers, the Subsidiaries or the Foreign Affiliates. Section 15.7 SURVIVAL. All representations and warranties made in this Agreement or any other Loan Document or in any document, statement, or certificate furnished in connection with this Agreement shall survive the execution and delivery of this Agreement and the other Loan Documents, and no investigation by any Agent or any Lender or any closing shall affect the representations and warranties or the right of any Agent or any Lender to rely upon them. Without prejudice to the survival of any other obligation of the Borrowers hereunder, the obligations of the Borrowers under SECTIONS 15.1, and 15.2 shall survive repayment of the Notes and termination of the Commitments and the Letters of Credit. Section 15.8 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTE, AND THE OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. Section 15.9 AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement, the Notes, or any other Loan Document to which any Borrower is a party, nor any consent to any departure by any Borrower therefrom, shall in any event be effective unless the same shall be agreed or consented to in writing by Required Lenders (or Administrative Agent with the consent of Required Lenders) and the Borrowers, and each such waiver, amendment, or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, that no amendment, waiver, or consent shall, unless in writing and signed by all of the Lenders and the Borrowers, do any of the following: (a) increase or reinstate Commitments of the Lenders or subject the Lenders to any additional obligations; (b) reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder (except any fees payable to any Agent solely for its account as specified herein or in any other document); (c) change the Borrowing Base or the Termination Date or postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder (except any fees payable to any Agent solely for its account as specified herein or in any other document); (d) waive any of the conditions specified in ARTICLE VII; (e) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes or the number of Lenders which shall be required for the Lenders or any of them to take any action under this Agreement; (f) change any provision contained in this SECTION 15.9; or (g) release any Collateral, except for dispositions permitted herein. Notwithstanding anything to the contrary contained in this Section, no amendment, waiver, or consent shall be made with respect to ARTICLE XIII hereof without the prior written consent of the Administrative Agent. Section 15.10 MAXIMUM INTEREST RATE. (a) SHIP MORTGAGE ACT. The collateral covered in each Preferred Ship Mortgage and the Obligations covered by this Agreement, the Notes and other Loan Documents is or will be secured by a "Preferred Mortgage" on the Rigs within the meaning of ss.31322 of 46 U.S.C. ss.31301 et. seq. (the "SHIP MORTGAGE ACT"), and the regulations promulgated thereunder. If, for any reason, the provisions of ss.31322 of the Ship Mortgage Act shall be found not to exempt any and all interest and other charges contracted for, charged, taken, received or reserved in connection with the Obligations covered by this Agreement, the Notes, and other Loan Documents from any limitations otherwise applicable, then the provisions of SUBSECTION 15.10(B) shall apply, but otherwise the provision of ss.31322 of the Ship Mortgage Act shall be applicable. (b) NO USURY. No provision of this Agreement or any other Loan Document shall require the payment or the collection of interest in excess of the maximum amount permitted by applicable law. If any excess of interest in such respect is hereby provided for, or shall be adjudicated to be so provided, in any Loan Document or otherwise in connection with this loan transaction, the provisions of this Section shall govern and prevail and neither the Borrowers nor the sureties, guarantors, successors, or assigns of the Borrowers shall be obligated to pay the excess amount of such interest or any other excess sum paid for the use, forbearance, or detention of sums loaned pursuant hereto. In the event any Lender ever receives, collects, or applies as interest any such sum, such amount which would be in excess of the maximum amount permitted by applicable law shall be applied as a payment and reduction of the principal of the indebtedness; and, if the principal has been paid in full, any remaining excess shall forthwith be paid to the Borrowers. In determining whether or not the interest paid or payable exceeds the Maximum Rate, each Borrower and each Lender shall, to the extent permitted by applicable law, (a) characterize any non-principal payment as an expense, fee, or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the entire contemplated term of the indebtedness evidenced by the Notes so that interest for the entire term does not exceed the Maximum Rate. Section 15.11 NOTICES. All notices and other communications provided for in this Agreement and the other Loan Documents shall be given in writing and telecopied, mailed by certified mail return receipt requested, or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or, as to any party at such other address as shall be designated by such party in a notice to the other party given in accordance with this Section. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopy, subject to telephone confirmation of receipt, or when personally delivered or, in the case of a mailed notice, when duly deposited in the mails, in each case given or addressed as aforesaid; PROVIDED, however, notices to the Administrative Agent pursuant to ARTICLE II and ARTICLE III shall not be effective until received by the Administrative Agent. Section 15.12 GOVERNING LAW; VENUE; SERVICE OF PROCESS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS AGREEMENT HAS BEEN ENTERED INTO IN HARRIS COUNTY, TEXAS, AND IT SHALL BE PERFORMABLE FOR ALL PURPOSES IN HARRIS COUNTY, TEXAS. ANY ACTION OR PROCEEDING AGAINST THE BORROWERS UNDER OR IN CONNECTION WITH ANY OF THE LOAN DOCUMENTS MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN HARRIS COUNTY, TEXAS. EACH BORROWER HEREBY IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. EACH BORROWER AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED OR DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 15.11. NOTHING HEREIN OR IN ANY OF THE OTHER LOAN DOCUMENTS SHALL AFFECT THE RIGHT OF ANY AGENT OR ANY LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF ANY AGENT OR ANY LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST ANY BORROWER OR WITH RESPECT TO ANY OF THEIR RESPECTIVE PROPERTY IN COURTS IN OTHER JURISDICTIONS. ANY ACTION OR PROCEEDING BY ANY BORROWER AGAINST ANY AGENT OR ANY LENDER SHALL BE BROUGHT ONLY IN A COURT LOCATED IN HARRIS COUNTY, TEXAS. Section 15.13 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 15.14 SEVERABILITY. Any provision of this Agreement held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Agreement and the effect thereof shall be confined to the provision held to be invalid or illegal. Section 15.15 HEADINGS. The headings, captions, and arrangements used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement. Section 15.16 NON-APPLICATION OF CHAPTER 346 OF TEXAS FINANCE CODE. The provisions of Chapter 346 of the Texas Finance Code (Vernon's Texas Fin. Code Ann.) are specifically declared by the parties hereto not to be applicable to this Agreement or any of the other Loan Documents or to the transactions contemplated hereby. Section 15.17 CONSTRUCTION. The Parent Guarantor, each Borrower, each Agent and each Lender acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement and the other Loan Documents with its legal counsel and that this Agreement and the other Loan Documents shall be construed as if jointly drafted by the parties hereto. Section 15.18 INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default if such action is taken or such condition exists. Section 15.19 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, PARENT GUARANTOR AND EACH BORROWER HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF ANY AGENT OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF. Section 15.20 ARBITRATION. Upon the demand of any party, any Dispute shall be resolved by binding arbitration (except as set forth in (e) below) in accordance with the terms of this Agreement. A "DISPUTE" shall mean any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under or in connection with, or in any way pertaining to, any of the Loan Documents, or any past, present or future extensions of credit and other activities, transactions or obligations of any kind related directly or indirectly to any of the Loan Documents, including without limitation, any of the foregoing arising in connection with the exercise of any self-help, ancillary or other remedies pursuant to any of the Loan Documents. Any party may by summary proceedings bring an action in court to compel arbitration of a Dispute. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any Dispute. (a) GOVERNING RULES. Arbitration proceedings shall be administered by the American Arbitration Association ("AAA") or such other administrator as the parties shall mutually agree upon in accordance with the AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall be resolved in accordance with the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the Loan Documents. The arbitration shall be conducted at a location in Texas selected by the AAA or other administrator. If there is any inconsistency between the terms hereof and any such rules, the terms and procedures set forth herein shall control. All statutes of limitation applicable to any Dispute shall apply to any arbitration proceeding. All discovery activities shall be expressly limited to matters directly relevant to the Dispute being arbitrated. Judgment upon any award rendered in an arbitration may be entered in any court having jurisdiction; provided however, that nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. ss.91 or any similar applicable state law. (b) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No provision hereof shall limit the right of any party to exercise self-help remedies such as setoff, foreclosure against or sale of any real or personal property collateral or security, or to obtain provisional or ancillary remedies, including without limitation injunctive relief, sequestration, attachment, garnishment or the appointment of a receiver, from a court of competent jurisdiction before, after or during the pendency of any arbitration or other proceeding. The exercise of any such remedy shall not waive the right of any party to compel arbitration hereunder. (c) ARBITRATOR QUALIFICATIONS AND POWERS AWARDS. Arbitrators must be active members of the Texas State Bar with expertise in the substantive laws applicable to the subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by summary rulings in response to motions filed prior to the final arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance with the substantive law of the state of Texas, (ii) may grant any remedy or relief that a court of the state of Texas could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award, and (iii) shall have the power to award recovery of all costs and fees, to impose sanctions and to take such other actions as they deem necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the Texas Rules of Civil Procedure or other applicable law. Any Dispute in which the amount in controversy is $5,000,000 or less shall be decided by a single arbitrator who shall not render an award of greater than $5,000,000 (including damages, costs, fees and expenses). By submission to a single arbitrator, each party expressly waives any right or claim to recover more than $5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. (d) JUDICIAL REVIEW. Notwithstanding anything herein to the contrary, in any arbitration in which the amount in controversy exceeds $25,000,000, the arbitrators shall be required to make specific, written findings of fact and conclusions of law. In such arbitrations (i) the arbitrators shall not have the power to make any award which is not supported by substantial evidence or which is based on legal error, (ii) an award shall not be binding upon the parties unless the findings of fact are supported by substantial evidence and the conclusions of law are not erroneous under the substantive law of the state of Texas, and (iii) the parties shall have in addition to the grounds referred to in the Federal Arbitration Act for vacating, modifying or correcting an award the right to judicial review of (A) whether the findings of fact rendered by the arbitrators are supported by substantial evidence, and (B) whether the conclusions of law are erroneous under the substantive law of the state of Texas. Judgment confirming an award in such a proceeding may be entered only if a court determines the award is supported by substantial evidence and not based on legal error under the substantive law of the state of Texas. (e) MISCELLANEOUS. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceedings within 180 days of the filing of the Dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business, by applicable law or regulations, or to the extent necessary to exercise any judicial review rights set forth herein. If more than one agreement for arbitration by or between the parties potentially applies to a Dispute, the arbitration provisions most directly related to the Loan Documents or the subject matter of the Dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties. Section 15.21 SPECIAL PROVISION. Notwithstanding any other provision in this Agreement, no waiver or amendment to SECTIONS 10.1 or 10.3, or both, shall be effective until both a Conditional Consent and a Final Consent related thereto are received, it being understood and agreed that each Lender (other than any Nonconsenting Lender that has given an Opt-Out Request) shall be entitled to give or withhold its consent to the Final Consent that is the subject of a Conditional Consent and that the result may be that consent is not given for the requested waiver or amendment of SECTIONS 10.1 or 10.3, or both. Failure of the Administrative Agent to receive a Conditional Consent or a Final Consent within 10 Business Days of requesting the same shall be deemed a rejection of the request and any Opt-Out Request shall be deemed revoked. If a Final Consent is given after one or more Opt-Out Requests, each Borrower agrees to, and the Lenders consent to, terminate the Commitment of each Nonconsenting Lender and repay its Loans in full as required in the Opt-Out Request, but without premium, penalty or breakage costs, and on the date its Commitment is terminated and its Loan are paid in full, each Nonconsenting Lender that provided an Opt-Out Request shall no longer be a "Lender" hereunder, and the participation in all Letters of Credit shall be redistributed among all of the remaining Lenders in accordance with the remaining Commitments. Section 15.22 REFERENCE TO INDENTURE. Nothing in this Agreement or any Loan Document is intended to constitute a Guarantee (within the meaning of the Indenture) of or in respect of any Indebtedness (as defined in the Indenture) of the Parent Guarantor by any Borrower, its being acknowledged and agreed that (a) a pledge of assets by any Borrower to secure any Indebtedness of the Parent Guarantor for which such Borrower is not otherwise liable shall not be considered a Guarantee of or in respect of Indebtedness of the Parent Guarantor, and (b) the agreements contained in this Section are made by the Agents and the Lenders upon the express representation that the covenants and agreements herein contained by the Borrower and the Parent Guarantor do not violate the provisions of the Indenture. [Balance of Page Left Blank Intentionally.] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. BORROWERS: PETROLEUM SUPPLY COMPANY By: /s/ LEROY F. GUIDRY Leroy F. Guidry Treasurer Address for Notices: 5847 San Felipe St., Suite 3300 Houston, Texas 77057 Fax No.: 713/789-1430 Telephone No.: 713/789-1400 Attention: Robert W. Randall PRIDE INTERNATIONAL HOLDINGS, INC. By: /s/ LEROY F. GUIDRY Leroy F. Guidry Treasurer Address for Notices: 5847 San Felipe St., Suite 3300 Houston, Texas 77057 Fax No.: 713/789-1430 Telephone No.: 713/789-1400 Attention: Robert W. Randall RANGER WELL SERVICE, INC. By: /s/ LEROY F. GUIDRY Leroy F. Guidry Treasurer Address for Notices: 5847 San Felipe St., Suite 3300 Houston, Texas 77057 Fax No.: 713/789-1430 Telephone No.: 713/789-1400 Attention: Robert W. Randall PRIDE OFFSHORE, INC. By: /s/ LEROY F. GUIDRY Leroy F. Guidry Treasurer Address for Notices: 5847 San Felipe St., Suite 3300 Houston, Texas 77057 Fax No.: 713/789-1430 Telephone No.: 713/789-1400 Attention: Robert W. Randall RANGER CORPORATION By: /s/ LEROY F. GUIDRY Leroy F. Guidry Treasurer Address for Notices: 5847 San Felipe St., Suite 3300 Houston, Texas 77057 Fax No.: 713/789-1430 Telephone No.: 713/789-1400 Attention: Robert W. Randall GUARANTOR: PRIDE INTERNATIONAL, INC. By: /s/ EARL W. MCNIEL Earl W. McNiel Vice President Address for Notices: 5847 San Felipe St., Suite 3300 Houston, Texas 77057 Fax No.: 713/789-1430 Telephone No.: 713/789-1400 Attention: Robert W. Randall AGENTS AND LENDERS: FIRST NATIONAL BANK OF COMMERCE, as Syndication Agent and as a Lender COMMITMENT By:/s/ JOEY MAXWELL Joey Maxwell $30,000,000 Assistant Vice President Address for Notices: 201 St. Charles Ave., 28th Floor New Orleans, Louisiana 70160 Fax No.: (504) 623-1316 Telephone No.: (504) 623-1361 Attention: Joey Maxwell Principal Office and Applicable Lending Office for Base Rate Advances and Eurodollar Advances: 201 St. Charles Ave., 28th Floor New Orleans, Louisiana 70160 Fax No.: (504) 623-1316 Telephone No.: (504) 623-1361 Attention: Joey Maxwell WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, as Administrative Agent and a Lender COMMITMENT By: /s/ FRANK W. SCHAGEMAN Frank W. Schageman $30,000,000 Vice President Address for Notices and Applicable Lending Office for Base Rate Advances and Eurodollar Advances: 1000 Louisiana, Third Floor Houston, Texas 77002 Fax No.: (713) 250-7912 Telephone No.: (713) 250-4352 Attention: Frank W. Schageman and Sally F. Weir HIBERNIA NATIONAL BANK COMMITMENT By:/s/ LYNDSAY JOBE Lyndsay Jobe $15,000,000 Senior Vice President Address for Notices and Applicable Lending Office for Base Rate Advances and Eurodollar Advances: P.O. Box 61540 New Orleans, Louisiana 70161 Fax No.: (504) 533-5434 Telephone No.: (504) 533-5458 Attention: John Benoit THE FUJI BANK, LIMITED -HOUSTON AGENCY COMMITMENT By:/s/ NATE ELLIS Name: Nate Ellis $15,000,000 Title: Vice President & Manager Address for Notices: One Houston Center, Suite 4100 1221 McKinney Street Houston, Texas 77010 Fax No.: (713) 759-0717 Telephone No.: (713) 650-7856 Attention: Michelle Olivier Lending Office for Base Rate Advances and Eurodollar Rate Advances: One Houston Center, Suite 4100 1221 McKinney Street Houston, Texas 77010 Fax No.: (713) 759-0717 Telephone No.: (713) 650-7856 Attention: Michelle Olivier per pro BROWN BROTHERS HARRIMAN & CO. COMMITMENT By:/s/ W. CARTER SULLIVAN III W. Carter Sullivan III $10,000,000 Senior Manager Address for Notices and Applicable Lending Office for Base Rate Advances and Eurodollar Advances: 59 Wall Street New York, New York 10005-2818 Fax No.: (212) 493-7280 Telephone No.: (212) 493-7901 Attention: Jeffrey C. Lockwood INDEX TO EXHIBITS EXHIBIT DESCRIPTION OF EXHIBIT SECTION "A" Addendum and Assumption Agreement 1.1; 6.5 "B" Advance Request Form 1.1; 2.5 "C" Assignment and Acceptance 1.1; 15.6 "D" Borrower Pledge Agreement 1.1; 6.1(b); 7.1(a)(9) "E" Compliance Certificate 1.1; 9.1(c) "F" Guarantor Security Agreement 1.1; 6.1(a); 7.1(a)(8) "G" Letter of Credit Request Form 1.1; 3.2 "H" Form of Note 1.1; 2.2 "I" Parent Guarantor Pledge Agreement 1.1; 6.1(b); 7.1(a)(10) "J" Preferred Ship Mortgage 1.1; 6.1(c); 7.1(a)(22) "K" Security Agreement 1.1; 6.1(a); 7.1(a)(7) "L" L/C Application for Standby Letters of Credit 1.1; 3.1 "M" Borrowing Base Report 7.1(a)(18); 9.1(h) INDEX TO SCHEDULES SCHEDULE DESCRIPTION OF EXHIBIT SECTION 1.1a Approved Majors/Nationals for Borrowing Base Purposes 1.1 1.1b Existing Credits 1.1 1.1c List of Rigs 8.5 Existing Litigation 8.5 8.9 Existing Debt (including Contingent Liabilities and Guaranties) 8.9 8.14 Subsidiaries and Foreign Affiliates 8.14 8.19 Environmental Matters 8.19 10.2 Existing Liens 10.2 EX-10.5 3 EXHIBIT 10.5 PRIDE INTERNATIONAL, INC. LONG-TERM INCENTIVE PLAN THIRD AMENDMENT Pride International, Inc. (the "Company") having previously established the Pride International, Inc. Long-Term Incentive Plan, as amended by the First Amendment thereto effective March 29, 1995, and by the Second Amendment thereto effective May 22, 1997 (the "Plan"), and having reserved the right under Article XIV thereof to amend the Plan, does hereby amend Section 2.6 of the Plan in its entirety to read as follows: 1. Section 2.6 is amended in its entirety to read as follows: "2.6 "Fair Market Value" means, as of the date an Option or SAR is granted hereunder, (i) if the shares of Common Stock are listed on the New York Stock Exchange, then the final closing sales price per share of Common Stock as reported on New York Stock Exchange Composite Trading Listings, or a similar report selected by the Company, on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, (ii) if the shares of Common Stock are listed on a national securities exchange other than the New York Stock Exchange, the mean between the highest and lowest sales price per share of Common Stock on the primary such national securities exchange on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, (iii) if the shares of Common Stock are not so listed but are quoted in the NASDAQ National Market System, the mean between the highest and lowest sales price per share of Common Stock on the NASDAQ National Market System on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, (iv) if the Common Stock is not so listed or quoted, the mean between the closing bid and asked price on that date, or, if there are no quotations available for such date, on the last preceding date on which such quotations shall be available, as reported by NASDAQ, or, if not reported by NASDAQ, by the National Quotation Bureau, Inc., or (v) if none of the above are applicable, the fair market value of a share of Common Stock as determined in good faith by the Committee." This Amendment shall be effective as of February 26, 1998. PRIDE INTERNATIONAL, INC. By /s/ ROBERT W. RANDALL Robert W. Randall, Vice President ATTEST: /s/ FRIDA A. MARTINEZ -2- EX-10.10 4 EXHIBIT 10.10 PRIDE INTERNATIONAL, INC. 1993 DIRECTORS' STOCK OPTION PLAN SECOND AMENDMENT Pride International, Inc. (the "Company") having previously established the Pride International, Inc. 1993 Directors' Stock Option Plan, as amended by the First Amendment thereto effective May 22, 1997 (the "Plan"), and having reserved the right under Section XVIII thereof to amend the Plan, does hereby amend the Plan as follows: 1. Effective as of January 14, 1998, the references in Sections 4.1 and 11.1 of the Plan to Section 9.4 of the Plan are hereby amended so that such references are now to Section 9.2 of the Plan. 2. Section 5.3 of the Plan is hereby amended in its entirety, effective as of January 14, 1998, to read as follows: "5.3 Upon the exercise of an Option granted hereunder, the Company shall cause the purchased Shares to be issued only when it shall have received the full purchase price for the Shares in cash; provided, however, that in lieu of cash, the optionee may, if and to the extent the terms of such Option so provide and to the extent permitted by applicable law, exercise an Option in whole or in part by delivering to the Company shares of the Company's common stock (in proper form for transfer and accompanied by all requisite stock transfer tax stamps or cash in lieu thereof) owned by such holder having a Fair Market Value equal to the cash exercise price applicable to that portion of the Option being exercised by the delivery of such shares. The Fair Market Value of the shares so delivered shall be determined as of the date immediately preceding the date on which the Option is exercised, or as may be required in order to comply with or to conform to the requirements of any applicable laws or regulations. "Fair Market Value" means, as of a particular date, (i) if the shares of common stock are listed on the New York Stock Exchange, then the final closing sales price per share of common stock as reported on New York Stock Exchange Composite Trading Listings, or a similar report selected by the Company, on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, (ii) if the shares of common stock are listed on a national securities exchange other than the New York Stock Exchange, the mean between the highest and lowest sales price per share of common stock on the primary such national securities exchange on that date, or, -1- if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, (iii) if the shares of common stock are not so listed but are quoted in the NASDAQ National Market System, the mean between the highest and lowest sales price per share of common stock on the NASDAQ National Market System on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, (iv) if the common stock is not so listed or quoted, the mean between the closing bid and asked price on that date, or, if there are no quotations available for such date, on the last preceding date on which such quotations shall be available, as reported by NASDAQ, or, if not reported by NASDAQ, by the National Quotation Bureau, Inc., or (v) if none of the above are applicable, the fair market value of a share of common stock as determined in good faith by the Committee." 