-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Aya+563aHx+zZ0ewophk64Dc/uRkqnYmCBD3EoGZpRm5fTqCYUaW0cC4NFqPwW/d Yz/5pWQAeJwHUKDu6XUggQ== 0000008411-95-000023.txt : 19951229 0000008411-95-000023.hdr.sgml : 19951229 ACCESSION NUMBER: 0000008411-95-000023 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951228 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATWOOD OCEANICS INC CENTRAL INDEX KEY: 0000008411 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 741611874 STATE OF INCORPORATION: TX FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-06352 FILM NUMBER: 95605416 BUSINESS ADDRESS: STREET 1: 15835 PARK TEN PL DR STREET 2: SUITE 200 CITY: HOUSTON STATE: TX ZIP: 77084 BUSINESS PHONE: 7134922929 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended September 30, 1995 Commission File Number 0-6352 ATWOOD OCEANICS, INC. (Exact name of registrant as specified in its charter) State of Texas (State or other jurisdiction of incorporation or organization) 74-1611874 (I.R.S. Employer Identification No.) 15835 Park Ten Place Drive P.O. Box 218350 Houston, Texas 77218 (Address of principal executive offices) Registrant's telephone number, including area code: (713) 492-2929 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1 par value (Title of Class) 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 in S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definite proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ] The aggregate market value of the voting stock held by non-affiliates of the registrants as of November 30, 1995 is $94,294,000. The number of shares outstanding of the issuer's class of Common Stock, as of November 30 , 1995: 6,629,013 shares of Common Stock, $1 par value. DOCUMENTS INCORPORATED BY REFERENCE (1) Annual Report to Shareholders for the fiscal year ended September 30, 1995 - Referenced in Parts I, II and IV of this report. (2) Proxy Statement for Annual Meeting of Shareholders to be held February 8, 1996 - Referenced in Part III of this report. PART I ITEM 1. BUSINESS Atwood Oceanics, Inc. (which together with its subsidiaries is identified as the "Company" or "Registrant", unless the context requires otherwise), a corporation organized in 1968 under the laws of the State of Texas, is engaged in contract drilling of exploratory and development oil and gas wells in offshore areas and related support, management and consulting services. The Company currently owns (i) one jack-up, one "second-generation" semisubmersible tender-assist vessel, one submersible, three "third- generation" semisubmersibles, one "second-generation" semisubmersible and one modular, self-contained platform rig, and (ii) a fifty percent interest in an Australian company which has been awarded a term contract for the design, constuction and operation of a new generation platform rig. The Company also provides labor, supervisory and consulting services to two operator owned platform rigs in Australia. Although, activity in the contract drilling industry and related oil service businesses has improved in recent times, there still exists an oversupply of drilling equipment and intense competition. During fiscal years 1995 and 1994, the Company had 99 percent utilization of its drilling equipment which resulted in two consecutive years of profitability. However, due to the fact that several rigs are currently working under short-term contracts, there is no assurance in 1996 that the Company can maintain its equipment utilization rate at its 1995 and 1994 levels. Most of the Company's drilling operations have been conducted outside United States waters. The Company is currently involved in active drilling operations in Australia, Malaysia, Malaysia/Thailand Joint Development Area and the United States. At the present time, the submersible "RICHMOND" is the Company's only drilling vessel located in United States waters. Since March 1993 the RICHMOND has had continuous profitable work in the United States Gulf of Mexico. For information relating to the revenues, profitability and identifiable assets attributable to specific geographic area of operations, see Note 13 of Notes to Consolidated Financial Statements contained in the Company's Annual Report to shareholders for fiscal year 1995, incorporated by reference herein. The following table sets forth, for each of the last three fiscal years, the approximate percentage of contract revenues derived from domestic and foreign operations: Fiscal Year Ended September 30, 1995 1994 1993 Domestic 7% 8% 7% Foreign 93% 92% 93% OFFSHORE DRILLING EQUIPMENT As stated above, the Company's diversified fleet of owned or operated drilling rigs currently consists of four semisubmersibles, one semisubmersible tender assist vessel, one jack-up, one submersible, and four modular, self- contained platform rig. Each type of drilling rig is designed for different Page 4 purposes and applications, for operations in different water depths, bottom conditions, environments and geographical areas, and for different drilling and operating requirements. The following descriptions of the various types of drilling rigs owned or operated by the Company illustrate the diversified range of application of the rig fleet. Each semisubmersible drilling unit has two hulls, the lower of which is capable of being flooded. Drilling equipment is mounted on the main hull. After the drilling unit is towed to location, the lower hull is flooded, lowering the entire drilling unit to its operating draft, and the drilling unit is anchored in place. On completion of operations, the lower hull is deballasted, raising the entire drilling unit to its towing draft. This type of drilling unit is designed to operate in greater water depths than a jack-up and in more severe sea conditions than a drillship. Semisubmersible units are generally more expensive to operate than jack-up rigs and, compared to a drillship, are often limited in the amount of supplies that can be stored on board. The semisubmersible tender assist vessel operates like a semisubmersible except that its drilling equipment is temporarily installed on permanently constructed offshore support platforms. The semisubmersible vessel provides crew accommodations, storage facilities and other support for the drilling operations. A jack-up drilling barge contains all of the drilling equipment on a single hull designed to be towed to the well site. Once on location, legs are lowered to the sea floor and the barge is raised out of the water by jacking up on these legs. On completion of the well, the barge is jacked down, and towed to the next location. A jack-up drilling unit can operate in more severe sea and weather conditions than a drillship and is less expensive to operate than a semisubmersible. However, because it must rest on the sea floor, a jack-up cannot operate in as deep water as other units. The submersible drilling unit owned by the Company has two hulls, the lower being a mat which is capable of being flooded. Drilling equipment and crew accommodations are located on the main hull. After the drilling unit is towed to location, the lower hull is flooded, lowering the entire unit to its operating draft at which it rests on the sea floor. On completion of operations, the lower hull is deballasted, raising the entire unit to its towing draft. This type of drilling unit is designed to operate in shallow water depths ranging from 9 to 70 feet and can operate in moderately severe sea conditions. Although drilling units of this type are less expensive to operate, like