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<SEC-DOCUMENT>0000950134-02-015976.txt : 20021223
<SEC-HEADER>0000950134-02-015976.hdr.sgml : 20021223
<ACCEPTANCE-DATETIME>20021223151115
ACCESSION NUMBER: 0000950134-02-015976
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20020930
FILED AS OF DATE: 20021223
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: HELMERICH & PAYNE INC
CENTRAL INDEX KEY: 0000046765
STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381]
IRS NUMBER: 730679879
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-04221
FILM NUMBER: 02866789
BUSINESS ADDRESS:
STREET 1: UTICA AT 21ST ST
CITY: TULSA
STATE: OK
ZIP: 74114
BUSINESS PHONE: 9187425531
MAIL ADDRESS:
STREET 1: UTICA AT 21ST ST
CITY: TULSA
STATE: OK
ZIP: 74114
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>d02112e10vk.txt
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2002 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-4221
HELMERICH & PAYNE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 73-0679879
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
UTICA AT TWENTY-FIRST STREET, TULSA, OKLAHOMA 74114
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (918) 742-5531
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
Common Stock ($0.10 par value) New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
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 the 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]
At December 13, 2002, the aggregate market value of the voting stock held by
non-affiliates was $1,412,972,260.
Number of shares of common stock outstanding at December 13, 2002: 50,013,769.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the following documents have been incorporated by reference
into this Form 10-K as indicated:
<Table>
<Caption>
Documents 10-K Parts
- --------- ----------
<S> <C>
(1) Annual Report to Stockholders for the fiscal
year ended September 30, 2002 Parts I, II, and IV
(2) Proxy Statement for Annual Meeting of Stockholders
to be held March 5, 2003 Part III
</Table>
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
- --------------------------------------------------------------------------------
THIS REPORT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN
THIS REPORT, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE
REGISTRANT'S FUTURE FINANCIAL POSITION, BUSINESS STRATEGY, BUDGETS, PROJECTED
COSTS AND PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, ARE
FORWARD-LOOKING STATEMENTS. IN ADDITION, FORWARD-LOOKING STATEMENTS GENERALLY
CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY",
"WILL", "EXPECT", "INTEND", "ESTIMATE", "ANTICIPATE", "BELIEVE", OR "CONTINUE"
OR THE NEGATIVE THEREOF OR SIMILAR TERMINOLOGY. ALTHOUGH THE REGISTRANT BELIEVES
THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO BE
CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THE REGISTRANT'S EXPECTATIONS ARE DISCLOSED IN THIS REPORT INCLUDING ITEM 1
OF PART 1. BUSINESS "REGULATIONS, HAZARDS AND RISKS", AS WELL AS IN MANAGEMENT'S
DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION ON PAGES
23 THROUGH 39 OF THE COMPANY'S ANNUAL REPORT TO THE STOCKHOLDERS FOR FISCAL
2002. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO
THE REGISTRANT, OR PERSONS ACTING ON ITS BEHALF, ARE EXPRESSLY QUALIFIED IN
THEIR ENTIRETY BY SUCH CAUTIONARY STATEMENTS. THE REGISTRANT ASSUMES NO DUTY TO
UPDATE OR REVISE ITS FORWARD-LOOKING STATEMENTS BASED ON CHANGES IN INTERNAL
ESTIMATES OR EXPECTATIONS OR OTHERWISE.
<PAGE>
PART I
ITEM 1. BUSINESS
- --------------------------------------------------------------------------------
Helmerich & Payne, Inc. (the "Company"), was incorporated under the laws of the
State of Delaware on February 3, 1940, and is successor to a business originally
organized in 1920. The Company is primarily engaged in contract drilling of oil
and gas wells for others. The contract drilling business accounts for the major
portion of its operating revenues. The Company is also engaged in the ownership,
development, and operation of commercial real estate.
The Company is organized into two separate autonomous operating entities being
contract drilling and real estate. Both businesses operate independently of the
other. Both the contract drilling and real estate businesses are conducted
through wholly-owned subsidiaries. Operating decentralization is balanced by a
centralized finance division, which handles all accounting, data processing,
budgeting, insurance, cash management, and related activities.
The Company's domestic contract drilling is conducted primarily in Oklahoma,
Texas, Wyoming, and Louisiana, and offshore from platforms in the Gulf of Mexico
and offshore California. The Company has also operated during fiscal 2002 in six
international locations: Venezuela, Ecuador, Colombia, Argentina, Bolivia and
Equatorial Guinea.
The Company's real estate investments are located in Tulsa, Oklahoma, where the
Company has its executive offices.
Prior to October 1, 2002, the Company was engaged in the exploration, production
and sale of crude oil and natural gas business ("exploration and production
business"). During fiscal 2002, the Company transferred assets and liabilities
of the exploration and production business to its wholly-owned subsidiary,
Cimarex Energy Co. On September 30, 2002, the Company distributed the common
stock of Cimarex Energy Co. to the Company's stockholders and completed a merger
of Key Production Company, Inc. with a subsidiary of Cimarex Energy Co. See
pages 5 through 6 of this report for a more detailed discussion of the spin-off
and merger.
CONTRACT DRILLING
- --------------------------------------------------------------------------------
The Company believes that it is one of the major land and offshore platform
drilling contractors in the western hemisphere. Operating principally in North
and South America, the Company specializes primarily in deep drilling in major
gas producing basins of the United States and in drilling for oil and gas in
remote international areas. For its international operations, the Company
operates certain rigs which are transportable by helicopter. In the United
States, the Company draws its customers primarily from the major oil companies
and the larger independents. In South America, the Company's current customers
include the Venezuelan state petroleum company and major international oil
companies.
In fiscal 2002, the Company received approximately 70% of its consolidated
revenues from the Company's ten largest contract drilling customers. BP plc,
Shell Oil Company and ExxonMobil Corporation, including their affiliates, are
the Company's three largest contract drilling customers. The Company performs
drilling services for BP plc, Shell Oil Company and ExxonMobil Corporation on a
world-wide basis. Revenues from drilling services performed for BP plc, Shell
Oil Company and ExxonMobil Corporation in fiscal 2002 accounted for
approximately 16%, 15% and 12%, respectively, of the Company's consolidated
revenues from continuing operations for the same period. While the Company
believes that its relationship with all of these customers is good, the loss of
BP plc, Shell Oil Company and ExxonMobil Corporation or a loss of one or more of
its larger customers would have a material adverse effect on the drilling
subsidiary and the Company.
The Company provides drilling rigs, equipment, personnel, and camps on a
contract basis. These services are provided so that the Company's customers may
explore for and develop oil and gas from onshore areas and from fixed platforms,
tension leg platforms and spars in offshore areas. Each of the drilling rigs
consists of engines, drawworks, a mast, pumps, blowout preventers, a
drillstring, and related equipment. The intended well depth
1
<PAGE>
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
drilling rig may be moved from location to location without modification to the
rig. A helicopter rig is one that can be disassembled into component part loads
of approximately 4,000-20,000 pounds and transported to remote locations by
helicopter, cargo plane, or other means. Conversely, a platform rig is
specifically designed to perform drilling operations upon a particular platform.
While a platform rig may be moved from its original platform, significant
expense is incurred to modify a platform rig for operation on each subsequent
platform. In addition to traditional platform rigs, the Company operates
self-moving minimum space platform drilling rigs and drilling rigs to be used on
tension leg platforms and spars. The minimum space rig is designed to be moved
without the use of expensive derrick barges. The tension leg platforms and spars
allow drilling operations to be conducted in much deeper water than traditional
fixed platforms.
The Company's workover rigs are equipped with engines, drawworks, a mast, pumps,
and blowout preventers. A workover rig is used to complete a new well after the
hole has been drilled by a drilling rig, and to remedy various downhole
problems that occur in producing wells.
During fiscal 1998, the Company put to work a new generation of six highly
mobile/depth flexible rigs (individually the "FlexRig"(TM)). The FlexRig has
been able to significantly reduce average rig move times compared to similar
depth rated traditional land rigs. In addition, the FlexRig allows a greater
depth flexibility of between 8,000 to 18,000 feet and provides greater operating
efficiency. During fiscal 2000, the Company ordered 12 new FlexRigs at an
approximate cost of between $7,500,000 and $8,250,000 each. The Company took
delivery of 10 new FlexRigs through calendar 2001. During fiscal 2001, the
Company ordered an additional 25 new FlexRigs at an approximate cost of
$11,000,000 each. These new rigs, known as "FlexRig3", are the next generation
of FlexRigs which incorporate new drilling technology and new environmental and
safety design. This new design includes integrated top drive, AC electric drive,
hydraulic BOP handling system, hydraulic tubular make-up and break-out system,
split crown and traveling blocks and an enlarged drill floor for the enabling of
simultaneous crew activities. The Company took delivery of eight FlexRig3 rigs
as of the end of September, 2002. The remaining FlexRig3 rigs are expected to be
delivered by the end of fiscal 2003. The FlexRig3's will be available for work
in the Company's domestic and international drilling operations.
The Company's drilling contracts are obtained through competitive bidding or as
a result of negotiations with customers, and sometimes cover multi-well and
multi-year projects. Each drilling rig operates under a separate drilling
contract. Most of the contracts are performed on a "daywork" basis, under which
the Company charges a fixed rate per day, with the price determined by the
location, depth, and complexity of the well to be drilled, operating conditions,
the duration of the contract, and the competitive forces of the market. The
Company has previously performed contracts on a combination "footage" and
"daywork" basis, under which the Company charged a fixed rate per foot of hole
drilled to a stated depth, usually no deeper than 15,000 feet, and a fixed rate
per day for the remainder of the hole. Contracts performed on a "footage" basis
involve a greater element of risk to the contractor than do contracts performed
on a "daywork" basis. Also, the Company has previously accepted "turnkey"
contracts under which the Company charges a fixed sum to deliver a hole to a
stated depth and agrees to furnish services such as testing, coring, and casing
the hole which are not normally done on a "footage" basis. "Turnkey" contracts
entail varying degrees of risk greater than the usual "footage" contract. The
Company did not accept any "footage" or "turnkey" contracts during fiscal 2002.
The Company believes that under current market conditions "footage" and
"turnkey" contract rates do not adequately compensate contractors for the added
risks. The duration of the Company's drilling contracts are "well-to-well" or
for a fixed term. "Well-to-well" contracts are cancelable at the option of
either party upon the completion of drilling at any one site. Fixed-term
contracts customarily provide for termination at the election of the customer,
with an "early termination payment" to be paid to the contractor if a contract
is terminated prior to the expiration of the fixed term.
While current fixed term contracts are for one to five year periods, some fixed
term and well-to-well contracts are expected to be continued for longer periods
than the original terms. However, the contracting parties have no legal
obligation to extend the contracts. Contracts generally contain renewal or
extension provisions exercisable at the
2
<PAGE>
option of the customer at prices mutually agreeable to the Company and the
customer. In most instances contracts provide for additional payments for
mobilization and demobilization. Contracts for work in foreign countries
generally provide for payment in United States dollars, except for amounts
required to meet local expenses. However, government owned petroleum companies
are more frequently requesting that a greater proportion of these payments be
made in local currencies. See Regulations, Hazards and Risks on page 4 of this
report.
DOMESTIC DRILLING
- --------------------------------------------------------------------------------
The Company believes it is a major land and offshore platform drilling
contractor in the domestic market. At the end of September, 2002, the Company
had 78 of its rigs (66 land rigs and 12 platform rigs) available for work in the
United States and had management contracts for three customer-owned rigs. The 19
rig increase from fiscal 2001 to 2002 is due to the delivery of 13 new FlexRigs,
transfer of four rigs from the Company's international operations, and the
construction of two self-moving platform rigs.
While the Company commenced drilling operations in the Gulf of Mexico with two
new self-moving platform rigs, the Company stacked five platform rigs during
fiscal 2002.
INTERNATIONAL DRILLING
- --------------------------------------------------------------------------------
The Company's international drilling operations began in 1958 with the
acquisition of the Sinclair Oil Company's drilling rigs in Venezuela. Helmerich
& Payne de Venezuela, C.A., a wholly owned subsidiary of the Company, is one of
the leading drilling contractors in Venezuela. Beginning in 1972, with the
introduction of its first helicopter rig, the Company expanded into other Latin
American countries.
Venezuelan operations continue to be a significant part of the Company's
operations. At the end of fiscal 2002, the Company owned and operated 14 land
drilling rigs in Venezuela with a utilization rate of approximately 41% for the
fiscal year. The Company worked for the Venezuelan state petroleum company
during fiscal 2002, and revenues from this work accounted for approximately
4.6% of the Company's consolidated revenues from continuing operations during
the fiscal year. In addition, the Company has performed contract drilling
services in Venezuela for two independent oil companies during fiscal 2002.
The Company's rig utilization rate in Venezuela has increased from approximately
37% during fiscal 2001 to approximately 41% in fiscal 2002. Even though the
Company is, at this time, unable to predict future fluctuations in its
utilization rates during fiscal 2003, the Company believes that the prospects
are good for returning at least five of its idle rigs back to work in Venezuela
during fiscal 2003.
During fiscal 2002, one rig was moved into Ecuador from the United States. At
the end of fiscal 2002, the Company owned and operated eight rigs in Ecuador.
The Company's utilization rate was approximately 93% during fiscal 2002.
Revenues generated by Ecuadorian drilling operations contributed approximately
8.89% of the Company's consolidated revenues from continuing operations. The
contracts are with large international oil companies.
During fiscal 2002, the Company owned and operated three drilling rigs in
Colombia. The Company's utilization rate in Colombia was approximately 31%
during fiscal 2002. The revenues generated by Colombian drilling operations
contributed approximately 1.87% of the Company's consolidated revenues in fiscal
2002 from continuing operations. The Company is not presently operating any rigs
in Colombia, but expects to resume drilling operations with one rig in January,
2003.
In addition to its operations in Venezuela, Ecuador and Colombia, the Company in
fiscal 2002 owned and operated six rigs in Bolivia and two rigs in Argentina.
However, at the end of fiscal 2002, only one rig was operating in Bolivia and no
rigs were operating in Argentina. During fiscal 2002, the Company continued
operations under a management contract for a customer-owned platform rig
located offshore Equatorial Guinea.
3
<PAGE>
COMPETITION
- --------------------------------------------------------------------------------
The contract drilling business is highly competitive. Competition in contract
drilling involves such factors as price, rig availability, efficiency, condition
of equipment, reputation, operating safety and customer relations. Competition
is primarily on a regional basis and may vary significantly by region at any
particular time. Land drilling rigs can be readily moved from one region to
another in response to changes in levels of activity, and an oversupply of rigs
in any region may result.
Although many contracts for drilling services are awarded based solely on price,
the Company has been successful in establishing long-term relationships with
certain customers which have allowed the Company to secure drilling work even
though the Company may not have been the lowest bidder for such work. The
Company has continued to attempt to differentiate its services based upon its
engineering design expertise, operational efficiency, safety and environmental
awareness. This strategy is less effective when lower demand for drilling
services intensifies price competition and makes it more difficult or impossible
to compete on any other basis than price.
REGULATIONS, HAZARDS AND RISKS
- --------------------------------------------------------------------------------
The drilling operations of the Company are subject to the many hazards inherent
in the business, including inclement weather, blowouts and well fires. These
hazards could cause personal injury, suspend drilling operations, seriously
damage or destroy the equipment involved, and cause substantial damage to
producing formations and the surrounding areas. The Company's offshore platform
drilling operations are also subject to potentially greater environmental
liability, adverse sea conditions and platform damage or destruction due to
collision with aircraft or marine vessels.
The Company believes that it has adequate insurance coverage for comprehensive
general liability, public liability, property damage, workers compensation and
employer's liability. No insurance is carried against loss of earnings or
business interruption. The Company is unable to obtain significant amounts of
insurance to cover risks of underground reservoir damage; however, the Company
is generally indemnified under its drilling contracts from this risk. The
majority of the Company's insurance coverage has been purchased through fiscal
2003; however, rates and deductibles increased substantially for a number of
coverages due to general hardening in the energy insurance market. In view of
these present conditions, no assurance can be given that all or a portion of the
Company's coverage will not be cancelled during fiscal 2003 or that insurance
coverage will continue to be available at rates considered reasonable.
The Company's operations can be materially affected by low oil and gas prices.
The Company believes that any significant reduction in oil and gas prices could
result in a corresponding decline in demand for the Company's services. Any
prolonged reduction in demand for the Company's services could have a material
and adverse effect on the Company.
International operations are subject to certain political, economic, and other
uncertainties not encountered in domestic operations, including increased risks
of terrorism, kidnapping of employees, expropriation of equipment as well as
expropriation of a particular oil company operator's property and drilling
rights, taxation policies, foreign exchange restrictions, currency rate
fluctuations, and general hazards associated with foreign sovereignty over
certain areas in which operations are conducted. There can be no assurance that
there will not be changes in local laws, regulations, and administrative
requirements or the interpretation thereof which could have a material adverse
effect on the profitability of the Company's operations or on the ability of the
Company to continue operations in certain areas. Because of the
impact of local laws, the Company's future operations in certain areas may be
conducted through entities in which local citizens own interests and through
entities (including joint ventures) in which the Company holds only a minority
interest, or pursuant to arrangements under which the Company conducts
operations under contract to local entities. While the Company believes that
neither operating through such entities nor pursuant to such arrangements would
have a material adverse effect on the Company's operations or revenues, there
can be no assurance that the Company will in all cases be able to structure or
restructure its operations to
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conform to local law (or the administration thereof) on terms acceptable to the
Company. The Company further attempts to minimize the potential impact of such
risks by operating in more than one geographical area.
During fiscal 2002, approximately 27% of the Company's consolidated revenues
from continuing operations were generated from the international contract
drilling business. Approximately 91% of the international revenues were from
operations in South America and approximately 67% of South American revenues
were from Venezuela and Ecuador. Based upon current information, the Company
believes that exposure to potential losses from currency devaluation is minimal
in Colombia, Ecuador and Bolivia. In those countries, all receivables and
payments are currently in U.S. dollars. Cash balances are kept at a minimum
which assists in reducing exposure.
In January, 2002, Argentina suffered a 60% devaluation of the peso. The
Argentine government required that all payments under all contracts were to be
immediately converted to Argentine pesos and that contracting parties would
share in the currency losses. The Company recorded a currency loss of
US$1,200,000 in the first quarter of the fiscal year 2002 to recognize the loss
of value in its accounts receivable. The Company has completed negotiations with
its customers and has secured agreements that limit the portion of the accounts
receivable that will be paid in pesos with the balance of such accounts
receivable to be paid in U.S. dollars. Based upon such agreements, the Company
does not expect significant Argentine currency losses in fiscal 2003.
In Venezuela, approximately 60% of the Company's invoice billings are in U.S.
dollars and 40% are in the local currency, the bolivar. The Company is exposed
to risks of currency devaluation in Venezuela as a result of bolivar receivable
balances and necessary bolivar cash balances. From August of 2001 to August of
2002, there was a 92% devaluation of the bolivar. As a result, the Company
experienced a US$4,393,000 devaluation loss. The Company is unable to predict
future devaluation in Venezuela. In the event that fiscal 2003 activity levels
are similar to fiscal 2002 and if a 25% to 100% devaluation would occur, the
Company could experience potential currency devaluation losses ranging from
approximately US$1,700,000 to US$4,200,000.
Recent events in Venezuela have created greater governmental instability. In the
event that labor strikes continue or turmoil increases, the Company could
experience shortages in material and supplies necessary to operate some or all
of its Venezuelan drilling rigs.
During the mid-1970s, the Venezuelan government nationalized the exploration and
production business. At the present time it appears the Venezuelan government
will not nationalize the contract drilling business. Any such nationalization
could result in the Company's loss of all or a portion of its assets and
business in Venezuela.
Many aspects of the Company's operations are subject to government regulation,
including those relating to drilling practices and methods and the level of
taxation. In addition, various countries (including the United States) have
environmental regulations which affect drilling operations. Drilling contractors
may be liable for damages resulting from pollution. Under United States
regulations, drilling contractors must establish financial responsibility to
cover potential liability for pollution of offshore waters. Generally, the
Company is indemnified under drilling contracts from liability arising from
pollution, except in certain cases of surface pollution. However, the
enforceability of indemnification provisions in foreign countries may be
questionable.
The Company believes that it is in substantial compliance with all legislation
and regulations affecting its operations in the drilling of oil and gas wells
and in controlling the discharge of wastes. To date, compliance has not
materially affected the capital expenditures, earnings, or competitive position
of the Company, although these measures may add to the costs of operating
drilling equipment in some instances. Additional legislation or regulation may
reasonably be anticipated, and the effect thereof on operations cannot be
predicted.
EXPLORATION AND PRODUCTION
- --------------------------------------------------------------------------------
On February 23, 2002, the Company and Key Production Company, Inc. entered into
an Agreement and Plan of Merger and related agreements, including a
Distribution Agreement between the Company and Cimarex Energy Co. The agreements
provided for the consolidation of the Company's exploration and production
business under
5
<PAGE>
Cimarex Energy Co.; the distribution of Cimarex Energy Co. common stock to the
Company's stockholders; and the merger of Key Production Company, Inc. with a
subsidiary of Cimarex Energy Co.
As a part of this transaction, Cimarex Energy Co. agreed to defend and indemnify
the Company against all losses or liabilities arising out of or related to the
exploration and production business that was transferred by the Company to
Cimarex Energy Co. In July of 2002, the Company obtained a Private Letter Ruling
from the Internal Revenue Service to the effect that the contribution and
transfer of the assets and liabilities of the Company's exploration and
production business to Cimarex Energy Co. and the distribution by the Company of
all the shares of Cimarex Energy Co. common stock to the holders of the
Company's common stock would generally be treated as a tax-free transaction for
U.S. federal income tax purposes.
On September 30, 2002, the Company's distribution of Cimarex Energy Co. common
stock and the subsequent merger of Key Production Company, Inc. was completed.
Upon completion of the merger, approximately 65.25% of the Cimarex Energy Co.
common stock on a diluted basis was held by former stockholders of the Company.
Subsequent to this transaction, the Company and its subsidiaries will continue
to own and operate the contract drilling and real estate businesses, and Cimarex
Energy Co. will be a separate, publicly-traded company that will own and operate
the exploration and production business. The Company does not own any common
stock of Cimarex Energy Co.
REAL ESTATE OPERATIONS
- --------------------------------------------------------------------------------
The Company's real estate operations are conducted exclusively within the
metropolitan area of Tulsa, Oklahoma. Its major holding is Utica Square Shopping
Center, consisting of fourteen separate buildings, with parking and other common
facilities covering an area of approximately 30 acres. These buildings provide
approximately 405,709 square feet of net leasable retail sales and storage space
(80% of which is currently leased) and approximately 18,590 square feet of net
leasable general office space (99% of which is currently leased). Approximately
24% of the general office space is occupied by the Company's real estate
operations. Occupancy in the Shopping Center has decreased from 97% in fiscal
2001 to 80% in fiscal 2002 due to the closing of a large department store. In
calendar 2003, the Company intends to renovate the vacated department store
space containing approximately 75,000 square feet and convert such space to
multi-tenant specialty store use. In March of 2002, an eight-story medical
office building containing approximately 76,000 square feet of net leasable
space and located in Utica Square was demolished. The Company is currently
redeveloping the site. The new development is expected to include two new
upscale restaurants and additional customer parking.
At the end of the 2002 fiscal year, the Company owned 11 of a total of 73 units
in The Yorktown, a 16-story luxury residential condominium with approximately
150,940 square feet of living area located on a six-acre tract adjacent to Utica
Square Shopping Center. Three of the Company's units are currently leased.
The Company owns an eight-story office building located diagonally across the
street from Utica Square Shopping Center, containing approximately 87,000 square
feet of net leasable general office space. This building houses the Company's
principal executive offices.
The Company also owns and leases to third-parties multi-tenant warehouse space.
Three warehouses known as Space Center, each containing approximately 165,000
square feet of net leasable space, are situated in the southeast part of Tulsa
at the intersection of two major limited-access highways. Present occupancy is
100%. The Company also owns approximately 1.5 acres of undeveloped land lying
adjacent to such warehouses.
At the end of fiscal 2002, the Company owned approximately 235.2 acres in
Southpark consisting of approximately 225.1 acres of undeveloped real estate
(net of the 2.87 acre sale and condemnation proceeding described below) and
approximately 13 acres of multi-tenant warehouse area. The warehouse area is
known as Space Center East and consists of two warehouses, one containing
approximately 90,000 square feet and the other containing approximately 112,500
square feet. Present occupancy is 93%. The Company believes that a high quality
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office park, with peripheral commercial, office/warehouse, and hotel sites, is
the best development use for the remaining land. However, no development plans
are currently pending.
In April of 2002, the Company sold approximately 2.87 acres of undeveloped land
in Southpark for $437,325.
The Company is a party to a condemnation proceeding initiated during fiscal 2000
by the Oklahoma Department of Transportation ("ODOT") which seeks to acquire
approximately 15.14 acres of undeveloped real property adjacent to a major
expressway in Southpark. This matter was settled in fiscal 2002 subject to the
execution of a mutually acceptable journal entry of judgment. As a result of the
settlement, the Company will be required to reimburse $275,000 of the $2,800,000
purchase price previously paid by ODOT.
The Company also owns a five-building complex called Tandem Business Park. The
project is located adjacent to and east of the Space Center East facility and
contains approximately six acres, with approximately 88,084 square feet of
office/warehouse space. Occupancy has decreased from 94% to 80% during fiscal
2002. The Company also owns a twelve-building complex, consisting of
approximately 204,600 square feet of office/warehouse space, called Tulsa
Business Park. The project is located south of the Space Center facility,
separated by a city street, and contains approximately 12 acres. During fiscal
2002, occupancy has increased from 93% to 96%.
The Company also owns two service center properties located adjacent to arterial
streets in south central Tulsa. The first, called Maxim Center, consists of one
office/warehouse building containing approximately 40,800 square feet and
located on approximately 2.5 acres. During fiscal 2002, occupancy has remained
at 94%. The second, called Maxim Place, consists of one office/warehouse
building containing approximately 33,750 square feet and located on
approximately 2.25 acres. During fiscal 2002, occupancy has remained at 17%.
COMPETITION
- --------------------------------------------------------------------------------
The Company has numerous competitors in the multi-tenant leasing business. The
size and financial capacity of these competitors range from one property sole
proprietors to large international corporations. The primary competitive factors
include price, location and configuration of space. The Company's competitive
position is enhanced by the location of its properties, its financial capability
and the long-term ownership of its properties. However, many competitors have
financial resources greater than the Company and have more contemporary
facilities.
FINANCIAL
- --------------------------------------------------------------------------------
Information relating to Revenue and Operating Profit by Business Segments may be
found on pages 64 through 66 of the Company's Annual Report to the Stockholders
for fiscal 2002 under the caption "Management's Discussion and Analysis of
Results of Operations and Financial Condition" which is incorporated herein by
reference.
EMPLOYEES
- --------------------------------------------------------------------------------
The Company had 2,872 employees within the United States (13 of which were
part-time employees) and 803 employees in international operations as of
September 30, 2002.
7
<PAGE>
Item 2. PROPERTIES
CONTRACT DRILLING
- --------------------------------------------------------------------------------
The following table sets forth certain information concerning the Company's
domestic drilling rigs as of September 30, 2002:
<Table>
<Caption>
Rig Registrant's Optimum Working Present
Designation Classification Depth in Feet Location
<S> <C> <C> <C>
158 Medium Depth 10,000 Oklahoma
110 Medium Depth 12,000 Texas
156 Medium Depth 12,000 Texas
159 Medium Depth 12,000 Wyoming
141 Medium Depth 14,000 Texas
142 Medium Depth 14,000 Texas
143 Medium Depth 14,000 Texas
145 Medium Depth 14,000 Texas
155 Medium Depth 14,000 Texas
96 Medium Depth 16,000 Oklahoma
118 Medium Depth 16,000 Texas
119 Medium Depth 16,000 Texas
120 Medium Depth 16,000 Texas
146 Medium Depth 16,000 Texas
147 Medium Depth 16,000 Texas
154 Medium Depth 16,000 Wyoming
162 Medium Depth 18,000 Texas
164 Medium Depth (FlexRig 1) 18,000 Texas
165 Medium Depth (FlexRig 1) 18,000 Texas
166 Medium Depth (FlexRig 1) 18,000 Texas
167 Medium Depth (FlexRig 1) 18,000 Oklahoma
168 Medium Depth (FlexRig 1) 18,000 Texas
169 Medium Depth (FlexRig 1) 18,000 Texas
108 Medium Depth (platform) 18,000 Texas
178 Medium Depth (FlexRig 2) 18,000 Texas
179 Medium Depth (FlexRig 2) 18,000 Wyoming
180 Medium Depth (FlexRig 2) 18,000 Utah
181 Medium Depth (FlexRig 2) 18,000 Texas
182 Medium Depth (FlexRig 2) 18,000 Texas
183 Medium Depth (FlexRig 2) 18,000 Texas
184 Medium Depth (FlexRig 2) 18,000 Texas
185 Medium Depth (FlexRig 2) 18,000 Texas
186 Medium Depth (FlexRig 2) 18,000 Texas
187 Medium Depth (FlexRig 2) 18,000 Texas
188 Medium Depth (FlexRig 2) 18,000 Texas
189 Medium Depth (FlexRig 2) 18,000 Oklahoma
210 Medium Depth (FlexRig 3) 18,000 Texas
211 Medium Depth (FlexRig 3) 18,000 Texas
212 Medium Depth (FlexRig 3) 18,000 Texas
213 Medium Depth (FlexRig 3) 18,000 Texas
</Table>
8
<PAGE>
<Table>
<Caption>
Rig Registrant's Optimum Working Present
Designation Classification Depth in Feet Location
<S> <C> <C> <C>
214 Medium Depth (FlexRig 3) 18,000 Texas
215 Medium Depth (FlexRig 3) 18,000 Texas
216 Medium Depth (FlexRig 3) 18,000 Texas
217 Medium Depth (FlexRig 3) 18,000 Texas
79 Deep 20,000 Louisiana
80 Deep 20,000 Oklahoma
89 Deep 20,000 Texas
91 Deep (platform) 20,000 Louisiana
92 Deep 20,000 Oklahoma
94 Deep 20,000 Texas
98 Deep 20,000 Oklahoma
122 Deep 20,000 Louisiana
203 Deep (platform) 20,000 Offshore Louisiana
205 Deep (platform) 20,000 Offshore Louisiana
206 Deep (platform) 20,000 Offshore Louisiana
97 Deep 26,000 Texas
99 Deep 26,000 Texas
137 Deep 26,000 Texas
149 Deep 26,000 Texas
170 Deep (Heli Rig) 26,000 Texas
191 Deep 26,000 Texas
192 Deep 26,000 Texas
72 Very Deep 30,000 Louisiana
73 Very Deep 30,000 Texas
100 Very Deep (platform) 30,000 Offshore Louisiana
105 Very Deep (platform) 30,000 Louisiana
106 Very Deep (platform) 30,000 Louisiana
107 Very Deep (platform) 30,000 Louisiana
125 Very Deep 30,000 Texas
134 Very Deep 30,000 Texas
136 Very Deep 30,000 Louisiana
157 Very Deep 30,000 Texas
161 Very Deep 30,000 Louisiana
163 Very Deep 30,000 Louisiana
201 Very Deep (platform) 30,000 Offshore Louisiana
202 Very Deep (platform) 30,000 Offshore Louisiana
204 Very Deep (platform) 30,000 Offshore Louisiana
139 Super Deep 30,000+ Texas
</Table>
9
<PAGE>
The following table sets forth information with respect to the utilization of
the Company's domestic drilling rigs for the periods indicated:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30, 1998 1999 2000 2001 2002
------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of rigs owned at end of period 46 50 48 59 78
Average rig utilization rate during period* 95% 75% 87% 97% 83%
*A rig is considered to be utilized when it is operated or being moved,
assembled, or dismantled under contract.
</Table>
The following table sets forth certain information concerning the
Company's international drilling rigs as of September 30, 2002:
<Table>
<Caption>
Rig Registrant's Optimum Working Present
Designation Classification Depth in Feet Location
<S> <C> <C> <C>
14 Workover/drilling 6,000 Venezuela
19 Workover/drilling 6,000 Venezuela
20 Workover/drilling 6,000 Venezuela
140 Medium Depth 10,000 Venezuela
171 Medium Depth 16,000 Bolivia
172 Medium Depth 16,000 Bolivia
22 Medium Depth (Heli Rig) 18,000 Ecuador
23 Medium Depth (Heli Rig) 18,000 Ecuador
132 Medium Depth 18,000 Ecuador
176 Medium Depth 18,000 Ecuador
121 Deep 20,000 Ecuador
173 Deep 20,000 Bolivia
117 Deep 26,000 Ecuador
123 Deep 26,000 Bolivia
138 Deep 26,000 Ecuador
148 Deep 26,000 Venezuela
160 Deep 26,000 Venezuela
190 Deep 26,000 Ecuador
113 Very Deep 30,000 Venezuela
115 Very Deep 30,000 Venezuela
116 Very Deep 30,000 Venezuela
127 Very Deep 30,000 Venezuela
128 Very Deep 30,000 Venezuela
129 Very Deep 30,000 Venezuela
133 Very Deep 30,000 Colombia
135 Very Deep 30,000 Colombia
150 Very Deep 30,000 Venezuela
151 Very Deep 30,000 Bolivia
152 Super Deep 30,000+ Colombia
153 Super Deep 30,000+ Venezuela
174 Very Deep 30,000 Argentina
175 Very Deep 30,000 Bolivia
177 Very Deep 30,000 Argentina
</Table>
10
<PAGE>
The following table sets forth information with respect to the utilization of
the Company's international drilling rigs for the periods indicated:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30, 1998 1999 2000 2001 2002
------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of rigs owned at end of period 44 39 40 37 33
Average rig utilization rate during period*+ 88% 53% 47% 56% 51%
* A rig is considered to be utilized when it is operated or being moved,
assembled, or dismantled under contract.
+ Does not include rigs returned to United States for major modifications
and upgrades.
</Table>
REAL ESTATE OPERATIONS
- --------------------------------------------------------------------------------
See Item 1. BUSINESS, pages 6 through 7 of this report.
STOCK PORTFOLIO
- --------------------------------------------------------------------------------
Information required by this item regarding the stock portfolio held by the
Company may be found on page 36 of the Company's Annual Report to the
Stockholders for fiscal 2002 under the caption, "Management's Discussion and
Analysis of Results of Operations and Financial Condition" which is incorporated
herein by reference.