3. Article IX of the Plan is hereby amended in its entirety, effective as of January 14, 1998, to read as follows: "9.1 Subject to Article XXII hereof and the maximum number of Shares which may be purchased pursuant to the exercise of Options granted under the Plan as set forth in Section 2.1, the Board of Directors or the Executive Committee thereof may, at any time but not more frequently than once during each calendar year, grant discretionary Options to any Director or Directors of the Company who satisfy the eligibility requirements of Article IV. The number of Options granted and the number of Shares for which the Options are granted shall be such number as is determined by the Board of Directors or the Executive Committee thereof, at a price per Share determined as of the date of grant pursuant to Section 5.1. The time or times at which such Options are granted, the number of Options granted, and the number of Shares for which the Options are granted shall be in the sole discretion of the Board of Directors or the Executive Committee thereof. 9.2 A Director shall be ineligible to receive a grant provided for in Section 9.1 unless, as of the date of such grant, the Director (i) is not otherwise a full-time Employee of the Company or any Subsidiary, as such terms are hereinafter defined, and (ii) has not been a full-time Employee of the Company or any Subsidiary for any part of the preceding fiscal year. 9.3 In the event that the number of Shares available for Options under the Plan is insufficient to make all grants hereby specified on the applicable date, then all Directors who are entitled to a grant on such date shall share ratably in the number of Shares then available for grant under the Plan." -2- 4. This Amendment shall be effective as of the dates set forth above. PRIDE INTERNATIONAL, INC. By /s/ ROBERT W. RANDALL Robert W. Randall, Vice President ATTEST: /s/ FRIDA A. MARTINEZ -3- EX-10.11 5 EXHIBIT 10.11 PRIDE INTERNATIONAL, INC. 1993 DIRECTORS' STOCK OPTION PLAN THIRD AMENDMENT Pride International, Inc. (the "Company") having previously established the Pride Petroleum Services, Inc. 1993 Directors' Stock Option Plan effective February 22, 1993, as thereafter amended effective May 22, 1997 and December 4, 1997 (the "Plan"), and having reserved the right under Section XVIII thereof to amend the Plan, does hereby amend Section 2.1 of the Plan in its entirety to read as follows, subject to shareholder approval: "2.1 The total number of shares of common stock of the Company which may be purchased pursuant to the exercise of Options granted under the Plan shall not exceed, in the aggregate, two hundred thousand (200,000) shares of common stock, no par value, of the Company (the 'Shares')." This Amendment shall be effective as of February 26, 1998. PRIDE INTERNATIONAL, INC. By: /s/ ROBERT W. RANDALL Robert W. Randall, Vice President ATTEST: /s/ FRIDA A. MARTINEZ EX-10.14 6 EXHIBIT 10.14 PRIDE PETROLEUM SERVICES, INC. EMPLOYEE STOCK PURCHASE PLAN FIRST AMENDMENT Pride Petroleum Services, Inc. (the "Company") having previously established the Pride Petroleum Services, Inc. Employee Stock Purchase Plan effective July 1, 1996 (the "Plan"), and having reserved the right under Section 19 thereof to amend the Plan, does hereby amend the Plan to document the change in the Company's name from Pride Petroleum Services, Inc. to Pride International, Inc., effective as of May 22, 1997, as follows: 1. The name of the Plan is hereby changed to the "Pride International, Inc. Employee Stock Purchase Plan." 2. Section 1 of the Plan is hereby amended in its entirety to read as follows: "1. PURPOSE The Pride International, Inc. Employee Stock Purchase Plan (the "Plan") is designed to encourage and assist all employees of Pride International, Inc., a Louisiana corporation ("Pride") and Subsidiaries (as defined in Section 4) (hereinafter collectively referred to as the "Company"), where permitted by applicable laws and regulations, to acquire an equity interest in Pride through the purchase of shares of common stock, no par value, of Pride ("Common Stock"). It is intended that this Plan shall constitute an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the "Code")." PRIDE INTERNATIONAL, INC. By /s/ ROBERT W. RANDALL ATTEST: /s/ FRIDA A. MARTINEZ EX-10.15 7 EXHIBIT 10.15 PRIDE PETROLEUM SERVICES, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN SECTION 1 PURPOSES OF PLAN, EFFECTIVE DATE AND DEFINITIONS 1.1 PURPOSE. The purpose of the Pride Petroleum Services, Inc. Supplemental Executive Retirement Plan (the "Plan") is to provide specified benefits to a select group of management and highly compensated employees of Pride Petroleum Services, Inc. (the "Company") who contribute materially to the continued growth, development and future business success of the Company. The Plan shall be an unfunded, deferred compensation arrangement. 1.2 EFFECTIVE DATE. The Plan shall be effective as of January 1, 1996. 1.3 DEFINITIONS. For purposes of this Plan, the following phrases or terms shall have the indicated meanings unless otherwise clearly apparent from the context. (a) "Annual Salary" means the Participant's base annual salary, excluding any and all bonuses received during such year. (b) "Beneficiary" means the person or persons designated by a Participant to receive the benefits which are payable under the Plan upon or after the death of the Participant. (c) "Committee" means the Compensation Committee of the Company established by its Board of Directors. (d) "Company" means Pride Petroleum Services, Inc., a Louisiana corporation. (e) "Employee" means any person who is employed by the Company on a regular, full-time basis determined by the personnel rules and practices of the Company. (f) "Employment Agreement" means the agreement entered into between a Participant and the Company which sets forth the terms of the Participant's employment with the Company. (g) "Mandatory Retirement Age" means the date a Participant attains age 65, or such other later date as specified by the Company's Board of Directors. (h) "Normal Retirement Age" means the date designated by the Committee for each Participant as each Participant is chosen for participation in this Plan. 1 (i) "Participant" means an Employee who satisfies the eligibility requirements of participate in this Plan. SECTION 2 ADMINISTRATION OF THE PLAN 2.1 COMMITTEE POWERS. The Committee shall have full power and authority to interpret the provisions of the Plan and may from time to time establish rules for the administration of the Plan that are not inconsistent with the provisions and purposes of the Plan. 2.2 COMMITTEE ACTION. A majority of the members of the Committee shall constitute a quorum for the transaction of business. All action taken by the Committee at a meeting shall be by the vote of a majority of those present at such meeting, but any action may be taken by the Committee without a meeting upon written consent signed by a majority of the members of the Committee. 2.3 COMMITTEE DETERMINATIONS CONCLUSIVE. All determinations of the Committee shall be final, binding and conclusive upon all persons. The determination of the Committee as to any disputed question arising under the Plan, including questions of construction and interpretation, shall be final, binding and conclusive upon all persons. Without limiting the generality of the foregoing, the determination of the Committee as to whether a Participant has terminated his employment and the date thereof, or the cause to which termination of employment is attributable, shall be final, binding and conclusive upon all persons. 2.4 COMMITTEE LIABILITY. No member of the Committee shall be liable for any act done or determination made in good faith. SECTION 3 ELIGIBILITY 3.1 ELIGIBILITY. Only certain Employees who are approved by the Company Compensation Committee and who, individually and collectively, constitute a select group of management or highly compensated employees shall participate in this Plan. SECTION 4 BENEFITS 4.1 NORMAL RETIREMENT BENEFIT. In the event a Participant retires after he attains his Normal Retirement Age of Mandatory Retirement Age, the Company shall pay or cause to be paid to the Participant a benefit ("Normal Retirement Benefit") equal to 2.5% of the Participant's final Annual Salary multiplied by the number of full years of the Participant's employment with the Company. The Normal Retirement Benefit shall be limited to 40% of the Participant's final Annual Salary and shall be paid in monthly installments for a period of ten (10) years, beginning on the first day of the month next following the Participant's retirement. 2 4.2 EARLY RETIREMENT BENEFIT. If a Participant has received the approval of the Committee for early retirement under this Plan and such Participant retires after attaining the age of 58 and after attaining at least 16 years of continuous employment with the Company ("Early Retirement Age"), the Company shall pay or cause to be paid to the Participant a benefit ("Early Retirement Benefit") equal to 2.5% of the Participant's final annual salary multiplied by the number of full years of the Participant's employment with the Company. The Early Retirement Benefit shall be limited to 40% of the Participant's final annual salary and shall be paid in monthly installments for a period of ten (10) years, beginning on the first day of the month next following the Participant's retirement. 4.3 FORFEITURE. Unless otherwise provided under the terms of this Plan, a Participant shall forfeit all benefits payable under this Plan if such Participant's employment with the Company is terminated for any reason prior to attaining Normal Retirement Age or, if approved by the Committee for early retirement, prior to attaining Early Retirement Age. 4.4 CHANGE IN CONTROL. Notwithstanding anything herein to the contrary, if a "Change in Control" (as such term is defined in the Participant's Employment Agreement) occurs, such Participant's accrued benefit to date (as set forth in Section 4.1) shall immediately become fully vested and shall be paid to the Participant in one lump sum at such time as he is separated from the Company. 4.5 DEATH. If a Participant dies after the payment of benefits under this Plan has commenced, the remainder of the benefit shall be paid to the Participant's designated Beneficiary, provided, the present value of the remaining benefit may be paid, at the discretion of the Committee and with the consent of the Participant's Beneficiary, in one lump sum paid to the Participant's Beneficiary at the time of death. If a Participant dies prior to the commencement of benefits under this Plan, but after the Participant has attained Early Retirement Age and while still employed by the Company, the Participant's benefit shall be paid in full to the Participant's designated Beneficiary in monthly installments for a period of ten (10) years. The present value of the benefit may be paid, at the discretion of the Committee, but with the consent of the Participant's Beneficiary, in one lump sum at the time of death. If a Participant dies prior to attaining Early Retirement Age, such Participant shall receive no benefit pursuant to this Section. 4.6 TOTAL AND PERMANENT DISABILITY. If a Participant is totally and permanently disabled prior to the commencement of the payment of any benefits hereunder, the Company shall pay or cause to be paid to the Participant a benefit ("Disability Benefit") equal to 2.5% of the Participant's final annual salary multiplied by the number of full years of the Participant's employment with the Company. The Disability Benefit shall be limited to 40% of the Participant's final annual salary and shall be paid in monthly installments for a period of ten (10) years, beginning on the first day of the month next following the Participant's becoming totally and permanently disabled. 3 4.7 CONDITIONS FOR PAYMENT OF BENEFITS. Notwithstanding anything herein to the contrary, benefits payable under this Plan shall be paid to a Participant only so long as the Participant abides by the confidentiality and noncompete provisions of such Participant's Employment Agreement throughout the entire benefit payment period. 4.8 BENEFICIARY DESIGNATIONS. The person or persons to whom the benefits under this Plan are to be paid upon a Participant's death shall be the person or persons designated by the Participant to receive benefits under the procedure established by the Committee for designating Beneficiaries. In the event no valid designation of a Beneficiary exists at the time of a Participant's death, the benefit provided for in this Section shall be payable to the Participant's estate. This provision enabling each Participant to designate one or more beneficiaries shall constitute a nontestamentary payment provision covered by Section 450 of the Texas Probate Code. Any payment made by the Company in good faith and in accordance with the provision of this Plan shall fully discharge the Company from all further obligations with respect to such payment. 4.9 PAYMENTS TO MINORS AND INCOMPETENTS. Should the Participant become incompetent or should the Participant designate a beneficiary who is a minor or incompetent, the Company shall be authorized to pay such funds to a parent or guardian of the estate of such minor or incompetent, or directly to such minor or incompetent, whichever manner the Committee shall determine in its sole discretion. 4.10 WITHHOLDING OF TAXES. The Company paying benefits hereunder shall deduct from the amount of all benefits paid under the Plan any taxes required to be withheld by the Federal or any state of local government. SECTION 5 SOURCE OF BENEFITS 5.1 BENEFITS PAYABLE FROM GENERAL ASSETS. Amounts payable hereunder shall be paid exclusively from the general assets of the Company, and no person entitled to payment hereunder shall have any claim, right, security interest, or other interest in any fund, trust, account, insurance contract, or asset of the Company which may be looked to for such payment. The Company's liability for the payment of benefits hereunder shall be evidenced only by this Plan. SECTION 6 RIGHTS OF PARTICIPANTS 6.1 LIMITATION OF RIGHTS. Nothing in this Plan shall be construed to: (a) Limit in any way the right of the Company to terminate a Participant's employment with the Company at any time; 4 (b) Give a Participant or any other person any interest in any fund or in any specific asset or assets of the Company; or (c) Be evidenced of any agreement of understanding, express or implied, that the Company will employ a Participant in any particular position or at any particular rate of remuneration. 6.2 NONALIENATION OF BENEFITS. No right or benefit under the Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge the same will be void. No right or benefit hereunder shall in any manner be liable for or subject to any debts, contracts, liabilities or torts of the person entitled to such benefits. If any Participant or beneficiary hereunder shall become bankrupt or attempt to anticipate, alienate, assign, sell, pledge, encumber or charge any right of benefit hereunder, or if any creditor shall attempt to subject the same to a writ of garnishment, attachment, execution, sequestration or any other form of process or involuntary lien or seizure, then such right or benefit shall be held by the Company for the sole benefit of the Participant or the beneficiary, his or her spouse, children or other dependents, or any of them in such manner and in such proportion as the Committee shall deem proper, free and clear of the claims of any other party whatsoever. 6.3 PREREQUISITES TO BENEFITS. No Participant, or any person claiming through a Participant, shall have any right or interest in the Plan or any benefits hereunder unless and until all the terms, conditions and provisions of the Plan that affect such Participant or such other person shall have been complied with as specified herein. The Participant shall complete such forms and furnish such information as the Committee may require in the administration of the Plan. SECTION 7 CLAIM PROCEDURE 7.1 FILING ORIGINAL CLAIM. Any person who believes he has been wrongfully denied benefits under the Plan may submit a written claim for benefits to the Committee. If any portion of the claim for benefits is denied, the Committee shall give notice stating the reason for the denial, a reference to the Plan provision, regulation, procedure, determination or other matter on which the denial was based, a description of any additional information or materials necessary to complete the claims procedure, and an explanation of this review procedure. This notice shall be sent to the address stated on the Employee's claim within a reasonable period of time after receipt of claim. 7.2 APPEAL TO COMMITTEE. Any Employee, former Employee, or beneficiary of either, who has been denied a benefit under the Plan by a decision of the Committee shall be entitled to request the Committee to give further consideration to his claim by filing with the Committee a written request for a review of the decision of denial. Such request, together with a written statement of the reasons why the claimant believes his claim should be allowed, shall be filed with the Commission no later than 60 days after receipt of the written notification of the denial of the claim 5 for benefits. The Committee shall consider a claim as promptly as practicable and will attempt to make its decision within 60 days of receipt of the request for review, and no later than 120 days after the date. SECTION 8 MISCELLANEOUS 8.1 AMENDMENT OR TERMINATION OF THE PLAN. The Board of Directors of the Company may amend or terminate this Plan at any time. 8.2 RELIANCE UPON INFORMATION. The Board of Directors of the Company and the Committee may rely upon any information supplied to them by any officer of the Company, the Company's legal counsel or by the Company's independent public accountants in connection with the administration of the Plan, and shall not be liable for any decision or action in reliance thereon. 8.3 GOVERNING LAW. The place of administration of the Plan shall be conclusively deemed to be within the State of Texas; and the validity, construction, interpretation and effect of the Plan and all rights of any and all persons having or claiming to have any interest in the Plan shall be governed by the laws of the State of Texas to the extent such laws are not preempted by federal law. 8.4 SEVERABILITY. All provisions herein are severable and in the event any one of them shall be held invalid by any court of competent jurisdiction, the Plan shall be interpreted as if such invalid provision was not contained herein. 8.5 HEADINGS. The headings of the sections of this Plan are inserted for convenience only and shall not be deemed to constitute a part of this Plan. 8.6 NONWAIVER. Failure on the part of any party in any one or more instances to enforce any of its rights which arise in connection with this Plan or to insist upon the strict performance of any of its terms, conditions, or covenants of this Plan shall not be construed as a waiver or a relinquishment for the future of any such rights, terms, conditions, or covenants. No waiver of any condition of this Plan shall be valid unless it is in writing. 8.7 PLAN OF FILE. The Company shall place this Plan on file in the office of its principal place of business. 8.8 NOTICES. Any notices to be given hereunder by either party to the other may be effected either by personal delivery in writing or by mail, registered or certified, postage prepaid with return receipt requested. Notices delivered personally shall be deemed communicated as of actual receipt; mailed notices shall be deemed communicated as of three (3) days after mailing. 6 Executed this 22nd day of December, 1995. PRIDE PETROLEUM SERVICES, INC. ATTEST: /s/ROBERT W. RANDALL By:/s/RAY H. TOLSON Robert W. Randall Ray H. Tolson Secretary President 7 EX-10.16 8 EXHIBIT 10.16 PRIDE PETROLEUM SERVICES, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN FIRST AMENDMENT Pride Petroleum Services, Inc. (the "Company"), having previously established the Pride Petroleum Services, Inc. Supplemental Executive Retirement Plan, effective January 1, 1996, (the "Plan"), and having reserved the right under Section 8.1 thereof to amend the Plan, does hereby amend the Plan to document the change in the Company's name from Pride Petroleum Services, Inc. to Pride International, Inc., effective as of May 22, 1997, as follows: 1. The name of the Plan is hereby changed to the "Pride International, Inc. Supplemental Executive Retirement Plan." 2. Section 1.1 of the Plan is hereby amended in its entirety to read as follows: "1.1 PURPOSE. The purpose of the Pride International, Inc. Supplemental Executive Retirement Plan (the "Plan") is to provide specified benefits to a select group of management and highly compensated employees of Pride International, Inc. (the "Company") who contribute materially to the continued growth, development and future business success of the Company. The Plan shall be an unfunded, deferred compensation arrangement." 3. Section 1.3 (d) of the Plan is hereby amended in its entirety to read as follows: "(d) "Company" means Pride International, Inc. and its successors." -1- IN WITNESS WHEREOF, Pride International, Inc. has caused these presents to be executed by its duly authorized officers in a number of copies, all of which shall constitute one and the same instrument, which may be sufficiently evidenced by any executed copy hereof, this 22nd day of September, 1997, but effective as of the date herein stated. PRIDE INTERNATIONAL, INC. By /s/ ROBERT W. RANDALL ATTEST: /s/ FRIDA A. MARTINEZ -2- EX-10.17 9 EXHIBIT 10.17 PRIDE INTERNATIONAL, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN SECOND AMENDMENT Pride International, Inc. (the "Company"), having previously established the Pride International, Inc. Supplemental Executive Retirement Plan, effective January 1, 1996 (the "Plan"), and having reserved the right under Section 8.1 thereof to amend the Plan, does hereby amend the Plan, effective as of January 1, 1998, as follows: 1. Section 1.1 of the Plan is hereby amended in its entirety to read as follows: "1.1 PURPOSE. The purpose of the Pride International, Inc. Supplemental Executive Retirement Plan (the "Plan") is to provide specified benefits to a select group of management and highly compensated employees of Pride International, Inc. (the "Company") and its Affiliates who contribute materially to the continued growth, development and future business success of the Company. The Plan shall be an unfunded, deferred compensation arrangement." 2. Section 1.3(e) of the Plan is hereby amended in its entirety to read as follows: "(e) 'Employee' means any person who is employed by the Company or an Affiliate on a regular full-time basis determined by the personnel rules and practices of the Company or Affiliate, as applicable." 3. Section 1.3 of the Plan is hereby amended by adding the following paragraphs to the end thereof: "(j) 'Affiliate' means any corporation which has adopted this Plan and the shares of which are owned or controlled, directly or indirectly, by the Company represent fifty percent (50%), or more, of the voting power of the issued and outstanding capital stock of such corporation. -1- (k) 'Employer' means the Company and each Affiliate which has adopted or which adopts this Plan with the approval of the Board of Directors of the Company." 4. Section 4.1 of the Plan is hereby amended in its entirety to read as follows: "4.1 NORMAL RETIREMENT BENEFIT. In the event a Participant retires after he attains his Normal Retirement Age or Mandatory Retirement Age, the Company shall pay or cause to be paid to the Participant, or in the event (i) the Company does not pay or (ii) the Company and the Employer who employed the Participant agree that the Employer will pay, then the Employer who employed the Participant shall pay to the Participant, a benefit ("Normal Retirement Benefit") equal to 2.5% of the Participant's final Annual Salary multiplied by the number of full years of the Participant's employment with the Employer. The Normal Retirement Benefit shall be limited to 40% of the Participant's final Annual Salary and shall be paid in monthly installments for a period of ten (10) years, beginning on the first day of the month next following the Participant's retirement." 5. Section 4.2 of the Plan is hereby amended in its entirety to read as follows: "4.2 EARLY RETIREMENT BENEFIT. If a Participant has received the approval of the Committee for early retirement under this Plan and such Participant retires after attaining the age of 58 and after attaining at least 16 years of continuous employment with the Employer ("Early Retirement Age"), the Company shall pay or cause to be paid to the Participant, or in the event (i) the Company does not pay or (ii) the Company and the Employer who employed the Participant agree that the Employer will pay, then the Employer who employed the Participant shall pay to the Participant, a benefit ("Early Retirement Benefit") equal to 2.5% of the Participant's final Annual Salary multiplied by the number of full years of the Participant's employment with the Employer. The Early Retirement Benefit shall be limited to 40% of the Participant's final Annual Salary and shall be paid in monthly installments for a period of ten (10) years, beginning on the first day of the month next following the Participant's retirement." 6. Section 4.6 of the Plan is hereby amended in its entirety to read as follows: "4.6 TOTAL AND PERMANENT DISABILITY. If a Participant is totally and permanently disabled prior to the commencement of the payment of any benefits hereunder, the Company shall pay or cause to be paid to the Participant, or in the event (i) the Company does not pay or (ii) the Company and the Employer who employed the Participant agree that the Employer will pay, then the Employer who employed the Participant shall pay to the Participant, a benefit ("Disability Benefit") equal to 2.5% of the Participant's final Annual Salary multiplied by the number of full years of the Participant's -2- employment with the Employer. The Disability Benefit shall be limited to 40% of the Participant's final Annual Salary and shall be paid in monthly installments for a period of ten (10) years, beginning on the first day of the month next following the Participant's becoming totally and permanently disabled." 7. The term "Company" shall be replaced by the term "Employer" in each place that it appears in Sections 1.3(f), 4.3, 4.4, 4.5, 4.8, 4.9, 4.10, 5.1, 6.1, 6.2, and 8.7 of the Plan. 8. Section 8.2 of the Plan is hereby amended in its entirety to read as follows: "8.2 RELIANCE UPON INFORMATION. The Board of Directors of the Company and the Committee may rely upon any information supplied to them by any officer of the Employer, the Employer's legal counsel or by the Employer's independent public accountants in connection with the administration of the Plan, and shall not be liable for any decision or action in reliance thereon." IN WITNESS WHEREOF, Pride International, Inc. has caused these presents to be executed by its duly authorized officers in a number of copies, all of which shall constitute one and the same instrument, which may be sufficiently evidenced by any executed copy hereof, this 1st day of January, 1998, but effective as of the date herein stated. PRIDE INTERNATIONAL, INC. By /s/ ROBERT W. RANDALL ATTEST: /s/ FRIDA A. MARTINEZ -3- EX-10.22 10 EXHIBIT 10.22 PRIDE INTERNATIONAL, INC. EMPLOYMENT/NON-COMPETITION/ CONFIDENTIALITY AGREEMENT STEVEN R. TOLSON EFFECTIVE OCTOBER 1, 1997