the jack-up rig, they cannot operate in as deep water as other units. A modular platform rig is similar to a land rig in its basic components. Modular platform rigs are temporarily installed on permanently constructed offshore support platforms in order to perform the drilling operations. After the drilling phase is completed, the modular rig is broken down into convenient packages and moved by work boats. A platform rig usually stays at a location for several months, if not years, since several wells are typically drilled from a support platform. DRILLING CONTRACTS The contracts under which the Company operates its vessels are obtained either through individual negotiations with the customer or by submitting Page 5 proposals in competition with other contractors and vary in their terms and conditions. The initial term of contracts for the Company's owned and/or operated vessels has ranged from the length of time necessary to drill one well to several months and is generally subject to early termination in the event of a total loss of the drilling vessel, excessive equipment breakdown or failure to meet minimum performance criteria. In the current offshore drilling market, most contracts for mobile exploration vessels, such as the Company's semisubmersibles, are for terms of less than one year. However, it is not unusual for contracts to contain renewal provisions at the option of the customer. The rate of compensation specified in each contract depends on the nature of the operation to be performed, the duration of the work, equipment and services provided, the areas involved, market conditions and other variables. Generally, contracts for drilling, management and support services specify a basic rate of compensation computed on a day rate basis. Such agreements generally provide for a reduced day rate payable when operations are interrupted by equipment failure and subsequent repairs, field moves, adverse weather conditions or other factors beyond the control of the Company. Some contracts also provide for revision of the specified dayrates in the event of material changes in certain items of cost. Any period during which a vessel is not earning a full operating day rate because of the above conditions or because the vessel is idle and not on contract will have an adverse effect on operating profit. An over supply of drilling rigs in any market area can adversely affect the Company's ability to employ its drilling vessels. For long moves, the Company attempts to obtain either a lump sum or a day rate as mobilization compensation for expenses incurred during the period in transit. A surplus of certain types of units, either worldwide or in particular operating areas, can result in the Company's acceptance of a contract which provides only partial or no recovery of relocation costs. Operation of the Company's drilling equipment is subject to the offshore drilling requirements of petroleum exploration companies and agencies of foreign governments. These requirements are, in turn, subject to fluctuations in government policies, world demand and prices for petroleum products, proved reserves in relation to such demand and the extent to which such demand can be met from onshore sources. Some contracts continue to be offered on a per well basis rather than a fixed time period. The Company also contracts to provide various types of services to third party owners of drilling rigs. These contracts are normally for a stated term or until termination of operations or stages of operation at a particular facility or location. The services may include, as in the case of contracts entered into by the Company in connection with operations offshore Australia, the supply of personnel and rig design, fabrication, installation and operation. The contracts normally provide for reimbursement to the Company for all out-of-pocket expenses, plus a service or management fee for all of the services performed. In most instances, the amount charged for the services may be adjusted if there are changes in conditions, scope or costs of operations. The Company generally obtains insurance or a contractual indemnity from the owner for liabilities which could be incurred in operations. OPERATIONAL RISKS AND INSURANCE Page 6 The Company's operations are subject to the usual hazards associated with the drilling of oil and gas wells, such as blowouts, explosions and fires. In addition, the Company's vessels are subject to those perils peculiar to marine operations, such as capsizing, grounding, collision and damage from severe weather conditions. Any of these risks could result in damage or destruction of drilling rigs and oil and gas wells, personal injury and property damage, and suspension of operations or environmental damage through oil spillage or extensive, uncontrolled fires. Although the Company believes that it is adequately insured against normal and foreseeable risks in its operations in accordance with industry standards, such insurance may not be adequate to protect the Company against liability from all consequences of well disasters, marine perils, extensive fire damage or damage to the environment. To date, the Company has not experienced difficulty in obtaining insurance coverage, although no assurance can be given as to the future availability of such insurance or cost thereof. The occurrence of a significant event against which the Company is not fully insured could have a material adverse effect on the Company's financial position. ENVIRONMENTAL PROTECTION Under the Federal Water Pollution Control Act, as amended, operators of vessels in navigable United States waters and certain offshore areas are liable to the United States government for the costs of removing oil and certain other pollutants for which they may be held responsible, subject to certain limitations, and must establish financial responsibility to cover such liability. The Company has taken all steps necessary to comply with this law, and has received a Certificate of Financial Responsibility (Water Pollution) from the U.S. Coast Guard. The Company's operations in United States waters are also subject to various other environmental regulations regarding pollution and control thereof, and the Company has taken steps to ensure compliance therewith. CUSTOMERS During fiscal year 1995, the Company performed operations for 13 customers. Because of the relatively limited number of customers for which the Company can operate at any give time, sales to each of 3 different customers amounted to 10% or more of the Company's fiscal 1995 revenues. Esso Australia Limited/Esso Production Malaysia, Inc., BHP Petroleum Pty. Ltd. and Woodside Offshore Petroleum Pty. Ltd. accounted for 35%, 22% and 11%, respectively, of fiscal year 1995 revenues. The Company's business operations are subject to the risks associated with a business having a limited number of customers for its products or services, and a decrease in the drilling programs of these customers in the areas where they employ the Company may adversely affect the Company's revenues. COMPETITION The Company competes with numerous other drilling contractors, some of which are substantially larger than the Company and possess appreciably greater financial and other resources. Even though in recent years several drilling companies have undertaken business combinations with other companies, which has resulted in a decrease in the total number of competitors, the drilling industry remains competitive, with no one drilling contractor being dominant. Thus, there