Item 3. LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The Company is subject to various claims that arise in the ordinary course of
its business. In the opinion of management, the amount of ultimate liability
with respect to these actions will not materially affect the financial position,
results of operations, or liquidity of the Company. The Company is not a party
to, and none of its property is subject to, any material pending legal
proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
None.
11
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
- --------------------------------------------------------------------------------
The following table sets forth the names and ages of the Company's executive
officers, together with all positions and offices held with the Company by such
executive officers. Officers are elected to serve until the meeting of the Board
of Directors following the next Annual Meeting of Stockholders and until their
successors have been elected and have qualified or until their earlier
resignation or removal.
<Table>
<S> <C>
W. H. HELMERICH, III, 79 DOUGLAS E. FEARS, 53
Chairman of the Board Vice President and Chief Financial Officer
Director since 1949; Chairman of the Board since 1988
since 1960
HANS HELMERICH, 44 STEVEN R. MACKEY, 51
President and Chief Executive Officer Vice President, Secretary and General Counsel
Director since 1987; President and Chief Executive Secretary since 1990; Vice President and General
Officer since 1989 Counsel since 1988
GEORGE S. DOTSON, 61 GORDON K. HELM, 49
Vice President Controller
Director since 1990; Vice President since 1977 and Chief Accounting Officer of the Company;
President and Chief Operating Officer of Helmerich Controller since December 10, 1993
& Payne International Drilling Co. since 1977
</Table>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
The principal market on which the Company's common stock is traded is the New
York Stock Exchange. The high and low sale prices per share for the common stock
for each quarterly period during the past two fiscal years as reported in the
NYSE-Composite Transaction quotations follow:
<Table>
<Caption>
2001 2002
-------------------- --------------------
Quarter High Low High Low
------- -------- ------- -------- -------
<S> <C> <C> <C> <C>
First $ 44.19 $ 28.94 $ 33.69 $ 25.13
Second 58.51 39.63 41.31 28.05
Third 51.23 30.82 42.91 34.15
Fourth 32.77 23.74 37.82 29.83
</Table>
12
<PAGE>
The Company paid quarterly cash dividends during the past two years as shown in
the following table:
<Table>
<Caption>
Paid per Share Total Payment
Fiscal Fiscal
------------------------ ------------------------
QUARTER 2001 2002 2001 2002
------- ------ ------ ---------- ----------
<S> <C> <C> <C> <C>
First $0.075 $0.075 $3,748,896 $3,738,220
Second 0.075 0.075 3,776,612 3,739,680
Third 0.075 0.075 3,796,489 3,743,587
Fourth 0.075 0.080 3,765,488 3,999,597
</Table>
The Company paid a cash dividend of $.080 per share on December 2, 2002, to
stockholders of record on November 15, 2002. Payment of future dividends will
depend on earnings and other factors.
As of December 13, 2002, there were 1,001 record holders of the Company's common
stock as listed by the transfer agent's records.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
The following table summarizes selected financial information and should be read
in conjunction with the Consolidated Financial Statements and the Notes thereto
and the related Management's Discussion and Analysis of Financial Condition and
Results of Operations contained at pages 23 through 39 of the Company's Annual
Report to the Stockholders for fiscal 2002 which is incorporated herein by
reference. On September 30, 2002, the Company spun off Cimarex Energy Co., as
described on pages 5 and 6 of this report. The historical financial data for the
business conducted by Cimarex Energy Co. for 2002 has been reported as
discontinued operations.
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
<Table>
<Caption>
1998 1999 2000 2001 2002
---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Sales, operating, and other revenues $ 484,205 $ 412,727 $ 392,142 $ 509,274 $ 510,928
Income from continuing operations 80,790 32,115 36,470 80,467 53,706
Income from continuing operations
per common share:
Basic 1.62 0.65 0.74 1.61 1.08
Diluted 1.60 0.65 0.73 1.58 1.07
Total assets 1,053,200 1,073,465 1,200,854 1,300,121 1,227,313
Long-term debt 50,000 50,000 50,000 50,000 100,000
Cash dividends declared per common share 0.275 0.28 0.285 0.30 0.31
</Table>
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
- --------------------------------------------------------------------------------
Information required by this item may be found on pages 23 through 39 of the
Company's Annual Report to the Stockholders for fiscal 2002 under the caption
"Management's Discussion & Analysis of Results of Operations and Financial
Condition" which is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
Information required by this item may be found on the following pages of the
Company's Annual Report to the Stockholders for fiscal 2002 under "Management's
Discussion & Analysis of Results of Operations and Financial Condition", and in
"Notes to Consolidated Financial Statements", all of which is incorporated by
reference:
<Table>
<Caption>
MARKET RISK PAGE
<S> <C>
o Foreign Currency Exchange Rate Risk 37
o Commodity Price Risk 38
o Interest Rate Risk 38-39
o Equity Price Risk 39
</Table>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
Information required by this item may be found on pages 40 through 67 of the
Company's Annual Report to the Stockholders for fiscal 2002 which is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- --------------------------------------------------------------------------------
Information required under this item with respect to Directors and with respect
to delinquent filers pursuant to Item 405 of Regulation S-K is incorporated by
reference from the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held March 5, 2003, to be filed with the Commission not
later than 120 days after September 30, 2002.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
This information is incorporated by reference from the Company's definitive
Proxy Statement for the Annual Meeting of Stockholders to be held March 5, 2003,
to be filed with the Commission not later than 120 days after September 30,
2002.
14
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
This information is incorporated by reference from the Company's definitive
Proxy Statement for the Annual Meeting of Stockholders to be held March 5, 2003,
to be filed with the Commission not later than 120 days after September 30,
2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
This information is incorporated by reference from the Company's definitive
Proxy Statement for the Annual Meeting of Stockholders to be held March 5, 2003,
to be filed with the Commission not later than 120 days after September 30,
2002.
ITEM 14. CONTROLS AND PROCEDURES
- --------------------------------------------------------------------------------
a) Evaluation of disclosure controls and procedures. Within the 90 day period
prior to the filing date of this Annual Report on Form 10-K, the Company's
management, under the supervision and with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the design and operation of the Company's disclosure controls and procedures.
Based on that evaluation, the Company's Chief Executive Officer and Chief
Financial Officer believe that:
o the Company's disclosure controls and procedures are designed to ensure that
information required to be disclosed by the Company in the reports it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms; and
o the Company's disclosure controls and procedures operate such that important
information flows to appropriate collection and disclosure points in a timely
manner and are effective to ensure that such information is accumulated and
communicated to the Company's management, and made known to the Company's Chief
Executive Officer and Chief Financial Officer, particularly during the period
when this Annual Report on Form 10-K was prepared, as appropriate to allow
timely decision regarding the required disclosure.
b) Changes in internal controls. There have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
the Company's internal controls subsequent to their evaluation, nor have there
been any corrective actions with regard to significant deficiencies or material
weaknesses.
15
<PAGE>
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
a) 1. Financial Statements: The following appear in the Company's Annual Report
to the Stockholders for fiscal 2002 at the pages indicated below and are
incorporated herein by reference.
<Table>
<S> <C>
Report of Independent Auditors 40
Consolidated Statements of Income for the Years Ended
September 30, 2002, 2001 and 2000 41
Consolidated Balance Sheets at September 30, 2002 and 2001 42-43
Consolidated Statements of Stockholders' Equity for the Years Ended
September 30, 2002, 2001 and 2000 44
Consolidated Statements of Cash Flows for the Years Ended
September 30, 2002, 2001 and 2000 45
Notes to Consolidated Financial Statements 46-67
</Table>
2. Financial Statement Schedules: All schedules are omitted as inapplicable or
because the required information is contained in the financial statements or
included in the notes thereto.
3. Exhibits. The following documents are included as exhibits to this Form 10-K.
Exhibits incorporated by reference herein are duly noted as such. Unless so
noted, each exhibit is filed herewith.
2.1 Agreement and Plan of Merger, dated as of February 23, 2002, by and among
Helmerich & Payne, Inc., Cimarex Energy Co., Mountain Acquisition Co. and Key
Production Company, Inc. is incorporated herein by reference to Exhibit 2.1 to
the Cimarex Energy Co. Registration Statement No. 333-87948 on Form S-4 filed
May 9, 2002.
3.1 Restated Certificate of Incorporation and Amendment to Restated Certificate
of Incorporation of the Company are incorporated herein by reference to Exhibit
3.1 of the Company's Annual Report on Form 10-K to the Securities and Exchange
Commission for fiscal 1996, SEC File No. 001-04221.
3.2 Amended and Restated By-Laws of the Company are incorporated herein by
reference to Exhibit 3.2 of the Company's Quarterly Report on Form 10-Q to the
Securities and Exchange Commission for the quarter ended March 31, 2002, SEC
File No. 001-04221.
4.1 Rights Agreement dated as of January 8, 1996, between the Company and The
Liberty National Bank and Trust Company of Oklahoma City, N.A. is incorporated
herein by reference to the Company's Form 8-A, dated January 18, 1996, SEC File
No. 001-04221.
*10.1 Consulting Services Agreement between W. H. Helmerich, III, and the
Company effective January 1, 1990, as amended is incorporated herein by
reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K to the
Securities and Exchange Commission for fiscal 1996, SEC File No. 001-04221.
*10.2 Supplemental Retirement Income Plan for Salaried Employees of Helmerich &
Payne, Inc. is incorporated herein by reference to Exhibit 10.6 of the Company's
Annual Report on Form 10-K to the Securities and Exchange Commission for fiscal
1996, SEC File No. 001-04221.
16
<PAGE>
*10.3 Helmerich & Payne, Inc. 1990 Stock Option Plan is incorporated herein by
reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K to the
Securities and Exchange Commission for fiscal 1996, SEC File No. 001-04221.
*10.4 Form of Nonqualified Stock Option Agreement for the 1990 Stock Option Plan
is incorporated by reference to Exhibit 99.2 to the Company's Registration
Statement No. 33-55239 on Form S-8, dated August 26, 1994.
*10.5 Supplemental Savings Plan for Salaried Employees of Helmerich and Payne,
Inc. is incorporated herein by reference to Exhibit 10.6 to the Company's Annual
Report on Form 10-K to the Securities and Exchange Commission for fiscal 1999,
SEC File No. 001-04221.
*10.6 Helmerich & Payne, Inc. 1996 Stock Incentive Plan is incorporated herein
by reference to Exhibit 99.1 to the Company's Registration Statement No.
333-34939 on Form S-8 dated September 4, 1997.
*10.7 Form of Nonqualified Stock Option Agreement for the Helmerich & Payne,
Inc. 1996 Stock Incentive Plan is incorporated by reference to Exhibit 99.2 to
the Company's Registration Statement No. 333-34939 on Form S-8 dated September
4, 1997.
*10.8 Form of Restricted Stock Agreement for the Helmerich & Payne, Inc. 1996
Stock Incentive Plan is incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K to the Securities and Exchange Commission
for fiscal 1997, SEC File No. 001-04221.
*10.9 Helmerich & Payne, Inc. 2000 Stock Incentive Plan is incorporated herein
by reference to Exhibit 99.1 to the Company's Registration Statement No.
333-63124 on Form S-8 dated June 15, 2001.
*10.10 Form of Agreements for the Helmerich & Payne, Inc. 2000 Stock Incentive
Plan being (i) Restricted Stock Award Agreement, (ii) Incentive Stock Option
Agreement and (iii) Nonqualified Stock Option Agreement are incorporated by
reference to Exhibit 99.2 to the Company's Registration Statement No. 333-63124
on Form S-8 dated June 15, 2001.
10.11 Distribution Agreement dated as of February 23, 2002, by and between
Helmerich & Payne, Inc. and Cimarex Energy Co. is incorporated herein by
reference to Exhibit 10.1 to the Cimarex Energy Co. Registration Statement No.
333-87948 on Form S-4 filed May 9, 2002.
10.12 Tax Sharing Agreement dated as of February 23, 2002, by and between
Helmerich & Payne, Inc. and Cimarex Energy Co. is incorporated herein by
reference to Exhibit 10.2 to the Cimarex Energy Co. Registration Statement No.
333-87948 on Form S-4 filed May 9, 2002.
10.13 Employee Benefits Agreement, dated as of February 23, 2002, by and between
Helmerich & Payne, Inc. and Cimarex Energy Co. is incorporated herein by
reference to Exhibit 10.3 to the Cimarex Energy Co. Registration Statement No.
333-87948 on Form S-4 filed May 9, 2002.
*10.14 Form of Director Nonqualified Stock Option Agreement for the 2000
Helmerich & Payne, Inc. Stock Incentive Plan is incorporated herein by reference
to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q to the Securities
and Exchange Commission for the quarter ended June 30, 2002, SEC File No.
001-04221.
*10.15 Form of Change of Control Agreement for Helmerich & Payne, Inc. (E&P) is
incorporated herein by reference to Exhibit 10.2 of the Company's Quarterly
Report on Form 10-Q to the Securities and Exchange Commission for the quarter
ended June 30, 2002, SEC File No. 001-04221.
*10.16 Form of Change of Control Agreement for Helmerich & Payne, Inc. (Non-E&P)
is incorporated herein by reference to Exhibit 10.3 of the Company's Quarterly
Report on Form 10-Q to the Securities and Exchange Commission for the quarter
ended June 30, 2002, SEC File No. 001-04221.
*10.17 Helmerich & Payne, Inc. E&P Severance Plan dated August 26, 2002.
17
<PAGE>
10.18 Second Amendment to Credit Agreement, dated as of July 16, 2002, by and
among Helmerich & Payne International Drilling Co., Helmerich & Payne, Inc. and
Bank One, Oklahoma, N.A. is incorporated herein by reference to Exhibit 10.4 of
the Company's Quarterly Report on Form 10-Q to the Securities and Exchange
Commission for the quarter ended June 30, 2002, SEC File No. 001-04221.
10.19 Credit Agreement, dated as of July 16, 2002, among Helmerich & Payne
International Drilling Co., Helmerich & Payne, Inc., the several lenders from
time to time party thereto, and Bank of Oklahoma, National Association is
incorporated herein by reference to Exhibit 10.5 of the Company's Quarterly
Report on Form 10-Q to the Securities and Exchange Commission for the quarter
ended June 30, 2002, SEC File No. 001-04221.
10.20 Note Purchase Agreement dated as of August 15, 2002, among Helmerich &
Payne International Drilling Co., Helmerich & Payne, Inc. and various insurance
companies.
13. The Company's Annual Report to Stockholders for fiscal 2002.
21. List of Subsidiaries of the Company.
23.1 Consent of Independent Auditors.
*Compensatory Plan or Arrangement.
(b) Report on Form 8-K
The Company filed five reports on Form 8-K during the last quarter of fiscal
2002 as follows:
o Form 8-K dated July 24, 2002, and containing a Press Release with attached
Unaudited Consolidated Condensed Balance Sheets, Consolidated Statements of
Income and Financial Results - Lines of Business, announcing the Company's
third quarter 2002 earnings.
o Form 8-K dated August 16, 2002, disclosing the first closing of the Company's
intermediate term debt facility.
o Form 8-K dated September 5, 2002, containing a Press Release announcing the
Registration Statement of Cimarex Energy Co. declared effective by the
Securities and Exchange Commission and fiscal 2003 earnings guidance.
o Form 8-K dated September 20, 2002, containing a Press Release announcing that
September 27, 2002 was established as the record date of the Company's
common stock entitled to receive the spin-off distribution of Cimarex Energy
Co. common stock, and that September 30, 2002 was established as the payment
date for the spin-off distribution.
o Form 8-K dated September 30, 2002, containing a Press Release announcing
completion of the spin-off of Cimarex Energy Co. and the subsequent merger of
Key Production Company, Inc. and a subsidiary of Cimarex Energy Co.
18
<PAGE>
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized:
HELMERICH & PAYNE, INC.
By /s/ HANS HELMERICH
-----------------------------------
Hans Helmerich, President and Chief Executive Officer
Date: December 23, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated:
<Table>
<S> <C>
By /s/ William L. Armstrong By /s/ GLENN A. COX
--------------------------------- ---------------------------------
William L. Armstrong, Director Glenn A. Cox, Director
Date: December 23, 2002 Date: December 23, 2002
By /s/ George S. Dotson By /s/ HANS HELMERICH
--------------------------------- ---------------------------------
George S. Dotson, Director Hans Helmerich, Director and CEO
Date: December 23, 2002 Date: December 23, 2002
By /s/ W. H. HELMERICH, III By /s/ L. F. ROONEY, III
--------------------------------- ---------------------------------
W. H. Helmerich, III, Director L. F. Rooney, III, Director
Date: December 23, 2002 Date: December 23, 2002
By /s/ EDWARD B. RUST, JR. By /s/ GEORGE A. SCHAEFER
--------------------------------- ---------------------------------
Edward B. Rust, Jr., Director George A. Schaefer, Director
Date: December 23, 2002 Date: December 23, 2002
By /s/ JOHN D. ZEGLIS By /s/ DOUGLAS E. FEARS
--------------------------------- ---------------------------------
John D. Zeglis, Director Douglas E. Fears,
Date: December 23, 2002 (Principal Financial Officer)
Date: December 23, 2002
By /s/ GORDON K. HELM
---------------------------------
Gordon K. Helm, Controller
(Principal Accounting Officer)
Date: December 23, 2002
</Table>
19
<PAGE>
CERTIFICATION
- --------------------------------------------------------------------------------
I, Hans Helmerich, certify that:
1. I have reviewed this annual report on Form 10-K of Helmerich & Payne, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this annual report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee of
the Company's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal controls;
and
6. The Company's other certifying officers and I have indicated in this annual
report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
/s/ HANS HELMERICH
---------------------------------------
Hans Helmerich, Chief Executive Officer
December 23, 2002
20
<PAGE>
CERTIFICATION
- --------------------------------------------------------------------------------
I, Douglas E. Fears, certify that:
1. I have reviewed this annual report on Form 10-K of Helmerich & Payne, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this annual report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee of
the Company's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal controls;
and
6. The Company's other certifying officers and I have indicated in this annual
report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
/s/ DOUGLAS E. FEARS
-----------------------------------------
Douglas E. Fears, Chief Financial Officer
December 23, 2002
21
<PAGE>
CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
- --------------------------------------------------------------------------------
In connection with the Annual Report of Helmerich & Payne, Inc. (the "Company")
on Form 10-K for the period ending September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), Hans
Helmerich, as Chief Executive Officer of the Company, and Douglas E. Fears, as
Chief Financial Officer of the Company, each hereby certifies, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, to the best of his knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Hans Helmerich /s/ Douglas E. Fears
---------------------------- --------------------------------
Hans Helmerich Douglas E. Fears
Chief Executive Officer Chief Executive Officer
December 23, 2002 December 23, 2002
22
<PAGE>
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of February 23, 2002, by and
among Helmerich & Payne, Inc., Cimarex Energy Co., Mountain Acquisition
Co. and Key Production Company, Inc. is incorporated herein by
reference to Exhibit 2.1 to the Cimarex Energy Co. Registration
Statement No. 333-87948 on Form S-4 filed May 9, 2002.
3.1 Restated Certificate of Incorporation and Amendment to Restated
Certificate of Incorporation of the Company are incorporated herein by
reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K to
the Securities and Exchange Commission for fiscal 1996, SEC File No.
001-04221.
3.2 Amended and Restated By-Laws of the Company are incorporated herein by
reference to Exhibit 3.2 of the Company's Quarterly Report on Form 10-Q
to the Securities and Exchange Commission for the quarter ended March
31, 2002, SEC File No. 001-04221.
4.1 Rights Agreement dated as of January 8, 1996, between the Company and
The Liberty National Bank and Trust Company of Oklahoma City, N.A. is
incorporated herein by reference to the Company's Form 8-A, dated
January 18, 1996, SEC File No. 001-04221.
*10.1 Consulting Services Agreement between W. H. Helmerich, III, and the
Company effective January 1, 1990, as amended is incorporated herein by
reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K
to the Securities and Exchange Commission for fiscal 1996, SEC File No.
001-04221.
*10.2 Supplemental Retirement Income Plan for Salaried Employees of Helmerich
& Payne, Inc. is incorporated herein by reference to Exhibit 10.6 of
the Company's Annual Report on Form 10-K to the Securities and Exchange
Commission for fiscal 1996, SEC File No. 001-04221.
*10.3 Helmerich & Payne, Inc. 1990 Stock Option Plan is incorporated herein
by reference to Exhibit 10.7 of the Company's Annual Report on Form
10-K to the Securities and Exchange Commission for fiscal 1996, SEC
File No. 001-04221.
*10.4 Form of Nonqualified Stock Option Agreement for the 1990 Stock Option
Plan is incorporated by reference to Exhibit 99.2 to the Company's
Registration Statement No. 33-55239 on Form S-8, dated August 26, 1994.
*10.5 Supplemental Savings Plan for Salaried Employees of Helmerich and
Payne, Inc. is incorporated herein by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-K to the Securities and Exchange
Commission for fiscal 1999, SEC File No. 001-04221.
*10.6 Helmerich & Payne, Inc. 1996 Stock Incentive Plan is incorporated
herein by reference to Exhibit 99.1 to the Company's Registration
Statement No. 333-34939 on Form S-8 dated September 4, 1997.
*10.7 Form of Nonqualified Stock Option Agreement for the Helmerich & Payne,
Inc. 1996 Stock Incentive Plan is incorporated by reference to Exhibit
99.2 to the Company's Registration Statement No. 333-34939 on Form S-8
dated September 4, 1997.
*10.8 Form of Restricted Stock Agreement for the Helmerich & Payne, Inc. 1996
Stock Incentive Plan is incorporated by reference to Exhibit 10.12 to
the Company's Annual Report on Form 10-K to the Securities and Exchange
Commission for fiscal 1997, SEC File No. 001-04221.
*10.9 Helmerich & Payne, Inc. 2000 Stock Incentive Plan is incorporated
herein by reference to Exhibit 99.1 to the Company's Registration
Statement No. 333-63124 on Form S-8 dated June 15, 2001.
*10.10 Form of Agreements for the Helmerich & Payne, Inc. 2000 Stock Incentive
Plan being (i) Restricted Stock Award Agreement, (ii) Incentive Stock
Option Agreement and (iii) Nonqualified Stock Option Agreement are
incorporated by reference to Exhibit 99.2 to the Company's Registration
Statement No. 333-63124 on Form S-8 dated June 15, 2001.
</Table>
<PAGE>
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.11 Distribution Agreement dated as of February 23, 2002, by and between
Helmerich & Payne, Inc. and Cimarex Energy Co. is incorporated herein
by reference to Exhibit 10.1 to the Cimarex Energy Co. Registration
Statement No. 333-87948 on Form S-4 filed May 9, 2002.
10.12 Tax Sharing Agreement dated as of February 23, 2002, by and between
Helmerich & Payne, Inc. and Cimarex Energy Co. is incorporated herein
by reference to Exhibit 10.2 to the Cimarex Energy Co. Registration
Statement No. 333-87948 on Form S-4 filed May 9, 2002.
10.13 Employee Benefits Agreement, dated as of February 23, 2002, by and
between Helmerich & Payne, Inc. and Cimarex Energy Co. is incorporated
herein by reference to Exhibit 10.3 to the Cimarex Energy Co.
Registration Statement No. 333-87948 on Form S-4 filed May 9, 2002.
*10.14 Form of Director Nonqualified Stock Option Agreement for the 2000
Helmerich & Payne, Inc. Stock Incentive Plan is incorporated herein by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form
10-Q to the Securities and Exchange Commission for the quarter ended
June 30, 2002, SEC File No. 001-04221.
*10.15 Form of Change of Control Agreement for Helmerich & Payne, Inc. (E&P)
is incorporated herein by reference to Exhibit 10.2 of the Company's
Quarterly Report on Form 10-Q to the Securities and Exchange Commission
for the quarter ended June 30, 2002, SEC File No. 001-04221.
*10.16 Form of Change of Control Agreement for Helmerich & Payne, Inc.
(Non-E&P) is incorporated herein by reference to Exhibit 10.3 of the
Company's Quarterly Report on Form 10-Q to the Securities and Exchange
Commission for the quarter ended June 30, 2002, SEC File No. 001-04221.
*10.17 Helmerich & Payne, Inc. E&P Severance Plan dated August 26, 2002.
10.18 Second Amendment to Credit Agreement, dated as of July 16, 2002, by and
among Helmerich & Payne International Drilling Co., Helmerich & Payne,
Inc. and Bank One, Oklahoma, N.A. is incorporated herein by reference
to Exhibit 10.4 of the Company's Quarterly Report on Form 10-Q to the
Securities and Exchange Commission for the quarter ended June 30, 2002,
SEC File No. 001-04221.
10.19 Credit Agreement, dated as of July 16, 2002, among Helmerich & Payne
International Drilling Co., Helmerich & Payne, Inc., the several
lenders from time to time party thereto, and Bank of Oklahoma, National
Association is incorporated herein by reference to Exhibit 10.5 of the
Company's Quarterly Report on Form 10-Q to the Securities and Exchange
Commission for the quarter ended June 30, 2002, SEC File No. 001-04221.
10.20 Note Purchase Agreement dated as of August 15, 2002, among Helmerich &
Payne International Drilling Co., Helmerich & Payne, Inc. and various
insurance companies.
13. The Company's Annual Report to Stockholders for fiscal 2002.
21. List of Subsidiaries of the Company.
23.1 Consent of Independent Auditors.
</Table>
- --------
* Compensatory Plan or Arrangement.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.17
<SEQUENCE>3
<FILENAME>d02112exv10w17.txt
<DESCRIPTION>E&P SEVERANCE PLAN
<TEXT>
<PAGE>
EXHIBIT 10.17
HELMERICH & PAYNE, INC.
E&P SEVERANCE PLAN
(Effective August 26, 2002)
<PAGE>
HELMERICH & PAYNE, INC.
E&P SEVERANCE PLAN
1. PURPOSE OF THE PLAN. The Board of Directors of Helmerich & Payne, Inc.,
a Delaware corporation, recognizes that there exists the possibility of
employees being adversely affected by a future Change of Control. The
Board recognizes that severance arrangements, in general, provide
intangible benefits to and enhance the best interests of the Company.
In order to fulfill the above purposes, the Company has adopted the
"Helmerich & Payne, Inc. E&P Severance Plan" which is to provide
certain benefits to Eligible Employees whose employment with the
Company is terminated under the circumstances described in this Plan.
This Plan is for the benefit of the Eligible Employees.
2. DEFINITIONS:
a. ADMINISTRATOR means the Committee.
b. BASE SALARY means an Eligible Employee's regular salary or
wage before reduction for contributions by the Eligible
Employee to any employee benefit plan or program sponsored by
the Company or any Subsidiary, and which is exclusive of any
bonuses, incentive pay, overtime or other payments, computed
on a weekly basis. To calculate Separation Benefits, Base
Salary shall be the Eligible Employee's highest rate of
regular salary or wage during the twenty-four (24) month
period prior to his/her effective date of termination of
employment.
c. CHANGE OF CONTROL means and shall be deemed to have occurred
the date on which one of the following events occurs with
respect to the Company (for the purpose of this Subsection
(c), the term "Company" means only Helmerich & Payne, Inc., a
Delaware corporation, or its successor):
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 15% or more of
either (i) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common
Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled
to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided,
however, that the following acquisitions shall not
constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by
the Company, or (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or
maintained by the Company or any corporation
controlled by the Company; or
(ii) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority
<PAGE>
of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof
whose election, appointment or nomination for
election by the Company's shareholders, was approved
by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be
considered as though such individual were a member of
the Incumbent Board, but excluding, for purposes of
this definition, any such individual whose initial
assumption of office occurs as a result of an actual
or threatened election contest with respect to the
election or removal of directors or other actual or
threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board; or
(iii) Approval by the shareholders of the Company of a
reorganization, share exchange, merger or
consolidation or acquisition of assets of another
corporation (a "Business Combination"), in each case,
unless, following such Business Combination, (x) all
or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such
Business Combination will beneficially own, directly
or indirectly, more than 70% of, respectively, the
then outstanding shares of common stock and the
combined voting power of the then outstanding voting
securities entitled to vote generally in the election
of directors, as the case may be, of the corporation
resulting from such Business Combination (including,
without limitation, a corporation which as a result
of such transaction will own the Company through one
or more subsidiaries) in substantially the same
proportions as their ownership immediately prior to
such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting
Securities, as the case may be, (y) no Person
(excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting
from such Business Combination) will beneficially
own, directly or indirectly, 15% or more of,
respectively, the then outstanding shares of common
stock of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation,
except to the extent that such ownership existed
prior to the Business Combination, and (z) at least a
majority of the members of the board of directors of
the corporation resulting from such Business
Combination were members of the Incumbent Board at
the time of the execution of the initial agreement,
or of the action of the Board, providing for such
Business Combination or were elected, appointed or
nominated by the Board; or
(iv) Approval by the shareholders of the Company of (x) a
complete liquidation or dissolution of the Company
or, (y) the sale or other disposition of all or
substantially all of the assets of the Company, other
than to a corporation, with respect to which
following such sale or other disposition, (A) more
than 70% of, respectively, the then outstanding
shares of common stock of such corporation and the
combined voting
2
<PAGE>
power of the then outstanding voting securities of
such corporation entitled to vote generally in the
election of directors were beneficially owned,
directly or indirectly, by all or substantially all
of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other
disposition in substantially the same proportion as
their ownership immediately prior to such sale or
other disposition, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as
the case may be; (B) less than 15% of, respectively,
the then outstanding shares of common stock of such
corporation and the combined voting power of the then
outstanding voting securities of such corporation
entitled to vote generally in the election of
directors will be beneficially owned, directly or
indirectly, by any Person (excluding any employee
benefit plan (or related trust) of the Company or
such corporation), except to the extent that such
Person owned 15% or more of the Outstanding Company
Common Stock or Outstanding Company Voting Securities
prior to the sale or disposition; and (C) at least a
majority of the members of the board of directors of
such corporation were members of the Incumbent Board
at the time of the execution of the initial
agreement, or of the action of the Board, providing
for such sale or other disposition of assets of the
Company or were elected, appointed or nominated by
the Board.
(v) The foregoing Sections (i)-(iv) notwithstanding, a
Change of Control shall also be deemed to have
occurred upon the occurrence of a business
transaction (or a series of transactions) involving
the direct or indirect transfer or disposition
(whether by sale, merger, reorganization, spin-off,
stock dividend, stock split or otherwise) to the E&P
Successor of more than 50% of the operating assets of
the E&P Division, if after such transaction, the E&P
Successor holds more than 50% of the operating assets
of the E&P Division, and the Company or a Subsidiary
(as determined immediately prior to such transaction)
owns less than 70% of the outstanding shares of the
voting securities of the E&P Successor (if a
corporation) or less than a 70% interest in the
profits or assets of the E&P Successor (if other than
a corporation).
d. COBRA means the Consolidated Omnibus Budget Reconciliation Act
of 1985.
e. CODE means the Internal Revenue Code of 1986, as amended.
f. COMMITTEE means the Helmerich & Payne, Inc. Human Resources
Committee of the board of directors of Helmerich & Payne, Inc.
or such Committee's designee. If a Change of Control occurs
and the successor company assumes the Plan, Committee shall
mean that committee appointed by the successor to administer
this Plan.
3
<PAGE>
g. COMPANY means Helmerich & Payne, Inc., a Delaware corporation,
and/or any of its Subsidiaries or any successor company.
h. E&P DIVISION means the Company's oil and gas exploration and
production division.
i. E&P SUCCESSOR means the successor(s) to more than 50% of the
operating assets of the E&P Division.
j. EFFECTIVE DATE means August 26, 2002.
k. ELIGIBLE EMPLOYEES means individuals who (i) are classified by
the Company as regular full-time employees working in
locations in the United States, (ii) work for the E&P Division
as of the Effective Date or are designated as such by the
Committee, and (iii) paid in U.S. dollars as of the Effective
Date or after and who are not (x) covered by a collective
bargaining agreement (unless the collective bargaining
agreement covering such employees provides for participation
of such employees in this Plan) or (y) covered by another
severance or separation policy, plan, program or individual
written agreement which provides for severance payments
established or assumed by the Company (unless the Eligible
Employee has specifically waived any rights to benefits under
such severance policy, plan, program or agreement). The
determination of whether an employee is a "regular full-time
employee" shall be made in the sole discretion of the
Committee. Eligible Employees do not include third country
nationals (TCNs) or nonresident aliens. Employees who
terminate employment due to the incurrence of a disability (as
defined under the Company's Long-Term Disability Plan) shall
not be an Eligible Employee.
l. ERISA means the Employee Retirement Income Security Act of
1974, as amended.
m. FIDUCIARY/NAMED FIDUCIARY means the Committee.
n. GENERAL RELEASE AND AGREEMENT means the notice of rights,
general release and agreement in substantially the form
attached hereto as Exhibit "A." The form of the release may be
modified as needed to reflect changes in the applicable law or
regulations that are needed to provide a legally enforceable
and binding release to the Company at the time of execution.
o. PLAN means the Helmerich & Payne, Inc. E&P Severance Plan.
p. SEPARATION BENEFITS means the Severance Payments and benefits
to be received by an Eligible Employee in accordance with
Section 4.2.
q. SUBSIDIARY means any corporation, partnership, limited
liability company or other business entity contained in the
Company's list of Subsidiaries, as approved and amended from
time to time by the Committee. A copy of the list of
Subsidiaries
4
<PAGE>
may be obtained from the Administrator, and is available for
examination by Eligible Employees.
r. SUBSTANTIAL DOWNTURN means a downturn in the oil and gas
industry which shall be measured by the following objective
criteria: (i) the West Texas Intermediate Price for crude oil
remains at or below $10/barrel for sixty (60) consecutive
business days or (ii) the price for each MMBtu of natural gas
as quoted for the Henry Hub listing in "Gas Daily" remains at
or below $1.25 for sixty (60) consecutive business days.
s. YEARS OF SERVICE. For purposes of calculating length of
service under the Plan, Years of Service are determined by
subtracting the Eligible Employee's calendar year in which
his/her most recent date of hire occurred from the current
calendar year. For example, if an Eligible Employee was hired
in 1998 and was involuntarily terminated in 2001, then, the
Eligible Employee will be credited with three (3) Years of
Service for purposes of determining the amount of Separation
Benefits. Separation Benefits under the Plan will only be
granted on the basis of the Years of Service of continuous
employment, which will include periods of service of an
Eligible Employee with the Company and with an employer that
has previously been acquired by or merged into the Company,
and will include periods of service for an Eligible Employee
with an employer that is acquired by or merged into the
Company in the future. Prior periods of employment in which
there has been a break in service (except for authorized
leaves of absence or for other reasons approved by the
Company) will not be used to calculate Years of Service for
Separation Benefits.