INDEX PAGE NO. I. PRIOR AGREEMENTS/EMPLOYMENT CONTRACTS . . . . . . . . . . . . . . 2 1.01 Effect of Prior Agreements . . . . . . . . . . . . . . . . . . . . . 2 II. DEFINITION OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.01 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.02 Executive/Officer/Employee . . . . . . . . . . . . . . . . . . . . . 3 2.03 Office/Position/Title. . . . . . . . . . . . . . . . . . . . . . 3 2.04 Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.05 Change in Control. . . . . . . . . . . . . . . . . . . . . . . . 3 2.06 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.07 Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 III. EMPLOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.01 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.02 Best Efforts and other Employment of Executive. . . . . . . . . . 7 3.03 Term of Employment. . . . . . . . . . . . . . . . . . . . . . . . . 7 3.04 Compensation and Benefits. . . . . . . . . . . . . . . . . . . . . . 7 3.05 Termination Without Change in Control. . . . . . . . . . . . . . . . 8 IV. CHANGE IN CONTROL. . . . . . . . . . . . . . . . . . . . . . . . . 11 4.01 Extension of Employment Period. . . . . . . . . . . . . . . . . . . 11 4.02 Change in Control Termination Payments & Benefits. . . . . . . . . . 11 4.03 Voluntary Resignation Upon Change in Control. . . . . . . . . . . . . 12 V. NON-COMPETITION AND CONFIDENTIALITY. . . . . . . . . . . . . . . . . . 12 5.01 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.02 Non-Competition . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.03 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.04 Geographical Area . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.05 Company Remedies For Violation of Non-Competition or Confidentiality Agreement . . . . . . . . . . . . . . . . . . . 14 5.06 Termination of Benefits For Violation of Non-Competition and Confidentiality Agreement. . . . . . . . . . . . . . . . . . . 15 VI. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.01 Enforcement Costs . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.02 Income, Excise and Other Tax Liability. . . . . . . . . . . . . . . 16 6.03 Payment of Benefits Upon Termination for Cause. . . . . . . . . . . . . 16 6.04 Non-Exclusive Agreement. . . . . . . . . . . . . . . . . . . . . . . . 17 6.05 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.06 Non-Alienation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.07 Entire Agreement: Amendment. . . . . . . . . . . . . . . . . . . . . 17 6.08 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . 17 6.09 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.10 Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.11 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.12 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.13 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
EMPLOYMENT/NON-COMPETITION/CONFIDENTIALITY AGREEMENT DATE: October 1, 1997 COMPANY/EMPLOYER: Pride International, Inc., A Louisiana corporation San Felipe Plaza, Suite 3300 5847 San Felipe Houston, Texas 77057 EXECUTIVE/EMPLOYEE Steven R. Tolson 22103 Mission Hills Lane Katy, Texas 77450 This Agreement is made as of the date first above written and to become effective as herein provided. PREAMBLE WHEREAS, the Company wishes to attract and retain well-qualified Executive and key personnel and to assure itself of the continuity of its management; WHEREAS, Executive is an officer of the Company with significant management responsibilities in the conduct of its business; WHEREAS, the Company recognizes that Executive is a valuable resource of the Company and the Company desires to be assured of the continued services of Executive; WHEREAS, the Company desires to obtain assurances that Executive will devote his best efforts to his employment with the Company and will not enter into competition with the Company in its business as now conducted and to be conducted, or solicit customers or other employees of the Company to terminate their relationships with the Company; WHEREAS, Executive is a key employee of the Company and he acknowledges that his talents and services to the Company are of a special, unique, unusual and extraordinary character and are of particular and peculiar benefit and importance to the Company; WHEREAS, the Company is concerned that in the event of a possible or threatened change in control of the Company, uncertainties necessarily arise; Executive may have concerns about the continuation of his employment status and responsibilities and may be approached by others offering competing employment opportunities; the Company, therefore, desires to provide Executive assurances as to the continuation of his employment status and responsibilities in such event; WHEREAS, the Company further desires to assure Executive that, if a possible or threatened change in control should arise and Executive should be involved in deliberations or negotiations in connection therewith, Executive would be in a secure position to consider and participate in such transaction as objectively as possible in the best interests of the Company and to this end desires to protect Executive from any direct or implied threat to his financial well-being; WHEREAS, Executive is willing to continue to serve as such but desires assurances that in the event of such a change in control he will continue to have the employment status and responsibilities he could reasonably expect absent such event and, that in the event this turns out not to be the case, he will have fair and reasonable severance protection on the basis of his service to the Company to that time; WHEREAS, different factors affect the Company and Executive under circumstances of regular employment between the Company and the Executive when there is no threat of change in control and/or none has occurred, as opposed to circumstances under which a change in control is rumored, threatened, occurring or has occurred. For this reason this Employment Agreement is primarily in two parts. One part deals with the regular employment of Executive under circumstances whereby no change in control is threatened, occurring or occurred; herein called "Regular Employment". The second part deals with circumstances whereby a change in control is threatened, occurring or has occurred. Other parts of the Agreement deal with matters affecting both Regular Employment and employment following change in control, including non-competition and confidentiality; and WHEREAS, Executive is willing to enter into and carry out the Non-Competition and Confidentiality Agreement set forth herein in consideration of the Employment Agreement set forth herein. AGREEMENT NOW, THEREFORE, the parties agree as follows: I. PRIOR AGREEMENTS/EMPLOYMENT CONTRACTS. 1.01 EFFECT OF PRIOR AGREEMENTS. On and as of 12:00 o'clock noon of the Effective Date all prior employment and non-competition contracts between Company and any of its subsidiaries and Executive are hereby amended, modified and superseded by this Agreement insofar as future employment, compensation, non-competition, confidentiality, accrual or payments of any form of compensation or benefits from the Company are concerned. This Agreement does not release or relieve Company from its liability or obligation with respect to any compensation, payments, or benefits already accrued to Executive, nor to any vesting of benefits or other rights which are attributable to length of employment, seniority or other such matters. This Agreement does not relieve Executive of any prior non-competition or confidentiality obligations and agreements and the same are hereby modified and amended as to future matters and future confidentiality even as to matters accruing prior to the Effective Date hereof. II. DEFINITION OF TERMS. 2.01 COMPANY. Company means Pride International, Inc., a Louisiana corporation, as the same presently exists, as well as any and all successors, regardless of the nature of the entity or the State or Nation of organization, whether by reorganization, merger, consolidation, absorption or dissolution. For the purpose of the Non-Competition and Confidentiality Agreement, Company includes any subsidiary or affiliate of the Company to the extent it is carrying on any portion of the business of the Company or a business similar to that being conducted by the Company. 2.02 EXECUTIVE/OFFICER/EMPLOYEE. Executive/Officer/Employee means Steven R. Tolson. 2.03 OFFICE/POSITION/TITLE. The Office, Position and Title for which the Executive is employed is that of Vice President-U.S. Operations, Offshore of the Company and carries with it the duties, responsibilities, rights, benefits and privileges presently held by the Executive, or as may reasonably be assigned to the Executive as are customary and usual for such position. 2.04 EFFECTIVE DATE. This Agreement becomes effective and binding as of October 1, 1997. 2.05 CHANGE IN CONTROL. The term "Change in Control" of the Company shall mean, and shall be deemed to have occurred on the date of the first to occur of any of the following: a. there occurs a Change in Control of the Company of the nature that would be required to be reported in response to item 6(e) of Schedule 14A of Regulation 14A or Item 1 of Form 8(k) promulgated under the Securities Exchange Act of 1934 as in effect on the date of this Agreement, or if neither item remains in effect, any regulations issued by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 which serve similar purposes; b. any "person" {as such term is used in Sections 12(d) and 14(d)(2) of the Securities Exchange Act of 1934} is or becomes a beneficial owner, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; c. the individuals who were members of the Board of Directors of the Company immediately prior to a meeting of the shareholders of the Company involving a contest for the election of Directors shall not constitute a majority of the Board of Directors following such election; d. the Company shall have merged into or consolidated with another corporation, or merged another corporation into the Company, on a basis whereby less than fifty percent (50%) of the total voting power of the surviving corporation is represented by shares held by former shareholders of the Company prior to such merger or consolidation; e. the Company shall have sold, transferred or exchanged all, or substantially all, of its assets to another corporation or other entity or person. 2.06 TERMINATION. The term "termination" shall mean termination, prior to the expiration of the Employment Period, of the employment of the Executive with the Company {including death and disability (as described below)} for any reason other than cause (as described below) or voluntary resignation (as described below). Termination includes "Constructive Termination" as described below. Termination includes non-renewal or failure to extend this Agreement at the end of any employment term, except for cause. a. The term "disability" means physical or mental incapacity qualifying the Executive for a long-term disability under the Company's long-term disability plan. If no such plan exists on the Effective Date of this Agreement, the term "disability" means physical or mental incapacity as determined by a doctor jointly selected by the Executive and the Board of Directors of the Company qualifying the Executive for long-term disability under reasonable employment standards. b. The term "cause" means: (i) the willful and continued failure of the Executive substantially to perform his duties with the Company (other than any failure due to physical or mental incapacity) after a demand for substantial performance is delivered to him by the Board of Directors which specifically identifies the manner in which the Board believes he has not substantially performed his duties, (ii) willful misconduct materially and demonstrably injurious to the Company, or (iii) material violation of the covenant not to compete (except after termination under the Change in Control provisions and confidentiality provisions hereof). No act or failure to act by the Executive shall be considered "willful" unless done or omitted to be done by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. The unwillingness of the Executive to accept any or all of a change in the nature or scope of his position, authorities or duties, a reduction in his total compensation or benefits, or other action by or request of the Company in respect of his position, authority, or responsibility that is contrary to this Agreement, may not be considered by the Board of Directors to be a failure to perform or misconduct by the Executive. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for cause for purposes of this Agreement unless and until there shall have been delivered to him a copy of a resolution, duly adopted by a vote of three-fourths (3/4ths) of the entire Board of Directors of the Company at a meeting of the Board of Directors called and held (after reasonable notice to the Executive and an opportunity for the Executive and his counsel to be heard before the Board) for the purpose of considering whether the Executive has been guilty of such a willful failure to perform or such willful misconduct as justifies termination for cause hereunder, finding that in the good faith opinion of the Board of Directors the Executive has been guilty thereof and specifying the particulars thereof. c. The term "Constructive Termination" means any circumstance by which the actions of the Company either reduce or change Executive's title, position, duties, responsibilities or authority to such an extent or in such a manner as to relegate Executive to a position not substantially similar to that which he presently holds; would degrade, embarrass or otherwise make it unreasonable for Executive to remain in the employment of the Company; and includes violation of the employment provisions and conditions of this Agreement. d. The resignation of the Executive shall be deemed "voluntary" if it is for any reason other than one or more of the following: (i) the Executive's resignation or retirement is requested by the Company other than for cause; (ii) any significant adverse change in the nature or scope of the Executive's position, authorities or duties from those described in this Agreement; (iii) any reduction in the Executive's total compensation or benefits from that provided in the Compensation and Benefits Section hereof; (iv) the material breach by the Company of any other provision of this Agreement; (v) any action by the Company which would constitute Constructive Termination; and (vi) non-renewal or failure to extend any employment term, contrary to the wishes of the Executive. Termination that entitles the Executive to the payments and benefits provided in the "Termination Payments and Benefits" Section hereof shall not be deemed or treated by the Company as the termination of the Executive's employment or the forfeiture of his participation, award, or eligibility, for the purpose of any plan, practice or agreement of the Company referred to in the Compensation and Benefits Section hereof. 2.07 CUSTOMER. The term "Customer" includes all persons, firms or entities that are purchasers or end-users of services or products offered, provided, developed, designed, sold or leased by the Company during the relevant time periods, and all persons, firms or entities which control, or which are controlled by, the same person, firm or entity which controls such purchase. III. EMPLOYMENT. 3.01 EMPLOYMENT. Except as otherwise provided in this Agreement, the Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, for the Term of Employment ("Employment Period") herein specified. During the Employment Period, Executive shall exercise such position and authority and perform such responsibilities as are commensurate with the position and authority being exercised and duties being performed by the Executive immediately prior to the Effective Date of this Agreement, which services shall be performed at the location where the Executive was employed immediately prior to the Effective Date of this Agreement or at such other location as the Company may reasonably require. 3.02 BEST EFFORTS AND OTHER EMPLOYMENT OF EXECUTIVE. a. Executive agrees that he will at all times faithfully, industriously and to the best of his ability, experience and talents, perform all of the duties that may be required of and from him pursuant to the express and implicit terms hereof, to the reasonable satisfaction of the Company. Such duties shall be rendered at Houston, Texas, and such other place or places within or outside the State of Texas as the Company shall in good faith require or as the interest, needs, business, or opportunities of the Company shall require. b. Executive shall devote his normal and regular business time, attention and skill to the business and interests of the Company, and the Company shall be entitled to all of the benefits, profits or other issue arising from or incident to all work, services and advice of Executive performed for the Company. Such employment shall be considered "full time" employment. Executive shall have the right to make investments in businesses which engage in activities other than those engaged by the Company. Executive shall also have the right to devote such incidental and immaterial amounts of his time which are not required for the full and faithful performance of his duties hereunder to any outside activities and businesses which are not being engaged in by the Company and which shall not otherwise interfere with the performance of his duties hereunder. Executive shall have the right to make investments in the manner and to the extent authorized and set forth in the Non-Competition Section of this Agreement. 3.03 TERM OF EMPLOYMENT. ("Employment Period"). Executive's regular employment (no Change in Control being presently contemplated) will commence on the Effective Date of this Agreement and will be for a term of two (2) years ending at 12:00 o'clock midnight September 30, 1999; thereafter, the Term of Employment of Executive will be automatically extended for successive terms of one (1) year each commencing October 1, 1999, and on October 1st of each year thereafter, unless Company or Executive gives written notice to the other that employment will not be renewed or continued after the next scheduled expiration date which is not less than one (1) year after the date that the notice of non-renewal was given. All extended employment terms will be considered to be within the Employment Period while Executive is employed with the Company. 3.04 COMPENSATION AND BENEFITS. During the Employment Period the Executive shall receive the following compensation and benefits: a. He shall receive an annual base salary which is not less than his annual base salary, with the opportunity for increases, from time to time thereafter, which are in accordance with the Company's regular executive compensation practices ("annual base salary"). Executive's salary will be reviewed at least annually by the Compensation Committee of the Board of Directors. Executive's current annual base salary is $105,000. b. To the extent that such plans exist immediately prior to the Effective Date of this Agreement, he shall be eligible to participate on a reasonable basis, and to continue his existing participation, in annual bonus, stock option and other incentive compensation plans which provide opportunities to receive compensation in addition to his annual base salary which are the greater of: (i) the opportunities provided by the Company for Executives with comparable duties, or (ii) the opportunities under any such plans in which he was participating immediately prior to the Effective Date of this Agreement. c. To the extent such plans exist immediately prior to the Effective Date of this Agreement, he will be entitled to receive and participate in exempt employee benefits (including, but not limited to, medical, life, health, accident and disability insurance and disability benefits) and prerequisites which are the greater of: (i) the employee benefits and prerequisites provided by the Company to Executives with comparable duties, or (ii) the employee benefits and prerequisites to which he was entitled or in which he participated immediately prior to the Effective Date of this Agreement. d. To the extent such plans exist immediately prior to the Effective Date of this Agreement, he will be entitled to continue to accrue credited service for retirement benefits and to be entitled to receive retirement benefits under and pursuant to the terms of the Company's qualified retirement plan for exempt employees, the Company's supplemental executive retirement plan, and any successor or other retirement plan or agreement in effect on the Effective Date of this Agreement in respect of his retirement, whether or not a qualified plan or agreement, so that his aggregate monthly retirement benefit from all such plans and agreements (regardless when he begins to receive such benefit) will be not less than it would be had all such plans and agreements in effect immediately prior to the Effective Date of this Agreement continued to be in effect without change until and after he begins to receive such benefits. e. Paid vacations each year to the same extent as he is presently receiving or the benefits provided to Executives with comparable duties whichever is greater. f. Participation in all other executive incentive stock and benefit plans approved by the Committee. 