continues to be competition in securing available Page 7 drilling contracts. Price competition is generally the most important factor in the drilling industry, but the technical capability of specialized drilling equipment and personnel at the time and place required by customers are also important. Other competitive factors include work force experience, rig suitability, efficiency, condition of equipment, reputation and customer relations. The Company believes that it competes favorably with respect to these factors. If demand for drilling rigs increases in the future, rig availability may also become a competitive factor. Competition usually occurs on a regional basis and, although drilling rigs are mobile and can be moved from one region to another in response to increased demand, an oversupply of rigs in any region may result. Demand for drilling equipment is also dependent on the exploration and development programs of oil and gas companies, which are in turn influenced by the financial condition of such companies, by general economic conditions and by prices of oil and gas, and from time to time by political considerations and policies. FOREIGN OPERATIONS The operations of the Company are conducted primarily in foreign waters and are subject to certain political, economic and other uncertainties not encountered by purely domestic drilling contractors, including risks of expropriation, nationalization, foreign exchange restrictions, foreign taxation, changing conditions and foreign and domestic monetary policies. Generally, the Company purchases insurance to protect against some or all loss due to events of political risk such as nationalization, expropriation, war, confiscation and deprivation. Occasionally, customers will indemnify the Company against such losses. Moreover, offshore drilling activity is affected by government regulations and policies limiting the withdrawal of offshore oil and gas, by regulations affecting production, by regulations restricting the importation of foreign petroleum, by environmental regulations and by regulations which may limit operations in offshore areas by foreign companies and/or personnel. See Note 13 to Consolidated Financial Statements contained in the Company's Annual Report to shareholders for fiscal year 1995, incorporated herein by reference, for a summary of contract revenues, operating income (loss) and identifiable assets by geographic region. EMPLOYEES The Company currently employs approximately 650 persons in its domestic and worldwide operations. In connection with its foreign drilling operations, the Company has often been required by the host country to hire substantial portions of its work force in that country, and in some cases, these employees may be represented by foreign unions. To date, the Company has experienced little difficulty in complying with such requirements and the Company's drilling operations have not been significantly interrupted by strikes or work stoppages. ITEM 2. PROPERTIES Information regarding the location and general character of the Company's principal assets may be found in the schedule with the caption heading "Offshore Drilling Operations" in the Company's Annual Report to Page 8 Shareholders for fiscal year 1995, which is incorporated by reference herein. Effective December 31, 1994, the Company acquired the remaining 50 percent interest in the FALCON, HUNTER and EAGLE (third-generation semisubmersibles). In fiscal year 1994, the Company increased its rig fleet with the addition of the SOUTHERN CROSS, a semisubmersible built in 1976. During fiscal year 1995, construction of RIG-200 (a new generation platform rig of which the Company has 50 percent ownership) was substantially completed. For more information concerning these events, see Notes 2, 4 and 5 to Consolidated Financial Statements contained in the Company's Annual Report to Shareholders for fiscal year 1995, incorporated by reference herein. ITEM 3. LEGAL PROCEEDINGS The Company is not currently involved in any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS During the fourth quarter of fiscal 1995, no matters were submitted to a vote of shareholders through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS As of September 30, 1995, there were over 400 beneficial owners of the Company's common stock. The Company did not pay cash dividends in fiscal years 1994 or 1995 and the Company does not anticipate paying cash dividends in the foreseeable future because of the capital intensive nature of its business. Cash reserves will be utilized to offset any operating cash deficiencies which could occur, as well as to acquire additional equipment, at the appropriate time, to enable the company to maintain its high competitive profile in the industry. Market information concerning the Company's common stock may be found under the caption heading "Stock Price Information" in the Company's Annual Report to Shareholders for fiscal 1995, which is incorporated by reference herein. ITEM 6. SELECTED FINANCIAL DATA Information required by this item may be found under the caption "Five Year Financial Review" in the Company's Annual Report to Shareholders for fiscal 1995, which is incorporated by reference herein. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by this item may be found in the Company's Annual Report to Shareholders for fiscal 1995, which is incorporated by reference Page 9 herein. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by this item may be found in the Company's Annual Report to Shareholders for fiscal 1995, which is incorporated by reference herein. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements with the Company's accountants on accounting and financial disclosure. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY This information is incorporated by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held February 8, 1996, to be filed with the Securities and Exchange Commission (the Commission) not later than 120 days after the end of the fiscal year covered by this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION This information is incorporated by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held February 8, 1996, to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K. 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 Shareholders to be held February 8, 1996, to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K. 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 Shareholders to be held February 8, 1996, to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K (a) Financial Statements and Exhibits Page 10 1. Financial Statements The following financial statements, together with the report of Arthur Andersen LLP dated November 21, 1995 appearing in the Company's Annual Report to Shareholders, are incorporated by reference herein: Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Cash Flows Consolidated Statements of Changes in Shareholders' Equity Report of Independent Public Accountants Notes to Consolidated Financial Statements 2. Exhibits Listed below are all of the Exhibits filed as part of this report. 3.1.1 Restated Articles of Incorporation dated January 1972 (Incorporated herein by reference to Exhibit 3.1.1 of the Company's Form 10-K for the year ended September 30, 1993). 3.1.2 Articles of Amendment dated March 1975 (Incorporated herein by reference to Exhibit 3.1.2 of the Company's Form 10-K for the year ended September 30, 1993). 3.1.3 Articles of Amendment dated March 1992 (Incorporated herein by reference to Exhibit 3.1.3 ofthe Company's Form 10-K for the year ended September 30, 1993). 