3. ELIGIBILITY.
3.1 PARTICIPATION. Each Eligible Employee shall be eligible to
participate in the Plan as of the Effective Date.
3.2 DURATION OF PARTICIPATION. An Eligible Employee shall only
cease to be eligible to be a participant in the Plan as a
result of an amendment or termination of the Plan complying
with Section 12 or when he/she ceases to be an Eligible
Employee of the Company, unless such Eligible Employee is then
entitled to receive Separation Benefits under the Plan. An
Eligible Employee entitled to payment of Separation Benefits
shall remain an Eligible Employee under the Plan until his/her
full Separation Benefits have been received by the Eligible
Employee.
3.3 RIGHT TO SEPARATION BENEFITS. An Eligible Employee shall be
entitled to receive the Separation Benefits under the
circumstances described in Section 4.1 and as provided in
Section 4.2 if the Eligible Employee's employment by the
Company terminates as specified in the applicable Section,
provided that: (a) the Eligible Employee timely signs and
delivers to the Company a General Release and Agreement and
does not thereafter revoke or attempt to revoke the General
Release and Agreement; (b) the Eligible Employee returns any
Company property
5
<PAGE>
within his/her possession or control and continues to
cooperate in providing information necessary for transition
and maintenance of the Company's ongoing business; and (c) the
Eligible Employee complies with all terms of the General
Release and Agreement, including those pertaining to
confidentiality of information. The Eligible Employee must
work through his/her effective date of termination as
established by the Company, or such earlier date as is
mutually agreed to by the Company and the Eligible Employee.
If the Eligible Employee's termination is the result of a
Constructive Termination, as defined in Section 4.1(a),
his/her effective date of termination shall be deemed to be
thirty (30) days after he/she provides notice, in writing, of
the Constructive Termination to the Company, unless an earlier
effective date of termination is established by the Company or
a later date is mutually agreed to by the Company and the
Eligible Employee. Failure of an Eligible Employee to work
through his/her effective date of termination or other
applicable date as described in this Section will result in
forfeiture of rights to any Separation Benefits under this
Plan. Eligible Employees who transfer employment between the
Company and/or its Subsidiaries to another Eligible Employee
position with any of such entities (or any successor) shall
maintain all rights under the Plan as though employment had
been uninterrupted and no transfer had been made, and, for the
purpose of this Plan, the transfer of an Eligible Employee
from the Company and/or its Subsidiaries to the E&P Successor
shall not be deemed to be a termination of employment that
entitles such Eligible Employee to Separation Benefits.
4. TERMINATION OF EMPLOYMENT AND SEPARATION BENEFITS.
4.1 TERMINATION OF EMPLOYMENT.
(a) TERMINATIONS IN CONNECTION WITH A CHANGE OF CONTROL
THAT GIVE RISE TO SEPARATION BENEFITS. An Eligible
Employee shall be entitled to Separation Benefits in
accordance with Section 3.3 above and the remainder
of this Section 4 in connection with any involuntary
separation of employment affected by the Company or
any Constructive Termination in conjunction with or
within twelve (12) months after a Change of Control,
except as set forth in Subsection (b) below. As used
herein, Constructive Termination means the actual
termination or resignation of an Eligible Employee
from the Company occurring in conjunction with or
within twelve (12) months after a Change of Control,
whichever is applicable, due to any of the following
events:
(i) An aggregate reduction of ten percent (10%)
or more in the Eligible Employee's Base
Salary;
(ii) The discharge of the Eligible Employee for
failure to relocate to a location outside a
twenty-five (25) mile radius of the location
of his/her office or principal base of
operation immediately prior to the Change of
Control; or
6
<PAGE>
(iii) The failure to pay to the Eligible Employee
any portion of current compensation within
fourteen (14) days of the date such
compensation is due if, after being notified
of such failure, the Company does not cure
within thirty (30) days of notice; or
(iv) The failure to obtain a satisfactory
agreement from the E&P Successor or any
other successor to the Company to assume and
agree to continue this Plan in accordance
with the provisions of Section 15.
An Eligible Employee shall provide the Company
written notice within ninety (90) days of an event
that constitutes a Constructive Termination, of
his/her intent to resign for such reason. The failure
of an Eligible Employee to provide written notice
within such 90-day period shall cause a forfeiture of
the Eligible Employee's right to receive Separation
Benefits with regard to such Constructive
Termination. The failure of an Eligible Employee to
exercise his/her right to resign due to one event
which qualifies as a Constructive Termination shall
not waive his/her rights within ninety (90) days of
another, subsequent event that also qualifies as a
Constructive Termination in conjunction with or
within the twelve (12) months following a Change of
Control.
(b) TERMINATIONS IN CONNECTION WITH A CHANGE OF CONTROL
THAT DO NOT GIVE RISE TO SEPARATION BENEFITS. An
Eligible Employee shall not be entitled to Separation
Benefits in connection with or following a Change of
Control if the Eligible Employee (i) terminates
his/her employment through voluntary separation or
death, (ii) is involuntarily terminated by the
Company after the occurrence of Substantial Downturn,
(iii) is involuntarily terminated by the Company on
the basis of Disability (as described below) or (iv)
is involuntarily terminated by the Company for Cause.
The Eligible Employee's termination of employment
with Helmerich & Payne, Inc. resulting from the
transfer of employment from Helmerich & Payne, Inc.
to the E&P Successor necessitated by the creation
and/or spin-off of the E&P Successor (including the
subsequent merger of the E&P Successor with another
entity) shall not constitute a termination of
employment that gives rise to Separation Benefits
under this Plan.
If the Company determines in good faith that the
Disability of an Eligible Employee has occurred
(pursuant to the definition of "Disability" set forth
below), it may give to the Eligible Employee written
notice of its intention to terminate the Eligible
Employee's employment. In such event, the Eligible
Employee's employment with the Company shall
terminate effective on the 30th day after the date of
such notice (the "Disability Effective Date")
provided that within such time period the Eligible
Employee shall not have returned to full-time
performance of his duties. For the purposes of this
Severance Plan "Disability" means disability
7
<PAGE>
(either physical or mental) which, at least 26 weeks
after its commencement, is determined by a physician
selected by the Company or its insurers to be total
and permanent.
As used herein, termination for Cause means termination of employment due to the
following:
(i) the willful and continued failure by the Eligible
Employee to substantially perform his/her duties with
the Company (other than any such failure resulting
from his/her incapacity due to physical or mental
illness);
(ii) the willful engaging by the Eligible Employee in
conduct that is demonstrably and materially injurious
to the Company, monetarily or otherwise;
(iii) the conviction of the Eligible Employee of a felony
by a federal or state court of competent
jurisdiction;
(iv) an act or acts of dishonesty taken by the Eligible
Employee and intended to result in substantial
personal enrichment of the Eligible Employee at the
expense of the Company; or
(v) the Eligible Employee's "willful" failure to follow a
direct, reasonable and lawful written order from his
supervisor within the reasonable scope of the
Eligible Employee's duties, which failure is not
cured within thirty (30) days.
For purposes of this definition, no act, or failure to act, shall be deemed
willful unless done, or omitted to be done, by the Eligible Employee not in good
faith and without reasonable belief that his/her action or omission was in the
best interest of the Company.
4.2 SEPARATION BENEFITS IN CONNECTION WITH A CHANGE OF CONTROL.
(a) CASH PAYMENTS. Subject to the remainder of this
Section 4, if an Eligible Employee's employment is
terminated under circumstances entitling him/her to
Separation Benefits under Subsection 4.1(a), the
Company shall pay such Eligible Employee a severance
payment ("Severance Payment") based on the Eligible
Employee's Years of Service and Base Salary.
(i) Severance Payment.
The Severance Payment will be equal to 2 1/2
weeks Base Salary for each Year of Service.
The minimum Severance Payment to which an
Eligible Employee will be entitled under
this Subsection (a)(i) will be equal to
twelve (12) weeks of Base Salary and the
maximum will be sixty-five (65) weeks of
Base Salary.
8
<PAGE>
(ii) Example of Cash Payment in Connection with a
Change of Control
<Table>
<S> <C>
Base Salary (weekly) $ 975.00
Annualized Base Salary 50,700.00
Years of Service 27
2 1/2 weeks x $975.00 x 27 $ 65,812.50
Amount in Excess of 65-Week Maximum (2,437.50)
-----------
Total Severance Payment $ 63,375.00
===========
</Table>
(iii) Timing and Manner of Payment. The Severance
Payment will be paid in a single lump sum on
the Company's first regular payday after the
Eligible Employee returns the signed General
Release and Agreement and any Company
property in his/her possession or control,
or seven (7) days following that return
date, whichever is later (but in no event
prior to the Eligible Employee's effective
date of termination).
(b) CONTINUATION OF BENEFITS. If an Eligible Employee's
employment is terminated under circumstances
entitling him/her to Separation Benefits under
Subsection 4.1(a), all employee benefits provided by
the Company to the Eligible Employee and the Eligible
Employee's dependents will cease except as otherwise
required by law.
(c) STOCK OPTIONS/RESTRICTED STOCK. If an Eligible
Employee's employment is terminated under
circumstances entitling him/her to Separation
Benefits under Subsection 4.1(a), any options to
purchase stock or rights to receive restricted stock
granted pursuant to a plan adopted by the E&P
Successor held by the Eligible Employee shall be
immediately and automatically vested, fully earned
and exercisable upon the Eligible Employee's
effective date of termination unless previously
exercised or forfeited pursuant to the terms of such
plan.
4.3 WARN BENEFITS. Under certain circumstances, the Company may,
in its discretion, make voluntary and unconditional payments
related to salary or wages to an Eligible Employee when he/she
suffers an employment loss as a result of a "plant closing" or
"mass layoff" covered by the federal Worker Adjustment and
Retraining Notification Act (the "WARN Benefits"). If an
Eligible Employee receives WARN Benefits, the weeks of Base
Salary he/she may be entitled to receive under Subsection
4.2(a) shall be reduced by the number of weeks of WARN
Benefits the Eligible Employee receives.
4.4 FUNDING. The Separation Benefits under this Plan shall be paid
from the general assets of Helmerich & Payne, Inc. unless this
Plan and its obligations are assumed by a successor entity
pursuant to Section 15 herein.
9
<PAGE>
5. WITHHOLDING. All amounts payable pursuant to the terms of this Plan
shall be subject to reduction for any and all applicable federal, state
or local income and employment taxes and any other withholdings
required to be made therefrom at law.
6. RIGHT OF RECOVERY. The Company shall have the right to recover any
payment made to an Eligible Employee in excess of the amount to which
the Eligible Employee is entitled under the terms of this Plan. Such
recovery may be from the Eligible Employee or his/her beneficiary
thereby enriched.
7. NON-ASSIGNMENT. No benefits or beneficial interests provided for
hereunder prior to payment shall be subject in any manner to
garnishment, attachment, anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, levy, execution or the claims of
creditors, either voluntarily or involuntarily, and any attempt to so
garnish, attach, anticipate, alienate, sell, transfer, assign, pledge,
encumber, levy or execute on the same shall be null and void, and
neither shall such benefits or beneficial interests be liable for or
subject to the debts, contracts, liabilities, engagements or torts of
any person to whom such benefits or funds are payable, provided that
Severance Payments shall be subject to any set-off, counterclaim,
recoupment, repayment, reimbursement or other right which the Company
may have against an Eligible Employee.
8. PLAN SPONSOR. The Plan sponsor is the Company, EIN: 73-0679879;
Address: Utica at Twenty-First, Tulsa, OK 74114.
9. ADMINISTRATOR AND NAMED FIDUCIARY. The Administrator has the authority
to interpret the Plan, manage its operation and determine all questions
arising in the administration, interpretation and application of the
Plan. Helmerich & Payne, Inc. is designated the "Named Fiduciary." The
Administrator shall be contacted c/o Director, Human Resources, Utica
at Twenty-First, Tulsa, OK 74114, telephone (918) 742-5531.
10. AGENT FOR SERVICE OF PROCESS. The agent for service of legal process is
Steven R. Mackey, General Counsel, Helmerich & Payne, Inc., Utica at
Twenty-First, Tulsa, OK 74114.
11. PLAN YEAR. The Plan Year for purposes of maintaining the Plan's fiscal
records shall be the calendar year.
12. PLAN IMPLEMENTATION, AMENDMENT AND TERMINATION. Subject to amendment of
the Plan as provided below, this Plan shall continue in effect for a
period of not less than twelve (12) months beyond the month in which a
Change of Control occurs, during which time the Company is
contractually bound to maintain the Plan. If another Change of Control
occurs during such twelve (12) month period, then, the Company shall
only be contractually bound to maintain this Plan until the end of such
twelve (12) month period following the initial Change of Control.
Subject to the foregoing, the Company shall have the right to amend,
modify, or terminate the Plan or any benefit provided under this Plan
at any time and from time to time to any extent that it may deem
advisable; provided, however, no such amendment (or any part of an
amendment, as the case may be) made either (a) within six (6) months
prior to the public announcement of a
10
<PAGE>
transaction that would constitute a Change of Control or (b) on or
within twelve (12) months after a Change of Control shall be effective
with respect to any Eligible Employee to the extent such amendment (or
part thereof) would reduce the Separation Benefits such Eligible
Employee would have received under the Plan but for such amendment.
Further, no amendment may reduce or adversely affect any benefits
already in pay status under the Plan at the date of such amendment. Any
amendment or modification to the Plan shall be set out in writing
executed by either the Chief Executive Officer of the Company or the
Chairman of the Committee and filed with the Administrator. Upon filing
with the Administrator, such amendment or modification to the Plan
shall be deemed to have been amended or modified in the manner and to
the extent and effective as of the date therein set forth, and
thereupon any and all Eligible Employees, whether they shall have
become such prior to the amendment or modification, shall be bound
thereby. Notwithstanding anything herein to the contrary, the Plan may
be amended in such manner as may be required at any time to make it
conform to the requirements of the Code, or of ERISA, or of any
amendment thereto, or of any regulations or rulings issued pursuant
thereto. This Plan shall also be considered as the Summary Plan
Description for the Plan as required by ERISA.
13. CLAIMS PROCEDURE.
13.1 HOW TO SUBMIT A CLAIM. In order to claim benefits under this
Plan, the claimant must be an Eligible Employee. A written
claim must be filed with the Committee within ninety (90) days
of the date upon which the claimant first knew (or should have
known) of the facts upon which the claim is based, unless the
Committee in writing consents otherwise. The procedures in
this Section shall apply to all claims that any person has
with respect to the Plan, including claims against fiduciaries
and former fiduciaries, except to the extent the Committee
determines, in its sole discretion, that it does not have the
power to grant, in substance, all relief reasonably being
sought by the claimant.
13.2 DENIAL OF CLAIMS. If a person has made a claim for benefits
under this Plan and any portion of the claim is denied, the
Committee or its designee will furnish the claimant with a
written notice stating the specific reasons for the denial,
including specific reference to any pertinent Plan provisions
upon which the denial was based, a description of any
additional information or material necessary to perfect the
claim and an explanation of why such information or material
is necessary, and appropriate information concerning steps to
take if the claimant wishes to submit the claim for review.
The Committee, directly or through its designee, must approve
or deny the claim in writing within sixty (60) days after
receipt of the claim, plus any extension of time for
processing the claim, not to exceed one hundred twenty (120)
additional days, as special circumstances require. The
Committee or its designee will advise the claimant in writing
if an extension is necessary, stating the circumstances
requiring the extension and the date by which the claimant can
expect the Committees decision regarding the claim.
11
<PAGE>
13.3 REVIEW PROCEDURES. Within sixty (60) days after the date of
written notice denying any claim, a claimant or an authorized
representative may write to the Committee or its designee
requesting a review of that decision.
The request for review may contain such issues and comments as
the claimant or an authorized representative may wish
considered in the review. The claimant or an authorized
representative may also review pertinent documents in the
Committees possession. The Committee will make a final
determination with respect to the claim within sixty (60) days
after a review is requested. The Committee or its designee
will advise the claimant in writing of the determination and
will set forth the specific reasons for the determination and
the specific references to any pertinent Plan provisions upon
which the determination is based. The decision rendered upon
reconsideration of the claim will be final and binding on all
interested parties.
13.4 RULES AND DECISIONS. The Committee may adopt such rules as it
deems necessary, desirable, or appropriate. All decisions of
the Committee shall be final and conclusive and may be made in
the Committee's sole and absolute discretion. When making a
determination or calculation, the Committee shall be entitled
to rely upon information furnished by an Eligible Employee,
the Company or the legal counsel of the Company.
13.5 COMMITTEE PROCEDURES. The Committee may act at a meeting or in
writing without a meeting. The Committee shall elect one of
its members as chairman, appoint a secretary, who may or may
not be a Committee member, and advise the Named Fiduciary of
such actions in writing. The secretary shall keep a record of
all meetings in a permanent Committee minute book and forward
all necessary communications to the Company. The Committee may
adopt such bylaws and regulations as it deems desirable for
the conduct of its affairs. All decisions of the Committee
shall be made by the vote of the majority, including actions
in writing taken without a meeting. A dissenting Committee
member who, within a reasonable time after he has knowledge of
any action or failure to act by the majority, registers his
dissent in writing delivered to the other Committee members,
to the extent permitted by law, shall not be responsible for
any such action or failure to act.
13.6 OTHER COMMITTEE POWERS AND DUTIES. The Committee shall have
such powers as may be necessary to discharge its duties
hereunder, including, but not by way of limitation, the
following:
(i) to construe and interpret the Plan and resolve any
ambiguities with respect to any of the terms and
provisions thereof as written and as applied to the
operation of the Plan; and
(ii) to decide all questions of eligibility and determine
the amount, manner and time of payment of any
benefits hereunder.
12
<PAGE>
(iii) All decisions by the Committee under this Plan shall
be made in its sole and absolute discretion.
14. VALIDITY AND SEVERABILITY. The invalidity or unenforceability of any
provision of the Plan shall not affect the validity or enforceability
of any other provision of the Plan, which shall remain in full force
and effect, and any prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any
other jurisdiction.
15. SUCCESSORS. The Company will require (i) the E&P Successor or (ii) any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or a portion of the business and/or
assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company
would be required to perform it as if no such succession had taken
place. In the event(s) of assumption of this Agreement by the E&P
Successor or other successor, the term "Company" as used in this
Agreement, shall mean the "E&P Successor" or other successor, as
applicable.
16. SECTION TITLES AND HEADINGS. The titles and headings at the beginning
of each Section shall not be considered in construing the meaning of
any provision in this Plan.
17. CONTROLLING LAW. The Plan shall be interpreted under the laws of the
State of Oklahoma, except to the extent that federal law preempts state
law.
18. SEVERANCE PLAN NOT AN EMPLOYMENT CONTRACT. This Severance Plan does not
create a contract of employment between the Company and any Eligible
Employee. Further, this Severance Plan does not alter the "at will"
employment status of any Eligible Employee. Apart from the obligation
of the Company to provide additional compensation as provided in this
Severance Plan, the Company shall at all times retain the right to
terminate the employment of any Eligible Employee for any reason
whatsoever.
19. THE PLAN DOCUMENT. This document constitutes the Plan document, copies
of which are available upon request from the Committee. In the event of
any inconsistency between any communication regarding the Plan and the
Plan document itself, the Plan document controls.
Executed and effective this 26th day of August, 2002.
HELMERICH & PAYNE, INC., a Delaware
corporation
ATTEST:
By
- ---------------------------- ------------------------------------
Steven R. Mackey, Secretary Hans Helmerich, President and Chief
Executive Officer
13
<PAGE>
ERISA RIGHTS INFORMATION
Employee Retirement Income Security Act of 1974, as amended (ERISA) Rights
Participants in the Helmerich & Payne, Inc. E&P Severance Plan have certain
rights and protections under the Employee Retirement Income Security Act of
1974, as amended (ERISA). ERISA provides that all Plan participants shall be
entitled to:
1. Examine without charge at the Administrators office and at other
specified locations, all Plan documents, including insurance contracts
and copies of all documents filed by the Plan with the U.S. Department
of Labor, such as annual reports and Plan descriptions.
2. Obtain copies of all Plan documents and other Plan information upon
written request to the Administrator. The Administrator may make a
reasonable charge for the copies.
3. Receive a summary of the Plans annual financial report. The
Administrator is required by law to furnish each participant with a
copy of this summary annual report.
In addition to creating rights for Plan participants, ERISA imposes duties upon
the people who are responsible for the operation of an employee benefit plan.
The people who operate the Plan, called "fiduciaries" of the Plan, have a duty
to do so prudently and in the interest of you and other Plan participants and
beneficiaries. No one, including your employer, your union, or any other person,
may fire you or otherwise discriminate against you in any way to prevent you
from obtaining a benefit or exercising your rights under ERISA. If your claim
for a benefit is denied, in whole or in part, you must receive a written
explanation of the reason for the denial. You have the right to have the claim
reviewed and reconsidered.
Under ERISA, there are steps you can take to enforce the above rights. For
instance, if you request materials from the Plan and do not receive them within
30 days, you may file suit in a federal court. In such a case, the court may
require the Administrator to provide the materials and pay you up to $100 a day
until you receive the materials, unless the materials were not sent because of
reasons beyond the control of the Administrator. If you have a claim for
benefits that is denied or ignored, in whole or in part, you may file suit in a
state or federal court. If it should happen that Plan fiduciaries misuse the
Plans money, or if you are discriminated against for asserting your rights, you
may seek assistance from the U.S. Department of Labor or you may file suit in a
federal court. The court will decide who should pay court costs and legal fees.
If you are successful, the court may order the person you have sued to pay these
costs and fees. If you lose, the court may order you to pay these costs and
fees, for example, if it finds your claim is frivolous.
If you have any questions about your Plan, you should contact the Administrator
in Tulsa. If you have any questions about this statement or about your rights
under ERISA, you should contact the nearest Area Office of the U.S.
Labor-Management Services Administration, Department of Labor.
The Plan is an employee welfare benefit plan within the meaning of ERISA.
<PAGE>
EXHIBIT A
NOTICE
VARIOUS LAWS, INCLUDING TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE CIVIL
RIGHTS ACT OF 1866, THE PREGNANCY DISCRIMINATION ACT OF 1978, THE EQUAL PAY ACT,
THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT, THE
REHABILITATION ACT OF 1973, THE AMERICANS WITH DISABILITIES ACT, THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974 AND THE VETERANS REEMPLOYMENT RIGHTS ACT
(ALL AS AMENDED FROM TIME TO TIME), PROHIBIT EMPLOYMENT DISCRIMINATION BASED ON
SEX, RACE, COLOR, NATIONAL ORIGIN, RELIGION, AGE, DISABILITY, ELIGIBILITY FOR
COVERED EMPLOYEE BENEFITS AND VETERAN STATUS. YOU MAY ALSO HAVE RIGHTS UNDER
LAWS SUCH AS THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990, THE WORKER
ADJUSTMENT AND RETRAINING ACT OF 1988, THE FAIR LABOR STANDARDS ACT, THE FAMILY
AND MEDICAL LEAVE ACT, THE OCCUPATIONAL HEALTH AND SAFETY ACT AND OTHER FEDERAL,
STATE AND/OR MUNICIPAL STATUTES, ORDERS OR REGULATIONS PERTAINING TO LABOR,
EMPLOYMENT AND/OR EMPLOYEE BENEFITS. THESE LAWS ARE ENFORCED THROUGH THE UNITED
STATES DEPARTMENT OF LABOR, THE EQUAL EMPLOYMENT OPPORTUNITY COMMISSION (EEOC)
AND VARIOUS OTHER FEDERAL, STATE AND MUNICIPAL LABOR DEPARTMENTS, FAIR
EMPLOYMENT BOARDS, HUMAN RIGHTS COMMISSIONS AND SIMILAR AGENCIES.
THIS GENERAL RELEASE IS BEING PROVIDED TO YOU IN CONNECTION WITH THE HELMERICH &
PAYNE, INC. E&P SEVERANCE PLAN (EFFECTIVE DATE AUGUST 26, 2002). ALONG WITH THIS
GENERAL RELEASE, YOU HAVE ALSO BEEN GIVEN A COPY OF THE PLAN. IN ADDITION, IF
YOUR TERMINATION WAS NOT DUE TO A CONSTRUCTIVE TERMINATION, YOU HAVE BEEN GIVEN
INFORMATION SHOWING THE JOB POSITIONS AND DATES OF BIRTH OF THE EMPLOYEES IN
CONNECTION WITH A CHANGE OF CONTROL WHO ARE ELIGIBLE AND WHO ARE NOT ELIGIBLE
FOR THE PLAN IN COMPLIANCE WITH THE FEDERAL OLDER WORKERS BENEFIT PROTECTION ACT
(THE "OWBPA MATERIALS"). ALL THOSE DOCUMENTS AND INFORMATION ARE REFERRED TO IN
THIS GENERAL RELEASE AS THE "SEVERANCE PACKET."
YOU HAVE FORTY-FIVE (45) DAYS FROM THE DATE YOU RECEIVED THE SEVERANCE PACKET TO
MAKE A DECISION TO ACCEPT OR REJECT THE SEPARATION BENEFITS YOU ARE ELIGIBLE TO
RECEIVE UNDER THE PLAN IN EXCHANGE FOR SIGNING THIS GENERAL RELEASE. YOU MAY
EXECUTE THE GENERAL RELEASE PRIOR TO THE END OF THIS FORTY-FIVE DAY ELECTION
PERIOD. YOU MAY NOT, HOWEVER, EXECUTE THE GENERAL RELEASE PRIOR TO YOUR LAST
DATE OF EMPLOYMENT WITH HELMERICH & PAYNE, INC.
BEFORE EXECUTING THIS GENERAL RELEASE, YOU SHOULD REVIEW ALL THE DOCUMENTS AND
THE INFORMATION IN THE SEVERANCE PACKET CAREFULLY AND CONSULT WITH YOUR LAWYER.
YOU MAY REVOKE THIS GENERAL RELEASE WITHIN SEVEN (7) DAYS AFTER YOU SIGN IT, AND
THE GENERAL RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THAT
REVOCATION PERIOD HAS EXPIRED. IF YOU DO NOT SIGN AND RETURN THIS GENERAL
RELEASE WITHIN FORTY-FIVE (45) DAYS OR IF YOU EXERCISE YOUR RIGHT TO REVOKE THE
GENERAL RELEASE, YOU WILL NOT BE ELIGIBLE FOR SEPARATION BENEFITS UNDER THE
PLAN. ANY REVOCATION MUST BE IN WRITING AND MUST BE RECEIVED WITHIN THE
SEVEN-DAY PERIOD FOLLOWING EXECUTION OF THIS GENERAL RELEASE (OR THE NEXT
REGULAR BUSINESS DAY THEREAFTER) BY THE DIRECTOR, HUMAN RESOURCES, HELMERICH &
PAYNE, INC., UTICA AT TWENTY-FIRST, TULSA, OK 74114.
<PAGE>
EXHIBIT A
GENERAL RELEASE AND AGREEMENT
In consideration of the Separation Benefits offered to me by Helmerich & Payne,
Inc. under the Helmerich & Payne, Inc. E&P Severance Plan (the "Plan"), I hereby
release and discharge Helmerich & Payne, Inc. and its predecessors, successors,
affiliates, parent, Subsidiaries and partners and each of those entities
employees, officers, directors and agents (hereafter collectively referred to as
the "Company") from all claims, liabilities, demands, and causes of action,
known or unknown, fixed or contingent, which I may have or claim to have against
the Company either as a result of my past employment with the Company and/or the
severance of that relationship and/or otherwise, and hereby waive any and all
rights I may have with respect to any such claims.
This General Release includes, but is not limited to, claims arising under Title
VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Pregnancy
Discrimination Act of 1978, the Equal Pay Act, the Civil Rights Act of 1991, the
Age Discrimination in Employment Act, the Rehabilitation Act of 1973, the
Americans With Disabilities Act, the Employee Retirement Income Security Act of
1974 and the Veterans Reemployment Rights Act (all as amended from time to
time). This General Release also includes, but is not limited to, any rights I
may have under the Older Workers Benefit Protection Act of 1990, the Worker
Adjustment and Retraining Act of 1988, the Fair Labor Standards Act, the Family
and Medical Leave Act, the Occupational Health and Safety Act and any other
federal, state and/or municipal statutes, orders or regulations pertaining to
labor, employment and/or employee benefits. This General Release also applies to
any claims or rights I may have growing out of any legal or equitable
restrictions on the Company's rights not to continue an employment relationship
with its employees, including any express or implied employment contracts, and
to any claims I may have against the Company for fraudulent inducement or
misrepresentation, defamation, wrongful termination or other retaliation claims
in connection with workers' compensation or alleged "whistleblower" status or on
any other basis whatsoever.
IT IS SPECIFICALLY AGREED, HOWEVER, THAT THIS GENERAL RELEASE DOES NOT HAVE ANY
EFFECT ON ANY RIGHTS OR CLAIMS I MAY HAVE AGAINST THE COMPANY WHICH ARISE AFTER
THE DATE I EXECUTE THIS GENERAL RELEASE OR ON ANY VESTED RIGHTS I MAY HAVE UNDER
ANY OF THE COMPANY'S QUALIFIED OR NON-QUALIFIED RETIREMENT PLANS AS OF OR AFTER
MY LAST DAY OF EMPLOYMENT WITH THE COMPANY, ON ANY OF THE COMPANY'S OBLIGATIONS
UNDER THE PLAN OR AS OTHERWISE REQUIRED UNDER THE CONSOLIDATED OMNIBUS BUDGET
AND RECONCILIATION ACT OF 1985 (COBRA).
If my separation was not due to a Constructive Termination, I acknowledge that I
have received information from the Company describing the dates of birth and job
titles of employees who are eligible for participation in the Plan and the dates
of birth and job titles of employees who are not eligible for participation, in
compliance with the federal Older Workers Benefit Protection Act (the "OWBPA
Materials").
I have carefully reviewed and fully understand the Severance Packet, which
includes the Plan, the General Release and foregoing Notice and the OWBPA
Materials. I have not relied on any representation or statement, oral or
written, by the Company or any of its representatives, which is not set forth in
the Severance Packet.
<PAGE>
I understand that my receipt and retention of the Separation Benefits under the
Plan is dependent on my execution of this General Release, upon my return to the
Company of any Company property within my possession or control and upon my
continued cooperation in providing information necessary for transition and
maintenance of the Company's ongoing business. I also understand that my receipt
and retention of the Separation Benefits are also contingent on my continued
nondisclosure of the Company's secret or confidential information, knowledge or
data relating to the Company or any of its subsidiaries and their respective
businesses which I have obtained during my employment with the Company and which
shall not be or become public knowledge (other than by acts by me or my
representatives in violation of this General Release), and that prohibited
disclosure of such information, knowledge or data to anyone other than the
Company and those designated by it or any future defamation, disparaging remarks
or statements by me to any third parties, other employees or the media which
could embarrass or cause harm to the Company's name and reputation or to the
name and reputation of its officers, directors or representatives shall entitle
the Company to reimbursement or retention of any Separation Benefits I have
received or may receive. I also understand and agree that the Company has the
right to any set-off counterclaim, recoupment, repayment, reimbursement or other
right which the Company may have against me.
The Plan and this General Release, including the foregoing Notice, set forth the
entire agreement between the Company and me with respect to this subject. I
acknowledge that the Company gave me forty-five (45) days to consider whether I
wish to accept or reject the Separation Benefits I am eligible to receive under
the Plan in exchange for this General Release. I also acknowledge that the
Company advised me to seek independent legal advice as to these matters, if I
chose to do so. I hereby represent and state that I have taken such actions and
obtained such information and independent legal or other advice, if any, that I
believed were necessary for me to fully understand the effects and consequences
of this General Release prior to signing it.
Dated this day of , .
--- -------------- -----
- -------------------------------
PARTICIPANTS SIGNATURE
- -------------------------------
PRINT PARTICIPANTS NAME
2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.20
<SEQUENCE>4
<FILENAME>d02112exv10w20.txt
<DESCRIPTION>NOTE PURCHASE AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 10.20
================================================================================
HELMERICH & PAYNE, INC.
HELMERICH & PAYNE INTERNATIONAL DRILLING CO.