3.05 TERMINATION WITHOUT CHANGE IN CONTROL. The Company shall have the right to terminate Executive at any time during the Employment Period (including any extended term). Should the Company choose not to renew or extend the Employment Period of this Employment Agreement or choose to terminate the Executive, during or at the end of, the Employment Period, or in the event of death or disability of the Executive, if the termination is not after a Change in Control and is not for cause, the Company shall, within thirty (30) days following such termination, pay and provide to the Executive (or his Executor, Administrator or Estate in the event of death, as soon as reasonably practical): a. An amount equal to one (1) full year of his base salary (including the amount allocated to the covenant not to compete), which base salary is here defined as twelve (12) times the then current monthly salary in effect for the Executive and all other benefits due him based upon the salary in effect on the Date of Termination (but not less than the highest annual base salary paid to the Executive during any of the three (3) years immediately preceding his Date of Termination). There shall be deducted only such amounts as may be required by law to be withheld for taxes and other applicable deductions. b. The Company shall provide to Executive and his immediate family (at no cost to the Executive) for a period of one (1) full year following the Date of Termination, life, health, accident and disability insurance which are not less than the highest benefits furnished to the Executive and his immediate family during the term of this Agreement. c. An amount equal to the target award for the Executive under the Company's annual bonus plan for the fiscal year in which termination occurs, provided that if the Executive has deferred his award for such year under a Company plan, the payment due the Executive under this subparagraph shall be paid in accordance with the terms of the deferral or as specified by the Executive. d. The Company shall pay, distribute and otherwise provide to the Executive the amount and value of his entire plan account and interest under any retirement plan, employee benefit plan, investment plan or stock ownership plan, if any exists on the Date of Termination, and all employer contributions made or payable to any such plan for his account prior to the end of the month in which Termination occurs shall be deemed vested and payable to him. Such payment or distribution shall be in accordance with the elections made by the Executive in respect of distributions in accordance with the plan as if the Executive's employment in the Company terminated at the end of the month in which Termination occurs. e. All stock options and awards to which the Executive is entitled will immediately vest and the time for exercising any option will be as specified in the plan as if the Executive were still employed by the Company; provided however if the immediate vesting of all benefits under the plan is not permitted by the plan, then the benefits will be vested only to the extent authorized or permitted by the plan. f. If Executive elects to treat the termination as retirement, on the Date of Termination the Executive shall be deemed to have retired from the Company and he shall be entitled at that time, or at such later time as he may elect consistent with the terms of any applicable plan or benefit to all benefits of such retirement plan or benefit. Executive may treat the termination as termination other than "retirement" if Executive so elects and may defer "retirement" to a later date if permitted by any applicable plan. g. The "Compensation and Benefits" Section hereof shall be applicable in determining the payments and benefits due the Executive under this Section and if Termination occurs after a reduction in all or part of the Executive's total compensation or benefits, the lump sum severance allowance and other compensation and benefits payable to him pursuant to this Section shall be based upon his compensation and benefits before the reduction. h. If any provision of this Section cannot, in whole or in part, be implemented and carried out under the terms of the applicable compensation, benefit or other plan or arrangement of the Company because the Executive has ceased to be an actual employee of the Company, because he has insufficient or reduced credited service based upon his actual employment by the Company, because the plan or arrangement has been terminated or amended after the Effective Date of this Agreement, or for any other reason, the Company itself shall pay or otherwise provide the equivalent of such rights, benefits and credits for such benefits to the Executive, his dependents, beneficiaries and estate as if Executive's employment had not been terminated. i. All life, health, hospitalization, medical and accident benefits available to Executive's spouse and dependents shall continue for the same term as the Executive's benefits. If the Executive dies, all benefits will be provided for a term of one (1) year (or two (2) years after a Change in Control) after the date of death of the Executive. j. The Company's obligation under this Section to continue to pay or provide health care, life, accident and disability insurance to the Executive, the Executive's spouse and Executive's dependents, during the remainder of the Employment Period shall be reduced when and to the extent any of such benefits are paid or provided to the Executive by another employer, provided that the Executive shall have all rights afforded to retirees to convert group insurance coverage to the individual insurance coverage as, to the extent of, and whenever his group insurance coverage under this Section is reduced or expires. Apart from this subparagraph, the Executive shall have and be subject to no obligation to mitigate. k. The Company shall deduct applicable withholding taxes in performing its obligations under this Section. Nothing in this Section is intended, nor shall be deemed or interpreted, to be an amendment to any compensation, benefit or other plan to the Company. To the extent the Company's performance under this Section includes the performance of the Company's obligations to the Executive under any other plan or under another agreement between the Company and the Executive, the rights of the Executive under such other plan or other agreements, which are discharged under this Agreement, are discharged, surrendered, or released PRO TANTO. IV. CHANGE IN CONTROL. 4.01 EXTENSION OF EMPLOYMENT PERIOD. Upon any Change in Control the Employment Period shall be immediately and without further action extended for a term of two (2) years following the Effective Date of the Change in Control and will expire at 12:00 o'clock midnight on the last day of the month following two (2) years after the Change in Control. Thereafter, the employment period will be extended for successive terms of one (1) year each, unless terminated, all in the manner specified in the Term of Employment Section pertaining to regular employment. 4.02 CHANGE IN CONTROL TERMINATION PAYMENTS AND BENEFITS. In the event the Executive is terminated within two (2) years following a Change in Control, the Executive will receive the payments and benefits specified in the "Termination without Change in Control" Section in the same time and manner therein specified except as amended and modified hereby: a. The salary and benefits specified in Section 3.05a. will be paid based upon a multiple of two (2) years ( instead of one (1) year). b. Life, health, accident and disability insurance specified in Section 3.05b. will be provided until (i) Executive becomes reemployed and receives similar benefits from a new employer or (ii) two (2) years after the Date of Termination, whichever is earlier. c. An amount equal to two (2) times the maximum award that the Executive could receive under the Company's Annual Bonus Plan for the fiscal year in which the termination occurs, instead of the benefits provided in Section 3.05c. d. All other rights and benefits specified in Section 3.05. 4.03 VOLUNTARY RESIGNATION UPON CHANGE IN CONTROL. If the Executive voluntarily resigns his employment within six (6) months after a Change in Control (whether or not Company may be alleging the right to terminate employment for cause), he will receive the same payments, compensation and benefits as if he had been terminated on the date of resignation after Change in Control. V. NON-COMPETITION AND CONFIDENTIALITY. 5.01 CONSIDERATION.The base salary awarded to the Executive and to be paid to the Executive in the future includes consideration for the Non-Competition and Confidentiality Agreement set forth herein and the amount to be paid to Executive in the event of the termination of employment of Executive, voluntarily, involuntarily, or under a Change of Control, under Section 3.05a and 4.02a hereof constitute payment, in part, for the Non-Competition and Confidentiality of the Executive. It is contracted, stipulated and agree that fifteen percent (15%) of such amount paid and to be paid to the Executive shall constitute the consideration for the Non-Competition and Confidentiality Agreement set forth herein. 5.02 NON-COMPETITION. Executive acknowledges that his employment with the Company has in the past and will, of necessity, provide him with specialized knowledge which, if used in competition with the Company could cause serious harm to the Company. Accordingly, the Executive agrees that during his employment with the Company and for a period of one (1) year after he is no longer employed by the Company (unless his employment is terminated after a Change in Control, in which event there will be no covenant not to compete and the provisions of the covenant not to compete herein contained will terminate on the date of termination of Executive) Executive will not, directly or indirectly, either as an individual, proprietor, stockholder {other than as a holder of up to one percent (1%) of the outstanding shares of a corporation whose shares are listed on a stock exchange or traded in accordance with the automated quotation system of the National Association of Securities Dealers}, partner, officer, employee or otherwise: a. work for, become an employee of, invest in, provide consulting services or in any way engage in any business which provides, produces, leases or sells products or services of the same or similar type provided, produced, leased or sold by the Company and with regard to which Executive was engaged, or over which Executive had direct or indirect supervision or control, within one (1) year preceding the Executive's termination of employment, in any area where the Company provided, produced, leased or sold such products or services at any time during the one (1) year preceding such termination of employment; or b. provide, sell, offer to sell, lease, offer to lease, or solicit any orders for any products or services which the Company provided and with regard to which the Executive had direct or indirect supervision or control, within one (1) year preceding Executive's termination of employment, to or from any person, firm or entity which was a customer for such products or services of the Company during the one (1) year preceding such termination from whom the Company had solicited business during such one (1) year; or c. solicit, aid, counsel or encourage any officer, director, employee or other individual to (i) leave his or her employment or position with the Company or (ii) compete with the business of the Company, or (iii) violate the terms of any employment, non-competition or similar agreement with the Company; or d. employ, directly or indirectly; permit the employment of; contract for services or work to be performed by; or otherwise, use, utilize or benefit from the services of any officer, director, employee or any other individual holding a position with the Company within two (2) years after the Date of Termination of employment of Executive with the Company or within two (2) years after such officer, director, employee or individual terminated employment with the Company, whichever occurs earlier. 5.03 CONFIDENTIALITY. Executive acknowledges that his employment with the Company has in the past and will, of necessity, provide him with specialized knowledge which, if used in competition with the Company, or divulged to others, could cause serious harm to the Company. Accordingly, Executive will not at any time during or after his employment by the Company, directly or indirectly, divulge, disclose or communicate to any person, firm or corporation in any manner whatsoever any information concerning any matter affecting or relating to the Company or the business of the Company . While engaged as an employee of the Company, Executive may only use information concerning any matters affecting or relating to the Company or the business of the Company for a purpose which is necessary to the carrying out of the Executive's duties as an employee of the Company, and Executive may not make use of any information of the Company after he is no longer an employee of the Company. Executive agrees to the foregoing without regard to whether all of the foregoing matters will be deemed confidential, material or important, it being stipulated by the parties that all information, whether written or otherwise, regarding the Company's business, including, but not limited to, information regarding customers, customer lists, costs, prices, earnings, products, services, formulae, compositions, machines, equipment, apparatus, systems, manufacturing procedures, operations, potential acquisitions, new location plans, prospective and executed contracts and other business arrangements, and sources of supply, is PRIMA FACIE presumed to be important, material and confidential information of the Company for the purposes of this Agreement, except to the extent that such information may be otherwise lawfully and readily available to the general public. Executive further agrees that he will, upon termination of his employment with the Company, return to the Company all books, records, lists and other written, typed or printed materials, whether furnished by the Company or prepared by Executive, which contain any information relating to the Company's business, and Executive agrees that he will neither make nor retain any copies of such materials after termination of employment. Notwithstanding any of the foregoing, Executive will not be liable for any breach of these confidentiality provisions unless the same constitutes a material detriment to the Company, or due to the nature of the information divulged and the manner in which it was divulged and the person to whom it was divulged would likely cause damage to the Company or constitute a material detriment to the Company. 5.04 GEOGRAPHICAL AREA. The geographical area within which the non-competition covenants of this Agreement shall apply is that territory within two hundred (200) miles of: (i) any of the Company's present offices, (ii) any of the Company's present rig yards, and (iii) any additional location where the Company, as of the date of any action taken in violation of the non-competition covenants of this Agreement, has an office, a rig yard, or definitive plans to locate an office or a rig yard. Notwithstanding the foregoing, if the two hundred (200) mile radius extends into another county and the Company is not then doing business in that other county, there will be no territorial limitations extending into such other county. 5.05 COMPANY REMEDIES FOR VIOLATION OF NON-COMPETITION OR CONFIDENTIALITY AGREEMENT. Without limiting the right of the Company to pursue all other legal and equitable rights available to it for violation of any of the covenants made by Executive herein, it is agreed that: a. the skills, experience and contacts of Executive are of a special, unique, unusual and extraordinary character which give them a peculiar value; b. because of the business of the Company, the restrictions agreed to by Executive as to time and area contained in this Agreement are reasonable; and c. the injury suffered by the Company by a violation of any covenant in this Agreement resulting from loss of profits created by the competitive use of such skills, experience and contacts and otherwise will be difficult to calculate in damages in an action at law and cannot fully compensate the Company for any violation of any covenant in this Agreement, accordingly: (i) the Company shall be entitled to injunctive relief to prevent violations of such covenants or continuing violations thereof and to prevent Executive from rendering any services to any person, firm or entity in breach of such covenant and to prevent Executive from divulging any confidential information; and (ii) compliance with this Agreement is a condition precedent to the Company's obligation to make payments of any nature to Executive. 5.06 TERMINATION OF BENEFITS FOR VIOLATION OF NON-COMPETITION AND CONFIDENTIALITY. If Executive's termination was not after a Change in Control and if Executive shall be materially violating the Confidentiality and/or Non-Competition Agreement or any agreement he may have signed as an employee of the Company, Executive agrees that after receipt of written notice he shall continue such action and that there shall be no obligation on the part of the Company to provide any payments or benefits (other than payments or benefits already earned or accrued) described in the Termination of Rights and Benefits Section hereof, subject to the provisions of Section 6.01 hereof. There will be no withholding of benefits or payments if the termination occurred after a Change in Control and Executive will not be bound by the non-competition provisions if terminated while the Change in Control provisions hereof are applicable. VI. GENERAL. 6.01 ENFORCEMENT COSTS. The Company is aware that upon the occurrence of a Change in Control, or under other circumstances even when a Change in Control has not occurred, the Board of Directors or an shareholder of the Company may then cause or attempt to cause the Company to refuse to comply with its obligations under this Agreement, or may cause or attempt to cause the Company to institute, or may institute, litigation seeking to have this Agreement declared unenforceable, or may take, or attempt to take, other action to deny Executive the benefits intended under this Agreement; or actions may be taken to enforce the non-competition or confidentiality provisions of this Agreement. In these circumstances, the purpose of this Agreement could be frustrated. It is the intent of the parties that the Executive not be required to incur the legal fees and expenses associated with the protection or enforcement of his rights under this Agreement by litigation or other legal action because such costs would substantially detract from the benefits intended to be extended to Executive hereunder, nor be bound to negotiate any settlement of his rights hereunder under threat of incurring such costs. Accordingly, if at any time after the Effective Date of this Agreement, it should appear to Executive that the Company is or has acted contrary to or is failing or has failed to comply with any of its obligations under this Agreement for the reason that it regards this Agreement to be void or unenforceable, that Executive has violated the terms of this Agreement, or for any other reason, or that the Company has purported to terminate his employment for cause or is in the course of doing so, or is withholding payments or benefits, or is threatening to withhold payments or benefits, contrary to this Agreement, or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation or other legal action designed to deny, diminish or to recover from Executive the benefits provided or intended to be provided to him hereunder, and Executive has acted in good faith to perform his obligations under this Agreement, the Company irrevocably authorizes Executive from time to time to retain counsel of his choice at the expense of the Company to represent him in connection with the protection and enforcement of his rights hereunder, including, without limitation, representation in connection with termination of his employment or withholding of benefits or payments contrary to this Agreement or with the initiation or defense of any litigation or any other legal action, whether by or against Executive or the Company or any Director, Officer, Shareholder or other person affiliated with the Company, in any jurisdiction. Company is not authorized to withhold the periodic payments of attorneys' fees and expenses hereunder based upon any belief or assertion by the Company that Executive has not acted in good faith or has violated this Agreement. If Company subsequently establishes that Executive was not acting in good faith and has violated this Agreement, Executive will be liable to the Company for reimbursement of amounts paid due to Executive's actions not based on good faith and in violation of this Agreement. The reasonable fees and expenses of counsel selected from time to time by Executive as hereinabove provided shall be paid or reimbursed to Executive by the Company, on a regular, periodic basis within thirty (30) days after presentation by Executive of a statement or statements prepared by such counsel in accordance with its customary practices, up to a maximum aggregate amount of One Hundred Fifty Thousand Dollars ($150,000). 6.02 INCOME, EXCISE OR OTHER TAX LIABILITY. Executive will be liable for and will pay all income tax liability by virtue of any payments made to Executive under this Agreement, as if the same were earned and paid in the normal course of business and not the result of a Change in Control and not otherwise triggered by the "golden parachute" or excess payment provisions of the Internal Revenue Code of the United States, which would cause additional tax liability to be imposed. If any additional income tax, excise or other taxes are imposed on any amount or payment in the nature of compensation paid or provided to or on behalf of executive, the Company shall "gross up" Executive for such tax liability by paying to Executive an amount sufficient so that after payment of all such taxes so imposed Executive's position on an after-tax basis is what it would have been had no such additional taxes been imposed. Executive will cooperate with the Company to minimize the tax consequences to the Executive and to the Company so long as the actions proposed to be taken by the Company do not cause any additional tax consequences to Executive and do not prolong or delay the time that payments are to be made, or the amount of payments to be made, unless the Executive consents, in writing, to any delay or deferment of payment. 6.03 PAYMENT OF BENEFITS UPON TERMINATION FOR CAUSE. If the termination of Executive is for cause and not after a Change in Control, the Company will have the right to withhold all payments (except those specified in Section 6.01); provided however that if a final judgment is entered finding that cause did not exist for termination, the Company will pay all benefits to Executive to which he would have been entitled had the termination not been for cause, plus interest on all amounts withheld from Executive at the rate specified for judgments under Article 5069-1.05 V.A.T.S., but not less than ten percent (10%) per annum. If the termination for cause occurs after a Change in Control, the Company shall have not right to suspend or withhold payments to Executive under any provision of this Agreement until or unless a final judgment is entered upholding the Company's determination that the termination was for cause, in which event Executive will be liable to the Company for all amounts paid, plus interest at the rate allowed for judgments under Article 5069-1.05 V.A.T.S. 6.04 NON-EXCLUSIVE AGREEMENT. The specific arrangements referred to herein are not intended to exclude or limit Executive's participation in other benefits available to executive personnel generally, or to preclude or limit other compensation or benefits as may be authorized by the Board of Directors of the Company at any time, or to limit or reduce any compensation or benefits to which Executive would be entitled but for this Agreement. 6.05 NOTICES. Notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall either be personally delivered by hand or sent by: (i) Registered or Certified Mail, Return Receipt Requested, postage prepaid, properly packaged, addressed and deposited in the United States Postal System; (ii) via facsimile transmission if the receiver acknowledges receipt; or (iii) via Federal Express or other expedited delivery service provided that acknowledgment of receipt is received and retained by the deliverer and furnished to the sender, if to Executive, at the last address he has filed, in writing, with the Company, or if to the Company, to its Corporate Secretary at its principal executive offices. 6.06 NON-ALIENATION. Executive shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any amounts provided under this Agreement, and no payments or benefits due hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts or by operation of law. So long as Executive lives, no person, other than the parties hereto, shall have any rights under or interest in this Agreement or the subject matter hereof. Upon the death of Executive, his Executors, Administrators, Devisees and Heirs, in that order, shall have the right to enforce the provisions hereof. 6.07 ENTIRE AGREEMENT: AMENDMENT.This Agreement constitutes the entire agreement of the parties with respect of the subject matter hereof. No provision of this Agreement may be amended, waived, or discharged except by the mutual written agreement of the parties. The consent of any other person(s) to any such amendment, waiver or discharge shall not be required. 6.08 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, by operation of law or otherwise, including, without limitation, any corporation or other entity or persons which shall succeed (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, and the Company will require any successor, by agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of Executive and his legal representatives, heirs and assigns, provided however, that in the event of Executive's death prior to payment or distribution of all amounts, distributions and benefits due him hereunder, each such unpaid amount and distribution shall be paid in accordance with this Agreement to the person or persons designated by Executive to the Company to receive such payment or distribution and in the event Executive has made no applicable designation, to his Estate. If the Company should split, divide or otherwise become more than one entity, all liability and obligations of the Company shall be the joint and several liability and obligation of all of the parts. 6.09 GOVERNING LAW. Except to the extent required to be governed by the laws of the State of Louisiana because the Company is incorporated under the laws of said State, the validity, interpretation and enforcement of this Agreement shall be governed by the laws of the State of Texas. 6.10 VENUE. To the extent permitted by applicable State and Federal law, venue for all proceedings hereunder will be in Harris County, Texas. 6.11 HEADINGS. The headings in this Agreement are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Agreement. 6.12 SEVERABILITY. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 6.13 PARTIAL INVALIDITY. In the event that any part, portion or Section of this Agreement is found to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be binding upon the parties hereto and the Agreement will be construed to give meaning to the remaining provisions of this Agreement in accordance with the intent of this Agreement. 6.14 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be original, but all of which together constitute one and the same instrument. IN WITNESS WHEREOF, Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors and the Compensation Committee, the Company has caused these presents to be executed in its name and on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary or Assistant Secretary, all as of the day and year first above written. EXECUTED in multiple originals and/or counterparts as of the Effective Date. /s/ STEVEN R. TOLSON STEVEN R. TOLSON PRIDE INTERNATIONAL, INC. CORPORATE SEAL BY:/s/ RAY H. TOLSON RAY H. TOLSON CEO and Chairman of the Board EX-10.23 11 EXHIBIT 10.23 PRIDE INTERNATIONAL, INC. EMPLOYMENT/NON-COMPETITION/ CONFIDENTIALITY AGREEMENT ROBERT W. RANDALL EFFECTIVE OCTOBER 1, 1997