3.2 Bylaws, as amended (Incorporated herein by reference to Exhibit 3.2 of the Company's Form 10-K for the year ended September 30, 1993). 10.1 Atwood Oceanics, Inc. 1981 Incentive Stock Option Plan (Incorporated herein by reference to Exhibit 10.1 of the Company's Form 10-K for the year ended September 30, 1993). 10.2 Atwood Oceanics, Inc. 1990 Stock Option Plan (Incorporated herein by reference to Exhibit 10.2 of the Company's Form 10-K for the year ended September 30, 1993). 10.3 Joint Venture Letter Agreement dated November 4, 1994 between the Company and Helmerich & Payne, Inc. (Incorporated herein by reference to Exhibit 10.3 of the Company's Form 10-K for the year ended September 30, 1994). 10.4.1 Amended and Restated Master Loan Restructuring Agreement as of March 31, 1995 between Atwood Deep Seas, Ltd.; Texas Commercen Bank, National Association; CoMac Partners and Chemical Bank. 10.4.2 Amendment to Second Amended and Restated Master Loan Page 11 Restructuring Agreement dated as of November 28, 1995 between Atwood Deep Seas, Ltd.; Texas Commerce Bank, National Association; CoMac Partners and Chemical Bank. 10.5 Asset Purchase Agreement dated February 14, 1995, effective as of December 31, 1995 between Atwood Falcon I, Ltd. and Atwood Oceanics Pacific Limited. 10.6 Purchase and Sale Agreement dated February 14, 1995, effective as of December 31, 1995 among Philadelphia Investment Corporation of Delaware, Philadelphia Falcon Drilling Company, Philadelphia Drilling Company, Atwood Oceanics Drilling Company, Falcon I, Ltd. and Atwood Deep Seas, Ltd. 13.1 Annual Report to Shareholders 21.1 List of Subsidiaries 23.1 Accountants Consent 27.1 Financial Data Schedule 4. Executive Compensation Plans and Arrangements Atwood Oceanics, Inc. 1981 Incentive Stock Option Plan - See Exhibit 10.1 hereof. Atwood Oceanics, Inc. 1990 Stock Option Plan - See Exhibit 10.2 hereof. (b) Reports on Form 8-K During the last quarter of fiscal 1995, the Company did not file with the Securities and Exchange Commission any reports on Form 8-K. 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. ATWOOD OCEANICS, INC. /s/ JOHN R. IRWIN /s/ JAMES M. HOLLAND JOHN R. IRWIN, President JAMES M. HOLLAND, Senior Vice (Principal Executive Officer) President Principal Financial and Accounting Officer) Date: December 7, 1995 Date: December 7, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on the dates indicated. /s/ ROBERT W. BURGESS /s/ GEORGE S. DOTSON ROBERT W. BURGESS, Director GEORGE S. DOTSON, Director Date: 7 December 1995 Date: 7 December 1995 /s/ HANS HELMERICH /s/ WILLIAM J. MORRISSEY HANS HELMERICH, Director WILLIAM J. MORRISSEY, Director Date: 7 December 1995 Date: 7 December 1995 EX-10.4.1 2 PAGE 12 EXHIBIT 10.4.1 FIRST AMENDMENT TO SECOND AMENDED AND RESTATED MASTER LOAN RESTRUCTURING AGREEMENT THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED MASTER LOAN RESTRUCTURING AGREEMENT (hereinafter called the "First Amendment") dated as of November 28, 1995 is by and between Atwood Deep Seas, Ltd., a Texas limited partnership (the "Partnership"), Texas Commerce Bank, National Association ("TCB"), CoMac Partners ("CoMac") and Chemical Bank ("Chemical"; collectively with TCB and CoMac, referred to as the "Banks") and Chemical Bank, as agent (in such capacity, the "Agent"). W I T N E S S E T H: WHEREAS, the Partnership and the Banks entered into that certain Second Amended and Restated Master Loan Restructuring Agreement effective as of March 31, 1995 (the "Agreement") whereby, upon the terms and conditions therein stated, the Banks agreed to modify the terms of their loans to the Partnership as provided in the Agreement; and WHEREAS, the Partnership desires to re-document the Vessels (as defined in the Agreement) under the flag of the Republic of Panama, and the Banks have consented to same; and WHEREAS, the Partnership and the Banks mutually desire to amend certain aspects of the Agreement and related documents to reflect the above; NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows: ARTICLE I GENERAL TERMS 1.1 Terms Defined in Agreement. As used in this First Amendment, except as may otherwise be provided in Section 1.02 hereof, all capitalized terms which are defined in the Agreement shall have the same meaning herein as therein, all of such terms and their definitions being incorporated herein by reference. 1.2 Amended Definitions. The following terms which are defined in the Agreement are amended in their entirety as follows: "Agreement" shall mean the Second Amended and Restated Master Loan Restructuring Agreement dated as of March 31, 1995, as amended by the First Amendment, as may be further PAGE 13 amended, supplemented or otherwise modified from time to time. "Eagle Mortgage" shall mean the Panamanian Indenture of First Naval Mortgage dated as of November 28, 1995 by the Partnership in favor of the Agent, as the same may be amended, supplemented or otherwise modified from time to time, substantially in the form of Exhibit C-3, attached to the First Amendment. "Eagle Mortgage Amendment" shall mean the Amendment No. 3 to First Preferred Ship Mortgage dated as of March 31, 1995, substantially in the form of Exhibit C-1. "Eagle Vessel" shall mean that certain semi-submersible offshore drilling unit named the "ATWOOD EAGLE" (formerly known as the "Diamond M Eagle" and then the "Eagle"), Panamanian Provisional Patente No.24449-PEXT. "EOI" shall mean Eagle Oceanics, Inc., a Delaware corporation and wholly owned subsidiary of Atwood. "Existing Eagle Mortgage" shall mean the First Preferred Ship Mortgage, made and dated August 4, 1982, by Diamond M Eagle, Ltd., a predecessor in interest to the Partnership, to Chemical, as amended by the First Amendment thereto dated April 26, 1988, Amendment No. 2 to First Preferred Ship Mortgage dated November 12, 1992, and the Eagle Mortgage Amendment. "Existing Hunter Mortgage" shall mean the First Preferred Ship Mortgage, made and dated December 29, 1981, by Diamond M Hunter, Ltd., a predecessor in interest to the Partnership, to Chemical, as amended by the First Amendment thereto dated April 26, 1988, Amendment No. 2 to First Preferred Ship Mortgage dated November 12, 1992, and the Hunter Mortgage Amendment. "Funding Agreement" shall mean the Third Amended and Restated Funding Agreement dated as of March 31, 1995 among Atwood, the Partnership and the Partners, as amended by First Amendment to Third Amended and Restated Funding Agreement dated November 28, 1995, as may be further amended, supplemented or otherwise modified from time to time. "Hunter Mortgage" shall mean the Panamanian Indenture of First Naval Mortgage dated as of November 28, 1995 by the Partnership in favor of the Agent, as the same may be amended, supplemented or otherwise modified from time to time, substantially in the form of Exhibit C-4, attached to the First Amendment. "Hunter Mortgage Amendment" shall mean the Amendment No. 3 to First Preferred Ship Mortgage dated as of March 31, 1995, substantially in the form of Exhibit C-2. PAGE 14 "Hunter Vessel" shall mean that certain semi- submersible offshore drilling unit named the "ATWOOD HUNTER" (formerly known as the "Diamond M Hunter" and then the "Eagle"), Panamanian Provisional Patente No. 24452-PEXT. "Partner Mortgage Amendment" shall mean that certain Amendment No. 2 to Preferred Fleet Mortgage on the Hunter Vessel and the Eagle Vessel dated as of March 31, 1995 executed by the Partnership in favor of Atwood. "Partner Mortgages" shall mean the AOI Mortgage as defined in the Funding Agreement. "Security Documents" shall be the collective reference to the Restructure Security Agreement, the Intercreditor Agreement, the Mortgages, the Trust Indenture and any Transfer Notices delivered to the Agent. 