$200,000,000
Aggregate Principal Amount
Senior Notes
$25,000,000
5.51% Senior Notes, Series A
Due August 15, 2007
$25,000,000
5.91% Senior Notes, Series B
Due August 15, 2009
$75,000,000
6.46% Senior Notes, Series C
Due August 15, 2012
$75,000,000
6.56% Senior Notes, Series D
Due August 15, 2014
---------
NOTE PURCHASE AGREEMENT
---------
Dated as of August 15, 2002
================================================================================
Series A PPN: 42346# AA 9
Series B PPN: 42346# AB 7
Series C PPN: 42346# AC 5
Series D PPN: 42346# AD 3
<PAGE>
TABLE OF CONTENTS
<Table>
<Caption>
Section Page
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<S> <C> <C>
1. AUTHORIZATION OF NOTES..................................................................................1
2. SALE AND PURCHASE OF NOTES..............................................................................2
3. CLOSING.................................................................................................2
4. CONDITIONS TO CLOSINGS..................................................................................3
4.1. Representations and Warranties.................................................................3
4.2. Performance; No Default........................................................................3
4.3. Compliance Certificates........................................................................3
4.4. Opinions of Counsel............................................................................3
4.5. Purchase Permitted By Applicable Law, etc......................................................3
4.6. Sale of Other Notes............................................................................4
4.7. Payment of Special Counsel Fees................................................................4
4.8. Private Placement Number.......................................................................4
4.9. Changes in Corporate Structure.................................................................4
4.10. Guaranties.....................................................................................4
4.11. Credit Agreements..............................................................................4
4.12. Proceedings and Documents......................................................................5
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................................................5
5.1. Organization; Power and Authority..............................................................5
5.2. Authorization, etc.............................................................................5
5.3. Disclosure.....................................................................................6
5.4. Organization and Ownership of Shares of Subsidiaries...........................................6
5.5. Financial Statements...........................................................................6
5.6. Compliance with Laws, Other Instruments, etc...................................................7
5.7. Governmental Authorizations, etc...............................................................7
5.8. Litigation; Observance of Statutes and Orders..................................................7
5.9. Taxes..........................................................................................8
5.10. Title to Property; Leases......................................................................8
5.11. Licenses, Permits, etc.........................................................................8
5.12. Compliance with ERISA..........................................................................9
5.13. Private Offering by the Company...............................................................10
5.14. Use of Proceeds; Margin Regulations...........................................................10
5.15. Existing Indebtedness.........................................................................10
5.16. Foreign Assets Control Regulations, etc.......................................................11
5.17. Status under Certain Statutes.................................................................11
5.18. Environmental Matters.........................................................................11
5.19. Solvency of Subsidiary Guarantors.............................................................11
6. REPRESENTATIONS OF THE PURCHASERS......................................................................12
6.1. Purchase for Investment.......................................................................12
</Table>
i
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<Table>
<S> <C> <C>
6.2. Source of Funds...............................................................................12
7. INFORMATION AS TO COMPANY..............................................................................13
7.1. Financial and Business Information............................................................13
7.2. Officer's Certificate.........................................................................16
7.3. Inspection....................................................................................16
8. PREPAYMENT OF THE NOTES................................................................................17
8.1. No Scheduled Prepayments......................................................................17
8.2. Optional Prepayments with Make-Whole Amount...................................................17
8.3. Allocation of Partial Prepayments.............................................................17
8.4. Maturity; Surrender, etc......................................................................17
8.5. Purchase of Notes.............................................................................18
8.6. Make-Whole Amount.............................................................................18
9. AFFIRMATIVE COVENANTS..................................................................................19
9.1. Compliance with Law...........................................................................20
9.2. Insurance.....................................................................................20
9.3. Maintenance of Properties.....................................................................20
9.4. Payment of Taxes..............................................................................20
9.5. Corporate Existence, etc......................................................................21
10. NEGATIVE COVENANTS.....................................................................................21
10.1. Consolidated Debt.............................................................................21
10.2. Priority Debt.................................................................................21
10.3. Indebtedness of Subsidiaries.................................................................21
10.4. Liens.........................................................................................22
10.5. Mergers, Consolidations, etc..................................................................24
10.6. Sale of Assets................................................................................25
10.7. Subsidiary Guaranty...........................................................................26
10.8. Nature of Business............................................................................26
10.9. Transactions with Affiliates..................................................................26
11. EVENTS OF DEFAULT......................................................................................26
12. REMEDIES ON DEFAULT, ETC...............................................................................29
12.1. Acceleration..................................................................................29
12.2. Other Remedies................................................................................29
12.3. Rescission....................................................................................30
12.4. No Waivers or Election of Remedies, Expenses, etc.............................................30
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES..........................................................30
13.1. Registration of Notes.........................................................................30
13.2. Transfer and Exchange of Notes................................................................30
13.3. Replacement of Notes..........................................................................31
14. PAYMENTS ON NOTES......................................................................................31
14.1. Place of Payment..............................................................................31
</Table>
ii
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<Table>
<Caption>
Section Page
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<S> <C> <C>
14.2. Home Office Payment...........................................................................32
15. EXPENSES, ETC..........................................................................................32
15.1. Transaction Expenses..........................................................................32
15.2. Survival......................................................................................33
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT...........................................33
17. AMENDMENT AND WAIVER...................................................................................33
17.1. Requirements..................................................................................33
17.2. Solicitation of Holders of Notes..............................................................33
17.3. Binding Effect, etc...........................................................................34
17.4. Notes held by Company, etc....................................................................34
18. NOTICES................................................................................................34
19. REPRODUCTION OF DOCUMENTS..............................................................................35
20. CONFIDENTIAL INFORMATION...............................................................................35
21. SUBSTITUTION OF PURCHASER..............................................................................36
22. RELEASE OF SUBSIDIARY GUARANTOR........................................................................36
23. MISCELLANEOUS..........................................................................................37
23.1. Successors and Assigns........................................................................37
23.2. Payments Due on Non-Business Days.............................................................37
23.3. Severability..................................................................................37
23.4. Construction..................................................................................37
23.5. Counterparts..................................................................................37
23.6. Governing Law.................................................................................38
23.7. Spin-Off......................................................................................38
</Table>
iii
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SCHEDULE A -- Information Relating to Purchasers
SCHEDULE B -- Defined Terms
SCHEDULE 4.9 -- Changes in Corporate Structure
SCHEDULE 5.3 -- Disclosure Materials
SCHEDULE 5.4 -- Subsidiaries and Ownership of Subsidiary Stock
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.8 -- Certain Litigation
SCHEDULE 5.11 -- Licenses, Permits, etc.
SCHEDULE 5.14 -- Use of Proceeds
SCHEDULE 5.15 -- Indebtedness
SCHEDULE 10.4 -- Liens
EXHIBIT 1(a) -- Form of Series A Senior Note
EXHIBIT 1(b) -- Form of Series B Senior Note
EXHIBIT 1(c) -- Form of Series C Senior Note
EXHIBIT 1(d) -- Form of Series D Senior Note
EXHIBIT 1(e) -- Form of Parent Guaranty
EXHIBIT 1(f) -- Form of Subsidiary Guaranty
EXHIBIT 4.4(a) -- Form of Opinion of Counsel for the Company
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel to the Purchasers
iv
<PAGE>
HELMERICH & PAYNE, INC.
HELMERICH & PAYNE INTERNATIONAL DRILLING CO.
Utica at Twenty-First Street
Tulsa, OK 74114
(918) 742-5531
Fax: (918) 742-0237
$200,000,000
Aggregate Principal Amount
Senior Notes
$25,000,000 5.51% Senior Notes, Series A, due August 15, 2007
$25,000,000 5.91% Senior Notes, Series B, due August 15, 2009
$75,000,000 6.46% Senior Notes, Series C, due August 15, 2012
$75,000,000 6.56% Senior Notes, Series D, due August 15, 2014
Dated as of August 15, 2002
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
HELMERICH & PAYNE INTERNATIONAL DRILLING CO., a Delaware corporation
(the "Company"), and HELMERICH & PAYNE, INC., a Delaware corporation (the
"Parent") agree with you as follows:
1. AUTHORIZATION OF NOTES.
The Company has authorized the issue and sale of $200,000,000
of Senior Notes, consisting of $25,000,000 aggregate principal amount of its
5.51% Senior Notes, Series A, due August 15, 2007 (the "Series A Notes"),
$25,000,000 aggregate principal amount of its 5.91% Senior Notes, Series B, due
August 15, 2009 (the "Series B Notes"), $75,000,000 aggregate principal amount
of its 6.46% Senior Notes, Series C, due August 15, 2012 (the "Series C Notes"),
and $75,000,000 aggregate principal amount of its 6.56% Senior Notes, Series D,
due August 15, 2014 (the "Series D Notes" and collectively with the Series A
Notes, Series B Notes and Series C Notes, the "Notes", such term to include any
such Notes issued in substitution therefor pursuant to Section 13 of this
Agreement). The Notes shall be substantially in the form set out in Exhibits
1(a), 1(b), 1(c) or 1(d), as appropriate, with such changes therefrom, if any,
as may be approved by you, the Other Purchasers and the Company. Certain
capitalized terms used in this Agreement are defined in Schedule B; references
to a "Schedule" or an "Exhibit" are,
<PAGE>
unless otherwise specified, to a Schedule or an Exhibit attached to this
Agreement. The Notes will be guaranteed (i) by the Parent pursuant to a guaranty
in substantially the form of Exhibit 1(e) (the "Parent Guaranty") and (ii)
subject to Section 22, by each Subsidiary that is now or in the future becomes a
guarantor of, or otherwise is or becomes obligated in respect of, any
Indebtedness to banks under the Credit Agreements (individually, a "Subsidiary
Guarantor" and collectively, the "Subsidiary Guarantors") pursuant to a guaranty
in substantially the form of Exhibit 1(f) (the "Subsidiary Guaranty," and,
together with the Parent Guaranty, the "Guaranties"). The Notes will be
unsecured and will rank pari passu with the Company's Indebtedness to banks
under the Credit Agreements and with all other senior unsecured Indebtedness of
the Company.
2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the
Company will issue and sell to you and each of the other purchasers named in
Schedule A (the "Other Purchasers"), and you and the Other Purchasers will
purchase from the Company, at the Closing provided for in Section 3, Notes in
the principal amount and series specified opposite your names in Schedule A at
the purchase price of 100% of the principal amount thereof. Your obligation
hereunder and the obligations of the Other Purchasers are several and not joint
obligations and you shall have no liability to any Person for the performance or
non-performance by any Other Purchaser hereunder.
3. CLOSING.
The sale and purchase of the Notes to be purchased by you and
the Other Purchasers shall occur at the offices of Gardner, Carton & Douglas,
Quaker Tower, Suite 3400, 321 North Clark Street, Chicago, Illinois 60610 at
9:00 a.m., Chicago time, at closings on August 15, 2002 (the "First Closing")
and on October 15, 2002 (the "Second Closing," and, together with the First
Closing, the "Closings") or on such other Business Day thereafter, not later
than August 31, 2002 in the case of the First Closing and October 31, 2002 in
the case of the Second Closing, as may be agreed upon by the Company and the
purchasers that are scheduled to purchase Notes at such Closing. At the Closing
applicable to your purchase, the Company will deliver to you the Notes to be
purchased by you in the form of a single Note (or such greater number of Notes
in denominations of at least $100,000 as you may request) dated the date of such
Closing and registered in your name (or in the name of your nominee), against
delivery by you to the Company or its order of immediately available funds in
the amount of the purchase price therefor by wire transfer of immediately
available funds for the account of the Company to account number 208325308 at
Bank of Oklahoma, N.A., Tulsa, Oklahoma, ABA No. 103900036. If at such Closing
the Company fails to tender such Notes to you as provided above in this Section
3, or any of the conditions specified in Section 4 shall not have been fulfilled
to your satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights you may
have by reason of such failure or such nonfulfillment.
2
<PAGE>
4. CONDITIONS TO CLOSINGS.
Your obligation to purchase and pay for the Notes to be sold
to you at the First Closing and the Second Closing is subject to the fulfillment
to your satisfaction, prior to or at such Closing, of the following conditions:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Parent and the
Company in this Agreement shall be correct when made and at the time of such
Closing.
4.2. PERFORMANCE; NO DEFAULT.
The Parent and the Company shall have performed and complied
with all agreements and conditions contained in this Agreement required to be
performed or complied with by it prior to or at such Closing and after giving
effect to the issue and sale of the Notes (and the application of the proceeds
thereof as contemplated by Schedule 5.14) no Default or Event of Default shall
have occurred and be continuing.
4.3. COMPLIANCE CERTIFICATES.
(a) Officer's Certificate. The Parent and the Company shall
have delivered to you an Officer's Certificate, dated the date of such
Closing, certifying that the conditions specified in Sections 4.1, 4.2
and 4.9 have been fulfilled.
(b) Secretary's Certificate. The Parent and the Company shall
have delivered to you a certificate certifying as to the resolutions
attached thereto and other corporate proceedings relating to the
authorization, execution and delivery of the Notes and the Agreement.
4.4. OPINIONS OF COUNSEL.
You shall have received opinions in form and substance
satisfactory to you, dated the date of such Closing (a) from McAfee & Taft A
Professional Corporation and Steven R. Mackey, special counsel for, and General
Counsel of, the Parent and the Company, respectively, covering the matters set
forth in Exhibit 4.4(a) and covering such other matters incident to the
transactions contemplated hereby as you or your counsel may reasonably request
(and the Company instructs its counsel to deliver such opinion to you) and (b)
from Gardner, Carton & Douglas, your special counsel in connection with such
transactions, substantially in the form set forth in Exhibit 4.4(b) and covering
such other matters incident to such transactions as you may reasonably request.
4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
On the date of such Closing your purchase of Notes shall (i)
be permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions
3
<PAGE>
(such as section 1405(a)(8) of the New York Insurance Law) permitting limited
investments by insurance companies without restriction as to the character of
the particular investment, (ii) not violate any applicable law or regulation
(including Regulation U, T or X of the Board of Governors of the Federal Reserve
System) and (iii) not subject you to any tax, penalty or liability under or
pursuant to any applicable law or regulation, which law or regulation was not in
effect on the date hereof. If requested by you, you shall have received an
Officer's Certificate certifying as to such matters of fact as you may
reasonably specify to enable you to determine whether such purchase is so
permitted.
4.6. SALE OF OTHER NOTES.
Contemporaneously with such Closing the Company shall sell to
the Other Purchasers and the Other Purchasers shall purchase the Notes to be
purchased by them at such Closing as specified in Schedule A.
4.7. PAYMENT OF SPECIAL COUNSEL FEES.
Without limiting the provisions of Section 15.1, the Company
shall have paid on or before such Closing the fees, charges and disbursements of
your special counsel referred to in Section 4.4, to the extent reflected in a
statement of such counsel rendered to the Company at least one Business Day
prior to the Closing.
4.8. PRIVATE PLACEMENT NUMBER.
A Private Placement Number issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners) shall have been obtained by
Gardner, Carton & Douglas for each series of the Notes.
4.9. CHANGES IN CORPORATE STRUCTURE.
Except as specified in Schedule 4.9, neither the Parent nor
the Company shall have changed its jurisdiction of incorporation or been a party
to any merger or consolidation and shall not have succeeded to all or any
substantial part of the liabilities of any other entity, at any time following
the date of the most recent financial statements referred to in Schedule 5.5.
4.10. GUARANTIES.
The Parent shall have executed and delivered the Parent
Guaranty and each Subsidiary Guarantor shall have executed and delivered the
Subsidiary Guaranty.
4.11. CREDIT AGREEMENTS.
You and your special counsel shall have been provided with a
copy of the Credit Agreements as currently in effect.
4
<PAGE>
4.12. PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be satisfactory to you and your special
counsel, and you and your special counsel shall have received all such
counterpart originals or certified or other copies of such documents as you or
they may reasonably request.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Each of the Company and the Parent represents and warrants to
you that:
5.1. ORGANIZATION; POWER AND AUTHORITY.
Each of the Company and the Parent is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and is duly qualified as a foreign corporation
and is in good standing in each jurisdiction in which such qualification is
required by law, other than those jurisdictions as to which the failure to be so
qualified or in good standing would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Each of the Company
and the Parent has the corporate power and authority to own or hold under lease
the properties it purports to own or hold under lease, to transact the business
it transacts and proposes to transact, to execute and deliver this Agreement,
the Parent Guaranty (in the case of the Parent) and the Notes (in the case of
the Company) and to perform the provisions hereof and thereof.
5.2. AUTHORIZATION, ETC.
This Agreement and the Notes have been duly authorized by all
necessary corporate action on the part of the Company, and this Agreement
constitutes, and upon execution and delivery thereof each Note will constitute,
a legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
The Guaranties have been duly authorized by all necessary
corporate action on the part of the Parent or each Subsidiary Guarantor, as the
case may be, and upon execution and delivery thereof will constitute the legal,
valid and binding obligation of the Parent and each Subsidiary Guarantor,
enforceable against the Parent or each Subsidiary Guarantor, as the case may be,
in accordance with their respective terms, except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
5
<PAGE>
5.3. DISCLOSURE.
The Parent and the Company, through their agent, Banc One
Capital Markets, Inc., has delivered to you and each Other Purchaser a copy of a
Private Placement Memorandum, dated June 2002 (the "Memorandum"), relating to
the transactions contemplated hereby. Except as disclosed in Schedule 5.3, this
Agreement, the Memorandum, the documents, certificates or other writings
identified in Schedule 5.3 and the financial statements listed in Schedule 5.5,
taken as a whole, do not contain any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein not
misleading in light of the circumstances under which they were made. Except as
disclosed in the Memorandum or as expressly described in Schedule 5.3, or in one
of the documents, certificates or other writings identified therein, or in the
financial statements listed in Schedule 5.5, since September 30, 2001, there has
been no change in the financial condition, operations, business or properties of
the Parent or any Subsidiary, including the Company, except changes that
individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect.
5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES.
(a) Schedule 5.4 is (except as noted therein) a complete and
correct list of the Parent's Subsidiaries, showing, as to each
Subsidiary, the correct name thereof, the jurisdiction of its
organization, the percentage of shares of each class of its capital
stock or similar equity interests outstanding owned by the Parent and
each other Subsidiary, including the Company.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Schedule 5.4 as being
owned by the Parent and its Subsidiaries, including the Company, have
been validly issued, are fully paid and nonassessable and are owned by
the Parent or another Subsidiary, including the Company, free and clear
of any Lien (except as otherwise disclosed in Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a
corporation or other legal entity duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization,
and is duly qualified as a foreign corporation or other legal entity
and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to
which the failure to be so qualified or in good standing would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Each such Subsidiary has the corporate or
other power and authority to own or hold under lease the properties it
purports to own or hold under lease and to transact the business it
transacts and proposes to transact.
5.5. FINANCIAL STATEMENTS.
The Parent has delivered to you and each Other Purchaser
copies of the consolidated financial statements of the Parent and its
Subsidiaries, including the Company, listed on Schedule 5.5. All of said
financial statements (including in each case the related schedules and notes)
fairly present in all material respects the consolidated financial position of
6
<PAGE>
the Parent and its Subsidiaries, including the Company, as of the respective
dates specified in such Schedule and the consolidated results of their
operations and cash flows for the respective periods so specified and have been
prepared in accordance with GAAP consistently applied throughout the periods
involved except as set forth in the notes thereto (subject, in the case of any
interim financial statements, to normal year-end adjustments).
5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
The execution, delivery and performance by the Company and the
Parent of this Agreement and by the Company of the Notes will not (i)
contravene, result in any breach of, or constitute a default under, or result in
the creation of any Lien in respect of any property of the Parent or any
Subsidiary, including the Company, under, any indenture, mortgage, deed of
trust, loan, purchase or credit agreement, lease, corporate charter or by-laws,
or any other Material agreement or instrument to which the Parent or any
Subsidiary, including the Company, is bound or by which any of their respective
properties may be bound or affected, (ii) conflict with or result in a breach of
any of the terms, conditions or provisions of any order, judgment, decree, or
ruling of any court, arbitrator or Governmental Authority applicable to the
Parent or any Subsidiary, including the Company, or (iii) violate any provision
of any statute or other rule or regulation of any Governmental Authority
applicable to the Parent or any Subsidiary, including the Company.
The execution, delivery and performance by each of the Parent
and each Subsidiary Guarantor of the Guaranty to which it is a party will not
(i) contravene, result in any breach of, or constitute a default under, or
result in the creation of any Lien in respect of any property of the Parent or
such Subsidiary Guarantor under, any agreement, or corporate charter or by-laws,
to which the Parent or such Subsidiary Guarantor is bound or by which the Parent
or such Subsidiary Guarantor or any of their properties may be bound or
affected, (ii) conflict with or result in a breach of any of the terms,
conditions or provisions of any Material order, judgment, decree, or ruling of
any court, arbitrator or Governmental Authority applicable to the Parent or such
Subsidiary Guarantor or (iii) violate any provision of any Material statute or
other rule or regulation of any Governmental Authority applicable to the Parent
or such Subsidiary Guarantor.
5.7. GOVERNMENTAL AUTHORIZATIONS, ETC.
No consent, approval or authorization of, or registration,
filing or declaration with, any Governmental Authority is required in connection
with the execution, delivery or performance by the Company of this Agreement or
the Notes or the execution, delivery or performance by the Parent of this
Agreement or the Parent Guaranty or by each Subsidiary Guarantor of the
Subsidiary Guaranty.
5.8. LITIGATION; OBSERVANCE OF STATUTES AND ORDERS.
(a) Except as disclosed in Schedule 5.8, there are no actions,
suits or proceedings pending or, to the knowledge of the Parent or the
Company, threatened against or affecting the Parent or any Subsidiary,
including the Company, or any property
7
<PAGE>
of the Parent or any Subsidiary, including the Company, in any court or
before any arbitrator of any kind or before or by any Governmental
Authority that, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect.
(b) Neither the Parent nor any Subsidiary, including the
Company, is in default under any term of any agreement or instrument to
which it is a party or by which it is bound, or any order, judgment,
decree or ruling of any court, arbitrator or Governmental Authority or
is in violation of any applicable law, ordinance, rule or regulation
(including Environmental Laws) of any Governmental Authority, which
default or violation, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
(c) The Parent and its Subsidiaries, including the Company,
are in compliance with the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism (USA PATRIOT) Act of 2001.
5.9. TAXES.
The Company and its Subsidiaries have filed all income tax
returns that are required to have been filed in any jurisdiction, and have paid
all taxes shown to be due and payable on such returns and all other taxes and
assessments payable by them, to the extent such taxes and assessments have
become due and payable and before they have become delinquent, except for any
taxes and assessments (i) the amount of which is not individually or in the
aggregate Material or (ii) the amount, applicability or validity of which is
currently being contested in good faith by appropriate proceedings and with
respect to which the Parent or a Subsidiary, as the case may be, has established
adequate reserves in accordance with GAAP. The federal income tax liabilities of
the Parent and its Subsidiaries, including the Company, have been determined by
the Internal Revenue Service and paid for all fiscal years up to and including
the fiscal year ended September 30, 1996.
5.10. TITLE TO PROPERTY; LEASES.
The Parent and its Subsidiaries, including the Company, have
good and sufficient title to their respective Material properties, including all
such properties reflected in the most recent audited balance sheet referred to
in Section 5.5 or purported to have been acquired by the Company or any
Subsidiary after said date (except as sold or otherwise disposed of in the
ordinary course of business and except that no representation is made as to the
Oil and Gas Properties), in each case free and clear of Liens prohibited by this
Agreement, except for those defects in title and Liens that, individually or in
the aggregate, would not have a Material Adverse Effect. All Material leases are
valid and subsisting and are in full force and effect in all material respects.
5.11. LICENSES, PERMITS, ETC.
Except as disclosed in Schedule 5.11, the Parent and its
Subsidiaries, including the Company, own or possess all licenses, permits,
franchises, authorizations, patents,
8
<PAGE>
copyrights, service marks, trademarks and trade names, or rights thereto, that
are Material, without known conflict with the rights of others, except for those
conflicts that, individually or in the aggregate, would not have a Material
Adverse Effect.
5.12. COMPLIANCE WITH ERISA.
(a) The Parent and each ERISA Affiliate, including the
Company, have operated and administered each Plan in compliance with
all applicable laws except for such instances of noncompliance as have
not resulted in and could not reasonably be expected to result in a
Material Adverse Effect. Neither the Parent nor any ERISA Affiliate,
including the Company, has incurred any liability pursuant to Title I
or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans (as defined in Section 3 of ERISA),
and no event, transaction or condition has occurred or exists that
would reasonably be expected to result in the incurrence of any such
liability by the Parent or any ERISA Affiliate, including the Company,
or in the imposition of any Lien on any of the rights, properties or
assets of the Parent or any ERISA Affiliate, including the Company, in
either case pursuant to Title I or IV of ERISA or to such penalty or
excise tax provisions or to Section 401(a)(29) or 412 of the Code,
other than such liabilities or Liens as would not be individually or in
the aggregate Material.
(b) The present value of the aggregate benefit liabilities
under each of the Plans (other than Multiemployer Plans), determined as
of the end of such Plan's most recently ended plan year on the basis of
the actuarial assumptions specified for funding purposes in such Plan's
most recent actuarial valuation report, did not exceed the aggregate
current value of the assets of such Plan allocable to such benefit
liabilities. The term "benefit liabilities" has the meaning specified
in section 4001 of ERISA and the terms "current value" and "present
value" have the meaning specified in section 3 of ERISA.
(c) The Parent and its ERISA Affiliates, including the
Company, have not incurred withdrawal liabilities (and are not subject
to contingent withdrawal liabilities) under section 4201 or 4204 of
ERISA in respect of Multiemployer Plans that individually or in the
aggregate are Material.
(d) The expected postretirement benefit obligation (determined
as of the last day of the Parent's most recently ended fiscal year in
accordance with Financial Accounting Standards Board Statement No. 106,
without regard to liabilities attributable to continuation coverage
mandated by section 4980B of the Code) of the Parent and its ERISA
Affiliates, including the Company, is not Material.
(e) The execution and delivery of this Agreement and the
issuance and sale of the Notes hereunder will not involve any
transaction that is subject to the prohibitions of section 406 of ERISA
or in connection with which a tax could be imposed pursuant to section
4975(c)(1)(A)-(D) of the Code. The representation by the Parent and the
Company in the first sentence of this Section 5.12(e) is made in
reliance upon and subject
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to the accuracy of your representation in Section 6.2 as to the sources
of the funds used to pay the purchase price of the Notes to be
purchased by you.
5.13. PRIVATE OFFERING BY THE COMPANY.
None of the Parent, the Company or anyone acting on their
behalf has offered the Notes or any similar securities for sale to, or solicited
any offer to buy any of the same from, or otherwise approached or negotiated in
respect thereof with, any Person other than you, the Other Purchasers and not
more than 37 other Institutional Investors, each of which has been offered the
Notes at a private sale for investment. None of the Parent, the Company or
anyone acting on their behalf has taken, or will take, any action that would
subject the issuance or sale of the Notes to the registration requirements of
section 5 of the Securities Act.
5.14. USE OF PROCEEDS; MARGIN REGULATIONS.
The Company will apply the proceeds of the sale of the Notes
for general corporate purposes, to repay Indebtedness and to fund capital
expenditures as set forth in Schedule 5.14. No part of the proceeds from the
sale of the Notes will be used, directly or indirectly, for the purpose of
buying or carrying any margin stock within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System (12 CFR 221), or for the
purpose of buying or carrying or trading in any securities under such
circumstances as to involve the Company in a violation of Regulation X of said
Board (12 CFR 224) or to involve any broker or dealer in a violation of
Regulation T of said Board (12 CFR 220). Margin stock does not constitute more
than 20% of the value of the consolidated assets of the Company and its
Subsidiaries and the Company does not have any present intention that margin
stock will constitute more than 25% of the value of such assets. As used in this
Section, the terms "margin stock" and "purpose of buying or carrying" shall have
the meanings assigned to them in said Regulation U.
5.15. EXISTING INDEBTEDNESS.
Except as described therein, Schedule 5.15 sets forth a
complete and correct list of all outstanding Indebtedness of the Parent and its
Subsidiaries, including the Company, as of June 30, 2002, since which date there
has been no Material change in the amounts, interest rates, sinking funds,
installment payments or maturities of the Indebtedness of the Company or its
Subsidiaries. Neither the Parent nor any Subsidiary, including the Company, is
in default and no waiver of default is currently in effect, in the payment of
any principal or interest on any Indebtedness of the Parent or such Subsidiary,
including the Company, and no event or condition exists with respect to any
Indebtedness of the Parent or any Subsidiary, including the Company, that is
outstanding in an aggregate principal amount in excess of $5,000,000 and that
would permit (or that with notice or the lapse of time, or both, would permit)
one or more Persons to cause such Indebtedness to become due and payable before
its stated maturity or before its regularly scheduled dates of payment.
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5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC.
Neither the sale of the Notes by the Company hereunder nor its
use of the proceeds thereof will violate the Trading with the Enemy Act, as
amended, or any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
5.17. STATUS UNDER CERTAIN STATUTES.
Neither the Parent nor any Subsidiary, including the Company,
is subject to regulation under the Investment Company Act of 1940, as amended,
the Public Utility Holding Company Act of 1935, as amended, the Interstate
Commerce Act, as amended by the ICC Termination Act, as amended, or the Federal
Power Act, as amended.
5.18. ENVIRONMENTAL MATTERS.
Neither the Parent nor any Subsidiary, including the Company,
has knowledge of any claim or has received any notice of any claim, and no
proceeding has been instituted raising any claim against the Parent or any of
its Subsidiaries, including the Company, or any of their respective real
properties now or formerly owned, leased or operated by any of them or other
assets, alleging any damage to the environment or violation of any Environmental
Laws, except, in each case, such as could not reasonably be expected to result
in a Material Adverse Effect. Except as otherwise disclosed to you in writing,
(a) neither the Parent nor any Subsidiary, including the
Company, has knowledge of any facts which would give rise to any claim,
public or private, of violation of Environmental Laws or damage to the
environment emanating from, occurring on or in any way related to real
properties now or formerly owned, leased or operated by any of them or
to other assets or their use, except, in each case, such as would not
reasonably be expected to result in a Material Adverse Effect;
(b) neither the Parent nor any Subsidiary, including the
Company, has stored any Hazardous Materials on real properties now or
formerly owned, leased or operated by any of them and has not disposed
of any Hazardous Materials in a manner contrary to any Environmental
Laws in each case in any manner that would reasonably be expected to
result in a Material Adverse Effect; and
(c) all buildings on all real properties now owned, leased or
operated by the Parent or any of its Subsidiaries, including the
Company, are in compliance with applicable Environmental Laws, except
where failure to comply would not reasonably be expected to result in a
Material Adverse Effect.
5.19. SOLVENCY OF SUBSIDIARY GUARANTORS.
After giving effect to the transactions contemplated herein
and after giving due consideration to any rights of contribution (i) each
Subsidiary Guarantor has received fair
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consideration and reasonably equivalent value for the incurrence of its
obligations under the Subsidiary Guaranty, (ii) the fair value of the assets of
each Subsidiary Guarantor (both at fair valuation and at present fair saleable
value) exceeds its liabilities, (ii) each Subsidiary Guarantor is able to and
expects to be able to pay its debts as they mature, and (iii) each Subsidiary
Guarantor has capital sufficient to carry on its business as conducted and as
proposed to be conducted.
6. REPRESENTATIONS OF THE PURCHASERS.
6.1. PURCHASE FOR INVESTMENT.
You represent that you are purchasing the Notes for your own
account or for one or more separate accounts maintained by you or for the
account of one or more pension or trust funds and not with a view to the
distribution thereof, provided that the disposition of your or their property
shall at all times be within your or their control. You understand that the
Notes have not been registered under the Securities Act and may be resold only
if registered pursuant to the provisions of the Securities Act or if an
exemption from registration is available, except under circumstances where
neither such registration nor such an exemption is required by law, and that the
Company is not required to register the Notes. You represent that you are an
"accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7)
of Rule 501 of Regulation D under the Securities Act.
6.2. SOURCE OF FUNDS.
You represent that at least one of the following statements is
an accurate representation as to each source of funds (a "Source") to be used by
you to pay the purchase price of the Notes to be purchased by you hereunder:
(a) the Source is an "insurance company general account" as
such term is defined in the Department of Labor Prohibited Transaction
Exemption ("PTE") 95-60 (issued August 12, 1995) ("PTE 95-60") and as
of the date of this Agreement there is no "employee benefit plan" with
respect to which the aggregate amount of such general account's
reserves and liabilities for the contracts held by or on behalf of such
employee benefit plan and all other employee benefit plans maintained
by the same employer (and affiliates thereof as defined in section
V(a)(1) of PTE 95-60) or by the same employee organization (in each
case determined in accordance with the provisions of PTE 95-60) exceeds
10% of the total reserves and liabilities of such general account (as
determined under PTE 95-60) (exclusive of separate account liabilities)
plus surplus as set forth in the National Association of Insurance
Commissioners Annual Statement filed with your state of domicile; or
(b) the Source is either (i) an insurance company pooled
separate account, within the meaning of PTE 90-1 (issued February 29,
1990), or (ii) a bank collective investment fund, within the meaning of
PTE 91-38 (issued August 12, 1991) and, except as you have disclosed to
the Company in writing pursuant to this paragraph (b), no employee
benefit plan or group of plans maintained by the same employer or
employee
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organization beneficially owns more than 10% of all assets allocated to
such pooled separate account or collective investment fund; or
(c) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning of
Part V of the QPAM Exemption), no employee benefit plan's assets that
are included in such investment fund, when combined with the assets of
all other employee benefit plans established or maintained by the same
employer or by an affiliate (within the meaning of section V(c)(1) of
the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client
assets managed by such QPAM, the conditions of Part I(c) and (g) of the
QPAM Exemption are satisfied, neither the QPAM nor a person controlling
or controlled by the QPAM (applying the definition of "control" in
section V(e) of the QPAM Exemption) owns a 5% or more interest in the
Company and (i) the identity of such QPAM and (ii) the names of all
employee benefit plans whose assets are included in such investment
fund have been disclosed to the Company in writing pursuant to this
paragraph (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Company in
writing pursuant to this paragraph (e); or
(f) the Source is the assets of one or more employee benefit
plans that are managed by an "in-house asset manager," as that term is
defined in PTE 96-23 and such purchase and holding of the Notes is
exempt under PTE 96-23; or
(g) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms "employee benefit plan", "governmental
plan" and "separate account" shall have the respective meanings assigned to such
terms in section 3 of ERISA.