INDEX PAGE NO. I. PRIOR AGREEMENTS/EMPLOYMENT CONTRACTS . . . . . . . . . . . . . . . . . . . 2 1.01 Effect of Prior Agreements . . . . . . . . . . . . . . . . . . . . ..... . . 2 II. DEFINITION OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . .... . 3 2.01 Company . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . ... 3 2.02 Executive/Officer/Employee. . . . . . . . . . . . . . . . . . . . . . ...... 3 2.03 Office/Position/Title. . . . . . . . . . . . . . . . . . . . . . . . . .. 3 2.04 Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.05 Change in Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 3 2.06 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ 4 2.07 Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 6 III. EMPLOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ . 6 3.01 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 6 3.02 Best Efforts and other Employment of Executive. . . .. . . . . .............. 7 3.03 Term of Employment. . . . . . . . . . . . . . . . . . . . . . . . . . . ... 7 3.04 Compensation and Benefits. . . . . . . . . . . . . . . . . . . . . . . . .... 7 3.05 Termination Without Change in Control. . . . . . . . . . . . . .............. 8 IV. CHANGE IN CONTROL. . . . . . . . . . .. . . . . . . ................... . . . 11 4.01 Extension of Employment Period. . . . . . .. . . . . . . . . . . ............ 11 4.02 Change in Control Termination Payments & Benefits. . . . . . . . . . . .. . . 11 4.03 Voluntary Resignation Upon Change in Control. . . . . . . . . . . ..... . . . 12 V. NON-COMPETITION AND CONFIDENTIALITY. . . . . . . . . .................... . . 12 5.01 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... . 12 5.02 Non-Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 12 5.03 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . 13 5.04 Geographical Area . . . . . . . . . . . . . . . . . . . . . . . . . . .... . 14 5.05 Company Remedies For Violation of Non-Competition or Confidentiality Agreement . . . . . . . . . . . . . . . . . . ....... 14 5.06 Termination of Benefits For Violation of Non-Competition and Confidentiality Agreement. . . . . . . . . . . . . . . ....... . . . . 15 VI. GENERAL . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . ...... . . 15 6.01 Enforcement Costs . . . . . . . . . . . . . . . . . . . . . . . . ....... . . 15 6.02 Income, Excise and Other Tax Liability. . . . . . . . . . . . . . ...... 16 6.03 Payment of Benefits Upon Termination for Cause. . . . .......... . . . . . . . 16 6.04 Non-Exclusive Agreement. . . . . .. . . . ... . . . . . . . . ..... . . . . . 17 6.05 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... . . 17 6.06 Non-Alienation . . . . . . . . . . . . . . .. . . . . . . . ........... . . . 17 6.07 Entire Agreement: Amendment. . . . . . . . . . . . . . . . .......... . . . . 17 6.08 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.09 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . 18 6.10 Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... . . . 18 6.11 Headings. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . ...... . 18 6.12 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... . 18 6.13 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 18 6.14 Counterparts . . . . . . . . . . . . . . . . . . . . ........... . . . . . . 18
EMPLOYMENT/NON-COMPETITION/CONFIDENTIALITY AGREEMENT DATE: October 1, 1997 COMPANY/EMPLOYER: Pride International, Inc., A Louisiana corporation San Felipe Plaza, Suite 3300 5847 San Felipe Houston, Texas 77057 EXECUTIVE/EMPLOYEE Robert W. Randall 14621 Westway Lane Houston, Texas 77077 This Agreement is made as of the date first above written and to become effective as herein provided. PREAMBLE WHEREAS, the Company wishes to attract and retain well-qualified Executive and key personnel and to assure itself of the continuity of its management; WHEREAS, Executive is an officer of the Company with significant management responsibilities in the conduct of its business; WHEREAS, the Company recognizes that Executive is a valuable resource of the Company and the Company desires to be assured of the continued services of Executive; WHEREAS, the Company desires to obtain assurances that Executive will devote his best efforts to his employment with the Company and will not enter into competition with the Company in its business as now conducted and to be conducted, or solicit customers or other employees of the Company to terminate their relationships with the Company; WHEREAS, Executive is a key employee of the Company and he acknowledges that his talents and services to the Company are of a special, unique, unusual and extraordinary character and are of particular and peculiar benefit and importance to the Company; WHEREAS, the Company is concerned that in the event of a possible or threatened change in control of the Company, uncertainties necessarily arise; Executive may have concerns about the continuation of his employment status and responsibilities and may be approached by others offering competing employment opportunities; the Company, therefore, desires to provide Executive assurances as to the continuation of his employment status and responsibilities in such event; WHEREAS, the Company further desires to assure Executive that, if a possible or threatened change in control should arise and Executive should be involved in deliberations or negotiations in connection therewith, Executive would be in a secure position to consider and participate in such transaction as objectively as possible in the best interests of the Company and to this end desires to protect Executive from any direct or implied threat to his financial well-being; WHEREAS, Executive is willing to continue to serve as such but desires assurances that in the event of such a change in control he will continue to have the employment status and responsibilities he could reasonably expect absent such event and, that in the event this turns out not to be the case, he will have fair and reasonable severance protection on the basis of his service to the Company to that time; WHEREAS, different factors affect the Company and Executive under circumstances of regular employment between the Company and the Executive when there is no threat of change in control and/or none has occurred, as opposed to circumstances under which a change in control is rumored, threatened, occurring or has occurred. For this reason this Employment Agreement is primarily in two parts. One part deals with the regular employment of Executive under circumstances whereby no change in control is threatened, occurring or occurred; herein called "Regular Employment". The second part deals with circumstances whereby a change in control is threatened, occurring or has occurred. Other parts of the Agreement deal with matters affecting both Regular Employment and employment following change in control, including non-competition and confidentiality; and WHEREAS, Executive is willing to enter into and carry out the Non-Competition and Confidentiality Agreement set forth herein in consideration of the Employment Agreement set forth herein. AGREEMENT NOW, THEREFORE, the parties agree as follows: I. PRIOR AGREEMENTS/EMPLOYMENT CONTRACTS. 1.01 EFFECT OF PRIOR AGREEMENTS. On and as of 12:00 o'clock noon of the Effective Date all prior employment and non-competition contracts between Company and any of its subsidiaries and Executive are hereby amended, modified and superseded by this Agreement insofar as future employment, compensation, non-competition, confidentiality, accrual or payments of any form of compensation or benefits from the Company are concerned. This Agreement does not release or relieve Company from its liability or obligation with respect to any compensation, payments, or benefits already accrued to Executive, nor to any vesting of benefits or other rights which are attributable to length of employment, seniority or other such matters. This Agreement does not relieve Executive of any prior non-competition or confidentiality obligations and agreements and the same are hereby modified and amended as to future matters and future confidentiality even as to matters accruing prior to the Effective Date hereof. II. DEFINITION OF TERMS. 2.01 COMPANY. Company means Pride International, Inc., a Louisiana corporation, as the same presently exists, as well as any and all successors, regardless of the nature of the entity or the State or Nation of organization, whether by reorganization, merger, consolidation, absorption or dissolution. For the purpose of the Non-Competition and Confidentiality Agreement, Company includes any subsidiary or affiliate of the Company to the extent it is carrying on any portion of the business of the Company or a business similar to that being conducted by the Company. 2.02 EXECUTIVE/OFFICER/EMPLOYEE. Executive/Officer/Employee means Robert W. Randall. 2.03 OFFICE/POSITION/TITLE. The Office, Position and Title for which the Executive is employed is that of Vice President, General Counsel and Secretary of the Company and carries with it the duties, responsibilities, rights, benefits and privileges presently held by the Executive, or as may reasonably be assigned to the Executive as are customary and usual for such position. 2.04 EFFECTIVE DATE. This Agreement becomes effective and binding as of October 1, 1997. 2.05 CHANGE IN CONTROL. The term "Change in Control" of the Company shall mean, and shall be deemed to have occurred on the date of the first to occur of any of the following: a. there occurs a Change in Control of the Company of the nature that would be required to be reported in response to item 6(e) of Schedule 14A of Regulation 14A or Item 1 of Form 8(k) promulgated under the Securities Exchange Act of 1934 as in effect on the date of this Agreement, or if neither item remains in effect, any regulations issued by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 which serve similar purposes; b. any "person" {as such term is used in Sections 12(d) and 14(d)(2) of the Securities Exchange Act of 1934} is or becomes a beneficial owner, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; c. the individuals who were members of the Board of Directors of the Company immediately prior to a meeting of the shareholders of the Company involving a contest for the election of Directors shall not constitute a majority of the Board of Directors following such election; d. the Company shall have merged into or consolidated with another corporation, or merged another corporation into the Company, on a basis whereby less than fifty percent (50%) of the total voting power of the surviving corporation is represented by shares held by former shareholders of the Company prior to such merger or consolidation; e. the Company shall have sold, transferred or exchanged all, or substantially all, of its assets to another corporation or other entity or person. 2.06 TERMINATION. The term "termination" shall mean termination, prior to the expiration of the Employment Period, of the employment of the Executive with the Company {including death and disability (as described below)} for any reason other than cause (as described below) or voluntary resignation (as described below). Termination includes "Constructive Termination" as described below. Termination includes non-renewal or failure to extend this Agreement at the end of any employment term, except for cause. a. The term "disability" means physical or mental incapacity qualifying the Executive for a long-term disability under the Company's long-term disability plan. If no such plan exists on the Effective Date of this Agreement, the term "disability" means physical or mental incapacity as determined by a doctor jointly selected by the Executive and the Board of Directors of the Company qualifying the Executive for long-term disability under reasonable employment standards. b. The term "cause" means: (i) the willful and continued failure of the Executive substantially to perform his duties with the Company (other than any failure due to physical or mental incapacity) after a demand for substantial performance is delivered to him by the Board of Directors which specifically identifies the manner in which the Board believes he has not substantially performed his duties, (ii) willful misconduct materially and demonstrably injurious to the Company, or (iii) material violation of the covenant not to compete (except after termination under the Change in Control provisions and confidentiality provisions hereof). No act or failure to act by the Executive shall be considered "willful" unless done or omitted to be done by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. The unwillingness of the Executive to accept any or all of a change in the nature or scope of his position, authorities or duties, a reduction in his total compensation or benefits, or other action by or request of the Company in respect of his position, authority, or responsibility that is contrary to this Agreement, may not be considered by the Board of Directors to be a failure to perform or misconduct by the Executive. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for cause for purposes of this Agreement unless and until there shall have been delivered to him a copy of a resolution, duly adopted by a vote of three-fourths (3/4ths) of the entire Board of Directors of the Company at a meeting of the Board of Directors called and held (after reasonable notice to the Executive and an opportunity for the Executive and his counsel to be heard before the Board) for the purpose of considering whether the Executive has been guilty of such a willful failure to perform or such willful misconduct as justifies termination for cause hereunder, finding that in the good faith opinion of the Board of Directors the Executive has been guilty thereof and specifying the particulars thereof. c. The term "Constructive Termination" means any circumstance by which the actions of the Company either reduce or change Executive's title, position, duties, responsibilities or authority to such an extent or in such a manner as to relegate Executive to a position not substantially similar to that which he presently holds; would degrade, embarrass or otherwise make it unreasonable for Executive to remain in the employment of the Company; and includes violation of the employment provisions and conditions of this Agreement. d. The resignation of the Executive shall be deemed "voluntary" if it is for any reason other than one or more of the following: (i) the Executive's resignation or retirement is requested by the Company other than for cause; (ii) any significant adverse change in the nature or scope of the Executive's position, authorities or duties from those described in this Agreement; (iii) any reduction in the Executive's total compensation or benefits from that provided in the Compensation and Benefits Section hereof; (iv) the material breach by the Company of any other provision of this Agreement; (v) any action by the Company which would constitute Constructive Termination; and (vi) non-renewal or failure to extend any employment term, contrary to the wishes of the Executive. Termination that entitles the Executive to the payments and benefits provided in the "Termination Payments and Benefits" Section hereof shall not be deemed or treated by the Company as the termination of the Executive's employment or the forfeiture of his participation, award, or eligibility, for the purpose of any plan, practice or agreement of the Company referred to in the Compensation and Benefits Section hereof. 2.07 CUSTOMER. The term "Customer" includes all persons, firms or entities that are purchasers or end-users of services or products offered, provided, developed, designed, sold or leased by the Company during the relevant time periods, and all persons, firms or entities which control, or which are controlled by, the same person, firm or entity which controls such purchase. III. EMPLOYMENT. 3.01 EMPLOYMENT. Except as otherwise provided in this Agreement, the Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, for the Term of Employment ("Employment Period") herein specified. During the Employment Period, Executive shall exercise such position and authority and perform such responsibilities as are commensurate with the position and authority being exercised and duties being performed by the Executive immediately prior to the Effective Date of this Agreement, which services shall be performed at the location where the Executive was employed immediately prior to the Effective Date of this Agreement or at such other location as the Company may reasonably require. 3.02 BEST EFFORTS AND OTHER EMPLOYMENT OF EXECUTIVE. a. Executive agrees that he will at all times faithfully, industriously and to the best of his ability, experience and talents, perform all of the duties that may be required of and from him pursuant to the express and implicit terms hereof, to the reasonable satisfaction of the Company. Such duties shall be rendered at Houston, Texas, and such other place or places within or outside the State of Texas as the Company shall in good faith require or as the interest, needs, business, or opportunities of the Company shall require. b. Executive shall devote his normal and regular business time, attention and skill to the business and interests of the Company, and the Company shall be entitled to all of the benefits, profits or other issue arising from or incident to all work, services and advice of Executive performed for the Company. Such employment shall be considered "full time" employment. Executive shall have the right to make investments in businesses which engage in activities other than those engaged by the Company. Executive shall also have the right to devote such incidental and immaterial amounts of his time which are not required for the full and faithful performance of his duties hereunder to any outside activities and businesses which are not being engaged in by the Company and which shall not otherwise interfere with the performance of his duties hereunder. Executive shall have the right to make investments in the manner and to the extent authorized and set forth in the Non-Competition Section of this Agreement. 3.03 TERM OF EMPLOYMENT. ("Employment Period"). Executive's regular employment (no Change in Control being presently contemplated) will commence on the Effective Date of this Agreement and will be for a term of two (2) years ending at 12:00 o'clock midnight September 30, 1999; thereafter, the Term of Employment of Executive will be automatically extended for successive terms of one (1) year each commencing October 1, 1999, and on October 1st of each year thereafter, unless Company or Executive gives written notice to the other that employment will not be renewed or continued after the next scheduled expiration date which is not less than one (1) year after the date that the notice of non-renewal was given. All extended employment terms will be considered to be within the Employment Period while Executive is employed with the Company. 3.04 COMPENSATION AND BENEFITS. During the Employment Period the Executive shall receive the following compensation and benefits: a. He shall receive an annual base salary which is not less than his annual base salary with the opportunity for increases, from time to time thereafter, which are in accordance with the Company's regular executive compensation practices. Executive's salary will be reviewed at least annually by the Compensation Committee of the Board of Directors. Executive's annual base salary as of the date hereof is $145,000.00. b. To the extent that such plans exist immediately prior to the Effective Date of this Agreement, he shall be eligible to participate on a reasonable basis, and to continue his existing participation, in annual bonus, stock option and other incentive compensation plans which provide opportunities to receive compensation in addition to his annual base salary which are the greater of: (i) the opportunities provided by the Company for Executives with comparable duties, or (ii) the opportunities under any such plans in which he was participating immediately prior to the Effective Date of this Agreement. c. To the extent such plans exist immediately prior to the Effective Date of this Agreement, he will be entitled to receive and participate in exempt employee benefits (including, but not limited to, medical, life, health, accident and disability insurance and disability benefits) and prerequisites which are the greater of: (i) the employee benefits and prerequisites provided by the Company to Executives with comparable duties, or (ii) the employee benefits and prerequisites to which he was entitled or in which he participated immediately prior to the Effective Date of this Agreement. d. To the extent such plans exist immediately prior to the Effective Date of this Agreement, he will be entitled to continue to accrue credited service for retirement benefits and to be entitled to receive retirement benefits under and pursuant to the terms of the Company's qualified retirement plan for exempt employees, the Company's supplemental executive retirement plan, and any successor or other retirement plan or agreement in effect on the Effective Date of this Agreement in respect of his retirement, whether or not a qualified plan or agreement, so that his aggregate monthly retirement benefit from all such plans and agreements (regardless when he begins to receive such benefit) will be not less than it would be had all such plans and agreements in effect immediately prior to the Effective Date of this Agreement continued to be in effect without change until and after he begins to receive such benefits. e. Paid vacations each year to the same extent as he is presently receiving or the benefits provided to Executives with comparable duties whichever is greater. f. Participation in all other executive incentive stock and benefit plans approved by the Committee. 3.05 TERMINATION WITHOUT CHANGE IN CONTROL. The Company shall have the right to terminate Executive at any time during the Employment Period (including any extended term). Should the Company choose not to renew or extend the Employment Period of this Employment Agreement or choose to terminate the Executive, during or at the end of, the Employment Period, or in the event of death or disability of the Executive, if the termination is not after a Change in Control and is not for cause, the Company shall, within thirty (30) days following such termination, pay and provide to the Executive (or his Executor, Administrator or Estate in the event of death, as soon as reasonably practical): a. An amount equal to one (1) full year of his base salary (including the amount allocated to the covenant not to compete), which base salary is here defined as twelve (12) times the then current monthly salary in effect for the Executive and all other benefits due him based upon the salary in effect on the Date of Termination (but not less than the highest annual base salary paid to the Executive during any of the three (3) years immediately preceding his Date of Termination). There shall be deducted only such amounts as may be required by law to be withheld for taxes and other applicable deductions. b. The Company shall provide to Executive and his immediate family (at no cost to the Executive) for a period of one (1) full year following the Date of Termination, life, health, accident and disability insurance which are not less than the highest benefits furnished to the Executive and his immediate family during the term of this Agreement. c. An amount equal to the target award for the Executive under the Company's annual bonus plan for the fiscal year in which termination occurs, provided that if the Executive has deferred his award for such year under a Company plan, the payment due the Executive under this subparagraph shall be paid in accordance with the terms of the deferral or as specified by the Executive. d. The Company shall pay, distribute and otherwise provide to the Executive the amount and value of his entire plan account and interest under any retirement plan, employee benefit plan, investment plan or stock ownership plan, if any exists on the Date of Termination, and all employer contributions made or payable to any such plan for his account prior to the end of the month in which Termination occurs shall be deemed vested and payable to him. Such payment or distribution shall be in accordance with the elections made by the Executive in respect of distributions in accordance with the plan as if the Executive's employment in the Company terminated at the end of the month in which Termination occurs. e. All stock options and awards to which the Executive is entitled will immediately vest and the time for exercising any option will be as specified in the plan as if the Executive were still employed by the Company; provided however if the immediate vesting of all benefits under the plan is not permitted by the plan, then the benefits will be vested only to the extent authorized or permitted by the plan. f. If Executive elects to treat the termination as retirement, on the Date of Termination the Executive shall be deemed to have retired from the Company and he shall be entitled at that time, or at such later time as he may elect consistent with the terms of any applicable plan or benefit. Executive may treat the termination as termination other than "retirement" if Executive so elects and may defer "retirement" to a later date if permitted by any applicable plan. g. The "Compensation and Benefits" Section hereof shall be applicable in determining the payments and benefits due the Executive under this Section and if Termination occurs after a reduction in all or part of the Executive's total compensation or benefits, the lump sum severance allowance and other compensation and benefits payable to him pursuant to this Section shall be based upon his compensation and benefits before the reduction. h. If any provision of this Section cannot, in whole or in part, be implemented and carried out under the terms of the applicable compensation, benefit or other plan or arrangement of the Company because the Executive has ceased to be an actual employee of the Company, because he has insufficient or reduced credited service based upon his actual employment by the Company, because the plan or arrangement has been terminated or amended after the Effective Date of this Agreement, or for any other reason, the Company itself shall pay or otherwise provide the equivalent of such rights, benefits and credits for such benefits to the Executive, his dependents, beneficiaries and estate as if Executive's employment had not been terminated. i. All life, health, hospitalization, medical and accident benefits available to Executive's spouse and dependents shall continue for the same term as the Executive's benefits. If the Executive dies, all benefits will be provided for a term of one (1) year (or two (2) years after a Change in Control) after the date of death of the Executive. j. The Company's obligation under this Section to continue to pay or provide health care, life, accident and disability insurance to the Executive, the Executive's spouse and Executive's dependents, during the remainder of the Employment Period shall be reduced when and to the extent any of such benefits are paid or provided to the Executive by another employer, provided that the Executive shall have all rights afforded to retirees to convert group insurance coverage to the individual insurance coverage as, to the extent of, and whenever his group insurance coverage under this Section is reduced or expires. Apart from this subparagraph, the Executive shall have and be subject to no obligation to mitigate. k. The Company shall deduct applicable withholding taxes in performing its obligations under this Section. Nothing in this Section is intended, nor shall be deemed or interpreted, to be an amendment to any compensation, benefit or other plan to the Company. To the extent the Company's performance under this Section includes the performance of the Company's obligations to the Executive under any other plan or under another agreement between the Company and the Executive, the rights of the Executive under such other plan or other agreements, which are discharged under this Agreement, are discharged, surrendered, or released PRO TANTO. IV. CHANGE IN CONTROL. 