1.3 Additional Definitions. The following terms are hereby added as defined terms in the Agreement: "Existing Partner Mortgages" shall mean the Existing AOI Mortgage as defined in the Funding Agreement. "First Amendment" shall mean that certain First Amendment to Second Amended and Restated Master Loan Restructuring Agreement dated as of November 28, 1995. "Indemnification Agreement" shall mean that certain Indemnification Agreement dated as of November 28, 1995 executed by Atwood, substantially in the form of Annex A attached to the First Amendment. "Trust Indenture" shall mean the Second Amended and Restated Trust Indenture dated as of March 31, 1995 between the Partnership and Chemical as Vessel Trustee, substantially in the form of Exhibit H, as amended by the First Amendment to the Second Amended and Restated Trust Indenture dated November 28, 1995, as may be further amended, supplemented or otherwise modified from time to time. 1.4 Confirmation and Extent of Changes. All terms which are defined in the Agreement shall remain unchanged except as specifically provided in Sections 1.02 and 1.03 of this First Amendment. ARTICLE II REVISIONS TO AGREEMENT 2.1 Existing Liens. Section 2.1 of the Agreement is hereby amended to read in its entirety as follows: "2.1 Existing Liens. Except with respect to the Existing Eagle Mortgage and the Existing Hunter Mortgage which have been replaced by the Mortgages, the Partnership hereby confirms and acknowledges that without the necessity PAGE 15 of further action by any party, the Existing Liens (a) are unimpaired and continue to be fully perfected security interests in favor of the Agent, and (b) continue to constitute collateral security for the Partnership's obligations to the Banks under this Agreement, the Term Notes and the other Restructuring Documents." 2.2 Existing Documents Superseded. Section 2.3(e) of the Agreement is hereby amended to read in its entirety as follows: "(e) On the date of the First Amendment, the Liens created by the Existing Collateral Documents other than the Existing Eagle Mortgage and the Existing Hunter Mortgage shall be continued pursuant to the Restructure Security Agreement and the other Security Documents." 2.3 Mortgages Superseded. The following provisions are hereby added as Sections 2.3(f) and (g) of the Agreement to read in their entirety as follows: "(f) On the date of the First Amendment, the Existing Eagle Mortgage shall be superseded by the Eagle Mortgage and the Existing Hunter Mortgage shall be superseded by the Hunter Mortgage. (g) On the date of the First Amendment, the Existing Partner Mortgages shall be superseded by the Partner Mortgages." 2.4 Citizen Representation. The last sentence of Section 6.1(a) of the Agreement is hereby deleted. 2.5 Mortgages. Section 6.1(b) of the Agreement is hereby amended to read in its entirety as follows: "The Partnership has the power, and has taken all necessary action (including, without limitation, action under the Partnership Agreement and the TRLPA), (i) to execute, deliver and perform its obligations under the Agreement, the Term Notes, the Security Documents, the Assumption Agreement and each other Restructuring Document to which it is a party, and to perform under the Mortgages and the Restructuring Documents to which it is a party, (ii) to assign, and grant to the Agent for the benefit of the Banks, a valid first security interest in, the collateral described in the Restructure Security Agreement, and (iii) to grant first priority mortgages on the Vessels under the laws of the Republic of Panama pursuant to the Mortgages. Except for completion of all formalities to convert in due course, the Provisional Patente on each of the Vessels into a Permanent Patent, no consent, license, approval or authorization of, or registration or declaration with, any Person (including any Governmental Authority) is required in connection with (x) the execution and delivery of this Agreement, the Term Notes, the Security Documents, the Assumption Agreement and the other Restructuring Documents to which it is a party or (y) the performance of the PAGE 16 Mortgages and the Restructuring Documents to which it is a party (other than those required in connection with the Mortgages and filings under the Uniform Commercial Code with respect to the collateral described in the Restructure Security Agreement) or (z) the validity or enforceability against the Partnership of the Mortgages, the Assumption Agreement and the Restructuring Documents to which it is a party, except such consents, authorizations, licenses, approvals, registrations and declarations which have been obtained or made and are in full force and effect." 2.6 Mortgages. Section 6.1(j) of the Agreement is hereby amended to read in its entirety as follows: "(j) Mortgages. (i) When each Mortgage has been duly executed by the Partnership and delivered to the Agent and duly recorded in the office listed on Schedule 4 hereto, each of the Mortgages will constitute a first priority mortgage on such Vessel in favor of the Agent for the benefit of the Banks named therein, having the effect and with the priority provided under the laws of the Republic of Panama." 2.7 Insurance. Section 8.4(c) of the Agreement is hereby amended to read in its entirety as follows: "(c) at all times cause each Vessel to be insured to the extent required by the terms of the applicable Mortgage." 2.8 Recorded Mortgages. The following provisions are hereby added as Sections 10.1(o), (p), (q), (r) and (s) of the Agreement as additional Events of Default to read in their entirety as follows: (o) The Agent shall not have received within fifteen (15) Business Days of the date the First Amendment is executed (i) an original of each Mortgage bearing evidence of recordation by the relevant Vessel Recording office reflected in Schedule 4 to this Agreement, and (ii) authenticated copies of documentation issued by the Republic of Panama indicating that each Vessel is owned by the Partnership free and clear of all mortgages or other encumbrances other than the relevant Mortgage and Partner Mortgages; or (p) The Agent shall not have received within thirty (30) Business Days of the date the First Amendment is executed a Permanent [Reglamentary] Patente on the Eagle Vessel and the Hunter Vessel; or (q) The Agent shall not have received by Closing, a certificate executed by the General Partner attaching a list of the trade accounts payable of the Partnership as of September 30, 1995 and certifying that all such accounts payable will be paid as provided in Section 10.1(s); or PAGE 17 (r) The Agent shall not have received by the forty- fifth (45th) day of the month following the month in which Closing occurs, a certificate executed by the General Partner attaching a list of the trade accounts payable of the Partnership as of the last day of the month in which Closing occurs and certifying that all such accounts payable will be paid within sixty (60) days; or (s) The Agent shall not have received within thirty (30) days after the expiration of the sixty (60) day period in Section 10.1(r) above, a certificate executed by the General Partner certifying that all accounts payable on the lists delivered pursuant to Sections 10.1(q) and 10.1(r) above have been paid in full." 2.9 Schedule 4. Schedule 4 of the Agreement is hereby deleted and replaced with the Schedule 4 attached to this First Amendment. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 Representations Repeated. The representations and warranties of Partnership contained in the Agreement (as modified by this First Amendment) are true and correct in all material respects at and as of the time of delivery of this First Amendment, except for such changes in the facts represented and warranted as are not in violation of the Agreement or this First Amendment. 3.2 Security Documents. All Security Documents to which the Partnership is a party shall secure the Term Notes and all of the indebtedness of Partnership to Banks represented by the Term Notes as such indebtedness is modified by this First Amendment, whether or not such Security Documents shall be expressly amended or supplemented in connection herewith. 3.3 Compliance with Obligations. Partnership has performed and complied with all agreements and conditions contained in the Agreement and the Security Documents required to be performed or complied with by Partnership prior to or at the time of delivery of this First Amendment. 3.4 No Amendments. Nothing in Article III of this First Amendment is intended to amend any of the representations or warranties contained in the Agreement. ARTICLE IV CONDITIONS 4.1 Closing. The closing (the "Closing") of the transactions contemplated hereby shall take place at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, commencing at 10:00 A.M., New York time, on November 28, 1995 or such other place or date as to which the PAGE 18 Agent, the Banks and the Partnership shall agree. 4.2 Conditions Precedent. Each of the parties hereto expressly acknowledges that each of the following conditions is integral to the effectiveness of the agreements of the Agent and the Banks herein and that no such agreement shall be effective until the documents or instruments delivered at the Closing by the Agent or any Bank prior to the completion of all such conditions in connection with or in furtherance of any such agreement shall be so delivered in escrow until each of the following conditions shall have been satisfied: (a) Agreements. This First Amendment shall have been duly executed and delivered by each of the parties hereto, and each of the following agreements, amendments or instruments shall have been duly executed and delivered by the respective parties thereto and shall not have been terminated and the conditions to the effectiveness of such agreements, amendments or instruments shall have been fulfilled: (i) the Mortgages; (ii) First Amendment to Third Amended and Restated Funding Agreement; (iii) First Amendment to Second Amended and Restated Trust Indenture; and (iv) the Indemnification Agreement. (b) Resolutions. The Agent shall have received resolutions, certified by the Secretary, Assistant Secretary or general partner, as the case may be, of each of the following corporations or limited partnerships, of the Board of Directors or partners (general and limited), as the case may be, of each of the following corporations or limited partnerships as to the following matters: (i) of the Partnership authorizing the execution, delivery and performance of this First Amendment and the documents listed in 4.02(a) of this First Amendment to which it is a party; (ii) of Atwood authorizing the execution, delivery and performance of the Indemnification Agreement; and (iii) of each of AHC, AODC and EOI authorizing the execution, delivery and performance of the First Amendment to Third Amended and Restated Funding Agreement. (c) Incumbency Certificates. The Agent shall have received a certificate of the Secretary or general partner, as the case may be, of each of the Partnership, Atwood, AHC, AODC and EOI certifying as to the incumbency and signature PAGE 19 of each officer of such corporation authorized to sign the documents and agreements to which such corporation or limited partnership is a party (and each instrument referred to in such documents and agreements), together with evidence of the incumbency and signature of such Secretary or the person signing on behalf of such general partner, as the case may be. (d) Vessel Documents. The Agent shall have received: (i) an original of each of the Mortgages, executed and acknowledged by the Partnership; (ii) authenticated copies of documentation issued by the Republic of Panama indicating that each Vessel is owned by the Partnership free and clear of all mortgages or other encumbrances other than the relevant Mortgage and Partner Mortgages; and (iii) an original of the Trust Indenture as amended, executed by the Partnership. (e) Legal Opinions. The Agent shall have received the following legal opinions, each dated as of the date of this First Amendment: (i) an opinion of Griggs & Harrison, special counsel to the Partnership, substantially in the form of Annex B to this First Amendment; (ii) an opinion of Griggs & Harrison, counsel to Atwood, AHC, AODC and EOI substantially in the form of Annex C to this First Amendment; and (iii) an opinion of Benedetti & Benedetti, Panamanian counsel to the Partnership, substantially in the form of Annex D to this First Amendment. (f) Financial Information. The Agent shall have received each of the financial statements referred to in subsection 6.1(f) of the Agreement, which statements substantially conform to the requirements of such subsection and shall be in form and substance satisfactory to the Agent. (g) Other Agreements/Matters. The Partnership shall have duly and validly issued, executed and delivered to Banks this First Amendment and such other documents as the Agent may reasonably request in connection with the transactions contemplated by the Agreement in form and substance reasonably satisfactory to the Agent and its counsel. 4.3 Release of Mortgages. The Partnership acknowledges and consents that the Agent shall not be required to release the Existing Eagle Mortgage or the Existing Hunter Mortgage unless and until the Agent has received the opinion of Panamanian PAGE 20 counsel to the Partnership. ARTICLE V MISCELLANEOUS 5.1 Amend Loan Documents. The Partnership and the Banks expressly agree that all documents and instruments executed in connection with the Term Notes and dated as of March 31, 1995, are hereby amended to reflect the terms of this First Amendment and the matters referred to herein. 5.2 Extent of Amendments. Except as otherwise expressly provided herein, the Agreement, the Security Documents, and the other instruments and agreements referred to therein are not amended, modified or affected by this First Amendment. Except as expressly set forth herein, all of the terms, conditions, covenants, representations, warranties and all other provisions of the Agreement are herein ratified and confirmed and shall remain in full force and effect. 5.3 References. On and after the date on which this First Amendment becomes effective, the terms, "this Agreement," "hereof," "herein," "hereunder" and terms of like import, when used herein or in the Agreement shall, except where the context otherwise requires, refer to the Agreement, as amended by this First Amendment. 5.4 Counterparts. This First Amendment may be executed by one or more of the parties to this Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this First Amendment signed by all the parties shall be lodged with the Partnership and the Agent. 