7. INFORMATION AS TO COMPANY.
7.1. FINANCIAL AND BUSINESS INFORMATION
The Parent will deliver to each holder of Notes that is an
Institutional Investor:
(a) Quarterly Statements -- within 60 days (or such other
shorter period within which Quarterly Reports on Form 10-Q are required
to be timely filed with the Securities and Exchange Commission,
including any extension permitted by Rule 12b-25 of the Exchange Act)
after the end of each quarterly fiscal period in each fiscal year of
the
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Parent (other than the last quarterly fiscal period of each such fiscal
year), duplicate copies of,
(i) a consolidated balance sheet of the Parent and
its Subsidiaries, including the Company, as at the end of such
quarter, and
(ii) consolidated statements of income, shareholders'
equity and cash flows of the Parent and its Subsidiaries,
including the Company, for such quarter and (in the case of
the second and third quarters) for the portion of the fiscal
year ending with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial
position of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from year-end
adjustments, provided that delivery within the time period specified
above of copies of the Parent's Quarterly Report on Form 10-Q prepared
in compliance with the requirements therefor and filed with the
Securities and Exchange Commission shall be deemed to satisfy the
requirements of this Section 7.1(a);
(b) Annual Statements -- within 120 days (or such other
shorter period within which Annual Reports on Form 10-K are required to
be timely filed with the Securities and Exchange Commission, including
any extension permitted by Rule 12b-25 of the Exchange Act) after the
end of each fiscal year of the Parent, duplicate copies of,
(i) a consolidated balance sheet of the Parent and
its Subsidiaries, including the Company, as at the end of such
year, and
(ii) consolidated statements of income, shareholders'
equity and cash flows of the Parent and its Subsidiaries,
including the Company, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied by an opinion thereon of independent
certified public accountants of recognized regional or national
standing, which opinion shall state that such financial statements
present fairly, in all material respects, the financial position of the
companies being reported upon and their results of operations and cash
flows and have been prepared in conformity with GAAP, and that the
examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted auditing
standards, and that such audit provides a reasonable basis for such
opinion in the circumstances; provided that the delivery within the
time period specified above of the Parent's Annual Report on Form 10-K
for such fiscal year (together with the Parent's annual report to
shareholders, if any, prepared pursuant to Rule 14a-3 under the
Exchange Act) prepared in accordance with the requirements therefor and
filed with the Securities and Exchange Commission shall be deemed to
satisfy the requirements of this Section (b);
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(c) SEC and Other Reports -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or
proxy statement sent by the Parent or any Subsidiary, including the
Company, to public securities holders generally, and (ii) each regular
or periodic report, each registration statement that shall have become
effective (without exhibits except as expressly requested by such
holder), and each final prospectus and all amendments thereto filed by
the Parent or any Subsidiary, including the Company, with the
Securities and Exchange Commission;
(d) Notice of Default or Event of Default -- promptly, and in
any event within five Business Days after a Responsible Officer
becoming aware of the existence of any Default or Event of Default, a
written notice specifying the nature and period of existence thereof
and what action the Parent or the Company is taking or proposes to take
with respect thereto;
(e) ERISA Matters -- promptly, and in any event within five
Business Days after a Responsible Officer becoming aware of any of the
following, a written notice setting forth the nature thereof and the
action, if any, that the Parent or an ERISA Affiliate, including the
Company, proposes to take with respect thereto:
(i) with respect to any Plan, any reportable event,
as defined in section 4043(b) of ERISA and the regulations
thereunder, for which notice thereof has not been waived
pursuant to such regulations as in effect on the date hereof;
or
(ii) the taking by the PBGC of steps to institute, or
the threatening by the PBGC of the institution of, proceedings
under section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice from
a Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could
result in the incurrence of any liability by the Parent or an
ERISA Affiliate, including the Company, pursuant to Title I or
IV of ERISA or the penalty or excise tax provisions of the
Code relating to employee benefit plans, or in the imposition
of any Lien on any of the rights, properties or assets of the
Parent or an ERISA Affiliate, including the Company, pursuant
to Title I or IV of ERISA or such penalty or excise tax
provisions, if such liability or Lien, taken together with any
other such liabilities or Liens then existing, would
reasonably be expected to have a Material Adverse Effect; and
(f) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Parent or any
of its Subsidiaries, including the Company or relating to the ability
of the Parent or the Company to perform its obligations hereunder and
under the Notes as from time to time may be reasonably requested by any
such holder of Notes.
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7.2. OFFICER'S CERTIFICATE.
Each set of financial statements delivered to a holder of
Notes pursuant to Section 7.1(a) or Section 7.1(b) shall be accompanied by a
certificate of a Senior Financial Officer setting forth:
(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish whether the Parent was in
compliance with the requirements of Section 10.1 through Section 10.9,
inclusive, during the quarterly or annual period covered by the
statements then being furnished (including with respect to each such
Section, where applicable, the calculations of the maximum or minimum
amount, ratio or percentage, as the case may be, permissible under the
terms of such Sections, and the calculation of the amount, ratio or
percentage then in existence); and
(b) Event of Default -- a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and
conditions of the Parent and its Subsidiaries, including the Company,
from the beginning of the quarterly or annual period covered by the
statements then being furnished to the date of the certificate and that
such review shall not have disclosed the existence during such period
of any condition or event that constitutes a Default or an Event of
Default or, if any such condition or event existed or exists (including
any such event or condition resulting from the failure of the Parent or
any Subsidiary, including the Company, to comply with any Environmental
Law), specifying the nature and period of existence thereof and what
action the Company shall have taken or proposes to take with respect
thereto.
7.3. INSPECTION.
The Parent and the Company will permit the representatives of
each holder of Notes that is an Institutional Investor:
(a) No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice
to the Parent or the Company, to visit the principal executive office
of the Parent or the Company, to discuss the affairs, finances and
accounts of the Parent and its Subsidiaries, including the Company,
with the Parent's and the Company's officers, and, with the consent of
the Parent and the Company (which consent will not be unreasonably
withheld), to visit the other offices and properties of the Parent and
each Subsidiary, including the Company, all at such reasonable times
and as often as may be reasonably requested in writing; and
(b) Default -- if a Default or Event of Default then exists,
at the expense of the Company, to visit and inspect any of the offices
or properties of the Parent or any Subsidiary, including the Company,
to examine all their respective books of account, records, reports and
other papers, to make copies and extracts therefrom, and to discuss
their respective affairs, finances, and accounts with their respective
officers and independent public accountants (and by this provision the
Parent and the Company
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authorize said accountants to discuss the affairs, finances and
accounts of the Parent and its Subsidiaries, including the Company),
all at such times and as often as may be requested.
Each holder agrees to treat any information obtained in connection with any
inspection pursuant to this Section 7 as Confidential Information subject to
Section 20 so as to avoid any disclosure obligation on the Company under
Regulation FD under the Exchange Act.
8. PREPAYMENT OF THE NOTES.
8.1. NO SCHEDULED PREPAYMENTS.
No regularly scheduled prepayments are due on the Notes prior
to their stated maturity.
8.2. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT.
The Company may, at its option, upon notice as provided below,
prepay at any time all, or from time to time any part of, the Notes of any
series in an amount not less than $5,000,000 in the aggregate in the case of a
partial prepayment, at 100% of the principal amount so prepaid, plus the
Make-Whole Amount determined for the prepayment date with respect to such
principal amount. The Company will give each holder of Notes of the series to be
prepaid written notice of each optional prepayment under this Section 8.2 not
less than 30 days and not more than 60 days prior to the date fixed for such
prepayment. Each such notice shall specify such date, the aggregate principal
amount of the Notes of such series to be prepaid on such date, the principal
amount of each Note of such series held by such holder to be prepaid (determined
in accordance with Section 8.3), and the interest to be paid on the prepayment
date with respect to such principal amount being prepaid, and shall be
accompanied by a certificate of a Senior Financial Officer as to the estimated
Make-Whole Amount due in connection with such prepayment (calculated as if the
date of such notice were the date of the prepayment), setting forth the details
of such computation. Two Business Days prior to such prepayment, the Company
shall deliver to each holder of Notes of the series to be prepaid a certificate
of a Senior Financial Officer specifying the calculation of such Make-Whole
Amount as of the specified prepayment date.
8.3. ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of each partial prepayment of the Notes of a
series, the principal amount of the Notes of such series to be prepaid shall be
allocated among all of the Notes of such series at the time outstanding in
proportion, as nearly as practicable, to the respective unpaid principal amounts
thereof not theretofore called for prepayment.
8.4. MATURITY; SURRENDER, ETC.
In the case of each prepayment of Notes pursuant to this
Section 8, the principal amount of each Note to be prepaid shall mature and
become due and payable on the date fixed
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for such prepayment, together with interest on such principal amount accrued to
such date and the applicable Make-Whole Amount, if any. From and after such
date, unless the Company shall fail to pay such principal amount when so due and
payable, together with the interest and Make-Whole Amount, if any, as aforesaid,
interest on such principal amount shall cease to accrue. Any Note paid or
prepaid in full shall be surrendered to the Company and canceled and shall not
be reissued, and no Note shall be issued in lieu of any prepaid principal amount
of any Note.
8.5. PURCHASE OF NOTES.
The Company will not and will not permit any Affiliate to purchase,
redeem, prepay or otherwise acquire, directly or indirectly, any of the
outstanding Notes of any series except (a) upon the payment or prepayment of the
Notes of a series in accordance with the terms of this Agreement and the Notes
or (b) pursuant to an offer to purchase made by the Company or an Affiliate pro
rata to the holders of all Notes of a series at the time outstanding upon the
same terms and conditions. Any such offer shall provide each holder with
sufficient information to enable it to make an informed decision with respect to
such offer, and shall remain open for at least 30 Business Days. If the holders
of more than 25% of the principal amount of the Notes of a series then
outstanding accept such offer, the Company shall promptly notify the remaining
holders of such fact and the expiration date for the acceptance by holders of
Notes of such series of such offer shall be extended by the number of days
necessary to give each such remaining holder at least ten Business Days from its
receipt of such notice to accept such offer. The Company will promptly cancel
all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or
purchase of Notes pursuant to any provision of this Agreement and no Notes may
be issued in substitution or exchange for any such Notes.
8.6. MAKE-WHOLE AMOUNT.
The term "MAKE-WHOLE AMOUNT" means, with respect to any Note,
an amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of such Note over the
amount of such Called Principal, provided that the Make-Whole Amount may in no
event be less than zero. For the purposes of determining the Make-Whole Amount,
the following terms have the following meanings:
"CALLED PRINCIPAL" means, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to Section 8.2 or
has become or is declared to be immediately due and payable pursuant to
Section 12.1, as the context requires.
"DISCOUNTED VALUE" means, with respect to the Called Principal
of any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which
interest on the Notes is payable) equal to the Reinvestment Yield with
respect to such Called Principal.
"REINVESTMENT YIELD" means, with respect to the Called
Principal of any Note, .50% over the yield to maturity implied by (i)
the yields reported, as of 10:00 A.M. (New
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York City time) on the second Business Day preceding the Settlement
Date with respect to such Called Principal, on the display designated
as the "PX1 Screen" on the Bloomberg Financial Market Service (or such
other display as may replace the PX1 Screen on Bloomberg Financial
Market Service) for actively traded U.S. Treasury securities having a
maturity equal to the Remaining Average Life of such Called Principal
as of such Settlement Date, or (ii) if such yields are not reported as
of such time or the yields reported as of such time are not
ascertainable, the Treasury Constant Maturity Series Yields reported,
for the latest day for which such yields have been so reported as of
the second Business Day preceding the Settlement Date with respect to
such Called Principal, in Federal Reserve Statistical Release H.15
(519) (or any comparable successor publication) for actively traded
U.S. Treasury securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement
Date. Such implied yield will be determined, if necessary, by (a)
converting U.S. Treasury bill quotations to bond-equivalent yields in
accordance with accepted financial practice and (b) interpolating
linearly between (1) the actively traded U.S. Treasury security with
the maturity closest to and greater than the Remaining Average Life and
(2) the actively traded U.S. Treasury security with the maturity
closest to and less than the Remaining Average Life.
"REMAINING AVERAGE LIFE" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Called Principal into (ii) the sum
of the products obtained by multiplying (a) the principal component of
each Remaining Scheduled Payment with respect to such Called Principal
by (b) the number of years (calculated to the nearest one-twelfth year)
that will elapse between the Settlement Date with respect to such
Called Principal and the scheduled due date of such Remaining Scheduled
Payment.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the
Called Principal of any Note, all payments of such Called Principal and
interest thereon that would be due after the Settlement Date with
respect to such Called Principal if no payment of such Called Principal
were made prior to its scheduled due date, provided that if such
Settlement Date is not a date on which interest payments are due to be
made under the terms of the Notes, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of
interest accrued to such Settlement Date and required to be paid on
such Settlement Date pursuant to Section 8.2 or 12.1.
"SETTLEMENT DATE" means, with respect to the Called Principal
of any Note, the date on which such Called Principal is to be prepaid
pursuant to Section 8.2 or has become or is declared to be immediately
due and payable pursuant to Section 12.1, as the context requires.
9. AFFIRMATIVE COVENANTS.
Each of the Parent and the Company covenants that so long as
any of the Notes are outstanding:
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9.1. COMPLIANCE WITH LAW.
The Parent and the Company will, and will cause each other
Subsidiary to, comply with all laws, ordinances or governmental rules or
regulations to which each of them is subject, including, Environmental Laws, and
will obtain and maintain in effect all licenses, certificates, permits,
franchises and other governmental authorizations necessary to the ownership of
their respective properties or to the conduct of their respective businesses, in
each case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failures to obtain or
maintain in effect such licenses, certificates, permits, franchises and other
governmental authorizations would not, individually or in the aggregate,
reasonably be expected to have a materially adverse effect on the business,
operations, affairs, financial condition, properties or assets of the Parent and
its Subsidiaries, including the Company, taken as a whole.
9.2. INSURANCE.
The Parent and the Company will, and will cause each other
Subsidiary to, maintain, with financially sound and reputable insurers,
insurance with respect to their respective properties and businesses against
such casualties and contingencies, of such types, on such terms and in such
amounts (including deductibles, co-insurance and self-insurance, if adequate
reserves are maintained with respect thereto) as is customary in the case of
entities of established reputations engaged in the same or a similar business
and similarly situated.
9.3. MAINTENANCE OF PROPERTIES.
The Parent and the Company will, and will cause each other
Subsidiary to, maintain and keep, or cause to be maintained and kept, their
respective properties in good repair, working order and condition (other than
ordinary wear and tear), so that the business carried on in connection therewith
may be properly conducted at all times, provided that this Section shall not
prevent the Parent or any Subsidiary, including the Company, from discontinuing
the operation and the maintenance of any of its properties if such
discontinuance is desirable in the conduct of its business and the Parent has
concluded that such discontinuance would not, individually or in the aggregate,
reasonably be expected to have a materially adverse effect on the business,
operations, affairs, financial condition, properties or assets of the Company
and its Subsidiaries taken as a whole.
9.4. PAYMENT OF TAXES.
The Parent and the Company will, and will cause each other
Subsidiary to, file all income tax or similar tax returns required to be filed
in any jurisdiction and to pay and discharge all taxes shown to be due and
payable on such returns and all other taxes, assessments, governmental charges,
or levies payable by any of them, to the extent such taxes and assessments have
become due and payable and before they have become delinquent, provided that
neither the Parent nor any Subsidiary, including the Company, need pay any such
tax or assessment if (i) the amount, applicability or validity thereof is
contested by the Parent or such Subsidiary on a timely
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basis in good faith and in appropriate proceedings, and the Parent or a
Subsidiary, including the Company, has established adequate reserves therefor in
accordance with GAAP on the books of the Parent or such Subsidiary or (ii) the
nonpayment of all such taxes and assessments in the aggregate would not
reasonably be expected to have a materially adverse effect on the business,
operations, affairs, financial condition, properties or assets of the Company
and its Subsidiaries, taken as a whole, or the Parent and its Subsidiaries,
including the Company, taken as a whole.
9.5. CORPORATE EXISTENCE, ETC.
Each of the Parent and the Company will at all times preserve
and keep in full force and effect its corporate existence. Subject to Sections
10.5 and 10.6, the Parent and the Company will at all times preserve and keep in
full force and effect the corporate existence of each other Subsidiary (unless
merged into the Parent or a Wholly Owned Subsidiary, including the Company) and
all rights and franchises of the Parent and its Subsidiaries, including the
Company, unless, in the good faith judgment of the Parent, the termination of or
failure to preserve and keep in full force and effect a particular corporate
existence, right or franchise would not, individually or in the aggregate, have
a materially adverse effect on the business, operations, affairs, financial
condition, properties or assets of the Parent and its Subsidiaries, including
the Company, taken as a whole.
10. NEGATIVE COVENANTS.
Each of the Parent and the Company covenants that so long as
any of the Notes are outstanding:
10.1. CONSOLIDATED DEBT.
The Parent will not incur, and will not permit any Subsidiary,
including the Company, to incur, any Indebtedness if, after giving effect
thereto and to the application of the proceeds therefrom, Consolidated Debt
would exceed 55% of Consolidated Total Capitalization.
10.2. PRIORITY DEBT.
The Parent and the Company will not at any time permit
Priority Debt to exceed 20% of Consolidated Net Worth (determined as of the end
of the Parent's most recently completed fiscal quarter).
10.3. INDEBTEDNESS OF SUBSIDIARIES.
The Parent will not at any time permit any Subsidiary,
including the Company, directly or indirectly, to create, incur, assume,
guarantee, have outstanding, or otherwise become or remain directly or
indirectly liable for, any Indebtedness other than:
(a) the Notes and Indebtedness incurred from time to time
under the Credit Agreements;
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(b) Indebtedness outstanding on the date hereof and listed on
Schedule 5.15 and any extension, renewal, refunding or refinancing
thereof, provided that the principal amount outstanding at the time of
such extension, renewal, refunding or refinancing is not increased;
(c) Indebtedness owed to the Parent or a Wholly Owned
Subsidiary, including the Company;
(d) Guaranties by a Subsidiary of Indebtedness of another
Subsidiary or by a Subsidiary Guarantor of Indebtedness of the Company
or the Parent;
(e) Indebtedness of a Subsidiary outstanding at the time of
its acquisition by the Company or the Parent, provided that (i) such
Indebtedness was not incurred in contemplation of becoming a Subsidiary
and (ii) at the time of such acquisition and after giving effect
thereto, no Default or Event of Default exists or would exist; and
(f) Indebtedness not otherwise permitted by the preceding
clauses (a) through (e), provided that immediately before and after
giving effect thereto and to the application of the proceeds thereof,
(i) no Default or Event of Default exists, and
(ii) Priority Debt does not exceed 20% of Consolidated Net
Worth.
10.4. LIENS.
The Parent and the Company will not, and will not permit any
other Subsidiary to, permit to exist, create, assume or incur, directly or
indirectly, any Lien on its properties or assets, whether now owned or hereafter
acquired, except:
(a) Liens existing on property or assets of the Parent or any
Subsidiary, including the Company, as of the date of this Agreement
that are described in Schedule 10.4;
(b) Liens for taxes, assessments or governmental charges not
then due and delinquent or the nonpayment of which is permitted by
Section 9.4;
(c) Liens incidental to the conduct of business or the
ownership of properties and assets (including landlords', lessors',
carriers', operators', warehousemen's, mechanics', materialmen's and
other similar Liens) and Liens to secure the performance of bids,
tenders, leases or trade contracts, or to secure statutory obligations
(including obligations under workers compensation, unemployment
insurance and other social security legislation), surety or appeal
bonds or other Liens of like general nature incurred in the ordinary
course of business and not in connection with the borrowing of money;
(d) encumbrances in the nature of leases, subleases, zoning
restrictions, easements, rights of way and other rights and
restrictions of record on the use of real
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property and defects in title arising or incurred in the ordinary
course of business, which, individually and in the aggregate, do not
materially impair the use or value of the property or assets subject
thereto or which relate only to assets that in the aggregate are not
material;
(e) any attachment or judgment Lien, unless the judgment it
secures has not, within 60 days after the entry thereof, been
discharged or execution thereof stayed pending appeal, or has not been
discharged within 60 days after the expiration of any such stay;
(f) Liens securing Indebtedness of a Subsidiary to the Parent
or to another Wholly Owned Subsidiary, including the Company;
(g) Liens (i) existing on property at the time of its
acquisition by the Parent or a Subsidiary, including the Company, and
not created in contemplation thereof, whether or not the Indebtedness
secured by such Lien is assumed by the Parent or a Subsidiary;
including the Company, or (ii) on property created contemporaneously
with its acquisition or within 180 days of the acquisition or
completion of construction or development thereof to secure or provide
for all or a portion of the purchase price or cost of the acquisition,
construction or development of such property after the date of Closing;
or (iii) existing on property of a Person at the time such Person is
merged or consolidated with, or becomes a Subsidiary of, or
substantially all of its assets are acquired by, the Parent or a
Subsidiary, including the Company, and not created in contemplation
thereof; provided that in the case of clauses (i), (ii) and (iii) such
Liens do not extend to additional property of the Parent or any
Subsidiary, including the Company, (other than property that is an
improvement to or is acquired for specific use in connection with the
subject property) and that the aggregate principal amount of
Indebtedness secured by each such Lien does not exceed the fair market
value (determined in good faith by one or more officers of the Parent
to whom authority to enter into such transaction has been delegated by
the board of directors of the Parent) of the property subject thereto;
(h) Liens resulting from extensions, renewals or replacements
of Liens permitted by paragraphs (a) and (g), provided that (i) there
is no increase in the principal amount or decrease in maturity of the
Indebtedness secured thereby at the time of such extension, renewal or
replacement, (ii) any new Lien attaches only to the same property
theretofore subject to such earlier Lien and (iii) immediately after
such extension, renewal or replacement no Default or Event of Default
would exist; and
(i) Liens securing Indebtedness not otherwise permitted by
paragraphs (a) through (h) of this Section 10.4, provided that, at the
time of creation, assumption or incurrence thereof and immediately
after giving effect thereto and to the application of the proceeds
therefrom, Priority Debt does not exceed 20% of Consolidated Net Worth.
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10.5. MERGERS, CONSOLIDATIONS, ETC.
The Parent and the Company will not, and will not permit any
other Subsidiary to, consolidate with or merge with any other Person or convey,
transfer, sell or lease all or substantially all of its assets in a single
transaction or series of transactions to any Person except that:
(a) the Company may consolidate or merge with any other Person
or convey, transfer, sell or lease all or substantially all of its
assets in a single transaction or series of transactions to any Person,
provided that:
(i) the successor formed by such consolidation or the
survivor of such merger or the Person that acquires by
conveyance, transfer, sale or lease all or substantially all
of the assets of the Company as an entirety, as the case may
be, is a solvent corporation, general partnership, limited
partnership or limited liability company organized and
existing under the laws of the United States or any state
thereof (including the District of Columbia), and, if the
Company is not such survivor or Person, survivor or Person
shall have executed and delivered to each holder of any Notes
its assumption of the due and punctual performance and
observance of each covenant and condition of this Agreement
and the Notes;
(ii) after giving effect to such transaction, no
Default or Event of Default shall exist; and
(iii) after giving effect to such transaction, the
Company or such successor, survivor or Person could incur at
least $1.00 of additional Indebtedness; and
(b) the Parent may consolidate or merge with any other Person
or convey, transfer, sell or lease all or substantially all of its
assets in a single transaction or series of transactions to any Person,
provided that:
(i) the successor formed by such consolidation or the
survivor of such merger or the Person that acquires by
conveyance, transfer, sale or lease of all or substantially
all of the assets of the Parent as an entirety, as the case
may be, shall be a solvent corporation organized and existing
under the laws of the United States or any state thereof
(including the District of Columbia), and, if the Parent is
not such corporation, such corporation shall have executed and
delivered to each holder of any Notes its assumption of the
due and punctual performance and observance of each covenant
and condition of this Agreement and the Parent Guaranty; and
(ii) after giving effect to such transaction, no
Default or Event of Default shall exist; and
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(iii) after giving effect to such transaction, the
Parent or such successor, survivor or Person could incur at
least $1.00 of additional Indebtedness; and
(c) any Subsidiary other than the Company may (x) merge into
the Parent or the Company (provided that the Parent or the Company is
the surviving corporation) or another Wholly Owned Subsidiary or (y)
sell, transfer or lease all or any part of its assets to the Parent or
the Company or another Wholly Owned Subsidiary, or (z) merge or
consolidate with, or sell, transfer or lease all or substantially all
of its assets to, any Person in a transaction that is permitted by
Section 10.6 or, as a result of which, such Person becomes a
Subsidiary; provided in each instance set forth in clauses (x) through
(z) that, immediately after giving effect thereto, there shall exist no
Default or Event of Default;
No such conveyance, transfer, sale or lease of all or substantially all of the
assets of the Parent or the Company shall have the effect of releasing the
Parent or the Company or any successor corporation that shall theretofore have
become such in the manner prescribed in this Section 10.5 from its liability
under this Agreement or the Notes.
10.6. SALE OF ASSETS.
Except as permitted by Section 10.5, the Parent and the
Company will not, and will not permit any other Subsidiary to, sell, lease,
transfer or otherwise dispose of, including by way of merger (collectively a
"Disposition"), any assets, including capital stock of Subsidiaries, in one or a
series of transactions, to any Person, other than:
(a) Dispositions in the ordinary course of business;
(b) Dispositions by a Subsidiary, including the Company, to
the Parent or another Wholly Owned Subsidiary, including the Company,
or by the Parent or the Company to a Wholly Owned Subsidiary that is a
Subsidiary Guarantor;
(c) the Spin-Off or other Disposition by the Parent or a
Subsidiary of the Oil and Gas Properties; or
(d) Dispositions not otherwise permitted by clauses (a), (b)
or (c) of this Section 10.6, provided that the aggregate net book value
of all assets so disposed of in any fiscal year pursuant to this
Section 10.6(d) does not exceed 15% of Consolidated Total Assets as of
the end of the immediately preceding fiscal year.
Notwithstanding the foregoing, the Parent or the Company may, or may permit any
other Subsidiary to, make a Disposition and the assets subject to such
Disposition shall not be subject to or included in the foregoing limitation and
computation contained in clause (d) of the preceding sentence to the extent that
the net proceeds from such Disposition are within 365 days of such Disposition
(A) reinvested in tangible assets to be used in the existing business of the
Parent or a Subsidiary, including the Company, or (B) applied to the payment or
prepayment of the Notes or any other outstanding Indebtedness of the Parent or
any Subsidiary, including the
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Company, ranking pari passu with or senior to the Notes (other than Indebtedness
owing to the Parent, any of its Subsidiaries, including the Company, or any
Affiliate or in respect of any revolving credit or similar credit facility
providing the Parent or any of its Subsidiaries, including the Company, with the
right to obtain loans or other extensions of credit from time to time, except to
the extent that in connection with such payment of Indebtedness the availability
of credit under such credit facility is permanently reduced by an amount not
less than the amount of such proceeds applied to the payment of such
Indebtedness). Any prepayment of Notes pursuant to this Section 10.6 shall be in
accordance with Sections 8.2 and 8.3, without regard to the minimum prepayment
requirements of Section 8.2.
10.7. SUBSIDIARY GUARANTY.
The Parent and the Company will not permit any other
Subsidiary to become a borrower or a guarantor of Indebtedness owed to banks
under the Credit Agreements unless such Subsidiary is, or concurrently therewith
becomes, a party to the Subsidiary Guaranty.
10.8. NATURE OF BUSINESS.
The Parent and the Company will not, and will not permit any
other Subsidiary to, engage in any business if, as a result, the general nature
of the business in which the Parent and its Subsidiaries, including the Company,
taken as a whole, would then be engaged would be substantially changed from the
general nature of the business of the Parent and its Subsidiaries, including the
Company, taken as a whole, as described in the Memorandum.
10.9. TRANSACTIONS WITH AFFILIATES.
The Parent and the Company will not, and will not permit any
other Subsidiary to, enter into directly or indirectly any Material transaction
or Material group of related transactions (including the purchase, lease, sale
or exchange of properties of any kind or the rendering of any service) with any
Affiliate (other than the Parent, the Company or another Subsidiary), except
upon fair and reasonable terms no less favorable to the Parent or such
Subsidiary, including the Company, than would be obtainable in a comparable
arm's-length transaction with a Person not an Affiliate.
11. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following
conditions or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or
Make-Whole Amount, if any, on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any
Note for more than five Business Days after the same becomes due and
payable; or
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(c) the Parent or the Company defaults in the performance of
or compliance with any term contained in Section 7.1(d) or Sections
10.1, 10.2, 10.3, 10.5, 10.6 or 10.7; or
(d) the Parent or the Company defaults in the performance of
or compliance with any term contained herein (other than those referred
to in paragraphs (a), (b) and (c) of this Section 11) and such default
is not remedied within 30 days or, in the case of Section 10.4 only, 5
days after the earlier of (i) a Responsible Officer obtaining actual
knowledge of such default and (ii) the Parent or the Company receiving
written notice of such default from any holder of a Note; or
(e) any representation or warranty made in writing by or on
behalf of the Parent, the Company or any Subsidiary Guarantor or by any
officer of the Parent, the Company or any Subsidiary Guarantor in this
Agreement, the Parent Guaranty, the Subsidiary Guaranty or in any
writing furnished in connection with the transactions contemplated
hereby or thereby proves to have been false or incorrect in any
material respect on the date as of which made and the fact that such
representation or warranty was false or incorrect could reasonably be
expected to have a Material Adverse Effect; or
(f) (i) the Parent, the Company or any Significant Subsidiary
is in default (as principal or as guarantor or other surety) in the
payment of any principal of or premium or make-whole amount or interest
on any Indebtedness that is outstanding in an aggregate principal
amount in excess of $25,000,000 beyond any period of grace provided
with respect thereto, or (ii) the Parent, the Company or any
Significant Subsidiary is in default in the performance of or
compliance with any term of any evidence of any Indebtedness that is
outstanding in an aggregate principal amount in excess of $25,000,000
or of any mortgage, indenture or other agreement relating thereto or
any other condition exists, and as a consequence of such default or
condition such Indebtedness has become, or has been declared, due and
payable before its stated maturity or before its regularly scheduled
dates of payment; or
(g) the Parent, the Company or any Significant Subsidiary (i)
is generally not paying, or admits in writing its inability to pay, its
debts as they become due, (ii) files, or consents by answer or
otherwise to the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction,
(iii) makes an assignment for the benefit of its creditors, (iv)
consents to the appointment of a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property, (v) is adjudicated as insolvent or to
be liquidated, or (vi) takes corporate action for the purpose of any of
the foregoing; or
(h) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the Parent,
the Company or any Significant Subsidiary, a custodian, receiver,
trustee or other officer with similar powers with respect to it or with
respect to any substantial part of its property, or constituting an
order for relief or
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approving a petition for relief or reorganization or any other petition
in bankruptcy or for liquidation or to take advantage of any bankruptcy
or insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of the Parent, the Company or any Significant
Subsidiary, or any such petition shall be filed against the Parent, the
Company or any Significant Subsidiary and such petition shall not be
dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $25,000,000 are rendered against one or more
of the Parent, the Company and any Significant Subsidiaries, which
judgments are not, within 60 days after entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within 60
days after the expiration of such stay; or
(j) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code, (ii) a notice of
intent to terminate any Plan shall have been or is reasonably expected
to be filed with the PBGC or the PBGC shall have instituted proceedings
under ERISA section 4042 to terminate or appoint a trustee to
administer any Plan or the PBGC shall have notified the Parent, the
Company or any other ERISA Affiliate that a Plan may become a subject
of any such proceedings, (iii) the aggregate "amount of unfunded
benefit liabilities" (within the meaning of section 4001(a)(18) of
ERISA) under all Plans determined in accordance with Title IV of ERISA,
shall exceed $25,000,000, (iv) the Parent, the Company or any other
ERISA Affiliate shall have incurred or is reasonably expected to incur
any liability pursuant to Title I or IV of ERISA or the penalty or
excise tax provisions of the Code relating to employee benefit plans,
(v) the Parent, the Company or any other ERISA Affiliate withdraws from
any Multiemployer Plan, or (vi) the Parent or any Subsidiary, including
the Company, establishes or amends any employee welfare benefit plan
that provides post-employment welfare benefits in a manner that would
increase the liability of the Parent or any Subsidiary, including the
Company, thereunder; and any such event or events described in clauses
(i) through (vi) above, either individually or together with any other
such event or events, would reasonably be expected to have a Material
Adverse Effect; or
(k) the Parent or any Subsidiary Guarantor defaults in the
performance of or compliance with any term contained in the Parent
Guaranty or the Subsidiary Guaranty or either of the Guaranties ceases
to be in full force and effect, except as provided in Section 22 (as to
the Subsidiary Guaranty), or is declared to be null and void in whole
or in material part by a court or other governmental or regulatory
authority having jurisdiction or the validity or enforceability thereof
shall be contested by any of the Parent, the Company or any Subsidiary
Guarantor or any of them renounces any of the same or denies that it
has any or further liability thereunder.
As used in Section 11(j), the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to such terms
in section 3 of ERISA.
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12. REMEDIES ON DEFAULT, ETC.
12.1. ACCELERATION.
(a) If an Event of Default with respect to the Parent or the
Company described in paragraph (g) or (h) of Section 11 (other than an
Event of Default described in clause (i) of paragraph (g) or described
in clause (vi) of paragraph (g) by virtue of the fact that such clause
encompasses clause (i) of paragraph (g)) has occurred, all the Notes
then outstanding shall automatically become immediately due and
payable.
(b) If any other Event of Default has occurred and is
continuing, any holder or holders of 51% or more in principal amount of
the Notes at the time outstanding may at any time at its or their
option, by notice or notices to the Company, declare all the Notes then
outstanding to be immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b)
of Section 11 has occurred and is continuing, any holder or holders of
Notes at the time outstanding affected by such Event of Default may at
any time, at its or their option, by notice or notices to the Company,
declare all the Notes held by it or them to be immediately due and
payable.
Upon any Notes becoming due and payable under this Section
12.1, whether automatically or by declaration, such Notes will forthwith mature
and the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon and (y) the Make-Whole Amount determined in respect of
such principal amount (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case without presentment,
demand, protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
12.2. OTHER REMEDIES.
If any Default or Event of Default has occurred and is
continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 12.1, the holder of any Note
at the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Note, or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law or otherwise.
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12.3. RESCISSION.
At any time after any Notes have been declared due and payable
pursuant to clause (b) or (c) of Section 12.1, the holders of not less than 51%
in principal amount of the Notes then outstanding, by written notice to the
Company, may rescind and annul any such declaration and its consequences if (a)
the Company has paid all overdue interest on the Notes, all principal of and
Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid
other than by reason of such declaration, and all interest on such overdue
principal and Make-Whole Amount, if any, and (to the extent permitted by
applicable law) any overdue interest in respect of the Notes, at the Default
Rate, (b) all Events of Default and Defaults, other than non-payment of amounts
that have become due solely by reason of such declaration, have been cured or
have been waived pursuant to Section 17, and (c) no judgment or decree has been
entered for the payment of any monies due pursuant hereto or to the Notes. No
rescission and annulment under this Section 12.3 will extend to or affect any
subsequent Event of Default or Default or impair any right consequent thereon.
12.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder of
any Note in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice such holder's rights, powers or remedies. No
right, power or remedy conferred by this Agreement or by any Note upon any
holder thereof shall be exclusive of any other right, power or remedy referred
to herein or therein or now or hereafter available at law, in equity, by statute
or otherwise. Without limiting the obligations of the Company under Section 15,
the Company will pay to the holder of each Note on demand such further amount as
shall be sufficient to cover all costs and expenses of such holder incurred in
any enforcement or collection under this Section 12, including reasonable
attorneys' fees, expenses and disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1. REGISTRATION OF NOTES.
The Company shall keep at its principal executive office a
register for the registration and registration of transfers of Notes. The name
and address of each holder of one or more Notes, each transfer thereof and the
name and address of each transferee of one or more Notes shall be registered in
such register. Prior to due presentment for registration of transfer, the Person
in whose name any Note shall be registered shall be deemed and treated as the
owner and holder thereof for all purposes hereof, and the Company shall not be
affected by any notice or knowledge to the contrary. The Company shall give to
any holder of a Note that is an Institutional Investor, promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
13.2. TRANSFER AND EXCHANGE OF NOTES.
Upon surrender of any Note at the principal executive office
of the Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer,
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duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder of such Note or his attorney duly authorized in writing
and accompanied by the address for notices of each transferee of such Note or
part thereof), the Company shall execute and deliver, at the Company's expense
(except as provided below), one or more new Notes (as requested by the holder
thereof) of the same series in exchange therefor, in an aggregate principal
amount equal to the unpaid principal amount of the surrendered Note. Each such
new Note shall be payable to such Person as such holder may request and shall be
substantially in the form of Exhibit 1(a), 1(b), 1(c) or 1(d), as appropriate.