4.01 EXTENSION OF EMPLOYMENT PERIOD. Upon any Change in Control the Employment Period shall be immediately and without further action extended for a term of two (2) years following the Effective Date of the Change in Control and will expire at 12:00 o'clock midnight on the last day of the month following two (2) years after the Change in Control. Thereafter, the employment period will be extended for successive terms of one (1) year each, unless terminated, all in the manner specified in the Term of Employment Section pertaining to regular employment. 4.02 CHANGE IN CONTROL TERMINATION PAYMENTS AND BENEFITS. In the event the Executive is terminated within two (2) years following a Change in Control, the Executive will receive the payments and benefits specified in the "Termination without Change in Control" Section in the same time and manner therein specified except as amended and modified hereby: a. The salary and benefits specified in Section 3.05a. will be paid based upon a multiple of two (2) years ( instead of one (1) year). b. Life, health, accident and disability insurance specified in Section 3.05b. will be provided until (i) Executive becomes reemployed and receives similar benefits from a new employer or (ii) two (2) years after the Date of Termination, whichever is earlier. c. An amount equal to two (2) times the maximum award that the Executive could receive under the Company's Annual Bonus Plan for the fiscal year in which the termination occurs, instead of the benefits provided in Section 3.05c. d. All other rights and benefits specified in Section 3.05. 4.03 VOLUNTARY RESIGNATION UPON CHANGE IN CONTROL. If the Executive voluntarily resigns his employment within six (6) months after a Change in Control (whether or not Company may be alleging the right to terminate employment for cause), he will receive the same payments, compensation and benefits as if he had been terminated on the date of resignation after Change in Control. V. NON-COMPETITION AND CONFIDENTIALITY. 5.01 CONSIDERATION.The base salary awarded to the Executive and to be paid to the Executive in the future includes consideration for the Non-Competition and Confidentiality Agreement set forth herein and the amount to be paid to Executive in the event of the termination of employment of Executive, voluntarily, involuntarily, or under a Change of Control, under Section 3.05a and 4.02a hereof constitute payment, in part, for the Non-Competition and Confidentiality of the Executive. It is contracted, stipulated and agree that fifteen percent (15%) of such amount paid and to be paid to the Executive shall constitute the consideration for the Non-Competition and Confidentiality Agreement set forth herein. 5.02 NON-COMPETITION. Executive acknowledges that his employment with the Company has in the past and will, of necessity, provide him with specialized knowledge which, if used in competition with the Company could cause serious harm to the Company. Accordingly, the Executive agrees that during his employment with the Company and for a period of one (1) year after he is no longer employed by the Company (unless his employment is terminated after a Change in Control, in which event there will be no covenant not to compete and the provisions of the covenant not to compete herein contained will terminate on the date of termination of Executive) Executive will not, directly or indirectly, either as an individual, proprietor, stockholder {other than as a holder of up to one percent (1%) of the outstanding shares of a corporation whose shares are listed on a stock exchange or traded in accordance with the automated quotation system of the National Association of Securities Dealers}, partner, officer, employee or otherwise: a. work for, become an employee of, invest in, provide consulting services or in any way engage in any business which provides, produces, leases or sells products or services of the same or similar type provided, produced, leased or sold by the Company and with regard to which Executive was engaged, or over which Executive had direct or indirect supervision or control, within one (1) year preceding the Executive's termination of employment, in any area where the Company provided, produced, leased or sold such products or services at any time during the one (1) year preceding such termination of employment; or b. provide, sell, offer to sell, lease, offer to lease, or solicit any orders for any products or services which the Company provided and with regard to which the Executive had direct or indirect supervision or control, within one (1) years preceding Executive's termination of employment, to or from any person, firm or entity which was a customer for such products or services of the Company during the three (3) years preceding such termination from whom the Company had solicited business during such one (1) year; or c. solicit, aid, counsel or encourage any officer, director, employee or other individual to (i) leave his or her employment or position with the Company or (ii) compete with the business of the Company, or (iii) violate the terms of any employment, non-competition or similar agreement with the Company; or d. employ, directly or indirectly; permit the employment of; contract for services or work to be performed by; or otherwise, use, utilize or benefit from the services of any officer, director, employee or any other individual holding a position with the Company within two (2) years after the Date of Termination of employment of Executive with the Company or within two (2) years after such officer, director, employee or individual terminated employment with the Company, whichever occurs earlier. 5.03 CONFIDENTIALITY. Executive acknowledges that his employment with the Company has in the past and will, of necessity, provide him with specialized knowledge which, if used in competition with the Company, or divulged to others, could cause serious harm to the Company. Accordingly, Executive will not at any time during or after his employment by the Company, directly or indirectly, divulge, disclose or communicate to any person, firm or corporation in any manner whatsoever any information concerning any matter affecting or relating to the Company or the business of the Company . While engaged as an employee of the Company, Executive may only use information concerning any matters affecting or relating to the Company or the business of the Company for a purpose which is necessary to the carrying out of the Executive's duties as an employee of the Company, and Executive may not make use of any information of the Company after he is no longer an employee of the Company. Executive agrees to the foregoing without regard to whether all of the foregoing matters will be deemed confidential, material or important, it being stipulated by the parties that all information, whether written or otherwise, regarding the Company's business, including, but not limited to, information regarding customers, customer lists, costs, prices, earnings, products, services, formulae, compositions, machines, equipment, apparatus, systems, manufacturing procedures, operations, potential acquisitions, new location plans, prospective and executed contracts and other business arrangements, and sources of supply, is PRIMA FACIE presumed to be important, material and confidential information of the Company for the purposes of this Agreement, except to the extent that such information may be otherwise lawfully and readily available to the general public. Executive further agrees that he will, upon termination of his employment with the Company, return to the Company all books, records, lists and other written, typed or printed materials, whether furnished by the Company or prepared by Executive, which contain any information relating to the Company's business, and Executive agrees that he will neither make nor retain any copies of such materials after termination of employment. Notwithstanding any of the foregoing, Executive will not be liable for any breach of these confidentiality provisions unless the same constitutes a material detriment to the Company, or due to the nature of the information divulged and the manner in which it was divulged and the person to whom it was divulged would likely cause damage to the Company or constitute a material detriment to the Company. 5.04 GEOGRAPHICAL AREA. The geographical area within which the non-competition covenants of this Agreement shall apply is that territory within two hundred (200) miles of: (i) any of the Company's present offices, (ii) any of the Company's present rig yards, and (iii) any additional location where the Company, as of the date of any action taken in violation of the non-competition covenants of this Agreement, has an office, a rig yard, or definitive plans to locate an office or a rig yard. Notwithstanding the foregoing, if the two hundred (200) mile radius extends into another county and the Company is not then doing business in that other county, there will be no territorial limitations extending into such other county. 5.05 COMPANY REMEDIES FOR VIOLATION OF NON-COMPETITION OR CONFIDENTIALITY AGREEMENT.Without limiting the right of the Company to pursue all other legal and equitable rights available to it for violation of any of the covenants made by Executive herein, it is agreed that: a. the skills, experience and contacts of Executive are of a special, unique, unusual and extraordinary character which give them a peculiar value; b. because of the business of the Company, the restrictions agreed to by Executive as to time and area contained in this Agreement are reasonable; and c. the injury suffered by the Company by a violation of any covenant in this Agreement resulting from loss of profits created by the competitive use of such skills, experience and contacts and otherwise will be difficult to calculate in damages in an action at law and cannot fully compensate the Company for any violation of any covenant in this Agreement, accordingly: (i) the Company shall be entitled to injunctive relief to prevent violations of such covenants or continuing violations thereof and to prevent Executive from rendering any services to any person, firm or entity in breach of such covenant and to prevent Executive from divulging any confidential information; and (ii) compliance with this Agreement is a condition precedent to the Company's obligation to make payments of any nature to Executive. 5.06 TERMINATION OF BENEFITS FOR VIOLATION OF NON-COMPETITION AND CONFIDENTIALITY. If Executive's termination was not after a Change in Control and if Executive shall be materially violating the Confidentiality and/or Non-Competition Agreement or any agreement he may have signed as an employee of the Company, Executive agrees that after receipt of written notice he shall continue such action and that there shall be no obligation on the part of the Company to provide any payments or benefits (other than payments or benefits already earned or accrued) described in the Termination of Rights and Benefits Section hereof, subject to the provisions of Section 6.01 hereof. There will be no withholding of benefits or payments if the termination occurred after a Change in Control and Executive will not be bound by the non-competition provisions if terminated while the Change in Control provisions hereof are applicable. VI. GENERAL. 6.01 ENFORCEMENT COSTS. The Company is aware that upon the occurrence of a Change in Control, or under other circumstances even when a Change in Control has not occurred, the Board of Directors or an shareholder of the Company may then cause or attempt to cause the Company to refuse to comply with its obligations under this Agreement, or may cause or attempt to cause the Company to institute, or may institute, litigation seeking to have this Agreement declared unenforceable, or may take, or attempt to take, other action to deny Executive the benefits intended under this Agreement; or actions may be taken to enforce the non-competition or confidentiality provisions of this Agreement. In these circumstances, the purpose of this Agreement could be frustrated. It is the intent of the parties that the Executive not be required to incur the legal fees and expenses associated with the protection or enforcement of his rights under this Agreement by litigation or other legal action because such costs would substantially detract from the benefits intended to be extended to Executive hereunder, nor be bound to negotiate any settlement of his rights hereunder under threat of incurring such costs. Accordingly, if at any time after the Effective Date of this Agreement, it should appear to Executive that the Company is or has acted contrary to or is failing or has failed to comply with any of its obligations under this Agreement for the reason that it regards this Agreement to be void or unenforceable, that Executive has violated the terms of this Agreement, or for any other reason, or that the Company has purported to terminate his employment for cause or is in the course of doing so, or is withholding payments or benefits, or is threatening to withhold payments or benefits, contrary to this Agreement, or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation or other legal action designed to deny, diminish or to recover from Executive the benefits provided or intended to be provided to him hereunder, and Executive has acted in good faith to perform his obligations under this Agreement, the Company irrevocably authorizes Executive from time to time to retain counsel of his choice at the expense of the Company to represent him in connection with the protection and enforcement of his rights hereunder, including, without limitation, representation in connection with termination of his employment or withholding of benefits or payments contrary to this Agreement or with the initiation or defense of any litigation or any other legal action, whether by or against Executive or the Company or any Director, Officer, Shareholder or other person affiliated with the Company, in any jurisdiction. Company is not authorized to withhold the periodic payments of attorneys' fees and expenses hereunder based upon any belief or assertion by the Company that Executive has not acted in good faith or has violated this Agreement. If Company subsequently establishes that Executive was not acting in good faith and has violated this Agreement, Executive will be liable to the Company for reimbursement of amounts paid due to Executive's actions not based on good faith and in violation of this Agreement. The reasonable fees and expenses of counsel selected from time to time by Executive as hereinabove provided shall be paid or reimbursed to Executive by the Company, on a regular, periodic basis within thirty (30) days after presentation by Executive of a statement or statements prepared by such counsel in accordance with its customary practices, up to a maximum aggregate amount of One Hundred Fifty Thousand Dollars ($150,000). 6.02 INCOME, EXCISE OR OTHER TAX LIABILITY. Executive will be liable for and will pay all income tax liability by virtue of any payments made to Executive under this Agreement, as if the same were earned and paid in the normal course of business and not the result of a Change in Control and not otherwise triggered by the "golden parachute" or excess payment provisions of the Internal Revenue Code of the United States, which would cause additional tax liability to be imposed. If any additional income tax, excise or other taxes are imposed on any amount or payment in the nature of compensation paid or provided to or on behalf of executive, the Company shall "gross up" Executive for such tax liability by paying to Executive an amount sufficient so that after payment of all such taxes so imposed Executive's position on an after-tax basis is what it would have been had no such additional taxes been imposed. Executive will cooperate with the Company to minimize the tax consequences to the Executive and to the Company so long as the actions proposed to be taken by the Company do not cause any additional tax consequences to Executive and do not prolong or delay the time that payments are to be made, or the amount of payments to be made, unless the Executive consents, in writing, to any delay or deferment of payment. 6.03 PAYMENT OF BENEFITS UPON TERMINATION FOR CAUSE. If the termination of Executive is for cause and not after a Change in Control, the Company will have the right to withhold all payments (except those specified in Section 6.01); provided however that if a final judgment is entered finding that cause did not exist for termination, the Company will pay all benefits to Executive to which he would have been entitled had the termination not been for cause, plus interest on all amounts withheld from Executive at the rate specified for judgments under Article 5069-1.05 V.A.T.S., but not less than ten percent (10%) per annum. If the termination for cause occurs after a Change in Control, the Company shall have not right to suspend or withhold payments to Executive under any provision of this Agreement until or unless a final judgment is entered upholding the Company's determination that the termination was for cause, in which event Executive will be liable to the Company for all amounts paid, plus interest at the rate allowed for judgments under Article 5069-1.05 V.A.T.S. 6.04 NON-EXCLUSIVE AGREEMENT. The specific arrangements referred to herein are not intended to exclude or limit Executive's participation in other benefits available to executive personnel generally, or to preclude or limit other compensation or benefits as may be authorized by the Board of Directors of the Company at any time, or to limit or reduce any compensation or benefits to which Executive would be entitled but for this Agreement. 6.05 NOTICES. Notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall either be personally delivered by hand or sent by: (i) Registered or Certified Mail, Return Receipt Requested, postage prepaid, properly packaged, addressed and deposited in the United States Postal System; (ii) via facsimile transmission if the receiver acknowledges receipt; or (iii) via Federal Express or other expedited delivery service provided that acknowledgment of receipt is received and retained by the deliverer and furnished to the sender, if to Executive, at the last address he has filed, in writing, with the Company, or if to the Company, to its Corporate Secretary at its principal executive offices. 6.06 NON-ALIENATION. Executive shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any amounts provided under this Agreement, and no payments or benefits due hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts or by operation of law. So long as Executive lives, no person, other than the parties hereto, shall have any rights under or interest in this Agreement or the subject matter hereof. Upon the death of Executive, his Executors, Administrators, Devisees and Heirs, in that order, shall have the right to enforce the provisions hereof. 6.07 ENTIRE AGREEMENT: AMENDMENT. This Agreement constitutes the entire agreement of the parties with respect of the subject matter hereof. No provision of this Agreement may be amended, waived, or discharged except by the mutual written agreement of the parties. The consent of any other person(s) to any such amendment, waiver or discharge shall not be required. 6.08 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, by operation of law or otherwise, including, without limitation, any corporation or other entity or persons which shall succeed (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, and the Company will require any successor, by agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of Executive and his legal representatives, heirs and assigns, provided however, that in the event of Executive's death prior to payment or distribution of all amounts, distributions and benefits due him hereunder, each such unpaid amount and distribution shall be paid in accordance with this Agreement to the person or persons designated by Executive to the Company to receive such payment or distribution and in the event Executive has made no applicable designation, to his Estate. If the Company should split, divide or otherwise become more than one entity, all liability and obligations of the Company shall be the joint and several liability and obligation of all of the parts. 6.09 GOVERNING LAW. Except to the extent required to be governed by the laws of the State of Louisiana because the Company is incorporated under the laws of said State, the validity, interpretation and enforcement of this Agreement shall be governed by the laws of the State of Texas. 6.10 VENUE. To the extent permitted by applicable State and Federal law, venue for all proceedings hereunder will be in Harris County, Texas. 6.11 HEADINGS. The headings in this Agreement are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Agreement. 6.12 SEVERABILITY. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 6.13 PARTIAL INVALIDITY. In the event that any part, portion or Section of this Agreement is found to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be binding upon the parties hereto and the Agreement will be construed to give meaning to the remaining provisions of this Agreement in accordance with the intent of this Agreement. 6.14 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be original, but all of which together constitute one and the same instrument. IN WITNESS WHEREOF, Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors and the Compensation Committee, the Company has caused these presents to be executed in its name and on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary or Assistant Secretary, all as of the day and year first above written. EXECUTED in multiple originals and/or counterparts as of the Effective Date. /s/ ROBERT W. RANDALL ROBERT W. RANDALL PRIDE INTERNATIONAL, INC. CORPORATE SEAL BY:/s/ RAY H. TOLSON RAY H. TOLSON CEO and Chairman of the Board EX-10.24 12 EXHIBIT 10-24 PRIDE INTERNATIONAL, INC. EMPLOYMENT/NON-COMPETITION/ CONFIDENTIALITY AGREEMENT EARL W. McNIEL EFFECTIVE OCTOBER 1, 1997