5.5 GOVERNING LAW. THIS FIRST AMENDMENT, THE AGREEMENT AND THE TERM NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 5.6 Severability. The invalidity of any one or more covenants, phrases, clauses, sentences or paragraphs of this First Amendment shall not affect the remaining portions of this First Amendment or any part hereof, and in case of any such invalidity, this First Amendment shall be construed as if such invalid covenants, phrases, clauses, sentences or paragraphs had not been inserted. 5.7 Release of Mortgages. By execution of this First Amendment, each of the Banks hereby authorizes and directs the Agent to release the Existing Eagle Mortgage and Existing Hunter Mortgage in connection with the re-documentation of the Vessels under the flag of the Republic of Panama. PAGE 21 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. ATWOOD DEEP SEAS, LTD. By: ATWOOD HUNTER CO., General Partner By: /s/ James M. Holland James M. Holland Vice President Address: Same as Subsection 13.2 of the Agreement CHEMICAL BANK as Agent and as a Bank By: /s/ Charles O. Freedgood Charles O. Freedgood Vice President Address: Same as Subsection 13.2 of the Agreement TEXAS COMMERCE BANK, NATIONAL ASSOCIATION By: /s/ James A. Flynn Name: James A. Flynn Title: Vice President Texas Commerce Bank National Association 712 Main Street Houston, Texas 77001 Attn.: Telecopy: Telephone Confirmation: COMAC PARTNERS By: /s/ Paul J. Coughlin Name: Paul J. Coughlin Title: General Partner 10 Glenville Street Greenwich, Connecticut 06831 EX-10.4.2 3 PAGE 20 EXHIBIT 10.4.2 ATWOOD DEEP SEAS, LTD. ____________________________________ SECOND AMENDED AND RESTATED MASTER LOAN RESTRUCTURING AGREEMENT Dated as of March 31, 1995 ____________________________________ CHEMICAL BANK as Agent PAGE 21 SECOND AMENDED AND RESTATED MASTER LOAN RESTRUCTURING AGREEMENT, dated as of March 31, 1995 (the "Effective Date"), among ATWOOD DEEP SEAS, LTD. (formerly known as DIAMOND M DEEP SEAS, LTD.), a Texas limited partnership (the "Partnership"), Texas Commerce Bank, National Association ("TCB"),CoMac Partners ("CoMac") and Chemical Bank ("Chemical"; collectively with TCB and CoMac, referred to as the "Banks") and Chemical Bank, as agent (in such capacity, the "Agent"). W I T N E S S E T H : WHEREAS, in April 1988, the Partnership, the banks parties thereto and the Agent entered into the Master Loan Restructuring Agreement, (the "Original Credit Agreement"), pursuant to which the obligations of the Partnership were restructured; and WHEREAS, in 1990, Diamond M Drilling Company (formerly known as Diamond M Company) ("DMC") sold 100% of the capital stock of Diamond M Hunter Company and Diamond M Falcon Company to Atwood Oceanics, Inc. ("Atwood"); and WHEREAS, simultaneous with or shortly after such sale, Diamond M Hunter Company changed its name to Atwood Hunter Co. and Diamond M Falcon Company changed its name to Atwood Falcon Co.; and WHEREAS, in connection with such sale, Atwood assumed all of DMC's liability under certain documents executed in connection with the Original Credit Agreement; and WHEREAS, effective as of November 12, 1992, the Partnership, the Agent, the Banks and Atwood (in its prior capacity as a Bank thereunder) entered into that certain Amended and Restated Master Loan Restructuring Agreement (the Original Credit Agreement as so amended and restated and as amended through the date hereof, the "Existing Credit Agreement"); and WHEREAS, effective as of December 31, 1994, Atwood Oceanics Drilling Company purchased the fifty percent (50%) limited partnership interest in the Partnership from Philadelphia Drilling Company, and Philadelphia Drilling Company sold such interest (the "Sale"); and WHEREAS, in connection with the transfer of such interest, Atwood Oceanics Drilling Company and Atwood assumed the obligations of Philadelphia Drilling Company, Philadelphia Investment Corporation of Delaware, arising under the Existing Assumed Documents (as defined in subsection 1.1 herein); and WHEREAS, due to the Sale and the resulting assignment to and assumption by Atwood Oceanics Drilling Company and Atwood of the rights and obligations of Philadelphia Drilling Company and Philadelphia Investment Corporation of Delaware as indicated above, certain documents are no longer required (herein referred to as the Terminated Documents, as defined in subsection 1.1); and PAGE 22 WHEREAS, the partners in the Partnership have requested that the Banks and the Agent amend and restate the Existing Credit Agreement and the other documents executed in connection therewith to reflect certain requested amendments resulting from the Sale, as well as to incorporate in one document past amendments and related transactions; and WHEREAS, the Agent and the Banks are willing to do so on the terms and subject to the conditions set forth herein and in the other Restructuring Documents (as defined in subsection 1.1); NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used herein, the following capitalized terms shall have the following meanings, unless the context otherwise requires: "Acceptable Drilling Contract" shall mean a Drilling Contract which shall be in conformity with industry standards, in effect on the date of execution thereof, for "day rate" drilling contracts (including such day rate contracts coupled with a depth, footage or performance premium, so long as such premium is not based on a "turn key" or substantially equivalent arrangement); provided that, the Partnership shall from time to time, upon the request of the Agent, demonstrate to the Agent that the party responsible for making payments to the Partnership under any Drilling Contract has the financial ability to make the payments required under such Drilling Contract in accordance with the terms thereof. "Affiliate" shall mean, as to any Person, any other Person having control of, controlled by, or under common control with, such first Person. "Affiliate Note" shall have the meaning assigned to such term in subsection 4.2(c). "Agent" shall have the meaning assigned to it in the Preamble. "Agreement" shall mean this Second Amended and Restated Master Loan Restructuring Agreement, as amended, supplemented or otherwise modified from time to time. "AHC" shall mean Atwood Hunter Co., a Delaware corporation and wholly owned subsidiary of Atwood. "Alternate Base Rate" shall mean for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime PAGE 23 Rate" shall mean the rate of interest per annum publicly announced from time to time by the Agent as its prime rate in effect at its principal office in New York City (each change in the Prime Rate to be effective on the date such change is publicly announced); "Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which is one and the denominator of which is the C/D Reserve Percentage and (b) the C/D Assessment Rate; "Three-Month Secondary CD Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board of Governors of the Federal Reserve System (the "Board") through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three- month certificates of deposit of major money center banks in New York City received at approximately 10:00 A.M., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it; and "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. If for any reason the Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate, or both, for any reason, including the inability or failure of the Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) or (c), or both, of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective on the effective day of