Each such new Note shall be dated and bear interest from the date to which
interest shall have been paid on the surrendered Note or dated the date of the
surrendered Note if no interest shall have been paid thereon. The Company may
require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of Notes. Notes shall not be
transferred in denominations of less than $100,000, provided that if necessary
to enable the registration of transfer by a holder of its entire holding of
Notes, one Note may be in a denomination of less than $100,000. Any transferee,
by its acceptance of a Note registered in its name (or the name of its nominee),
shall be deemed to have made the representation set forth in Section 6.2.
13.3. REPLACEMENT OF NOTES.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any Note (which evidence shall be, in the case of an Institutional
Investor, notice from such Institutional Investor of such ownership and such
loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Note
is, or is a nominee for, an original Purchaser or another Institutional
Investor holder of a Note with a minimum net worth of at least
$250,000,000, such Person's own unsecured agreement of indemnity shall
be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note of the same series, dated and bearing interest from the date to which
interest shall have been paid on such lost, stolen, destroyed or mutilated Note
or dated the date of such lost, stolen, destroyed or mutilated Note if no
interest shall have been paid thereon.
14. PAYMENTS ON NOTES.
14.1. PLACE OF PAYMENT.
Subject to Section 14.2, payments of principal, Make-Whole
Amount, if any, and interest becoming due and payable on the Notes shall be made
in Chicago, Illinois at the principal office of Bank One, NA in such
jurisdiction. The Company may at any time, by notice to each holder of a Note,
change the place of payment of the Notes so long as such place of
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payment shall be either the principal office of the Company in such jurisdiction
or the principal office of a bank or trust company in such jurisdiction.
14.2. HOME OFFICE PAYMENT.
So long as you or your nominee shall be the holder of any
Note, and notwithstanding anything contained in Section 14.1 or in such Note to
the contrary, the Company will pay all sums becoming due on such Note for
principal, Make-Whole Amount, if any, and interest by the method and at the
address specified for such purpose below your name in Schedule A, or by such
other method or at such other address as you shall have from time to time
specified to the Company in writing for such purpose, without the presentation
or surrender of such Note or the making of any notation thereon, except that
upon written request of the Company made concurrently with or reasonably
promptly after payment or prepayment in full of any Note, you shall surrender
such Note for cancellation, reasonably promptly after any such request, to the
Company at its principal executive office or at the place of payment most
recently designated by the Company pursuant to Section 14.1. Prior to any sale
or other disposition of any Note held by you or your nominee you will, at your
election, either endorse thereon the amount of principal paid thereon and the
last date to which interest has been paid thereon or surrender such Note to the
Company in exchange for a new Note or Notes pursuant to Section 13.2. The
Company will afford the benefits of this Section 14.2 to any Institutional
Investor that is the direct or indirect transferee of any Note purchased by you
under this Agreement and that has made the same agreement relating to such Note
as you have made in this Section 14.2.
15. EXPENSES, ETC.
15.1. TRANSACTION EXPENSES.
Whether or not the transactions contemplated hereby are
consummated, the Company will pay all costs and expenses (including reasonable
attorneys' fees of a special counsel and, if reasonably required, local or other
counsel) incurred by you and each Other Purchaser or holder of a Note in
connection with such transactions and in connection with any amendments, waivers
or consents under or in respect of this Agreement or the Notes (whether or not
such amendment, waiver or consent becomes effective), including: (a) the costs
and expenses incurred in enforcing or defending (or determining whether or how
to enforce or defend) any rights under this Agreement or the Notes or in
responding to any subpoena or other legal process or informal investigative
demand issued in connection with this Agreement or the Notes, or by reason of
being a holder of any Note, and (b) the costs and expenses, including financial
advisors' fees, incurred in connection with the insolvency or bankruptcy of the
Company or any Subsidiary or in connection with any work-out or restructuring of
the transactions contemplated hereby and by the Notes. The Company will pay, and
will save you and each other holder of a Note harmless from, all claims in
respect of any fees, costs or expenses if any, of brokers and finders (other
than those retained by you).
32
<PAGE>
15.2. SURVIVAL.
The obligations of the Company under this Section 15 will
survive the payment or transfer of any Note, the enforcement, amendment or
waiver of any provision of this Agreement or the Notes, and the termination of
this Agreement.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall
survive the execution and delivery of this Agreement and the Notes, the purchase
or transfer by you of any Note or portion thereof or interest therein and the
payment of any Note, and may be relied upon by any subsequent holder of a Note,
regardless of any investigation made at any time by or on behalf of you or any
other holder of a Note. All statements contained in any certificate or other
instrument delivered by or on behalf of the Parent or the Company pursuant to
this Agreement shall be deemed representations and warranties of the Parent and
the Company under this Agreement. Subject to the preceding sentence, this
Agreement and the Notes embody the entire agreement and understanding between
you and the Company and supersede all prior agreements and understandings
relating to the subject matter hereof.
17. AMENDMENT AND WAIVER.
17.1. REQUIREMENTS.
This Agreement, the Notes, the Parent Guaranty and the
Subsidiary Guaranty may be amended, and the observance of any term hereof or of
the Notes may be waived (either retroactively or prospectively), with (and only
with) the written consent of the Company and the Required Holders, except that
(a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6
or 21 hereof, or any defined term (as it is used therein), will be effective as
to you unless consented to by you in writing, and (b) no such amendment or
waiver may, without the written consent of the holder of each Note at the time
outstanding affected thereby, (i) subject to the provisions of Section 12
relating to acceleration or rescission, change the amount or time of any
prepayment or payment of principal of, or reduce the rate or change the time of
payment or method of computation of interest or of the Make-Whole Amount on, the
Notes, (ii) change the percentage of the principal amount of the Notes the
holders of which are required to consent to any such amendment or waiver, or
(iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20.
17.2. SOLICITATION OF HOLDERS OF NOTES.
(a) Solicitation. The Company will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with
sufficient information, sufficiently far in advance of the date a
decision is required, to enable such holder to make an informed and
considered decision with respect to any proposed amendment, waiver or
consent in respect of any of the provisions hereof or of the Notes. The
Company will deliver executed or true and correct copies of each
amendment, waiver or consent effected pursuant to the provisions of
this Section 17 to each holder of
33
<PAGE>
outstanding Notes promptly following the date on which it is executed
and delivered by, or receives the consent or approval of, the requisite
holders of Notes.
(b) Payment. The Company will not directly or indirectly pay
or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any
holder of Notes as consideration for or as an inducement to the
entering into by any holder of Notes or any waiver or amendment of any
of the terms and provisions hereof unless such remuneration is
concurrently paid, or security is concurrently granted, on the same
terms, ratably to each holder of Notes then outstanding even if such
holder did not consent to such waiver or amendment.
17.3. BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this
Section 17 applies equally to all holders of Notes and is binding upon them and
upon each future holder of any Note and upon the Company without regard to
whether such Note has been marked to indicate such amendment or waiver. No such
amendment or waiver will extend to or affect any obligation, covenant,
agreement, Default or Event of Default not expressly amended or waived or impair
any right consequent thereon. No course of dealing between the Company and the
holder of any Note nor any delay in exercising any rights hereunder or under any
Note shall operate as a waiver of any rights of any holder of such Note. As used
herein, the term "this Agreement" or "the Agreement" and references thereto
shall mean this Agreement as it may from time to time be amended or
supplemented.
17.4. NOTES HELD BY COMPANY, ETC.
Solely for the purpose of determining whether the holders of
the requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement or the Notes, or have directed the taking of any
action provided herein or in the Notes to be taken upon the direction of the
holders of a specified percentage of the aggregate principal amount of Notes
then outstanding, Notes directly or indirectly owned by the Company or any of
its Affiliates shall be deemed not to be outstanding.
18. NOTICES.
All notices and communications provided for hereunder shall be
in writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the
address specified for such communications in Schedule A, or at
such other address as you or it shall have specified to the
Company in writing,
34
<PAGE>
(ii) if to any other holder of any Note, to such
holder at such address as such other holder shall have
specified to the Company in writing, or
(iii) if to the Company, the Parent or any Subsidiary
Guarantor, to the Company at its address set forth at the
beginning hereof to the attention of the Chief Financial
Officer, or at such other address as the Company shall have
specified to the holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including
(a) consents, waivers and modifications that may hereafter be executed, (b)
documents received by you at the Closing (except the Notes themselves), and (c)
financial statements, certificates and other information previously or hereafter
furnished to you, may be reproduced by you by any photographic, photostatic,
microfilm, microcard, miniature photographic or other similar process and you
may destroy any original document so reproduced. The Company agrees and
stipulates that, to the extent permitted by applicable law, any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section 19
shall not prohibit the Company or any other holder of Notes from contesting any
such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "Confidential
Information" means information delivered to you by or on behalf of the Company
or any Subsidiary in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary or confidential in
nature and that was clearly marked or labeled or otherwise adequately identified
when received by you as being confidential information of the Company or such
Subsidiary, provided that such term does not include information that (a) was
publicly known or otherwise known to you prior to the time of such disclosure,
(b) subsequently becomes publicly known through no act or omission by you or any
Person acting on your behalf, (c) otherwise becomes known to you other than
through disclosure by the Company or any Subsidiary, or (d) constitutes
financial statements delivered to you under Section 7.1 that are otherwise
publicly available. You will maintain the confidentiality of such Confidential
Information in accordance with procedures adopted by you in good faith to
protect confidential information of third parties delivered to you, provided
that you may deliver or disclose Confidential Information to (i) your directors,
trustees, officers, employees, agents, attorneys and Affiliates (to the extent
such disclosure reasonably relates to the administration of the investment
represented by your Notes), (ii) your financial advisors and other professional
advisors who agree to hold confidential the Confidential Information
substantially in accordance with the terms of this Section 20, (iii) any
35
<PAGE>
other holder of any Note, (iv) any Institutional Investor to which you sell or
offer to sell such Note or any part thereof or any participation therein (if
such Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 20), (v) any Person
from which you offer to purchase any security of the Company (if such Person has
agreed in writing prior to its receipt of such Confidential Information to be
bound by the provisions of this Section 20), (vi) any federal or state
regulatory authority having jurisdiction over you, (vii) the National
Association of Insurance Commissioners or any similar organization, or any
nationally recognized rating agency that requires access to information about
your investment portfolio or (viii) any other Person to which such delivery or
disclosure may be necessary or appropriate (w) to effect compliance with any
law, rule, regulation or order applicable to you, (x) in response to any
subpoena or other legal process, (y) in connection with any litigation to which
you are a party or (z) if an Event of Default has occurred and is continuing, to
the extent you may reasonably determine such delivery and disclosure to be
necessary or appropriate in the enforcement or for the protection of the rights
and remedies under your Notes and this Agreement. Each holder of a Note, by its
acceptance of a Note, will be deemed to have agreed to be bound by and to be
entitled to the benefits of this Section 20 as though it were a party to this
Agreement. On reasonable request by the Company in connection with the delivery
to any holder of a Note of information required to be delivered to such holder
under this Agreement or requested by such holder (other than a holder that is a
party to this Agreement or its nominee), such holder will enter into an
agreement with the Company embodying the provisions of this Section 20.
21. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your
Affiliates as the purchaser of the Notes that you have agreed to purchase
hereunder, by written notice to the Company, which notice shall be signed by
both you and such Affiliate, shall contain such Affiliate's agreement to be
bound by this Agreement and shall contain a confirmation by such Affiliate of
the accuracy with respect to it of the representations set forth in Section 6.
Upon receipt of such notice, wherever the word "you" is used in this Agreement
(other than in this Section 21), such word shall be deemed to refer to such
Affiliate in lieu of you. In the event that such Affiliate is so substituted as
a purchaser hereunder and such Affiliate thereafter transfers to you all of the
Notes then held by such Affiliate, upon receipt by the Company of notice of such
transfer, wherever the word "you" is used in this Agreement (other than in this
Section 21), such word shall no longer be deemed to refer to such Affiliate, but
shall refer to you, and you shall have all the rights of an original holder of
the Notes under this Agreement.
22. RELEASE OF SUBSIDIARY GUARANTOR.
You and each subsequent holder of a Note agree to release any
Subsidiary Guarantor from the Subsidiary Guaranty (i) if such Subsidiary
Guarantor ceases to be such as a result of a disposition permitted by Sections
10.5 or 10.6 or (ii) at such time as the banks party to the Credit Agreements
release such Subsidiary from its guaranty of Indebtedness under the Credit
Agreements; provided, however, that you and each subsequent holder will not be
required to release a Subsidiary Guarantor from the Subsidiary Guaranty under
the circumstances contemplated by clause (ii), if (A) a Default or Event of
Default has occurred and is continuing,
36
<PAGE>
(B) such Subsidiary Guarantor is to become a borrower under either Credit
Agreement or (C) such release is part of a plan of financing that contemplates
such Subsidiary Guarantor guaranteeing any other Indebtedness of the Company to
banks. Your obligation to release a Subsidiary Guarantor from the Subsidiary
Guaranty is conditioned upon your prior receipt of a certificate from a Senior
Financial Officer of the Company stating that none of the circumstances
described in clauses (A), (B) and (C) above are true.
23. MISCELLANEOUS.
23.1. SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this Agreement
by or on behalf of any of the parties hereto bind and inure to the benefit of
their respective successors and assigns (including any subsequent holder of a
Note) whether so expressed or not.
23.2. PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-Whole Amount or interest on
any Note that is due on a date other than a Business Day shall be made on the
next succeeding Business Day without including the additional days elapsed in
the computation of the interest payable on such next succeeding Business Day.
23.3. SEVERABILITY.
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
23.4. CONSTRUCTION.
Each covenant contained herein shall be construed (absent
express provision to the contrary) as being independent of each other covenant
contained herein, so that compliance with any one covenant shall not (absent
such an express contrary provision) be deemed to excuse compliance with any
other covenant. Where any provision herein refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
23.5. COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be an original but all of which together shall constitute
one instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
37
<PAGE>
23.6. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the law of the State
of Illinois excluding choice-of-law principles of the law of such State that
would require the application of the laws of a jurisdiction other than such
State.
23.7. SPIN-OFF.
Anything in this Agreement to the contrary notwithstanding,
nothing in this Agreement shall prohibit the consummation by the Parent of the
Spin-Off, or of any transaction contemplated by the (i) the Agreement and Plan
of Merger dated as of February 3, 2002 by and among the Parent, Cimarex Energy
(formerly known as Helmerich & Payne Exploration and Production Co.), Mountain
Acquisition Co. and Key Production Company, Inc., (ii) the Distribution
Agreement by and between the Company and Cimarex Energy Co., (iii) any agreement
referenced in the agreements referred to in clauses (i) and (ii), or (iv) any
other Disposition of the Oil and Gas Properties or the stock of Cimarex Energy
Co. if the Spin-Off is not consummated.
* * * * *
38
<PAGE>
If you are in agreement with the foregoing, please sign the
form of agreement on the accompanying counterpart of this Agreement and return
it to the Company, whereupon the foregoing shall become a binding agreement
between you and the Company.
Very truly yours,
HELMERICH & PAYNE INTERNATIONAL DRILLING CO.
By: /s/ Steven R. Mackey
-----------------------------------------
Name: Steven R. Mackey
---------------------------------------
Title: Vice President
--------------------------------------
HELMERICH & PAYNE, INC.
By: /s/ Steven R. Mackey
-----------------------------------------
Name: Steven R. Mackey
---------------------------------------
Title: Vice President
--------------------------------------
S-1
<PAGE>
The foregoing is agreed to as of the date thereof.
JACKSON NATIONAL LIFE INSURANCE COMPANY
By: PPM America, Inc., as attorney in fact on
behalf of Jackson National Life Insurance Company
By: /s/ Chris Raub
---------------------------------------
Name: Chris Raub
-------------------------------------
Title: Senior Managing Director
------------------------------------
JACKSON NATIONAL LIFE INSURANCE COMPANY
OF NEW YORK
By: PPM America, Inc., as attorney in fact on
behalf of Jackson National Life Insurance
Company of New York
By: /s/ Chris Raub
---------------------------------------
Name: Chris Raub
-------------------------------------
Title: Senior Managing Director
------------------------------------
THE PRUDENTIAL ASSURANCE COMPANY
LIMITED
By: PPM America, Inc., as attorney in fact on
behalf of The Prudential Assurance Company
Limited
By: /s/ Chris Raub
---------------------------------------
Name: Chris Raub
-------------------------------------
Title: Senior Managing Director
------------------------------------
S-2
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ C. Scott Inslis
---------------------------------------
Name: C. Scott Inslis
-------------------------------------
Title: Managing Director
------------------------------------
S-3
<PAGE>
THE NORTHWESTERN MUTUAL LIFE INSURANCE
COMPANY
By: /s/ David A. Barras
------------------------------------------------
Name: David A. Barras
----------------------------------------------
Title: Its Authorized Representative
---------------------------------------------
THE NORTHWESTERN MUTUAL LIFE INSURANCE
COMPANY
for its Group Annuity Separate Account
By: /s/ David A. Barras
------------------------------------------------
Name: David A. Barras
----------------------------------------------
Title: Its Authorized Representative
---------------------------------------------
S-4
<PAGE>
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Lisa M. Ferraro
------------------------------------------------
Name: Lisa M. Ferraro
----------------------------------------------
Title: Director
---------------------------------------------
S-5
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY
By: /s/ Mark W. Poeppelman
---------------------------------------
Name: Mark W. Poeppelman
-------------------------------------
Title: Associate Vice President
------------------------------------
NATIONWIDE LIFE AND ANNUITY INSURANCE
COMPANY
By: /s/ Mark W. Poeppelman
---------------------------------------
Name: Mark W. Poeppelman
-------------------------------------
Title: Associate Vice President
------------------------------------
NATIONWIDE MUTUAL INSURANCE COMPANY
By: /s/ Mark W. Poeppelman
---------------------------------------
Name: Mark W. Poeppelman
-------------------------------------
Title: Associate Vice President
------------------------------------
NATIONWIDE MUTUAL FIRE INSURANCE COMPANY
By: /s/ Mark W. Poeppelman
---------------------------------------
Name: Mark W. Poeppelman
-------------------------------------
Title: Associate Vice President
------------------------------------
AMCO INSURANCE COMPANY
By: /s/ Mark W. Poeppelman
---------------------------------------
Name: Mark W. Poeppelman
-------------------------------------
Title: Associate Vice President
------------------------------------
S-6
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By: /s/ James G. Lowery
------------------------------------------------
Name: James G. Lowery
----------------------------------------------
Title: Assistant Vice President
---------------------------------------------
Investments
--------------------------------------------
By: /s/ Tad Anderson
------------------------------------------------
Name: Tad Anderson
----------------------------------------------
Title: Manager
---------------------------------------------
Investments
--------------------------------------------
LONDON LIFE INSURANCE COMPANY
By: /s/ Brian Allison
------------------------------------------------
Name: Brian Allison
----------------------------------------------
Title: Authorized Signatory
---------------------------------------------
By: /s/ W.J. Sharman
------------------------------------------------
Name: W.J. Sharman
----------------------------------------------
Title: Authorized Signatory
---------------------------------------------
S-7
<PAGE>
JEFFERSON-PILOT LIFE INSURANCE COMPANY
By: /s/ Robert E. Whalen, II
------------------------------------------------
Name: Robert E. Whalen, II
----------------------------------------------
Title: Vice President
---------------------------------------------
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
By: /s/ Robert E. Whalen, II
------------------------------------------------
Name: Robert E. Whalen, II
----------------------------------------------
Title: Vice President
---------------------------------------------
S-8
<PAGE>
NEW YORK LIFE INSURANCE COMPANY
By: /s/ Lisa A. Scuderi
------------------------------------------------
Name: Lisa A. Scuderi
----------------------------------------------
Title: Investment Vice President
---------------------------------------------
NEW YORK LIFE INSURANCE AND
ANNUITY CORPORATION
By: New York Life Investment Management LLC,
Its Investment Manager
By: /s/ Lisa A. Scuderi
------------------------------------------------
Name: Lisa A. Scuderi
----------------------------------------------
Title: Director
---------------------------------------------
S-9
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
By: /s/ Lyle Triebwasser
------------------------------------------------
Name: Lyle Triebwasser
----------------------------------------------
Title: Senior Investment Officer
---------------------------------------------
By: /s/ Larry Rottunda
------------------------------------------------
Name: Larry Rottunda
----------------------------------------------
Title: Assistant Secretary
---------------------------------------------
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
By: /s/ Lyle Triebwasser
------------------------------------------------
Name: Lyle Triebwasser
----------------------------------------------
Title: Senior Investment Officer
---------------------------------------------
By: /s/ Larry Rottunda
------------------------------------------------
Name: Larry Rottunda
----------------------------------------------
Title: Assistant Secretary
---------------------------------------------
S-10
<PAGE>
AMERICAN UNITED LIFE INSURANCE COMPANY
By: /s/ Kent R. Adams
-------------------------------------------
Name: Kent R. Adams
-----------------------------------------
Title: Vice President, Fixed Income Securities
----------------------------------------
PIONEER MUTUAL LIFE INSURANCE COMPANY
By: /s/ Kent R. Adams
-------------------------------------------
Name: Kent R. Adams
-----------------------------------------
Title: Vice President, Fixed Income Securities
----------------------------------------
THE STATE LIFE INSURANCE COMPANY
By: /s/ Kent R. Adams
-------------------------------------------
Name: Kent R. Adams
-----------------------------------------
Title: Vice President, Fixed Income Securities
----------------------------------------
S-11
<PAGE>
PHOENIX LIFE INSURANCE COMPANY
By: /s/ John H. Beers
------------------------------------------------
Name: John H. Beers
----------------------------------------------
Title: Vice President
---------------------------------------------
S-12
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>5
<FILENAME>d02112exv13.txt
<DESCRIPTION>ANNUAL REPORT TO STOCKHOLDERS FOR FISCAL 2002
<TEXT>
<PAGE>
EXHIBIT 13
===============================================
HELMERICH & PAYNE, INC. ANNUAL REPORT FOR 2002
===============================================
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
- --------------------------------------------------------------------------------
RISK FACTORS AND FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes included elsewhere herein. The Company's
future operating results may be affected by various trends and factors, which
are beyond the Company's control. These include, among other factors,
fluctuations in oil and natural gas prices, expiration or termination of
drilling contracts, currency exchange gains and losses, changes in general
economic conditions, rapid or unexpected changes in technologies, risks of
foreign operations, uninsured risks, and uncertain business conditions that
affect the Company's businesses. Accordingly, past results and trends should not
be used by investors to anticipate future results or trends.
With the exception of historical information, the matters discussed in
Management's Discussion & Analysis of Results of Operations and Financial
Condition include forward-looking statements. These forward-looking statements
are based on various assumptions. The Company cautions that, while it believes
such assumptions to be reasonable and makes them in good faith, assumed facts
almost always vary from actual results. The differences between assumed facts
and actual results can be material. The Company is including this cautionary
statement to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statements made
by, or on behalf of, the Company. The factors identified in this cautionary
statement are important factors (but not necessarily all important factors) that
could cause actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company.
23
<PAGE>
SPIN-OFF AND MERGER TRANSACTIONS
On September 30, 2002, Helmerich & Payne, Inc. completed its distribution of
100 percent of the common stock of Cimarex Energy Co. to the Company's
shareholders and the subsequent merger of Key Production Company, Inc. into a
subsidiary of Cimarex making Key a wholly-owned subsidiary of Cimarex. The
Cimarex Energy Co. stock distribution was recorded as a dividend and resulted in
a decrease to consolidated stockholders' equity of approximately $152.2 million.
As a result of this transaction, the Company and its subsidiaries will continue
to own and operate the contract drilling and real estate business, and Cimarex
Energy Co. will be a separate, publicly-traded company that will own and operate
the exploration and production business. The Company does not own any common
stock of Cimarex Energy Co. (See Note 2 of the Financial Statements for complete
description of the transaction.) As a result of the transaction, the Company is
reporting the results of its former Exploration and Production Division (Cimarex
Energy Co.) as discontinued operations.
RESULTS OF OPERATIONS
All per share amounts included in the Results of Operations discussion are
stated on a diluted basis. Helmerich & Payne, Inc.'s net income for 2002 was
$63,517,000 ($1.26 per share) compared with net income of $144,254,000 ($2.84
per share), in 2001, and $82,300,000 ($1.64 per share) in 2000. Included in net
income for each year reported was income from discontinued operations of
$9,811,000 ($0.19 per share) for 2002, $63,787,000 ($1.26 per share) for 2001,
and $45,830,000 ($0.91 per share) for 2000. Also included in the Company's net
income, but not related to its
24
<PAGE>
operations, were after-tax gains from the sale of investment securities of
$15,206,000 ($0.30 per share) in 2002, $691,000 ($0.01 per share) in 2001, and
$8,152,000 ($0.16 per share) in 2000. In addition to income from security
sales, the Company also recorded net income during 2000 of $6,637,000 ($0.13 per
share) from gains relating to non-monetary dividends received. Also included in
net income is the Company's portion of income from its equity affiliates, which
totaled $0.06 per share in 2002, $0.04 per share in 2001, and $0.06 in 2000. The
Company's equity affiliates are Atwood Oceanics, Inc. and a 50-50 joint venture
with Atwood called Atwood Oceanics West Tuna Pty. Ltd., which owns an offshore
platform rig.
Consolidated revenues were $510,928,000 in 2002, $509,274,000 in 2001, and
$392,142,000 in 2000. Revenues increased by less than 1 percent from 2001 to
2002. Revenues from domestic operations rose by approximately 1 percent, due to
the increase in U.S. land rig revenue days recorded in 2002, as the Company
continued to complete the construction of new rigs during the year. Total H&P
U.S. land rigs available were 66 at the end of 2002, and 49 at the end of 2001.
Land rig utilization was 84 percent during 2002 and 97 percent in 2001.
Increased U.S. land rig revenues were partially offset by declines in U.S.
platform rig revenues. Total platform rig revenue days fell 8 percent from 2001
to 2002 as rig utilization fell to 83 percent in 2002, compared with 98 percent
in 2001. Revenues from international drilling operations declined by 11 percent
as the Company's rig utilization in South America fell from 56 percent in 2001
to 51 percent in 2002.
25
<PAGE>
The 30 percent increase in revenues from 2000 to 2001 was due to a 55 percent
increase in domestic revenues and a 13 percent increase in international
revenues. Demand for drilling services increased dramatically in the U.S.
during 2001, causing average revenue per day to improve by 58 percent from 2000
to 2001. During 2000, U.S. land rig utilization was 85 percent and U.S. platform
rig utilization was 94 percent. International rig utilizations improved to 56
percent during 2001, compared with 47 percent during 2000.
Revenues from investments were $28,444,000 in 2002, $10,317,000 in 2001, and
$31,510,000 in 2000. Included in revenues were pre-tax gains from the sale of
investment securities of $24,820,000 in 2002, $1,189,000 in 2001, and
$13,295,000 in 2000. Interest income from short-term investments was $1,432,000
in 2002, $5,219,000 in 2001 and $3,733,000 in 2000. Interest income from
short-term investments was higher in 2001 and 2000 because the Company's cash
and cash equivalent balances increased in each of these years and because of
higher prevailing market short-term interest rates. Dividend income was
$2,192,000 in 2002, $3,909,000 in 2001 and $14,482,000 in 2000. Dividend income
was unusually high in 2000 because the Company recognized $10,706,000 of
non-monetary dividends when three Company investees spun-off subsidiaries to
their shareholders.
Operating costs in 2002 were $336,890,000 or 70 percent of operating revenue,
compared with $308,437,000 or 62 percent of operating income in 2001, and
$234,132,000 or 65 percent of operating income in 2000. The operating cost
percentage rose in 2002 due to lower revenue per rig day, higher direct rig
operating cost, and additional costs associated with the addition of 16 rigs to
the U.S. land fleet
26
<PAGE>
during the year. The lower operating cost percentage in 2001, compared to 2000
was the result of higher revenue per rig day during 2001.
Depreciation expense was $61,447,000 in 2002, $49,532,000 in 2001, and
$77,317,000 in 2000. Effective October 1, 2000, the Company changed the
estimated useful life of its drilling equipment from 10 years to 15 years,
resulting in lower annual depreciation expense of approximately $30 million in
2001. Depreciation expense rose significantly during 2002, due to the addition
of 3 rigs in 2001 and 20 rigs in 2002. The Company anticipates depreciation
expense to increase again next year as a full year of depreciation is incurred
on rigs placed in service in 2002 and as new rigs are constructed and employed
in the field.
General and administrative expenses increased by approximately 22 percent from
2001 to 2002, and by 22 percent from 2000 to 2001. The most significant portion
of the increases for both 2001 and 2002 were from employee benefits relating to
medical insurance, 401(k) matching, and pension expenses. Employee salaries and
bonuses also contributed to the increases, along with increases in property and
casualty insurance. It is anticipated that general and administrative expenses
for 2003 will be higher than in 2002, due mainly to higher pension expense. The
value of pension plan assets has declined as a result of the recent decline in
the stock market. The Company lowered the expected return and discount rate
assumptions for calculation of accrued pension benefit costs. Additionally, the
Company may consider reclassifying to general and administrative expense some
costs that have been included in operating costs in prior years. Interest
expense was $980,000 in 2002, $1,701,000 in 2001, and $2,730,000 in
27
<PAGE>
2000. Although actual cash interest expense varied only slightly during the
past three years, the variance in construction project activity during those
periods resulted in more interest being capitalized during 2001 and 2002,
thereby lowering the amount expensed. As mentioned later in this section, the
increase in the total debt of the Company through the issuance of $200,000,000
of intermediate-term debt will result in a significant increase in interest
expense during 2003.
The provision for income taxes totaled $40,573,000 in 2002, $54,689,000 in 2001,
and $31,102,000 in 2000. Effective income tax rates on income from continuing
operations were 44 percent in 2002, 41 percent in 2001, and 48 percent in 2000.
The increase in effective tax rate from 2001 to 2002 was a result of currency
fluctuations, primarily in Venezuela, resulting in additional taxes for
inflationary gains and monetary corrections in 2002. The significant reduction
in effective rates from 2000 to 2001 was a result of lower taxes in Venezuela,
as a result of monetary correction losses and a larger proportion of income in
the Company's U.S. operations where tax rates are lower than the average tax
rates in the Company's international operations.
CONTRACT DRILLING OPERATING PROFIT
Demand for contract drilling services increased significantly during 2001, after
experiencing a lull in activity from 1998 to 2000. The significant improvement
was particularly experienced in U.S. land rig drilling where high natural gas
prices prevailed during 2001, thereby spurring the significant increase in rig
activity, dayrates, and costs. During 2002 demand for drilling services
declined, causing dayrates to soften. U.S. land rig utilizations fell to 84
percent in 2002, compared to 97 percent for 2001, while the Company's U.S.
offshore platform
28
<PAGE>
rig business realized utilizations averaging 94 percent in 2000, and 98 percent
in 2001. During 2002, the Company completed construction on 2 new platform rigs
that commenced operations during the Company's third quarter, moving its total
platform fleet to 12. However, demand for platform rig services waned during
the year moving the average utilization in that sector to 83 percent and
decreasing rig revenue days by 8 percent. Therefore, with demand for drilling
services declining in the U.S. during 2002, without a similar drop in costs,
the Company's operating profit in its domestic operations fell to $69,181,000
in 2002, compared to $107,691,000 in 2001. Operating profit during 2000 for the
U.S. sector was $35,808,000. Currently, 6 of the Company's 12 platform rigs are
active, and land rig dayrates are approximately the same as those achieved
during the fourth quarter of 2002. Should these conditions continue during 2003,
operating profit for U.S. operations will be lower than in 2002.
After a significant improvement in activity and profitability during the late
'90s, demand for drilling services in the Company's international sector has
declined significantly, with about half of the rigs working in South America
over the last two years compared with the number of rigs employed during the
1996 to 1999 time frame. As a result, operating profits for international
operations have declined to $13,128,000 in 2002 from $28,475,000 in 2001.
Operating profit was $9,753,000 in 2000. Utilizations were 51 percent in 2002,
56 percent in 2001, and 47 percent in 2000.
29
<PAGE>
International operating profit declined from 2001 to 2002 due to lower rig
utilization and higher devaluation losses. International operating profits
improved during 2001 compared to 2000 mainly due to lower depreciation expenses
resulting from a change in the estimated useful life in the Company's drilling
equipment as discussed below. The impact of the change added approximately $15
million to international operating profit in 2001, compared with 2000. Over the
past three years, rig activity levels have generally improved in Ecuador where
the Company has grown from 3 rigs in 1999 to 8 rigs by the end of 2002. Overall
utilization in that country averaged 93 percent during 2002. Conversely, the rig
count and utilization have declined dramatically in Colombia where the Company
operated 10 rigs in 1999, but declined to 3 rigs by 2002. Overall utilization
for 2002 in Colombia was 31 percent. In one of the Company's main international
operations, Venezuela, the total number of Company rigs has declined from 22 in
1999 to 14 in 2002. Average utilization during 2002 in Venezuela was 41 percent.
The remainder of the Company's rigs located in South America are in Bolivia (6
rigs), where utilization during 2002 was 30 percent, and Argentina (2 rigs),
where average utilization was 59 percent. Although activity is expected to
improve slightly in Venezuela during 2003, the Company does not expect
international operating profit to improve substantially during the year.
During 2002, the Company experienced devaluation losses totaling $1,200,000 in
Argentina and $4,393,000 in Venezuela. Previous to this year devaluation losses
in Venezuela totaled $796,000 in 2001 and $687,000 in 2000. During 2002,
Argentina experienced a dramatic economic collapse. As a result, the government
stopped the outflow of dollars from the country and required that former dollar
30
<PAGE>
obligations be paid in Argentina pesos. The $1,200,000 loss recorded by the
Company as of September 30, 2002 is an estimation of the losses it will
experience after all current receivables are collected. The Company has
completed negotiations with customers and has secured agreements that limit the
portion of the accounts receivable that will be paid in pesos, with the balance
of such accounts receivable to be paid in U.S. dollars. Based upon such
agreements, the Company does not expect significant Argentine currency losses
in fiscal 2003. In Venezuela, approximately 60 percent of the Company's
billings are in U.S. dollars and 40 percent are in bolivars, the local
currency. As a result, the Company is exposed to risk of currency devaluation
in Venezuela because of bolivar denominated receivables. The Company
anticipates additional devaluation losses in Venezuela during 2003, but it is
unable to predict the extent of the devaluation. If 2003 rig activity levels are
similar to 2002, and if a 25 percent to 100 percent devaluation would occur, the
Company could experience potential devaluation losses ranging from approximately
$1,700,000 to $4,200,000.