INDEX PAGE NO. I. PRIOR AGREEMENTS/EMPLOYMENT CONTRACTS . . . . . . . . . . . . . . 2 1.01 Effect of Prior Agreements . . . . . . . . . . . . . . . . . . . . . 2 II. DEFINITION OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.01 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.02 Executive/Officer/Employee . . . . . . . . . . . . . . . . . . . . . 3 2.03 Office/Position/Title. . . . . . . . . . . . . . . . . . . . . . 3 2.04 Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.05 Change in Control. . . . . . . . . . . . . . . . . . . . . . . . 3 2.06 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.07 Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 III. EMPLOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 6 3.01 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.02 Best Efforts and other Employment of Executive. . . . . . . . . . 7 3.03 Term of Employment. . . . . . . . . . . . . . . . . . . . . . . . 7 3.04 Compensation and Benefits. . . . . . . . . . . . . . . . . . . . . 7 3.05 Termination Without Change in Control. . . . . . . . . . . . . . . .. 8 IV. CHANGE IN CONTROL. . . . . . . . . . . . . . . . . . . . . . . . . 11 4.01 Extension of Employment Period. . . . . . . . . . . . . . . . . . . 11 4.02 Change in Control Termination Payments & Benefits. . . . . . . . . . 11 4.03 Voluntary Resignation Upon Change in Control. . . . . . . . . . . . . 12 V. NON-COMPETITION AND CONFIDENTIALITY. . . . . . . . . . . . . . . . . . 12 5.01 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 12 5.02 Non-Competition . . . . . . . . . . . . . . . . . . . . . . . . .. 12 5.03 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.04 Geographical Area . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.05 Company Remedies For Violation of Non-Competition or Confidentiality Agreement . . . . . . . . . . . . . . . . . . . . 14 5.06 Termination of Benefits For Violation of Non-Competition and Confidentiality Agreement. . . . . . . . . . . . . . . . . . . 15 VI. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.01 Enforcement Costs . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.02 Income, Excise and Other Tax Liability. . . . . . . . . . . . . . . 16 6.03 Payment of Benefits Upon Termination for Cause. . . . . . . . . . . . . 16 6.04 Non-Exclusive Agreement. . . . . . . . . . . . . . . . . . . . . . . .. 17 6.05 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.06 Non-Alienation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.07 Entire Agreement: Amendment. . . . . . . . . . . . . . . . . . . . . 17 6.08 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . 17 6.09 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.10 Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.11 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.12 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.13 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
EMPLOYMENT/NON-COMPETITION/CONFIDENTIALITY AGREEMENT DATE: October 1, 1997 COMPANY/EMPLOYER: Pride International, Inc., A Louisiana corporation San Felipe Plaza, Suite 3300 5847 San Felipe Houston, Texas 77057 EXECUTIVE/EMPLOYEE Earl W. McNiel 1423 Stependale Katy, Texas 77450 This Agreement is made as of the date first above written and to become effective as herein provided. PREAMBLE WHEREAS, the Company wishes to attract and retain well-qualified Executive and key personnel and to assure itself of the continuity of its management; WHEREAS, Executive is an officer of the Company with significant management responsibilities in the conduct of its business; WHEREAS, the Company recognizes that Executive is a valuable resource of the Company and the Company desires to be assured of the continued services of Executive; WHEREAS, the Company desires to obtain assurances that Executive will devote his best efforts to his employment with the Company and will not enter into competition with the Company in its business as now conducted and to be conducted, or solicit customers or other employees of the Company to terminate their relationships with the Company; WHEREAS, Executive is a key employee of the Company and he acknowledges that his talents and services to the Company are of a special, unique, unusual and extraordinary character and are of particular and peculiar benefit and importance to the Company; WHEREAS, the Company is concerned that in the event of a possible or threatened change in control of the Company, uncertainties necessarily arise; Executive may have concerns about the continuation of his employment status and responsibilities and may be approached by others offering competing employment opportunities; the Company, therefore, desires to provide Executive assurances as to the continuation of his employment status and responsibilities in such event; WHEREAS, the Company further desires to assure Executive that, if a possible or threatened change in control should arise and Executive should be involved in deliberations or negotiations in connection therewith, Executive would be in a secure position to consider and participate in such transaction as objectively as possible in the best interests of the Company and to this end desires to protect Executive from any direct or implied threat to his financial well-being; WHEREAS, Executive is willing to continue to serve as such but desires assurances that in the event of such a change in control he will continue to have the employment status and responsibilities he could reasonably expect absent such event and, that in the event this turns out not to be the case, he will have fair and reasonable severance protection on the basis of his service to the Company to that time; WHEREAS, different factors affect the Company and Executive under circumstances of regular employment between the Company and the Executive when there is no threat of change in control and/or none has occurred, as opposed to circumstances under which a change in control is rumored, threatened, occurring or has occurred. For this reason this Employment Agreement is primarily in two parts. One part deals with the regular employment of Executive under circumstances whereby no change in control is threatened, occurring or occurred; herein called "Regular Employment". The second part deals with circumstances whereby a change in control is threatened, occurring or has occurred. Other parts of the Agreement deal with matters affecting both Regular Employment and employment following change in control, including non-competition and confidentiality; and WHEREAS, Executive is willing to enter into and carry out the Non-Competition and Confidentiality Agreement set forth herein in consideration of the Employment Agreement set forth herein. AGREEMENT NOW, THEREFORE, the parties agree as follows: I. PRIOR AGREEMENTS/EMPLOYMENT CONTRACTS. 1.01 EFFECT OF PRIOR AGREEMENTS. On and as of 12:00 o'clock noon of the Effective Date all prior employment and non-competition contracts between Company and any of its subsidiaries and Executive are hereby amended, modified and superseded by this Agreement insofar as future employment, compensation, non-competition, confidentiality, accrual or payments of any form of compensation or benefits from the Company are concerned. This Agreement does not release or relieve Company from its liability or obligation with respect to any compensation, payments, or benefits already accrued to Executive, nor to any vesting of benefits or other rights which are attributable to length of employment, seniority or other such matters. This Agreement does not relieve Executive of any prior non-competition or confidentiality obligations and agreements and the same are hereby modified and amended as to future matters and future confidentiality even as to matters accruing prior to the Effective Date hereof. II. DEFINITION OF TERMS. 2.01 COMPANY. Company means Pride International, Inc., a Louisiana corporation, as the same presently exists, as well as any and all successors, regardless of the nature of the entity or the State or Nation of organization, whether by reorganization, merger, consolidation, absorption or dissolution. For the purpose of the Non-Competition and Confidentiality Agreement, Company includes any subsidiary or affiliate of the Company to the extent it is carrying on any portion of the business of the Company or a business similar to that being conducted by the Company. 2.02 EXECUTIVE/OFFICER/EMPLOYEE. Executive/Officer/Employee means Earl W. McNiel. 2.03 OFFICE/POSITION/TITLE. The Office, Position and Title for which the Executive is employed is that of Vice President and Chief Financial Officer of the Company and carries with it the duties, responsibilities, rights, benefits and privileges presently held by the Executive, or as may reasonably be assigned to the Executive as are customary and usual for such position. 2.04 EFFECTIVE DATE. This Agreement becomes effective and binding as of October 1, 1997. 2.05 CHANGE IN CONTROL. The term "Change in Control" of the Company shall mean, and shall be deemed to have occurred on the date of the first to occur of any of the following: a. there occurs a Change in Control of the Company of the nature that would be required to be reported in response to item 6(e) of Schedule 14A of Regulation 14A or Item 1 of Form 8(k) promulgated under the Securities Exchange Act of 1934 as in effect on the date of this Agreement, or if neither item remains in effect, any regulations issued by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 which serve similar purposes; b. any "person" {as such term is used in Sections 12(d) and 14(d)(2) of the Securities Exchange Act of 1934} is or becomes a beneficial owner, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; c. the individuals who were members of the Board of Directors of the Company immediately prior to a meeting of the shareholders of the Company involving a contest for the election of Directors shall not constitute a majority of the Board of Directors following such election; d. the Company shall have merged into or consolidated with another corporation, or merged another corporation into the Company, on a basis whereby less than fifty percent (50%) of the total voting power of the surviving corporation is represented by shares held by former shareholders of the Company prior to such merger or consolidation; e. the Company shall have sold, transferred or exchanged all, or substantially all, of its assets to another corporation or other entity or person. 2.06 TERMINATION. The term "termination" shall mean termination, prior to the expiration of the Employment Period, of the employment of the Executive with the Company {including death and disability (as described below)} for any reason other than cause (as described below) or voluntary resignation (as described below). Termination includes "Constructive Termination" as described below. Termination includes non-renewal or failure to extend this Agreement at the end of any employment term, except for cause. a. The term "disability" means physical or mental incapacity qualifying the Executive for a long-term disability under the Company's long-term disability plan. If no such plan exists on the Effective Date of this Agreement, the term "disability" means physical or mental incapacity as determined by a doctor jointly selected by the Executive and the Board of Directors of the Company qualifying the Executive for long-term disability under reasonable employment standards. b. The term "cause" means: (i) the willful and continued failure of the Executive substantially to perform his duties with the Company (other than any failure due to physical or mental incapacity) after a demand for substantial performance is delivered to him by the Board of Directors which specifically identifies the manner in which the Board believes he has not substantially performed his duties, (ii) willful misconduct materially and demonstrably injurious to the Company, or (iii) material violation of the covenant not to compete (except after termination under the Change in Control provisions and confidentiality provisions hereof). No act or failure to act by the Executive shall be considered "willful" unless done or omitted to be done by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. The unwillingness of the Executive to accept any or all of a change in the nature or scope of his position, authorities or duties, a reduction in his total compensation or benefits, or other action by or request of the Company in respect of his position, authority, or responsibility that is contrary to this Agreement, may not be considered by the Board of Directors to be a failure to perform or misconduct by the Executive. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for cause for purposes of this Agreement unless and until there shall have been delivered to him a copy of a resolution, duly adopted by a vote of three-fourths (3/4ths) of the entire Board of Directors of the Company at a meeting of the Board of Directors called and held (after reasonable notice to the Executive and an opportunity for the Executive and his counsel to be heard before the Board) for the purpose of considering whether the Executive has been guilty of such a willful failure to perform or such willful misconduct as justifies termination for cause hereunder, finding that in the good faith opinion of the Board of Directors the Executive has been guilty thereof and specifying the particulars thereof. c. The term "Constructive Termination" means any circumstance by which the actions of the Company either reduce or change Executive's title, position, duties, responsibilities or authority to such an extent or in such a manner as to relegate Executive to a position not substantially similar to that which he presently holds; would degrade, embarrass or otherwise make it unreasonable for Executive to remain in the employment of the Company; and includes violation of the employment provisions and conditions of this Agreement. d. The resignation of the Executive shall be deemed "voluntary" if it is for any reason other than one or more of the following: (i) the Executive's resignation or retirement is requested by the Company other than for cause; (ii) any significant adverse change in the nature or scope of the Executive's position, authorities or duties from those described in this Agreement; (iii) any reduction in the Executive's total compensation or benefits from that provided in the Compensation and Benefits Section hereof; (iv) the material breach by the Company of any other provision of this Agreement; (v) any action by the Company which would constitute Constructive Termination; and (vi) non-renewal or failure to extend any employment term, contrary to the wishes of the Executive. Termination that entitles the Executive to the payments and benefits provided in the "Termination Payments and Benefits" Section hereof shall not be deemed or treated by the Company as the termination of the Executive's employment or the forfeiture of his participation, award, or eligibility, for the purpose of any plan, practice or agreement of the Company referred to in the Compensation and Benefits Section hereof. 2.07 CUSTOMER. The term "Customer" includes all persons, firms or entities that are purchasers or end-users of services or products offered, provided, developed, designed, sold or leased by the Company during the relevant time periods, and all persons, firms or entities which control, or which are controlled by, the same person, firm or entity which controls such purchase. III. EMPLOYMENT. 3.01 EMPLOYMENT. Except as otherwise provided in this Agreement, the Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, for the Term of Employment ("Employment Period") herein specified. During the Employment Period, Executive shall exercise such position and authority and perform such responsibilities as are commensurate with the position and authority being exercised and duties being performed by the Executive immediately prior to the Effective Date of this Agreement, which services shall be performed at the location where the Executive was employed immediately prior to the Effective Date of this Agreement or at such other location as the Company may reasonably require. 3.02 BEST EFFORTS AND OTHER EMPLOYMENT OF EXECUTIVE. a. Executive agrees that he will at all times faithfully, industriously and to the best of his ability, experience and talents, perform all of the duties that may be required of and from him pursuant to the express and implicit terms hereof, to the reasonable satisfaction of the Company. Such duties shall be rendered at Houston, Texas, and such other place or places within or outside the State of Texas as the Company shall in good faith require or as the interest, needs, business, or opportunities of the Company shall require. b. Executive shall devote his normal and regular business time, attention and skill to the business and interests of the Company, and the Company shall be entitled to all of the benefits, profits or other issue arising from or incident to all work, services and advice of Executive performed for the Company. Such employment shall be considered "full time" employment. Executive shall have the right to make investments in businesses which engage in activities other than those engaged by the Company. Executive shall also have the right to devote such incidental and immaterial amounts of his time which are not required for the full and faithful performance of his duties hereunder to any outside activities and businesses which are not being engaged in by the Company and which shall not otherwise interfere with the performance of his duties hereunder. Executive shall have the right to make investments in the manner and to the extent authorized and set forth in the Non-Competition Section of this Agreement. 3.03 TERM OF EMPLOYMENT. ("Employment Period"). Executive's regular employment (no Change in Control being presently contemplated) will commence on the Effective Date of this Agreement and will be for a term of two (2) years ending at 12:00 o'clock midnight September 30, 1999; thereafter, the Term of Employment of Executive will be automatically extended for successive terms of one (1) year each commencing October 1, 1999, and on October 1st of each year thereafter, unless Company or Executive gives written notice to the other that employment will not be renewed or continued after the next scheduled expiration date which is not less than one (1) year after the date that the notice of non-renewal was given. All extended employment terms will be considered to be within the Employment Period while Executive is employed with the Company. 3.04 COMPENSATION AND BENEFITS. During the Employment Period the Executive shall receive the following compensation and benefits: a. He shall receive an annual base salary which is not less than his annual base salary, with the opportunity for increases, from time to time thereafter, which are in accordance with the Company's regular executive compensation practices ("annual base salary"). Executive's salary will be reviewed at least annually by the Compensation Committee of the Board of Directors. Executive's current annual base salary is $110,000. b. To the extent that such plans exist immediately prior to the Effective Date of this Agreement, he shall be eligible to participate on a reasonable basis, and to continue his existing participation, in annual bonus, stock option and other incentive compensation plans which provide opportunities to receive compensation in addition to his annual base salary which are the greater of: (i) the opportunities provided by the Company for Executives with comparable duties, or (ii) the opportunities under any such plans in which he was participating immediately prior to the Effective Date of this Agreement. c. To the extent such plans exist immediately prior to the Effective Date of this Agreement, he will be entitled to receive and participate in exempt employee benefits (including, but not limited to, medical, life, health, accident and disability insurance and disability benefits) and prerequisites which are the greater of: (i) the employee benefits and prerequisites provided by the Company to Executives with comparable duties, or (ii) the employee benefits and prerequisites to which he was entitled or in which he participated immediately prior to the Effective Date of this Agreement. d. To the extent such plans exist immediately prior to the Effective Date of this Agreement, he will be entitled to continue to accrue credited service for retirement benefits and to be entitled to receive retirement benefits under and pursuant to the terms of the Company's qualified retirement plan for exempt employees, the Company's supplemental executive retirement plan, and any successor or other retirement plan or agreement in effect on the Effective Date of this Agreement in respect of his retirement, whether or not a qualified plan or agreement, so that his aggregate monthly retirement benefit from all such plans and agreements (regardless when he begins to receive such benefit) will be not less than it would be had all such plans and agreements in effect immediately prior to the Effective Date of this Agreement continued to be in effect without change until and after he begins to receive such benefits. e. Paid vacations each year to the same extent as he is presently receiving or the benefits provided to Executives with comparable duties whichever is greater. f. Participation in all other executive incentive stock and benefit plans approved by the Committee. 3.05 TERMINATION WITHOUT CHANGE IN CONTROL. The Company shall have the right to terminate Executive at any time during the Employment Period (including any extended term). Should the Company choose not to renew or extend the Employment Period of this Employment Agreement or choose to terminate the Executive, during or at the end of, the Employment Period, or in the event of death or disability of the Executive, if the termination is not after a Change in Control and is not for cause, the Company shall, within thirty (30) days following such termination, pay and provide to the Executive (or his Executor, Administrator or Estate in the event of death, as soon as reasonably practical): a. An amount equal to one (1) full year of his base salary (including the amount allocated to the covenant not to compete), which base salary is here defined as twelve (12) times the then current monthly salary in effect for the Executive and all other benefits due him based upon the salary in effect on the Date of Termination (but not less than the highest annual base salary paid to the Executive during any of the three (3) years immediately preceding his Date of Termination). There shall be deducted only such amounts as may be required by law to be withheld for taxes and other applicable deductions. b. The Company shall provide to Executive and his immediate family (at no cost to the Executive) for a period of one (1) full year following the Date of Termination, life, health, accident and disability insurance which are not less than the highest benefits furnished to the Executive and his immediate family during the term of this Agreement. c. An amount equal to the target award for the Executive under the Company's annual bonus plan for the fiscal year in which termination occurs, provided that if the Executive has deferred his award for such year under a Company plan, the payment due the Executive under this subparagraph shall be paid in accordance with the terms of the deferral or as specified by the Executive. d. The Company shall pay, distribute and otherwise provide to the Executive the amount and value of his entire plan account and interest under any retirement plan, employee benefit plan, investment plan or stock ownership plan, if any exists on the Date of Termination, and all employer contributions made or payable to any such plan for his account prior to the end of the month in which Termination occurs shall be deemed vested and payable to him. Such payment or distribution shall be in accordance with the elections made by the Executive in respect of distributions in accordance with the plan as if the Executive's employment in the Company terminated at the end of the month in which Termination occurs. e. All stock options and awards to which the Executive is entitled will immediately vest and the time for exercising any option will be as specified in the plan as if the Executive were still employed by the Company; provided however if the immediate vesting of all benefits under the plan is not permitted by the plan, then the benefits will be vested only to the extent authorized or permitted by the plan. f. If Executive elects to treat the termination as retirement, on the Date of Termination the Executive shall be deemed to have retired from the Company and he shall be entitled at that time, or at such later time as he may elect consistent with the terms of any applicable plan or benefit. Executive may treat the termination as termination other than "retirement" if Executive so elects and may defer "retirement" to a later date if permitted by any applicable plan. g. The "Compensation and Benefits" Section hereof shall be applicable in determining the payments and benefits due the Executive under this Section and if Termination occurs after a reduction in all or part of the Executive's total compensation or benefits, the lump sum severance allowance and other compensation and benefits payable to him pursuant to this Section shall be based upon his compensation and benefits before the reduction. h. If any provision of this Section cannot, in whole or in part, be implemented and carried out under the terms of the applicable compensation, benefit or other plan or arrangement of the Company because the Executive has ceased to be an actual employee of the Company, because he has insufficient or reduced credited service based upon his actual employment by the Company, because the plan or arrangement has been terminated or amended after the Effective Date of this Agreement, or for any other reason, the Company itself shall pay or otherwise provide the equivalent of such rights, benefits and credits for such benefits to the Executive, his dependents, beneficiaries and estate as if Executive's employment had not been terminated. i. All life, health, hospitalization, medical and accident benefits available to Executive's spouse and dependents shall continue for the same term as the Executive's benefits. If the Executive dies, all benefits will be provided for a term of one (1) year (or two (2) years after a Change in Control) after the date of death of the Executive. j. The Company's obligation under this Section to continue to pay or provide health care, life, accident and disability insurance to the Executive, the Executive's spouse and Executive's dependents, during the remainder of the Employment Period shall be reduced when and to the extent any of such benefits are paid or provided to the Executive by another employer, provided that the Executive shall have all rights afforded to retirees to convert group insurance coverage to the individual insurance coverage as, to the extent of, and whenever his group insurance coverage under this Section is reduced or expires. Apart from this subparagraph, the Executive shall have and be subject to no obligation to mitigate. k. The Company shall deduct applicable withholding taxes in performing its obligations under this Section. Nothing in this Section is intended, nor shall be deemed or interpreted, to be an amendment to any compensation, benefit or other plan to the Company. To the extent the Company's performance under this Section includes the performance of the Company's obligations to the Executive under any other plan or under another agreement between the Company and the Executive, the rights of the Executive under such other plan or other agreements, which are discharged under this Agreement, are discharged, surrendered, or released PRO TANTO. IV. CHANGE IN CONTROL. 