REAL ESTATE SEGMENT
Revenues totaled $8,525,000 for 2002, $11,018,000 for 2001, and $8,999,000 for
2000. Operating profit was $5,064,000 for 2002, $6,315,000 for 2001, and
$5,346,000 in 2000. The increase in revenues and operating profit in 2001 was
due to the sale of a small parcel of raw land. Revenues and operating profit for
2002 were down due to slight reductions in occupancy rates for both retail and
industrial properties. No material changes are anticipated in the Real Estate
Division in 2003.
31
<PAGE>
CRITICAL ACCOUNTING POLICIES
The Company's consolidated financial statements are impacted by the accounting
policies used and the estimates and assumptions made by management during their
preparation. The following is a discussion of the critical accounting policies
related to property, plant and equipment, impairments, self-insurance accruals,
and revenue recognition. Other significant accounting policies are summarized
in Note 1 in the notes to the consolidated financial statements.
Property, plant and equipment, including renewals and betterments, are stated at
cost, while maintenance and repairs are expensed currently. Interest costs
applicable to the construction of qualifying assets are capitalized as a
component of the cost of such assets. We provide for the depreciation of
property, plant and equipment using the straight-line method over the estimated
useful lives of the assets. Upon retirement or other disposal of fixed assets,
the cost and related accumulated depreciation are removed from the respective
accounts, and any gains or losses are recorded in our results of operations.
We review our long-lived assets, including property and equipment, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss exists
when estimated undiscounted cash flows, expected to result from the use of the
asset and its eventual disposition, are less than its carrying amount. Any
impairment loss recognized represents the excess of the asset's carrying value
as compared to its estimated fair value, which is determined based on the
present value of estimated cash flows from the asset, appraisals or sales prices
of comparable assets. There were no long-lived asset impairment losses
32
<PAGE>
in the Company's continuing operations during the years ended September 30,
2002, 2001, and 2000. However, should industry market conditions deteriorate
from those existing currently, impairment losses could be recorded. All of our
drilling rigs are transportable and are therefore not limited to one area or
country. Drilling rigs can be moved from countries where demand is low to
countries experiencing high demand for drilling services. When making
determinations of location for drilling rigs, the Company considers both long
and short-term views of demand and other reasonable business considerations.
The Company is self-insured or maintains high deductibles for certain losses
relating to worker's compensation, general, product, and auto liabilities.
Generally, deductibles are $2 million per occurrence on claims that fall under
these coverages. Insurance is also purchased on rig properties, and generally,
deductibles are $1 million per occurrence. Excess insurance is purchased over
these coverages to limit the Company's exposure to catastrophic claims, but
there can be no assurance that such coverage will respond or be adequate in all
circumstances. Retained losses are estimated and accrued based upon our
estimates of the aggregate liability for claims incurred, and using the
Company's historical loss experience and estimation methods that are believed
to be reliable and acceptable in the insurance industry.
Revenues and costs on daywork contracts are recognized daily as the work
progresses. For certain contracts, we receive lump-sum payments for the
mobilization of rigs and other drilling equipment. Revenues earned, net of
direct costs incurred for the mobilization, are deferred and recognized over the
term of the related drilling contract. Other lump-sum payments received from
customers relating to specific contracts
33
<PAGE>
are deferred and amortized to income as services are performed. Costs incurred
to relocate rigs and other drilling equipment to areas in which a contract has
not been secured are expensed as incurred.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital spending for continuing operations was $312,064,000 in
2002, $184,668,000 in 2001, and $65,820,000 in 2000. Net cash provided from
operating activities for those same time periods were $151,774,000 in 2002,
$127,435,000 in 2001, and $97,894,000 in 2000. In addition to the net cash
provided by operating activities, the Company also generated net proceeds from
the sale of portfolio securities of $47,146,000 in 2002, $24,438,000 in 2001,
and $12,569,000 in 2000.
During 2000, the Company announced a program (FlexRig2 program) under which it
would construct 12 new FlexRigs at an approximate cost of between $7.5 and $8.25
million each. During 2001, the Company completed construction on 7 of those 12
rigs. Additionally, the Company announced in 2001 that it would embark on
another construction project (FlexRig3 program) to build an additional 25
FlexRigs at an approximate cost of $11.0 million each. During 2002, the Company
completed the remaining 5 rigs in the FlexRig2 program and the first 8 rigs in
the FlexRig3 program. The Company intends to complete the remaining 17 rigs of
that program by July 2003.
34
<PAGE>
The Company expects to fund its 2003 capital spending of approximately
$195,000,000 with internally generated cash flow and recently arranged debt
financing. In August 2002, the Company entered into a $200 million
intermediate-term unsecured debt obligation with staged maturities from 5 to 12
years and a weighted average interest rate of 6.31 percent. Funding of the notes
occurred on August 15, 2002 and October 15, 2002 in equal amounts of $100
million. The terms of the debt obligations require the Company to maintain a
minimum ratio of debt to total capitalization. Proceeds from the
intermediate-term debt were used to repay the balance of the Company's
outstanding debt of $50 million in September 2002, pay outstanding balances in
accounts payable related to the Company's rig construction program, and for
other general corporate purposes.
At September 30, 2002, the Company had a committed unsecured line of credit
totaling $125 million. Letters of credit totaling $10,587,260 were outstanding
against the line, leaving $114,412,740 available to borrow. The line of credit
matures in July 2003 and bears interest of LIBOR + .875 percent to 1.125 percent
depending on certain financial ratios of the Company. The Company must maintain
certain financial ratios as defined including debt to total capitalization and
debt to earnings before interest, taxes, depreciation, and amortization, and
maintain certain levels of liquidity and tangible net worth.
At September 30, 2002, the company held an unassociated interest rate swap tied
to 30-day LIBOR in the amount of $50 million, which matures on October 27, 2003.
The interest rate swap instrument originally was designated as a hedge of a $50
million loan that was paid off in September 2002. The interest rate swap was
valued as a liability
35
<PAGE>
of approximately $1.7 million on the date the $50 million debt was paid off. The
$1.7 million will be amortized over the remaining life of the interest rate
swap as interest expense. In 2002, $17,000 of this amortization was included in
interest expense. Changes to the value of the interest rate swap subsequent to
the date the $50 million debt was paid will be recorded to income.
The strength of the Company's balance sheet is substantial, with current ratios
for September 30, 2002 and 2001 at 2.5 and 3.9, respectively, and with debt to
total capitalization of 10 percent and 4.6 percent, respectively. Additionally,
the Company manages a large portfolio of marketable securities that, at the
close of 2002, had a market value of $175,668,000. The Company's investments in
Atwood Oceanics, Inc., Schlumberger, Ltd., Transocean, and ConocoPhillips make
up over 90 percent of the portfolio's market value. The portfolio is subject to
fluctuation in the market and may vary considerably over time. Excluding the
Company's equity-method investments, the portfolio is recorded at fair value on
the Company's balance sheet for each reporting period. During 2002, the Company
paid a dividend of $0.305 per share, or a total of $15,221,084, representing
the 31st consecutive year of dividend increases.
STOCK PORTFOLIO HELD BY THE COMPANY
<Table>
<Caption>
SEPTEMBER 30, 2002 NUMBER OF SHARES BOOK VALUE COST MARKET VALUE
------------------ ---------------- --------------- ------------
(in thousands, except share amounts)
<S> <C> <C> <C>
Atwood Oceanics, Inc. 3,000,000 $ 58,937 $ 87,750
Schlumberger, Ltd. 1,480,000 23,511 56,921
Transocean Sedco Forex, Inc. 286,528 9,509 5,960
ConocoPhillips 240,000 5,976 11,098
Other 8,849 13,939
--------- ---------
Total $ 106,782 $ 175,668
========= =========
</Table>
36
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY EXCHANGE RATE RISK
The Company has international operations in several South American countries and
a labor contract for work off the coast of Equatorial Guinea. With the exception
of Venezuela, the Company's exposure to currency valuation losses is usually
minimal, due to the fact that virtually all billings and payments in other
countries are in U.S. dollars. Even though the Company's contract with its
customers in Argentina were in U.S. dollars, Argentina experienced a dramatic
economic collapse. As a result, the government stopped the outflow of dollars
from the country and required that former dollar obligations be paid in
Argentina pesos, resulting in the Company recording a $1,200,000 loss for 2002.
At the present time, the Company is not engaged in performing contract drilling
services in Argentina, even though 2 rigs remain in that country.
In Venezuela, approximately 60 percent of the Company's billings are in U.S.
dollars and 40 percent are in bolivars, the local currency. As a result, the
Company is exposed to risks of currency devaluation in Venezuela because of the
bolivar denominated receivables. During 2002, the Company experienced
devaluation losses in Venezuela of $4,393,000, and losses of $796,000 in 2001,
and $687,000 in 2000. The Company anticipates additional devaluation losses in
Venezuela in 2003, but it is unable to predict the extent of the devaluation or
its financial impact. Should Venezuela experience a 25 to 100 percent
devaluation, Company losses could range from approximately $1,700,000 to
$4,200,000.
37
<PAGE>
COMMODITY PRICE RISK
The demand for contract drilling services is a result of exploration and
production companies spending money to explore and develop drilling prospects in
search for crude oil and natural gas. Their appetite for such spending is driven
by their cash flow and financial strength, which is very dependent, among other
things, on crude oil and natural gas commodity prices. Crude oil prices are
determined by a number of factors including supply and demand, worldwide
economic conditions, and geopolitical factors. Crude oil and natural gas prices
have been volatile, and very difficult to predict. This difficulty has led many
exploration and production companies to base their capital spending on much more
conservative estimates of commodity prices. As a result, demand for contract
drilling services are not always purely a function of the movement of commodity
prices.
INTEREST RATE RISK
As mentioned earlier, the Company has entered into a $200,000,000 intermediate
term unsecured debt obligation with stage maturities from 5 to 12 years, with
varying fixed interest rates for each maturity series. $100 million was
outstanding at September 30, 2002, of which $12.5 million is due on August 15,
2007 and the remaining $87.5 million is due 2009 through 2014. The average
interest rate during the next five years on this debt is 6.3 percent, after
which it increases to 6.4 percent. The fair value of this debt at September 30,
2002 was approximately $109.7 million.
At September 30, 2002, the Company held an interest rate swap on $50 million
face value of debt to receive variable interest payments based on 30-day LIBOR
rates and pay fixed interest payments of 5.4 percent through October 27, 2003.
The swap instrument originally was
38
<PAGE>
designated as a hedge of a $50 million variable rate loan that was paid off in
September 2002. The swap will result in monthly payments (receipts) to the
extent 30-day LIBOR rates are less (greater) than 5.4 percent. At September 30,
2002, the fair value of the swap was a $1.7 million liability.
At September 30, 2002, the Company had in place a committed unsecured line of
credit totaling $125,000,000. Although there were letters of credit outstanding
against the line, there had been no cash borrowings against the line of credit
as of September 30, 2002. The Company's line of credit interest rate is based on
LIBOR plus .875 to 1.125 percent based on the Company's EBITDA to net debt
ratio. Should the Company need to draw on this line of credit, the Company would
be subject to the interest rates prevailing during the term at which the Company
had outstanding borrowings. Although market interest rates were at historical
lows during fiscal year 2002, interest rates could rise for a number of various
reasons in the future, and increase the Company's total interest expense.
EQUITY PRICE RISK
At September 30, 2002, the Company owned stocks in other publicly held
companies, with a total market value of $175,668,000. These securities are
subject to a wide variety and number of market-related risks that could
substantially reduce or increase the market value of the Company's holdings.
Except for the Company's holdings in its equity affiliate, Atwood Oceanics,
Inc., and its 50-50 joint venture investment with Atwood, the portfolio is
recorded at fair value on its balance sheet, with changes in unrealized
after-tax value reflected in the equity section of its balance sheet. Any
reduction in market value would have an impact on the Company's debt ratio and
financial strength.
39
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Helmerich & Payne, Inc.
We have audited the accompanying consolidated balance sheets of Helmerich &
Payne, Inc. as of September 30, 2002 and 2001, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended September 30, 2002. 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 auditing standards generally accepted
in the United States. 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 Helmerich & Payne,
Inc. at September 30, 2002 and 2001, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 2002, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
Tulsa, Oklahoma
November 22, 2002
40
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30, 2002 2001 2000
------------------------- -------- -------- --------
(in thousands, except per share amount)
<S> <C> <C> <C>
REVENUES
Operating revenues $482,484 $498,957 $360,632
Income from investments 28,444 10,317 31,510
-------- -------- --------
510,928 509,274 392,142
-------- -------- --------
COSTS AND EXPENSES
Operating costs 336,890 308,437 234,132
Depreciation 61,447 49,532 77,317
General and administrative 20,391 16,627 13,612
Interest 980 1,701 2,730
-------- -------- --------
419,708 376,297 327,791
-------- -------- --------
Income from continuing operations before income
taxes and equity in income of affiliates 91,220 132,977 64,351
Provision for income taxes 40,573 54,689 31,102
Equity in income of affiliates
net of income taxes 3,059 2,179 3,221
-------- -------- --------
Income from continuing operations 53,706 80,467 36,470
Income from discontinued operations 9,811 63,787 45,830
-------- -------- --------
NET INCOME $ 63,517 $144,254 $ 82,300
======== ======== ========
Basic earnings per common share:
Income from continuing operations $ 1.08 $ 1.61 $ 0.74
Income from discontinued operations 0.19 1.27 0.92
-------- -------- --------
Net income $ 1.27 $ 2.88 $ 1.66
======== ======== ========
Diluted earnings per common share:
Income from continuing operations $ 1.07 $ 1.58 $ 0.73
Income from discontinued operations 0.19 1.26 0.91
-------- -------- --------
Net income $ 1.26 $ 2.84 $ 1.64
======== ======== ========
Average common shares outstanding
Basic 49,825 50,096 49,534
Diluted 50,345 50,772 50,035
</Table>
The accompanying notes are an integral part of these statements.
41
<PAGE>
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
ASSETS
<Table>
<Caption>
SEPTEMBER 30, 2002 2001
------------- ---------- ----------
(in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 46,883 $ 128,826
Accounts receivable, less reserve of $1,337 in 2002 and $1,327 in 2001 92,604 116,752
Inventories 22,511 23,553
Prepaid expenses and other 16,753 31,269
---------- ----------
Total current assets 178,751 300,400
---------- ----------
Net assets of discontinued operations -- 135,257
---------- ----------
INVESTMENTS 146,855 200,286
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Contract drilling equipment 1,235,784 997,177
Construction in progress 72,303 30,838
Real estate properties 48,925 50,579
Other 82,310 78,420
---------- ----------
1,439,322 1,157,014
Less-accumulated depreciation and amortization 541,877 506,963
---------- ----------
Net property, plant and equipment 897,445 650,051
---------- ----------
OTHER ASSETS 4,262 14,127
---------- ----------
TOTAL ASSETS $1,227,313 $1,300,121
========== ==========
</Table>
The accompanying notes are an integral part of these statements.
42
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<Table>
<Caption>
SEPTEMBER 30, 2002 2001
------------- ------------ ------------
(in thousands, except share data)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 41,045 $ 44,814
Accrued liabilities 31,854 31,606
------------ ------------
Total current liabilities 72,899 76,420
------------ ------------
NONCURRENT LIABILITIES:
Long-term notes payable 100,000 50,000
Deferred income taxes 131,401 126,338
Other 27,843 20,886
------------ ------------
Total noncurrent liabilities 259,244 197,224
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value, 80,000,000 shares authorized,
53,528,952 shares issued 5,353 5,353
Preferred stock, no par value, 1,000,000 shares authorized, no shares issued -- --
Additional paid-in capital 82,489 80,324
Retained earnings 838,929 943,105
Unearned compensation (190) (1,812)
Accumulated other comprehensive income 16,180 49,309
------------ ------------
942,761 1,076,279
Less treasury stock, 3,518,282 shares in 2002 and
3,676,155 shares in 2001, at cost 47,591 49,802
------------ ------------
Total stockholders' equity 895,170 1,026,477
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,227,313 $ 1,300,121
============ ============
</Table>
The accompanying notes are an integral part of these statements.
43
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<Table>
<Caption>
Common Stock Additional Treasury Stock
------------------ Paid-in Unearned Retained ------------------
Shares Amount Capital Compensation Earnings Shares Amount
-------- -------- ---------- ------------ -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1999 53,529 $ 5,353 $ 61,411 $ (4,487) $745,956 3,903 $(35,306)
Comprehensive Income:
Net Income 82,300
Other comprehensive income:
Unrealized gains on available-
for sale securities, net
Comprehensive income
Cash dividends ($.285 per share) (14,448)
Exercise of Stock Options 4,491 (366) 3,253
Purchase of stock for treasury 21 (450)
Tax benefit of stock-based
Awards 31
Stock issued under Restricted
Stock Award Plan 157 (248) (10) 91
Amortization of deferred
Compensation 1,458 77
-------- -------- ---------- ------------ -------- -------- --------
Balance, September 30, 2000 53,529 5,353 66,090 (3,277) 813,885 3,548 (32,412)
Comprehensive Income:
Net Income 144,254
Other comprehensive income:
Unrealized losses on available-
for sale securities, net
Derivatives instruments losses, net
Total other comprehensive loss
Comprehensive income
Cash dividends ($.30 per share) (15,047)
Exercise of Stock Options 7,965 (646) 5,808
Purchase of stock for treasury 774 (23,198)
Tax benefit of stock-based
Awards 6,269
Amortization of deferred
Compensation 1,465 13
-------- -------- ---------- ------------ -------- -------- --------
Balance, September 30, 2001 53,529 5,353 80,324 (1,812) 943,105 3,676 (49,802)
Comprehensive Income:
Net Income 63,517
Other comprehensive income:
Unrealized losses on available-
for sale securities, net
Derivatives instruments losses, net
Minimum pension liability
adjustment, net
Total other comprehensive loss
Comprehensive income
Distribution of Cimarex Energy Co. Stock (152,201)
Cash dividends ($.31 per share) (15,492)
Exercise of Stock Options 1,099 (181) 2,455
Forfeiture of Restricted Stock Award 88 156 23 (244)
Tax benefit of stock-based
awards 978
Amortization of deferred
Compensation 1,466
-------- -------- ---------- ------------ -------- -------- --------
Balance, September 30, 2002 53,529 $ 5,353 $ 82,489 $ (190) $838,929 3,518 $(47,591)
======== ======== ========== ============ ======== ======== ========
<Caption>
Accumulated
Other
Comprehensive
Income (Loss) Total
------------- ---------
<S> <C> <C>
Balance, September 30, 1999 $ 75,182 $ 848,109
Comprehensive Income:
Net Income 82,300
Other comprehensive income:
Unrealized gains on available-
for sale securities, net 30,882 30,882
---------
Comprehensive income 113,182
---------
Cash dividends ($.285 per share) (14,448)
Exercise of Stock Options 7,744
Purchase of stock for treasury (450)
Tax benefit of stock-based
Awards 31
Stock issued under Restricted
Stock Award Plan --
Amortization of deferred
Compensation 1,535
------------- ---------
Balance, September 30, 2000 106,064 955,703
Comprehensive Income:
Net Income 144,254
Other comprehensive income:
Unrealized losses on available-
for sale securities, net (55,769) (55,769)
Derivatives instruments losses, net (986) (986)
---------
Total other comprehensive loss (56,755)
---------
Comprehensive income 87,499
---------
Cash dividends ($.30 per share) (15,047)
Exercise of Stock Options 13,773
Purchase of stock for treasury (23,198)
Tax benefit of stock-based
Awards 6,269
Amortization of deferred
Compensation 1,478
------------- ---------
Balance, September 30, 2001 49,309 1,026,477
Comprehensive Income:
Net Income 63,517
Other comprehensive income:
Unrealized losses on available-
for sale securities, net (25,449) (25,449)
Derivatives instruments losses, net (68) (68)
Minimum pension liability
adjustment, net (7,612) (7,612)
---------
Total other comprehensive loss (33,129)
---------
Comprehensive income 30,388
---------
Distribution of Cimarex Energy Co. Stock (152,201)
Cash dividends ($.31 per share) (15,492)
Exercise of Stock Options 3,554
Forfeiture of Restricted Stock Award --
Tax benefit of stock-based
awards 978
Amortization of deferred
Compensation 1,466
------------- ---------
Balance, September 30, 2002 $ 16,180 $ 895,170
============= =========
</Table>
The accompanying notes are an integral part of these statements.
44
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30, 2002 2001 2000
------------------------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Income from continuing operations $ 53,706 $ 80,467 $ 36,470
---------- ---------- ----------
Adjustments to reconcile income from continuing
operations to net cash provided by operating activities:
Depreciation 61,447 49,532 77,317
Equity in income of affiliates before income taxes (5,014) (3,593) (5,196)
Amortization of deferred compensation 1,122 1,135 1,200
Gain on sales of securities and non-monetary investment loss (24,347) (1,189) (24,000)
Gain on sale of property, plant and equipment (1,392) (4,201) (959)
Other - net 791 876 629
Change in assets and liabilities:
Accounts receivable 24,148 (49,405) 11,932
Inventories 1,042 (68) (40)
Prepaid expenses and other 24,381 (11,411) (7,466)
Accounts payable (3,769) 29,290 (2,301)
Accrued liabilities 955 18,435 (2,533)
Deferred income taxes 24,133 15,291 17,623
Other noncurrent liabilities (5,429) 2,276 (4,782)
---------- ---------- ----------
98,068 46,968 61,424
---------- ---------- ----------
Net cash provided by operating activities 151,774 127,435 97,894
---------- ---------- ----------
INVESTING ACTIVITIES:
Capital expenditures (312,064) (184,668) (65,820)
Acquisition of business, net of cash acquired -- (2,279) --
Proceeds from sale of property, plant and equipment 4,135 11,984 16,013
Purchase of investments (5,656) -- --
Proceeds from sale of securities 47,146 24,438 12,569
---------- ---------- ----------
Net cash used in investing activities (266,439) (150,525) (37,238)
---------- ---------- ----------
FINANCING ACTIVITIES:
Proceeds from notes payable 100,000 -- --
Payments on notes payable (50,000) -- (5,000)
Dividends paid (15,221) (15,047) (14,175)
Purchases of stock for treasury -- (23,198) (450)
Proceeds from exercise of stock options 3,554 13,601 5,437
---------- ---------- ----------
Net cash provided by (used in) financing activities 38,333 (24,644) (14,188)
---------- ---------- ----------
DISCONTINUED OPERATIONS:
Net cash provided by operating activities 62,792 157,286 103,942
Net cash (used in) investing activities (55,232) (88,813) (64,081)
Cash of discontinued operations at spinoff (13,171) -- --
---------- ---------- ----------
Net cash provided by (used in) discontinued operations (5,611) 68,473 39,861
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (81,943) 20,739 86,329
Cash and cash equivalents, beginning of period 128,826 108,087 21,758
---------- ---------- ----------
Cash and cash equivalents, end of period $ 46,883 $ 128,826 $ 108,087
========== ========== ==========
</Table>
The accompanying notes are an integral part of these statements.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
September 30, 2002, 2001 and 2000
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Helmerich & Payne,
Inc. (the Company), and all of its wholly-owned subsidiaries. Fiscal years of
the Company's foreign consolidated operations end on August 31 to facilitate
reporting of consolidated results.
BASIS OF PRESENTATION
On September 30, 2002, the Company distributed 100 percent of the common stock
of Cimarex Energy Co. to the Company's stockholders. Cimarex Energy Co. held the
Company's exploration and production business and has been accounted for as
discontinued operations in the accompanying consolidated financial statements.
Unless indicated otherwise, the information in the notes to consolidated
financial statements relates to the continuing operations of the Company (see
Note 2).
TRANSLATION OF FOREIGN CURRENCIES
The Company has determined that the functional currency for its foreign
subsidiaries is the U.S. dollar. The foreign currency transaction loss for 2002,
2001 and 2000 was $5,473,000, $494,000, and $664,000, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
PROPERTY, PLANT AND EQUIPMENT
In accordance with Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", the Company recognizes impairment losses for long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows expected to be generated by the asset are not sufficient
to recover the carrying amount of the asset. The impairment loss is calculated
as the difference between fair value and carrying amount of the long-lived
asset. Fair value on all long-lived assets are based on discounted future cash
flows or information provided by sales and purchases of similar assets.
Substantially all property, plant and equipment is depreciated using the
straight-line method based on the following estimated useful lives:
<Table>
<Caption>
YEARS
-----
<S> <C>
Contract drilling equipment 4-15
Real estate buildings and equipment 10-50
Other 3-33
</Table>
46
<PAGE>
As the result of an economic evaluation of useful lives of its drilling
equipment, the Company extended the depreciable life of its rig equipment from
10 to 15 years. This change provides a better matching of revenues and
depreciation expense over the useful life of the equipment. This change,
effective October 1, 2000, reduced depreciation expense for 2002 and 2001 by
approximately $30.0 million each year.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in banks and investments readily
convertible into cash which mature within three months from the date of
purchase.
INVENTORIES AND SUPPLIES
Inventory and supplies are primarily replacement parts and supplies held for use
in our drilling operations. Inventory and supplies are valued at the lower of
cost (moving average or actual) or market value.
DRILLING REVENUES
Contract drilling revenues are comprised primarily of daywork drilling contracts
for which the related revenues and expenses are recognized as work progresses.
Fiscal 2000 contract drilling revenues also include revenues of $4,109,000 from
a rig construction contract for which revenues were recognized based on the
percentage-of-completion method, measured by the percentage that incurred costs
to date bear to total estimated costs. The Company does not currently have any
third party rig construction contracts. For certain contracts, the Company
receives lump-sum payments for the mobilization of rigs and other drilling
equipment. Revenues earned, net of direct costs incurred for the mobilization,
are deferred and recognized over the term of the related drilling contract.
Costs incurred to relocate rigs and other drilling equipment to areas in which a
contract has not been secured are expensed as incurred.
INVESTMENTS
The cost of securities used in determining realized gains and losses is based on
the average cost basis of the security sold. Net income in 2002 and 2001
includes a loss of approximately $0.5 million, $0.01 per share on a diluted
basis, and $1.4 million, $0.03 per share on a diluted basis, respectively,
resulting from the Company's assessment that the decline in market value of
certain available-for-sale securities below their financial cost basis was other
than temporary. There were no similar losses incurred in 2000.
Investments in companies owned from 20 to 50 percent are accounted for using the
equity method with the Company recognizing its proportionate share of the income
or loss of each investee. The Company owned approximately 22% of Atwood
Oceanics, Inc. (Atwood) at both September 30, 2002 and 2001. The quoted market
value of the Company's investment was $87,750,000 and $78,000,000 at September
30, 2002 and 2001, respectively. Retained earnings at September 30, 2002
includes approximately $29,720,000 of undistributed earnings of Atwood.
47
<PAGE>
Summarized financial information of Atwood is as follows:
<Table>
<Caption>
SEPTEMBER 30, 2002 2001 2000
------------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Gross revenues $ 149,157 $ 147,541 $ 134,514
Costs and expenses 120,872 120,195 111,366
---------- ---------- ----------
Net income $ 28,285 $ 27,346 $ 23,148
========== ========== ==========
Helmerich & Payne, Inc.'s equity in net income,
net of income taxes $ 4,206 $ 3,596 $ 3,221
========== ========== ==========
Current assets $ 71,771 $ 45,891 $ 64,917
Noncurrent assets 372,715 304,857 248,334
Current liabilities 24,417 19,144 17,484
Noncurrent liabilities 143,967 85,948 77,562
Shareholders' equity 276,102 245,656 218,205
========== ========== ==========
Helmerich & Payne, Inc.'s investment $ 58,937 $ 52,153 $ 46,353
========== ========== ==========
</Table>
INCOME TAXES
Deferred income taxes are computed using the liability method and are provided
on all temporary differences between the financial basis and the tax basis of
the Company's assets and liabilities.
OTHER POST EMPLOYMENT BENEFITS
The Company sponsors a health care plan that provides post retirement medical
benefits to retired employees. Employees who retire after November 1, 1992 and
elect to participate in the plan pay the entire estimated cost of such benefits.
The Company has accrued a liability for estimated workers compensation claims
incurred. The liability for other benefits to former or inactive employees after
employment but before retirement is not material.
EARNINGS PER SHARE
Basic earnings per share is based on the weighted-average number of common
shares outstanding during the period. Diluted earnings per share includes the
dilutive effect of stock options and restricted stock.
EMPLOYEE STOCK-BASED AWARDS
Employee stock-based awards are accounted for under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
information. Fixed plan common stock options do not result in compensation
expense, because the exercise price of the stock equals the market price of the
underlying stock on the date of grant.
48
<PAGE>
TREASURY STOCK
Treasury stock purchases are accounted for under the cost method whereby the
entire cost of the acquired stock is recorded as treasury stock. Gains and
losses on the subsequent reissuance of shares are credited or charged to
additional paid-in-capital using the average-cost method.
CAPITALIZATION OF INTEREST
The Company capitalizes interest on major projects during construction. Interest
is capitalized on borrowed funds, with the rate based on the average interest
rate on related debt. Capitalized interest for 2002, 2001 and 2000 was $2.5
million, $1.3 million and $0.1 million, respectively.
INTEREST RATE RISK MANAGEMENT
The Company uses derivatives as part of an overall operating strategy to
moderate certain financial market risks and is exposed to interest rate risk
from long-term debt. To manage this risk, in October 1998, the Company entered
into an interest rate swap to exchange floating rate for fixed rate interest
payments through October 2003, the remaining life of the debt. The difference to
be paid or received is accrued and recognized as an adjustment of interest
expense. As of September 30, 2002, the Company's interest rate swap had a
notional principal amount of $50 million.
The Company's accounting policy for these instruments is based on its
designation of such instruments as hedging transactions. An instrument is
designated as a hedge based in part on its effectiveness in risk reduction and
one-to-one matching of derivative instruments to underlying transactions. The
Company records all derivatives on the balance sheet at fair value.
For derivative instruments that are designated and qualify as a cash flow hedge
(i.e., hedging the exposure of variability in expected future cash flows that is
attributable to a particular risk), the effective portion of the gain or loss on
the derivative instrument is reported as a component of other comprehensive
income in stockholders' equity and reclassified into earnings in the same period
or periods during which the hedged transaction affects earnings. The change in
value of the derivative instrument in excess of the cumulative change in the
present value of the future cash flows of the risk being hedged, if any, is
recognized in the current earnings during the period of change.
Gains and losses from termination of interest rate swap agreements are deferred
and amortized as an adjustment to interest expense over the original term of the
terminated swap agreement.
The company has one derivative, an interest rate swap, that is discussed further
in Note 3.
49
<PAGE>
NOTE 2 DISCONTINUED OPERATIONS
On February 22, 2002, the Company's board of directors approved and on February
23, 2002, the Company entered into an Agreement and Plan of Merger and related
agreements with Key Production Company, Inc., including a Distribution Agreement
between the Company and Cimarex Energy Co. The agreements provided for the
consolidation of the Company's exploration and production business under Cimarex
Energy Co.; the distribution of 100 percent of the Cimarex Energy Co. common
stock to the Company's stockholders; and the merger of Key Production Company,
Inc. with a subsidiary of Cimarex Energy Co.
In July of 2002, the Company obtained a Private Letter Ruling from the Internal
Revenue Service to the effect that the contribution and transfer of the assets
and liabilities of the Company's exploration and production business to Cimarex
Energy Co. and the distribution by the Company of all shares of Cimarex Energy
Co. common stock to the holders of the Company's common stock would generally be
treated as a tax-free transaction for U.S. federal income tax purposes. Although
private letter rulings are generally binding on the IRS, the Company will not be
able to rely on this ruling if any of the factual representations or assumptions
that were made to obtain the ruling are, or become, incorrect or untrue in any
material respect. However, the Company is not aware of any facts or
circumstances that would cause any of the representations or assumptions to be
incorrect or untrue in any material respect. The distribution could also become
taxable to the Company, but not the Company's stockholders, under the Internal
Revenue Code (IRC) in the event the Company's subsequent business combinations
were deemed to be part of a plan contemplated at the time of distribution and
would constitute a total cumulative change of more than 50 percent of the equity
interest in either company.
On September 30, 2002, the Company's distribution of 100 percent of the common
stock of Cimarex Energy Co. and the subsequent merger of Key Production Company,
Inc. was completed. Upon completion of the merger, approximately 26.6 million
shares of the Cimarex Energy Co. common stock on a diluted basis was distributed
to stockholders of the Company of record on September 27, 2002. The Cimarex
Energy Co. stock distribution was recorded as a dividend and resulted in a
decrease to consolidated stockholders' equity of approximately $152.2 million.
Following this transaction, the Company and its subsidiaries will continue to
own and operate the contract drilling and real estate businesses, and Cimarex
Energy Co. will be a separate, publicly-traded company that will own and operate
the exploration and production business. The company does not own any common
stock of Cimarex Energy Co.
50
<PAGE>
Under terms of a tax sharing agreement, each party has agreed to indemnify the
other in respect of all taxes for which it is responsible under the tax sharing
agreement. Cimarex is responsible for all taxes related to the exploration and
production business for all of past and future periods, including all taxes
arising from the Cimarex business prior to the time that Cimarex was formed, and
agrees to hold the Company harmless in respect of those taxes. Cimarex is
entitled to receive all refunds and credits of taxes previously paid with
respect to the exploration and production business. Cimarex will not receive the
benefit of any loss or similar tax attribute arising during the time that losses
from the Cimarex business are included in the Company's consolidated federal
income tax return. The Company remains responsible for all taxes related to the
business of the Company other than the exploration and production business and
has agreed to indemnify Cimarex in respect of any liability for any such taxes.