4.01 EXTENSION OF EMPLOYMENT PERIOD. Upon any Change in Control the Employment Period shall be immediately and without further action extended for a term of two (2) years following the Effective Date of the Change in Control and will expire at 12:00 o'clock midnight on the last day of the month following two (2) years after the Change in Control. Thereafter, the employment period will be extended for successive terms of one (1) year each, unless terminated, all in the manner specified in the Term of Employment Section pertaining to regular employment. 4.02 CHANGE IN CONTROL TERMINATION PAYMENTS AND BENEFITS. In the event the Executive is terminated within two (2) years following a Change in Control, the Executive will receive the payments and benefits specified in the "Termination without Change in Control" Section in the same time and manner therein specified except as amended and modified hereby: a. The salary and benefits specified in Section 3.05a. will be paid based upon a multiple of two (2) years ( instead of one (1) year). b. Life, health, accident and disability insurance specified in Section 3.05b. will be provided until (i) Executive becomes reemployed and receives similar benefits from a new employer or (ii) two (2) years after the Date of Termination, whichever is earlier. c. An amount equal to two (2) times the maximum award that the Executive could receive under the Company's Annual Bonus Plan for the fiscal year in which the termination occurs, instead of the benefits provided in Section 3.05c. d. All other rights and benefits specified in Section 3.05. 4.03 VOLUNTARY RESIGNATION UPON CHANGE IN CONTROL. If the Executive voluntarily resigns his employment within six (6) months after a Change in Control (whether or not Company may be alleging the right to terminate employment for cause), he will receive the same payments, compensation and benefits as if he had been terminated on the date of resignation after Change in Control. V. NON-COMPETITION AND CONFIDENTIALITY. 5.01 CONSIDERATION.The base salary awarded to the Executive and to be paid to the Executive in the future includes consideration for the Non-Competition and Confidentiality Agreement set forth herein and the amount to be paid to Executive in the event of the termination of employment of Executive, voluntarily, involuntarily, or under a Change of Control, under Section 3.05a and 4.02a hereof constitute payment, in part, for the Non-Competition and Confidentiality of the Executive. It is contracted, stipulated and agree that fifteen percent (15%) of such amount paid and to be paid to the Executive shall constitute the consideration for the Non-Competition and Confidentiality Agreement set forth herein. 5.02 NON-COMPETITION. Executive acknowledges that his employment with the Company has in the past and will, of necessity, provide him with specialized knowledge which, if used in competition with the Company could cause serious harm to the Company. Accordingly, the Executive agrees that during his employment with the Company and for a period of one (1) year after he is no longer employed by the Company (unless his employment is terminated after a Change in Control, in which event there will be no covenant not to compete and the provisions of the covenant not to compete herein contained will terminate on the date of termination of Executive) Executive will not, directly or indirectly, either as an individual, proprietor, stockholder {other than as a holder of up to one percent (1%) of the outstanding shares of a corporation whose shares are listed on a stock exchange or traded in accordance with the automated quotation system of the National Association of Securities Dealers}, partner, officer, employee or otherwise: a. work for, become an employee of, invest in, provide consulting services or in any way engage in any business which provides, produces, leases or sells products or services of the same or similar type provided, produced, leased or sold by the Company and with regard to which Executive was engaged, or over which Executive had direct or indirect supervision or control, within one (1) year preceding the Executive's termination of employment, in any area where the Company provided, produced, leased or sold such products or services at any time during the one (1) year preceding such termination of employment; or b. provide, sell, offer to sell, lease, offer to lease, or solicit any orders for any products or services which the Company provided and with regard to which the Executive had direct or indirect supervision or control, within one (1) year preceding Executive's termination of employment, to or from any person, firm or entity which was a customer for such products or services of the Company during the one (1) year preceding such termination from whom the Company had solicited business during such one (1) year; or c. solicit, aid, counsel or encourage any officer, director, employee or other individual to (i) leave his or her employment or position with the Company or (ii) compete with the business of the Company, or (iii) violate the terms of any employment, non-competition or similar agreement with the Company; or d. employ, directly or indirectly; permit the employment of; contract for services or work to be performed by; or otherwise, use, utilize or benefit from the services of any officer, director, employee or any other individual holding a position with the Company within two (2) years after the Date of Termination of employment of Executive with the Company or within two (2) years after such officer, director, employee or individual terminated employment with the Company, whichever occurs earlier. 5.03 CONFIDENTIALITY. Executive acknowledges that his employment with the Company has in the past and will, of necessity, provide him with specialized knowledge which, if used in competition with the Company, or divulged to others, could cause serious harm to the Company. Accordingly, Executive will not at any time during or after his employment by the Company, directly or indirectly, divulge, disclose or communicate to any person, firm or corporation in any manner whatsoever any information concerning any matter affecting or relating to the Company or the business of the Company . While engaged as an employee of the Company, Executive may only use information concerning any matters affecting or relating to the Company or the business of the Company for a purpose which is necessary to the carrying out of the Executive's duties as an employee of the Company, and Executive may not make use of any information of the Company after he is no longer an employee of the Company. Executive agrees to the foregoing without regard to whether all of the foregoing matters will be deemed confidential, material or important, it being stipulated by the parties that all information, whether written or otherwise, regarding the Company's business, including, but not limited to, information regarding customers, customer lists, costs, prices, earnings, products, services, formulae, compositions, machines, equipment, apparatus, systems, manufacturing procedures, operations, potential acquisitions, new location plans, prospective and executed contracts and other business arrangements, and sources of supply, is PRIMA FACIE presumed to be important, material and confidential information of the Company for the purposes of this Agreement, except to the extent that such information may be otherwise lawfully and readily available to the general public. Executive further agrees that he will, upon termination of his employment with the Company, return to the Company all books, records, lists and other written, typed or printed materials, whether furnished by the Company or prepared by Executive, which contain any information relating to the Company's business, and Executive agrees that he will neither make nor retain any copies of such materials after termination of employment. Notwithstanding any of the foregoing, Executive will not be liable for any breach of these confidentiality provisions unless the same constitutes a material detriment to the Company, or due to the nature of the information divulged and the manner in which it was divulged and the person to whom it was divulged would likely cause damage to the Company or constitute a material detriment to the Company. 5.04 GEOGRAPHICAL AREA. The geographical area within which the non-competition covenants of this Agreement shall apply is that territory within two hundred (200) miles of: (i) any of the Company's present offices, (ii) any of the Company's present rig yards, and (iii) any additional location where the Company, as of the date of any action taken in violation of the non-competition covenants of this Agreement, has an office, a rig yard, or definitive plans to locate an office or a rig yard. Notwithstanding the foregoing, if the two hundred (200) mile radius extends into another county and the Company is not then doing business in that other county, there will be no territorial limitations extending into such other county. 5.05 COMPANY REMEDIES FOR VIOLATION OF NON-COMPETITION OR CONFIDENTIALITY AGREEMENT.Without limiting the right of the Company to pursue all other legal and equitable rights available to it for violation of any of the covenants made by Executive herein, it is agreed that: a. the skills, experience and contacts of Executive are of a special, unique, unusual and extraordinary character which give them a peculiar value; b. because of the business of the Company, the restrictions agreed to by Executive as to time and area contained in this Agreement are reasonable; and c. the injury suffered by the Company by a violation of any covenant in this Agreement resulting from loss of profits created by the competitive use of such skills, experience and contacts and otherwise will be difficult to calculate in damages in an action at law and cannot fully compensate the Company for any violation of any covenant in this Agreement, accordingly: (i) the Company shall be entitled to injunctive relief to prevent violations of such covenants or continuing violations thereof and to prevent Executive from rendering any services to any person, firm or entity in breach of such covenant and to prevent Executive from divulging any confidential information; and (ii) compliance with this Agreement is a condition precedent to the Company's obligation to make payments of any nature to Executive. 5.06 TERMINATION OF BENEFITS FOR VIOLATION OF NON-COMPETITION AND CONFIDENTIALITY. If Executive's termination was not after a Change in Control and if Executive shall be materially violating the Confidentiality and/or Non-Competition Agreement or any agreement he may have signed as an employee of the Company, Executive agrees that after receipt of written notice he shall continue such action and that there shall be no obligation on the part of the Company to provide any payments or benefits (other than payments or benefits already earned or accrued) described in the Termination of Rights and Benefits Section hereof, subject to the provisions of Section 6.01 hereof. There will be no withholding of benefits or payments if the termination occurred after a Change in Control and Executive will not be bound by the non-competition provisions if terminated while the Change in Control provisions hereof are applicable. VI. GENERAL. 6.01 ENFORCEMENT COSTS. The Company is aware that upon the occurrence of a Change in Control, or under other circumstances even when a Change in Control has not occurred, the Board of Directors or an shareholder of the Company may then cause or attempt to cause the Company to refuse to comply with its obligations under this Agreement, or may cause or attempt to cause the Company to institute, or may institute, litigation seeking to have this Agreement declared unenforceable, or may take, or attempt to take, other action to deny Executive the benefits intended under this Agreement; or actions may be taken to enforce the non-competition or confidentiality provisions of this Agreement. In these circumstances, the purpose of this Agreement could be frustrated. It is the intent of the parties that the Executive not be required to incur the legal fees and expenses associated with the protection or enforcement of his rights under this Agreement by litigation or other legal action because such costs would substantially detract from the benefits intended to be extended to Executive hereunder, nor be bound to negotiate any settlement of his rights hereunder under threat of incurring such costs. Accordingly, if at any time after the Effective Date of this Agreement, it should appear to Executive that the Company is or has acted contrary to or is failing or has failed to comply with any of its obligations under this Agreement for the reason that it regards this Agreement to be void or unenforceable, that Executive has violated the terms of this Agreement, or for any other reason, or that the Company has purported to terminate his employment for cause or is in the course of doing so, or is withholding payments or benefits, or is threatening to withhold payments or benefits, contrary to this Agreement, or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation or other legal action designed to deny, diminish or to recover from Executive the benefits provided or intended to be provided to him hereunder, and Executive has acted in good faith to perform his obligations under this Agreement, the Company irrevocably authorizes Executive from time to time to retain counsel of his choice at the expense of the Company to represent him in connection with the protection and enforcement of his rights hereunder, including, without limitation, representation in connection with termination of his employment or withholding of benefits or payments contrary to this Agreement or with the initiation or defense of any litigation or any other legal action, whether by or against Executive or the Company or any Director, Officer, Shareholder or other person affiliated with the Company, in any jurisdiction. Company is not authorized to withhold the periodic payments of attorneys' fees and expenses hereunder based upon any belief or assertion by the Company that Executive has not acted in good faith or has violated this Agreement. If Company subsequently establishes that Executive was not acting in good faith and has violated this Agreement, Executive will be liable to the Company for reimbursement of amounts paid due to Executive's actions not based on good faith and in violation of this Agreement. The reasonable fees and expenses of counsel selected from time to time by Executive as hereinabove provided shall be paid or reimbursed to Executive by the Company, on a regular, periodic basis within thirty (30) days after presentation by Executive of a statement or statements prepared by such counsel in accordance with its customary practices, up to a maximum aggregate amount of One Hundred Fifty Thousand Dollars ($150,000). 6.02 INCOME, EXCISE OR OTHER TAX LIABILITY. Executive will be liable for and will pay all income tax liability by virtue of any payments made to Executive under this Agreement, as if the same were earned and paid in the normal course of business and not the result of a Change in Control and not otherwise triggered by the "golden parachute" or excess payment provisions of the Internal Revenue Code of the United States, which would cause additional tax liability to be imposed. If any additional income tax, excise or other taxes are imposed on any amount or payment in the nature of compensation paid or provided to or on behalf of executive, the Company shall "gross up" Executive for such tax liability by paying to Executive an amount sufficient so that after payment of all such taxes so imposed Executive's position on an after-tax basis is what it would have been had no such additional taxes been imposed. Executive will cooperate with the Company to minimize the tax consequences to the Executive and to the Company so long as the actions proposed to be taken by the Company do not cause any additional tax consequences to Executive and do not prolong or delay the time that payments are to be made, or the amount of payments to be made, unless the Executive consents, in writing, to any delay or deferment of payment. 6.03 PAYMENT OF BENEFITS UPON TERMINATION FOR CAUSE. If the termination of Executive is for cause and not after a Change in Control, the Company will have the right to withhold all payments (except those specified in Section 6.01); provided however that if a final judgment is entered finding that cause did not exist for termination, the Company will pay all benefits to Executive to which he would have been entitled had the termination not been for cause, plus interest on all amounts withheld from Executive at the rate specified for judgments under Article 5069-1.05 V.A.T.S., but not less than ten percent (10%) per annum. If the termination for cause occurs after a Change in Control, the Company shall have not right to suspend or withhold payments to Executive under any provision of this Agreement until or unless a final judgment is entered upholding the Company's determination that the termination was for cause, in which event Executive will be liable to the Company for all amounts paid, plus interest at the rate allowed for judgments under Article 5069-1.05 V.A.T.S. 6.04 NON-EXCLUSIVE AGREEMENT. The specific arrangements referred to herein are not intended to exclude or limit Executive's participation in other benefits available to executive personnel generally, or to preclude or limit other compensation or benefits as may be authorized by the Board of Directors of the Company at any time, or to limit or reduce any compensation or benefits to which Executive would be entitled but for this Agreement. 6.05 NOTICES. Notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall either be personally delivered by hand or sent by: (i) Registered or Certified Mail, Return Receipt Requested, postage prepaid, properly packaged, addressed and deposited in the United States Postal System; (ii) via facsimile transmission if the receiver acknowledges receipt; or (iii) via Federal Express or other expedited delivery service provided that acknowledgment of receipt is received and retained by the deliverer and furnished to the sender, if to Executive, at the last address he has filed, in writing, with the Company, or if to the Company, to its Corporate Secretary at its principal executive offices. 6.06 NON-ALIENATION. Executive shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any amounts provided under this Agreement, and no payments or benefits due hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts or by operation of law. So long as Executive lives, no person, other than the parties hereto, shall have any rights under or interest in this Agreement or the subject matter hereof. Upon the death of Executive, his Executors, Administrators, Devisees and Heirs, in that order, shall have the right to enforce the provisions hereof. 6.07 ENTIRE AGREEMENT: AMENDMENT.This Agreement constitutes the entire agreement of the parties with respect of the subject matter hereof. No provision of this Agreement may be amended, waived, or discharged except by the mutual written agreement of the parties. The consent of any other person(s) to any such amendment, waiver or discharge shall not be required. 6.08 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, by operation of law or otherwise, including, without limitation, any corporation or other entity or persons which shall succeed (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, and the Company will require any successor, by agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of Executive and his legal representatives, heirs and assigns, provided however, that in the event of Executive's death prior to payment or distribution of all amounts, distributions and benefits due him hereunder, each such unpaid amount and distribution shall be paid in accordance with this Agreement to the person or persons designated by Executive to the Company to receive such payment or distribution and in the event Executive has made no applicable designation, to his Estate. If the Company should split, divide or otherwise become more than one entity, all liability and obligations of the Company shall be the joint and several liability and obligation of all of the parts. 6.09 GOVERNING LAW. Except to the extent required to be governed by the laws of the State of Louisiana because the Company is incorporated under the laws of said State, the validity, interpretation and enforcement of this Agreement shall be governed by the laws of the State of Texas. 6.10 VENUE. To the extent permitted by applicable State and Federal law, venue for all proceedings hereunder will be in Harris County, Texas. 6.11 HEADINGS. The headings in this Agreement are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Agreement. 6.12 SEVERABILITY. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 6.13 PARTIAL INVALIDITY. In the event that any part, portion or Section of this Agreement is found to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be binding upon the parties hereto and the Agreement will be construed to give meaning to the remaining provisions of this Agreement in accordance with the intent of this Agreement. 6.14 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be original, but all of which together constitute one and the same instrument. IN WITNESS WHEREOF, Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors and the Compensation Committee, the Company has caused these presents to be executed in its name and on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary or Assistant Secretary, all as of the day and year first above written. EXECUTED in multiple originals and/or counterparts as of the Effective Date. /s/ EARL W. McNIEL EARL W. McNIEL PRIDE INTERNATIONAL, INC. CORPORATE SEAL BY:/s/ RAY H. TOLSON RAY H. TOLSON CEO and Chairman of the Board EX-21 13 EXHIBIT 21 SUBSIDIARIES OF PRIDE INTERNATIONAL, INC. STATE OR OTHER JURISDICTION OF SUBSIDIARY INCORPORATION OR ORGANIZATION - ---------- ----------------------------- Petroleum Supply Company Texas Pride Offshore, Inc. Delaware Ranger Well Service Texas Ranger Corporation Delaware Pride International Holdings, Inc. Delaware Pride Drilling, Inc. Texas Pride International Management Company Delaware Forwest Inc. Texas Pride International Ltd. British Virgin Islands Pride South America Ltd. British Virgin Islands Pride International, C.A. Venezuela Pride Cyprus Ltd. Cyprus Pride Limassol Ltd. Cyprus Pride International JSC Russia Pride International, S.A. Argentina Perforaciones Quitral-Co. de Venezuela, S.A. Venezuela Pride Peru S.A. Peru Ingeser de Colombia, S.A. British Virgin Islands Pride Global Ltd. British Virgin Islands SE Pacific Drilling Ltd. British Virgin Islands Westville Management Corporation British Virgin Islands Utah Drilling Limited British Virgin Islands Pride International Personnel, Ltd. British Virgin Islands -1- STATE OR OTHER JURISDICTION OF SUBSIDIARY INCORPORATION OR ORGANIZATION - ---------- ----------------------------- Pride U.S. Personnel, Ltd. British Virgin Islands Pride-Forasol-Foramer Ltd. British Virgin Islands Dupont Maritime Ltd. British Virgin Islands Durand Maritime Ltd. British Virgin Islands Martin Maritime Limited Bahamas Sonamer Limited Bahamas Forasub, B.V. The Netherlands Forasol, S.A. France Forinter Ltd. Jersey Foramer S.A. France Al Jazirah Forasol Drilling Corporation Liberia Basafojagu (HS) Inc. Liberia Caland Boren B.V. The Netherlands Compagnie Monegasque De Services Comoser s.a.m. Monaco Dayana Finance S.A. Panama Drilling Labor Services PTE Ltd. Singapore Foracasp CEI Foradel SDN B.H.D. Malaysia Forafels Inc. Panama Forarom sri Romania Forasol Drilling (West Africa) Ltd. Abuja Forasol Arabia Limited Saudi Arabia Foratex Inc. Texas C.A. Foravep Venezuela Hispano Americana de Petroleos S.A. HAPSA Argentina -2- STATE OR OTHER JURISDICTION OF SUBSIDIARY INCORPORATION OR ORGANIZATION - ---------- ----------------------------- Horwell S.A. France Internationale de Travaux et de Materiel (I.T.M.)France National Drilling & Services Co., L.L.C. Oman S.B.M. France France Societe Maritime De Services SOMASER France Dupont Maritime Ltd. Liberia Inter-Drill Limited Bahamas Bahamas Gisor Limited United Kingdom Foramac Drilling Limited United Kingdom -3- EX-22 14 EXHIBIT 22 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Pride International, Inc. (formerly Pride Petroleum Services, Inc.) on Form S-8 (Registration Nos. 33-26854, 33-44823, 333-06823, 333-06825, 333-27661, 333-35089 and 333-35093) and on Form S-3 (Registration Nos. 33-62425 and 333-21385) of our report dated March 16, 1998 on our audits of the consolidated financial statements of Pride International, Inc. as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Houston, Texas March 16, 1998 EX-27 15
5 THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF PRIDE INTERNATIONAL, INC. AS OF DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1997 DEC-31-1997 73,539 856 194,973 (1,963) 26,899 37,943 1,273,327 (101,680) 1,541,501 230,477 0 0 0 1 685,156 1,541,501 699,788 699,788 458,861 591,403 (81,617) 0 34,368 155,634 51,639 103,995 0 0 0 103,995 2.42 2.16
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