Summarized results of discontinued operations for the years ended September 30,
2002, 2001 and 2000, are as follows:
<Table>
<Caption>
2002 2001 2000
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Revenues $172,827 $317,580 $238,953
Income from operations:
Income before income taxes 15,138 102,125 72,412
Tax provision 5,327 38,338 26,582
-------- -------- --------
Income from discontinued operations $ 9,811 $ 63,787 $ 45,830
======== ======== ========
</Table>
Net assets of discontinued operations as of September 30, 2001 are as follows:
<Table>
<Caption>
2001
---------
(in thousands)
<S> <C>
Current assets $ 31,012
Property, plant and equipment - net 168,353
Other assets 278
---------
Total assets 199,643
---------
Current liabilities 44,801
Deferred income taxes 18,101
Other liabilities and deferred income 1,484
---------
Total liabilities 64,386
---------
Net assets of discontinued operations $ 135,257
=========
</Table>
51
<PAGE>
NOTE 3 NOTES PAYABLE AND LONG-TERM DEBT
In August 2002, the Company entered into a $200 million intermediate-term
unsecured debt obligation with staged maturities from 5 to 12 years. At
September 30, 2002, the Company had $100 million in debt outstanding at fixed
rates and maturities as summarized in the following table.
<Table>
<Caption>
ISSUE AMOUNT MATURITY DATE INTEREST RATE
------------ ------------- -------------
<S> <C> <C>
$12,500,000 August 15, 2007 5.51%
$12,500,000 August 15, 2009 5.91%
$37,500,000 August 15, 2012 6.46%
$37,500,000 August 15, 2014 6.56%
</Table>
On October 15, 2002, the Company received an additional $100 million in
long-term debt proceeds under the same debt agreements and with identical issue
amounts, maturity dates, and interest rates as listed above. The terms of the
debt obligations require the Company to maintain a minimum ratio of debt to
total capitalization.
Proceeds from the intermediate-term debt was used to repay the balance of the
Company's outstanding debt of $50 million in September 2002, pay outstanding
balances in accounts payable related to the Company's rig construction program
and for other general corporate purposes.
At September 30, 2002, the Company had a committed unsecured line of credit
totaling $125 million. Letters of credit totaling $10.6 million were outstanding
against the line, leaving $114.4 million available to borrow. Under terms of the
line of credit, the Company must maintain certain financial ratios as defined
including debt to total capitalization and debt to earnings before interest,
taxes, depreciation, and amortization, and maintain certain levels of liquidity
and tangible net worth. Commitment fees of $175,000 were paid on the facility in
July 2002. A non-use fee of 0.15 percent per annum is calculated on the average
daily unused amount, payable quarterly. The interest rate varies based on LIBOR
plus .875 to 1.125 depending on ratios described above. The line of credit
matures in July, 2003.
At September 30, 2002, the Company held an unassociated interest rate swap tied
to 30-day LIBOR in the amount of $50 million which matures on October 27, 2003.
The swap instrument was originally designated as a hedge of a $50 million loan
that was paid-off in September 2002. The swap liability was valued at $1.7
million on September 30, 2002.
The interest rate swap liability was valued at approximately $1.7 million on the
date the $50 million debt was paid-off. The $1.7 million will be amortized over
the remaining life of the swap as interest expense. In 2002, $17,000 of this
amortization was included in interest expense. Changes to the value of the
interest rate swap subsequent to the date the $50 million debt was paid will be
recorded to income.
52
<PAGE>
NOTE 4 INCOME TAXES
The components of the provision for income taxes from continuing operations are
as follows:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30, 2002 2001 2000
------------------------- -------- -------- --------
(In thousands)
<S> <C> <C> <C>
CURRENT:
Federal $ 13,324 $ 28,911 $ 5,316
Foreign 5,080 8,870 8,766
State 1,022 2,651 714
-------- -------- --------
19,426 40,432 14,796
-------- -------- --------
DEFERRED:
Federal 16,019 8,850 9,085
Foreign 3,732 4,701 6,146
State 1,396 706 1,075
-------- -------- --------
21,147 14,257 16,306
-------- -------- --------
TOTAL PROVISION: $ 40,573 $ 54,689 $ 31,102
======== ======== ========
</Table>
The amounts of domestic and foreign income from continuing operations are as
follows:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30, 2002 2001 2000
------------------------- -------- -------- --------
(In thousands)
<S> <C> <C> <C>
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND EQUITY IN INCOME OF AFFILIATES:
Domestic $ 82,012 $106,163 $ 56,961
Foreign 9,208 26,814 7,390
-------- -------- --------
$ 91,220 $132,977 $ 64,351
======== ======== ========
</Table>
Effective income tax rates on income from continuing operations as compared to
the U.S. Federal income tax rate are as follows:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30, 2002 2001 2000
------------------------- -------- -------- --------
(In thousands)
<S> <C> <C> <C>
U.S. Federal income tax rate 35% 35% 35%
Effect of foreign taxes 7 4 12
Other, net 2 2 1
-------- -------- --------
Effective income tax rate 44% 41% 48%
======== ======== ========
</Table>
The components of the Company's net deferred tax liabilities are as follows:
<Table>
<Caption>
SEPTEMBER 30, 2002 2001
------------- --------- --------
(In thousands)
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Property, plant and equipment $ 111,822 $ 81,677
Available-for-sale securities 25,221 33,937
Equity investments 11,165 15,637
Other -- 505
--------- --------
Total deferred tax liabilities 148,208 131,756
--------- --------
DEFERRED TAX ASSETS:
Financial accruals 9,998 3,031
Other 6,809 2,387
--------- --------
Total deferred tax assets 16,807 5,418
--------- --------
NET DEFERRED TAX LIABILITIES $ 131,401 $126,338
========= ========
</Table>
53
<PAGE>
NOTE 5 STOCKHOLDERS' EQUITY
In December 2001, the board of directors authorized the repurchase of up to
2,000,000 shares per calendar year of the Company's common stock in the open
market or private transactions. The repurchased shares will be held in treasury
and used for general corporate purposes including use in the Company's benefit
plans. During fiscal 2001 the Company purchased 773,800 shares at a cost of
approximately $23,198,000, and in fiscal 2000 the Company purchased 20,600
shares at a cost of approximately $450,000. The Company did not purchase any
shares in fiscal 2002.
The Company has several plans providing for common-stock based awards to
employees and to non-employee directors. The plans permit the granting of
various types of awards including stock options and restricted stock. Awards may
be granted for no consideration other than prior and future services. The
purchase price per share for stock options may not be less than market price of
the underlying stock on the date of grant. Stock options expire ten years after
grant.
In March 2001, the Company adopted the 2000 Stock Incentive Plan (the "Stock
Incentive Plan"). The Stock Incentive Plan was effective December 6, 2000 and
will terminate December 6, 2010. Under this plan, the Company is authorized to
grant options for up to 3,000,000 shares of the Company's common stock at an
exercise price not less than the fair market value of the common stock on the
date of grant. Up to 450,000 shares of the total authorized may be granted to
participants as restricted stock awards. In fiscal 2002, 819,800 options were
granted under the 2000 plan. There were no restricted stock grants in fiscal
2002.
On September 30, 2002, the Company distributed 100 percent of the common stock
of Cimarex Energy Co. to the Company's stockholders. The distribution was
recorded as a dividend and resulted in a decrease to consolidated stockholders'
equity of approximately $152.2 million. Any options held by Cimarex employees at
the distribution date were automatically forfeited per the terms of the
Company's stock incentive plans. Both vested and unvested options held by
remaining participants at September 30, 2002 were adjusted (the number of
options and exercise price) to reflect the change in the value of Company stock
as the result of the spin-off of Cimarex. The adjustment was made in such a way
that aggregate intrinsic value of the options and the ratio of the exercise
price per share to the market value per share remained the same.
54
<PAGE>
The following summary reflects the stock option activity for the Company's
common stock and related information for 2002, 2001, and 2000 (shares in
thousands):
<Table>
<Caption>
2002 2001 2000
-------------------------- -------------------------- -------------------------
Weighted-Average Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
------- ---------------- ------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at October 1, 3,136 $25.78 2,955 $22.94 2,574 $21.34
Granted 820 29.89 844 32.36 767 24.75
Exercised (181) 19.61 (644) 21.34 (364) 15.44
Adjustment for Cimarex spinoff 926 -- -- -- -- --
Forfeited/Expired (826) 28.15 (19) 25.57 (22) 23.00
------- ------ ------- ------ ------- ------
Outstanding on September 30, 3,875 $20.28 3,136 $25.78 2,955 $22.94
------- ------ ------- ------ ------- ------
Exercisable on September 30, 1,935 $19.07 1,078 $23.82 1,046 $22.40
Shares available to grant 2,195 3,000 1,077
</Table>
The following table summarizes information about stock options at September 30,
2002 (shares in thousands):
<Table>
<Caption>
Outstanding Stock Options Exercisable Stock Options
--------------------------------------------- -------------------------
Range of Weighted-Average Weighted-Average Weighted-Average
Exercise Prices Options Remaining Life Exercise Prices Options Remaining Life
- ----------------- ------- ---------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$10.22 to $12.78 397 2.9 $10.58 363 $10.58
$12.79 to $19.84 1,460 6.2 $16.94 927 $16.91
$19.85 to $28.04 2,018 7.9 $24.60 645 $26.96
- ----------------- ------- ---------------- ---------------- ------- ----------------
$10.22 to $28.04 3,875 6.8 $20.28 1,935 $19.07
- ----------------- ------- ---------------- ---------------- ------- ----------------
</Table>
The following table reflects pro forma net income and earnings per share had the
Company elected to adopt the fair value method of SFAS No. 123, "Accounting for
Stock-Based Compensation", in measuring compensation cost beginning with 1997
employee stock-based awards.
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30, 2002 2001 2000
------------------------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C>
Net income:
As reported $ 63,517 $144,254 $ 82,300
Pro forma $ 61,072 $139,211 $ 78,788
Basic earnings per share:
As reported $ 1.27 $ 2.88 $ 1.66
Pro forma $ 1.23 $ 2.78 $ 1.59
Diluted earnings per share:
As reported $ 1.26 $ 2.84 $ 1.64
Pro forma $ 1.21 $ 2.74 $ 1.57
</Table>
These pro forma amounts may not be representative of future disclosures since
the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years.
55
<PAGE>
The weighted-average fair values of options at their grant date during 2002,
2001 and 2000 were $12.47, $13.01, and $10.80, respectively. The estimated fair
value of each option granted is calculated using the Black-Scholes
option-pricing model. The following summarizes the weighted-average assumptions
used in the model:
<Table>
<Caption>
2002 2001 2000
---- ---- ----
<S> <C> <C> <C>
Expected years until exercise 4.5 4.5 5.5
Expected stock volatility 48% 43% 41%
Dividend yield .8% .8% .8%
Risk-free interest rate 4.0% 5.2% 6.0%
</Table>
On September 30, 2002, the Company had 50,010,670 outstanding common stock
purchase rights ("Rights") pursuant to terms of the Rights Agreement dated
January 8, 1996. Under the terms of the Rights Agreement each Right entitled the
holder thereof to purchase from the Company one half of one unit consisting of
one one-thousandth of a share of Series A Junior Participating Preferred Stock
("Preferred Stock"), without par value, at a price of $90 per unit. The exercise
price and the number of units of Preferred Stock issuable on exercise of the
Rights are subject to adjustment in certain cases to prevent dilution. The
Rights will be attached to the common stock certificates and are not
exercisable or transferrable apart from the common stock, until ten business
days after a person acquires 15% or more of the outstanding common stock or ten
business days following the commencement of a tender offer or exchange offer
that would result in a person owning 15% or more of the outstanding common
stock. In the event the Company is acquired in a merger or certain other
business combination transactions (including one in which the Company is the
surviving corporation), or more than 50% of the Company's assets or earning
power is sold or transferred, each holder of a Right shall have the right to
receive, upon exercise of the Right, common stock of the acquiring company
having a value equal to two times the exercise price of the Right. The Rights
are redeemable under certain circumstances at $0.01 per Right and will expire,
unless earlier redeemed, on January 31, 2006. As long as the Rights are not
separately transferrable, the Company will issue one half of one Right with each
new share of common stock issued.
56
<PAGE>
NOTE 6 EARNINGS PER SHARE
A reconciliation of the weighted-average common shares outstanding on a basic
and diluted basis is as follows:
<Table>
<Caption>
2002 2001 2000
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Basic weighted-average shares 49,825 50,096 49,534
Effect of dilutive shares:
Stock options 508 644 492
Restricted stock 12 32 9
-------- -------- --------
520 676 501
-------- -------- --------
Diluted weighted-average shares 50,345 50,772 50,035
======== ======== ========
</Table>
Restricted stock of 44,675 shares at a weighted-average price of $30.38 and
options to purchase 451,421 shares of common stock at a weighted-average price
of $27.98 were outstanding at September 30, 2002 but were not included in the
computation of diluted earnings per common share. Inclusion of these shares
would be antidilutive.
At September 30, 2001, restricted stock of 120,018 shares at a weighted-average
price of $37.73 and options to purchase 1,250,750 shares of common stock at a
price of $33.84 were outstanding but were not included in the computation of
diluted earnings per common share. Inclusion of these shares would be
antidilutive.
At September 30, 2000, restricted stock of 180,000 shares at a weighted-average
price of $37.73 and options to purchase 533,000 shares of common stock at a
price of $36.84 were outstanding but were not included in the computation of
diluted earnings per common share. Inclusion of these shares would be
antidilutive.
57
<PAGE>
NOTE 7 FINANCIAL INSTRUMENTS
The Company had $100 million of intermediate-term debt outstanding at September
30, 2002, which had an estimated fair value of $109.7 million. The debt was
valued based on the prices of similar securities with similar terms and credit
ratings. The Company used the expertise of an outside investment banking firm to
assist with the estimate of the fair value of the intermediate-term debt. The
Company's line of credit and notes payable bear interest at market rates and are
carried at cost which approximates fair value. The estimated fair value of the
Company's interest rate swap is a liability of $1.7 million at September 30,
2002, based on forward-interest rates derived from the year-end yield curve as
calculated by the financial institution that is a counterparty to the swap. The
estimated fair value of the Company's available-for-sale securities is primarily
based on market quotes.
The following is a summary of available-for-sale securities, which excludes
those accounted for under the equity method of accounting (see Note 1):
<Table>
<Caption>
Gross Unrealized Gross Unrealized Estimated Fair
Cost Gains Losses Value
-------- ---------------- ---------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Equity Securities:
September 30, 2002 $ 46,325 $ 43,846 $ 3,772 $ 86,399
September 30, 2001 $ 63,778 $ 84,257 $ 3,136 $ 144,899
</Table>
During the years ended September 30, 2002, 2001, and 2000, marketable equity
available-for-sale securities with a fair value at the date of sale of
$46,692,000, $24,439,000, and $12,640,000, respectively, were sold. The gross
realized gains on such sales of available-for-sale securities totaled
$25,661,000, $3,314,000, and $12,576,000, respectively.
58
<PAGE>
NOTE 8 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The table below presents changes in the components of accumulated other
comprehensive income (loss).
<Table>
<Caption>
Unrealized Appreciation
(Depreciation) Interest Rate Minimum
on Securities Swap Pension Liability Total
----------------------- ------------- ----------------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Balance at September 30, 1999 $ 75,182 $ -- $ -- $ 75,182
2000 Change:
Pre-income tax amount 73,810 -- -- 73,810
Income tax provision (28,048) -- -- (28,048)
Realized gains in net income
(net of $9,120 income tax) (14,880) -- -- (14,880)
--------- ------------- --------- ---------
30,882 -- -- 30,882
--------- ------------- --------- ---------
Balance at September 30, 2000 106,064 -- -- 106,064
--------- ------------- --------- ---------
2001 Change:
Pre-income tax amount (88,762) (1,590) -- (90,352)
Income tax provision 33,730 604 -- 34,334
Realized gains in net income
(net of $452 income tax) (737) -- -- (737)
--------- ------------- --------- ---------
(55,769) (986) -- (56,755)
--------- ------------- --------- ---------
Balance at September 30, 2001 50,295 (986) -- 49,309
--------- ------------- --------- ---------
2002 Change:
Pre-income tax amount (16,228) (127) (12,277) (28,632)
Income tax provision 6,167 48 4,665 10,880
Amortization of swap
(net of $7 income tax benefit) -- 11 -- 11
Realized gains in net income
(net of $9,431 income tax) (15,388) -- -- (15,388)
--------- ------------- --------- ---------
(25,449) (68) (7,612) (33,129)
--------- ------------- --------- ---------
Balance at September 30, 2002 $ 24,846 $ (1,054) $ (7,612) $ 16,180
========= ============= ========= =========
</Table>
59
<PAGE>
NOTE 9 EMPLOYEE BENEFIT PLANS
- --------------------------------------------------------------------------------
The following tables set forth the Company's disclosures required by SFAS No.
132, "Employers' Disclosures About Pensions and Other Postretirement Benefits".
CHANGE IN BENEFIT OBLIGATION:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30, 2002 2001
------------------------- -------- --------
(in thousands)
<S> <C> <C>
Benefit obligation at beginning of year $ 51,733 $ 44,838
Service cost 4,769 3,851
Interest cost 3,835 3,330
Curtailment (1,232) --
Actuarial loss 11,036 903
Benefits paid (2,007) (1,189)
-------- --------
Benefit obligation at end of year $ 68,134 $ 51,733
======== ========
</Table>
CHANGE IN PLAN ASSETS:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30, 2002 2001
------------------------- -------- --------
(in thousands)
<S> <C> <C>
Fair value of plan assets at beginning of year $ 53,987 $ 60,611
Actual loss on plan assets (3,694) (5,435)
Benefits paid (2,007) (1,189)
-------- --------
Fair value of plan assets at end of year $ 48,286 $ 53,987
======== ========
Funded status of the plan $(19,848) $ 2,254
Unrecognized net actuarial (gain) loss 24,929 6,720
Unrecognized prior service cost 284 548
Unrecognized net transition asset -- (540)
Accumulated other comprehensive income
(before tax) (12,277) --
-------- --------
Prepaid (accrued) benefit cost $ (6,912) $ 8,982
======== ========
</Table>
WEIGHTED-AVERAGE ASSUMPTIONS:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30, 2002 2001 2000
------------------------- ------ ------ ------
<S> <C> <C> <C>
Discount rate 6.75% 7.50% 7.50%
Expected return on plan 8.00% 9.00% 9.00%
Rate of compensation increase 5.00% 5.00% 5.00%
</Table>
60
<PAGE>
COMPONENTS OF NET PERIODIC PENSION EXPENSE:
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30, 2002 2001 2000
------------------------- -------- -------- --------
(in thousands)
<S> <C> <C> <C>
Service cost $ 4,769 $ 3,851 $ 3,427
Interest cost 3,835 3,330 2,741
Expected return on plan assets (4,804) (5,415) (5,226)
Amortization of prior service cost 238 238 238
Amortization of transition asset (540) (540) (540)
Recognized net actuarial (gain) loss 120 17 (303)
-------- -------- --------
Net pension expense $ 3,618 $ 1,481 $ 337
======== ======== ========
</Table>
Defined Contribution Plan:
Substantially all employees on the United States payroll of the Company may
elect to participate in the Company sponsored Thrift/401(k) Plan by contributing
a portion of their earnings. The Company contributes amounts equal to 100
percent of the first five percent of the participant's compensation subject to
certain limitations. Expensed Company contributions were $5,226,000, $4,499,000,
and $3,188,000 in 2002, 2001, and 2000, respectively.
61
<PAGE>
NOTE 10 OTHER CURRENT ASSETS AND ACCRUED LIABILITIES
Prepaid expenses and other consist of the following:
<Table>
<Caption>
SEPTEMBER 30, 2002 2001
------------- --------- --------
(In thousands)
<S> <C> <C>
Time deposits $ 337 $ 5,253
Prepaid income tax 9,304 11,218
Prepaid - other 7,112 14,798
--------- --------
$ 16,753 $ 31,269
========= ========
</Table>
Accrued liabilities consist of the following:
<Table>
<Caption>
SEPTEMBER 30, 2002 2001
------------- --------- --------
(In thousands)
<S> <C> <C>
Taxes payable - operations $ 7,660 $ 5,123
Income taxes payable -- 739
Workers compensation claims 2,506 2,585
Payroll and employee benefits 7,032 5,676
Loss contingency (see note 14) -- 10,000
Deferred income 6,016 --
Other 8,640 7,483
--------- --------
$ 31,854 $ 31,606
========= ========
</Table>
NOTE 11 SUPPLEMENTAL CASH FLOW INFORMATION
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30, 2002 2001 2000
------------------------- -------- -------- --------
(in thousands)
<S> <C> <C> <C>
Interest paid $ 2,929 $ 2,668 $ 2,851
Income taxes paid $ 9,779 $ 42,523 $ 34,295
</Table>
62
<PAGE>
NOTE 12 RISK FACTORS
CONCENTRATION OF CREDIT
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of temporary cash investments and trade
receivables. The Company places temporary cash investments with established
financial institutions and invests in a diversified portfolio of highly rated,
short-term money market instruments. The Company's trade receivables are
primarily with companies in the oil and gas industry.
CONTRACT DRILLING OPERATIONS
International drilling operations are significant contributors to the Company's
revenues and net profit. It is possible that operating results could be affected
by the risks of such activities, including economic conditions in the
international markets in which the Company operates, political and economic
instability, fluctuations in currency exchange rates, changes in international
regulatory requirements, international employment issues, and the burden of
complying with foreign laws. These risks may adversely affect the Company's
future operating results and financial position.
The Company believes that its rig fleet is not currently impaired based on an
assessment of future cash flows of the assets in question. However, it is
possible that the Company's assessment that it will recover the carrying amount
of its rig fleet from future operations may change in the near term.
NOTE 13 NEW ACCOUNTING STANDARDS
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This Statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs and amends FASB Statement No. 19, "Financial
Accounting and Reporting by Oil and Gas Producing Companies." The Statement
requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made, and that the associated asset retirement costs be
capitalized as part of the carrying amount of the long-lived asset. The
Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The Company anticipates no impact on the
Company's results of operations and financial position upon adopting SFAS No.
143.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This Statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" and amends Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." The Statement retains the basic framework of SFAS No.
121, resolves certain implementation issues of SFAS No. 121, extends
applicability to discontinued operations, and broadens the presentation of
discontinued operations to include a component of an entity.
63
<PAGE>
The Statement will be applied prospectively and is effective for financial
statements issued for fiscal years beginning after December 15, 2001. The
Company's approach for impairment under SFAS No. 121 is consistent with the
provisions under SFAS No. 144. Accordingly, adopting this statement on the
Company's results of operations and financial position will not be different
than if the Company continued to use SFAS No. 121.
NOTE 14 CONTINGENT LIABILITIES AND COMMITMENTS
LITIGATION SETTLEMENT
The Company was a defendant in Verdin v. R&B Falcon Drilling USA, Inc., et al.,
a civil action in the United States District Court, Galveston, Texas. In May
2001, the Company reached an agreement in principle with Plaintiff's counsel to
settle all claims pending court approval of the settlement. In the third quarter
of fiscal 2001, the Company incurred a net charge of $3.25 million to contract
drilling expense based on the pending settlement. The Court approved the
settlement on April 25, 2002. In June, 2002, the Company paid $10 million to
settle all claims in this litigation. The Company was reimbursed $6.75 million
in June, 2002 by the Company's insurer.
COMMITMENTS
The Company, on a regular basis, makes commitments for the purchase of contract
drilling equipment. At September 30, 2002, the Company has commitments of
approximately $150 million for the purchase of drilling equipment.
NOTE 15 SEGMENT INFORMATION
The Company operates principally in the contract drilling industry, which
includes a Domestic segment and an International segment. The contract drilling
operations consist of contracting Company-owned drilling equipment primarily to
major oil and gas exploration companies. The Company's primary international
areas of operation include Venezuela, Colombia, Ecuador, Argentina and Bolivia.
The Company also has a Real Estate segment whose operations are conducted
exclusively in the metropolitan area of Tulsa, Oklahoma. The primary areas of
operations include a major shopping center and several multi-tenant warehouses.
Each reportable segment is a strategic business unit which is managed separately
as an autonomous business. Other includes investments in available-for-sale
securities and corporate operations. The "other" component of Total Assets also
includes the Company's investment in equity-owned investments. As described in
Note 2 the Company's oil and gas operations were distributed to Company
stockholders on September 20, 2002. Such operations have been treated as
discontinued operations and have been excluded from these segment disclosures.
64
<PAGE>
The Company evaluates performance of its segments based upon operating profit or
loss from operations before income taxes which includes revenues from external
and internal customers, operating costs, and depreciation but excludes general
and administrative expense, interest expense and corporate depreciation and
other income (expense). The accounting policies of the segments are the same as
those described in Note 1, Summary of Accounting Policies. Intersegment sales
are accounted for in the same manner as sales to unaffiliated customers.
Summarized financial information of the Company's reportable segments for
continuing operations for each of the years ended September 30, 2002, 2001, and
2000 is shown in the following table:
<Table>
<Caption>
Additions
External Inter- Total Operating Total to Long-Lived
(in thousands) Sales Segment Sales Profit Depreciation Assets Assets
- -------------- ---------- ---------- ---------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
2002:
Contract Drilling
Domestic $ 335,704 $ 809 $ 336,513 $ 69,181 $ 37,120 $ 728,611 $ 284,527
International Services 138,623 -- 138,623 13,128 20,336 254,940 23,157
---------- ---------- ---------- ---------- ------------ ---------- -------------
474,327 809 475,136 82,309 57,456 983,551 307,684
---------- ---------- ---------- ---------- ------------ ---------- -------------
Real Estate 8,525 1,491 10,016 5,064 1,844 26,562 3,181
Other 28,076 -- 28,076 -- 2,147 217,200 1,199
Eliminations -- (2,300) (2,300) -- -- -- --
---------- ---------- ---------- ---------- ------------ ---------- -------------
Total $ 510,928 $ -- $ 510,928 $ 87,373 $ 61,447 $1,227,313 $ 312,064
========== ========== ========== ========== ============ ========== =============
2001:
Contract Drilling
Domestic $ 332,399 $ 4,487 $ 336,886 $ 107,691 $ 26,277 $ 506,173 $ 144,063
International Services 154,890 -- 154,890 28,475 18,838 268,947 38,022
---------- ---------- ---------- ---------- ------------ ---------- -------------
487,289 4,487 491,776 136,166 45,115 775,120 182,085
---------- ---------- ---------- ---------- ------------ ---------- -------------
Real Estate 11,018 1,545 12,563 6,315 2,284 22,621 1,190
Other 10,967 -- 10,967 -- 2,133 367,123 1,393
Eliminations -- (6,032) (6,032) -- -- -- --
---------- ---------- ---------- ---------- ------------ ---------- -------------
Total $ 509,274 $ -- $ 509,274 $ 142,481 $ 49,532 $1,164,864 $ 184,668
========== ========== ========== ========== ============ ========== =============
2000:
Contract Drilling
Domestic $ 214,531 $ 3,048 $ 217,579 $ 35,808 $ 35,355 $ 342,278 $ 40,722
International Services 136,549 -- 136,549 9,753 38,101 259,892 13,825
---------- ---------- ---------- ---------- ------------ ---------- -------------
351,080 3,048 354,128 45,561 73,456 602,170 54,547
---------- ---------- ---------- ---------- ------------ ---------- -------------
Real Estate 8,999 1,545 10,544 5,346 1,611 24,235 2,909
Other 32,063 -- 32,063 -- 2,250 436,269 8,364
Eliminations -- (4,593) (4,593) -- -- -- --
---------- ---------- ---------- ---------- ------------ ---------- -------------
Total $ 392,142 $ -- $ 392,142 $ 50,907 $ 77,317 $1,062,674 $ 65,820
========== ========== ========== ========== ============ ========== =============
</Table>
65
<PAGE>
The following table reconciles segment operating profit per the table on page 65
to income before taxes and equity in income of affiliates as reported on the
Consolidated Statements of Income (in thousands).
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30, 2002 2001 2000
------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Segment operating profit $ 87,373 $ 142,481 $ 50,907
Unallocated amounts:
Income from investments 28,444 10,317 31,510
General and administrative expense (20,391) (16,627) (13,612)
Interest expense (980) (1,701) (2,730)
Corporate depreciation (2,147) (2,133) (2,250)
Other corporate income (expense) (1,079) 640 526
---------- ---------- ----------
Total unallocated amounts 3,847 (9,504) 13,444
---------- ---------- ----------
Income before income taxes and equity in
income of affiliates $ 91,220 $ 132,977 $ 64,351
========== ========== ==========
</Table>
The following tables present revenues from external customers and long-lived
assets by country based on the location of service provided (in thousands).
<Table>
<Caption>
YEARS ENDED SEPTEMBER 30, 2002 2001 2000
------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Revenues
United States $ 372,305 $ 354,384 $ 255,593
Venezuela 47,118 43,409 34,922
Ecuador 45,433 35,793 20,422
Colombia 9,559 27,045 42,509
Other Foreign 36,513 48,643 38,696
---------- ---------- ----------
Total $ 510,928 $ 509,274 $ 392,142
========== ========== ==========
Long-Lived Assets
United States $ 698,316 $ 448,119 $ 330,711
Venezuela 72,630 84,856 37,001
Ecuador 49,353 33,520 30,636
Colombia 14,339 16,195 26,361
Other Foreign 62,807 67,361 102,014
---------- ---------- ----------
Total $ 897,445 $ 650,051 $ 526,723
========== ========== ==========
</Table>
Long-lived assets are comprised of property, plant and equipment.
Revenues from one company doing business with the contract drilling segment
accounted for approximately 15.7 percent, 24.2 percent, and 24.4 percent of the
total consolidated revenues during the years ended September 30, 2002, 2001 and
2000, respectively. Revenues from another company doing business with the
contract drilling segment accounted for approximately 14.6 percent, 12.9
percent, and 11.9 percent of total consolidated revenues in the years ended
September 30, 2002, 2001 and 2000, respectively. Revenues from another company
doing business with the contract drilling segment accounted for approximately
12.0 percent, 8.3 percent, and 7.3 percent of total consolidated revenues in the
years ended September 30, 2002, 2001 and 2000, respectively. Collectively, the
receivables from these customers were approximately $35.0 million and $40.5
million at September 30, 2002 and 2001, respectively.
66
<PAGE>
NOTE 16 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share amounts)
<Table>
<Caption>
2002 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- ---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $134,992 $120,950 $139,709 $115,277
Gross profit 33,878 19,821 44,200 14,692
Income from continuing operations 18,127 8,129 22,551 4,899
Net income 15,604 10,872 28,218 8,823
Basic earnings per common share:
Income from continuing operations .36 .16 .46 .10
Net income .31 .22 .57 .18
Diluted earnings per common share:
Income from continuing operations .36 .16 .45 .10
Net income .31 .22 .56 .17
</Table>
<Table>
<Caption>
2001 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- ---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $106,009 $115,186 $141,336 $146,743
Gross profit 28,086 29,520 44,011 49,688
Income from continuing operations 13,956 14,105 24,154 28,252
Net income 33,840 41,749 40,437 28,228
Basic earnings per common share:
Income from continuing operations .28 .28 .48 .57
Net income .68 .83 .80 .57
Diluted earnings per common share:
Income from continuing operations .27 .28 .47 .56
Net income .67 .82 .79 .56
</Table>
Gross profit represents total revenues less operating costs and depreciation.
The sum of earnings per share for the four quarters may not equal the total
earnings per share for the year due to changes in the average number of common
shares outstanding.
Net income in the third quarter of 2002 includes after-tax gains on sale of
available-for-sale securities of $15.2 million, $0.30 per share, on a diluted
basis.
67
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>6
<FILENAME>d02112exv21.txt
<DESCRIPTION>LIST OF SUBSIDIARIES OF THE COMPANY
<TEXT>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Helmerich & Payne, Inc.
Subsidiaries of Helmerich & Payne, Inc.
Helmerich & Payne International Drilling Co. (Incorporated in
Delaware)
Subsidiaries of Helmerich & Payne International Drilling Co.
Helmerich & Payne (Africa) Drilling Co. (Incorporated
in Cayman Islands, British West Indies)
Helmerich & Payne (Colombia) Drilling Co. (Incorporated
in Oklahoma)
Helmerich & Payne (Gabon) Drilling Co. (Incorporated in
Cayman Islands, British West Indies)
Helmerich & Payne (Argentina) Drilling Co. (Incorporated
in Oklahoma)
Helmerich & Payne (Peru) Drilling Co. (Incorporated in
Oklahoma)
Helmerich & Payne (Peru) Drilling Co., Sucursal del Peru,
Lima (Lima Branch - Incorporated in Peru)
Helmerich & Payne (Peru) Drilling Co., Sucursal del Peru
(Iquitos Branch - Incorporated in Peru)
Helmerich & Payne (Australia) Drilling Co. (Incorporated
in Oklahoma)
Helmerich & Payne del Ecuador, Inc. (Incorporated in
Oklahoma)
Helmerich & Payne de Venezuela, C.A. (Incorporated in
Venezuela)
Helmerich & Payne Rasco, Inc. (Incorporated in Oklahoma)
H&P Finco (Incorporated in Cayman Islands, British
West Indies)
H&P Invest Ltd. (Incorporated in Cayman Islands), British
West Indies, doing business as H&P (Yemen) Drilling Co.
Subsidiary of H&P Invest Ltd.
Turrum Pty. Ltd. (Incorporated in Papua, New Guinea)
The Hardware Store of Utica Square, Inc. (Incorporated in Oklahoma)
The Space Center, Inc. (Incorporated in Oklahoma)
H&P DISC, Inc. (Incorporated in Oklahoma)
Helmerich & Payne Coal Co. (Incorporated in Oklahoma)
Helmerich & Payne Properties, Inc. (Incorporated in Oklahoma)
Utica Square Shopping Center, Inc. (Incorporated in Oklahoma)
Subsidiaries of Utica Square Shopping Center, Inc.
Fishercorp, Inc. (Incorporated in Oklahoma)
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>7
<FILENAME>d02112exv23w1.txt
<DESCRIPTION>CONSENT OF INDEPENDENT AUDITORS
<TEXT>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Helmerich & Payne, Inc. of our report dated November 22, 2002,
included in the 2002 Annual Report to Shareholders of Helmerich & Payne, Inc.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-55239, 333-34939 and 333-63124) pertaining,
respectively, to the Helmerich & Payne, Inc. 1990 Stock Option Plan, 1996 Stock
Incentive Plan and 2000 Stock Incentive Plan of our report dated November 22,
2002, with respect to the consolidated financial statements of Helmerich &
Payne, Inc. incorporated by reference in the Annual Report (Form 10-K) for the
year ended September 30, 2002.
/s/ ERNST & YOUNG LLP
Tulsa, Oklahoma
December 20, 2002
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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