such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. "Alternate Base Rate Loans" shall mean any portion of the Term Loan at such time as it is being maintained at a rate of interest based upon the Alternate Base Rate. "AODC" shall mean Atwood Oceanics Drilling Company, a Texas corporation and wholly owned subsidiary of Atwood. "Applicable Law" shall mean, as to any Bank or any Transferee, the law in effect from time to time and applicable to such Bank or such PAGE 24 Transferee and the transactions contemplated hereby and to the Term Note held by such Bank which lawfully permits the charging and collection by such Bank or such Transferee of the highest permissible lawful, non- usurious rate of interest in connection with the transactions contemplated hereby and the Term Notes. To the extent the laws of the State of Texas are applicable to any Bank or any Transferee, it is intended that Tex. Rev. Civ. Stat. Ann. 5069-1.04 (Vernon 1987) shall be included in such laws in determining Applicable Law with respect to such Bank or such Transferee, except that if at any time the laws of the United States of America permit such Bank or Transferee to contract for, take, reserve, charge or receive a higher rate of interest than is allowed by the laws of the State of Texas (whether such federal laws directly so provide or refer to the law of the state where such Bank or Transferee is located), then such federal laws shall to such extent govern as to the rate of interest which such Bank or Transferee is allowed to contract for, take, reserve, charge or receive under its Term Note and this Agreement. "Assumption Agreement" shall mean that certain Assignment, Assumption and Termination Agreement dated as of December 31, 1994 between Atwood, AODC, AHC, AFC, EOI, the Partnership, Atwood Falcon I, Ltd., Philadelphia Investment Corporation of Delaware, Philadelphia Drilling Company and Philadelphia Falcon Drilling Corporation. "Atwood" shall mean Atwood Oceanics, Inc., a Texas corporation. "Atwood Acknowledgement" shall mean the Atwood Acknowledgement and Consent, substantially in the form of Exhibit W as amended, supplemented or modified from time to time. "Atwood Security Documents" shall mean the collective reference to the AOI Mortgage and the AOI Security Agreement as such terms are defined in the Funding Agreement. "Balloon Payment" shall have the meaning assigned to such term in subsection 3.1(b). "Banks" shall have the meaning assigned to such term in the preamble to this Agreement. "Bankruptcy Code" shall mean the United States Bankruptcy Code, 11 U.S.C. 101 et seq., as in effect from time to time. "Business Day" shall mean a day other than a Saturday, Sunday or other day on which banks in New York, New York are authorized or required by law to close. "Cash Equivalents" shall mean (i) direct obligations of, or obligations guaranteed by, the United States or any agency thereof having maturities of not more than one year from the date of acquisition, (ii) commercial paper issued by an issuer rated P2 or A2 or better by Moody's Investors Service, Inc. or Standard & Poor's PAGE 25 Corporation and (iii) time deposits with, including certificates of deposit, repurchase agreements or bankers' acceptances issued by, any bank or trust company organized under the laws of the United States or any state thereof and having capital and surplus aggregating at least $50,000,000. "Cash Operating Expenses" for any period shall mean the sum of the following items actually paid during such period: Direct Costs, workers' compensation costs, mobilization costs, capital expenditures permitted hereunder, costs of maintaining shore-based field offices and support services maintained exclusively with and for the benefit of the Hunter or Eagle Vessels and allocated in accordance with the Management Agreements and taxes and other operating costs incurred in the normal course of business. Cash Operating Expenses shall in no event include Gross Overhead. "C/D Assessment Rate": for any day, the net annual assessment rate (rounded upward to the nearest 1/100th of 1%) determined by the Agent to be payable on such day to the Federal Deposit Insurance Corporation or any successor ("FDIC") for FDIC's insuring time deposits made in dollars at offices of the Agent in the United States. "C/D Reserve Percentage": for any day, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor), for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding one billion dollars in respect of new non-personal time deposits in dollars in New York City having a maturity of 90 days and in an amount of $100,000 or more. "Chemical Rate" shall mean the Alternate Base Rate. "Closing" shall have the meaning assigned to such term in subsection 7.1. "CoMac" shall have the meaning assigned to such term in the Preamble. "Commonly Controlled Entity" shall mean an entity whether or not incorporated, which is under common control with the Partnership within the meaning of Section 4001 of ERISA. "Contingent Obligation" shall mean as to any Person, any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working PAGE 26 capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. "Contractual Obligation" shall mean, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Default" shall mean any of the events specified in subsection 10.1, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Direct Costs" for any period shall mean the sum of the following expenses incurred and actually paid by the Partnership during such period: labor and burden, supplies, purchases of materials for inventory, travel, freight, catering, fuel, costs associated with work and crew boats, insurance costs of the Partnership. "Dollars" and "$" shall mean dollars in lawful currency of the United States of America. "Drilling Contract" shall mean any contract engaging the utilization of a Vessel in contract drilling for third parties under a lease, charter, sub-contract or service arrangement. "Eagle Mortgage" shall mean the Existing Eagle Mortgage as amended by the Eagle Mortgage Amendment, as the same may be amended, supplemented or otherwise modified from time to time. "Eagle Mortgage Amendment" shall mean the Amendment to the Eagle Mortgage, substantially in the form of Exhibit C-1. "Eagle Vessel" shall mean that certain semi-submersible offshore drilling unit named the "Eagle" (formerly known as the "Diamond M Eagle"), Official Number 649432. "Effective Date" shall have the meaning assigned to such term in the Preamble. "Effective Date Certificate" shall mean a certificate of a Responsible Officer of the Partnership, substantially in the form of Exhibit F. "Environmental Laws" shall mean any and all Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, PAGE 27 codes, decrees or requirements of any Governmental Authority regulating, relating to or imposing liability or standards of conduct concerning environmental protection matters, including, without limitation, Hazardous Materials, as now or may at any time hereafter be in effect. "EOI" shall mean Eagle Oceanics, Inc., a Texas corporation and wholly owned subsidiary of Atwood. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurodollar Loans" shall mean any portion of the Term Loans at such time as they are being maintained at a rate of interest based upon a Eurodollar Rate. "Eurodollar Rate" shall mean, with respect to each Interest Period for the Eurodollar Loans, the rate per annum equal to the quotient of (a) (i) with respect to Interest Periods having a maturity of less than 12 months, the rate at which the Agent is offered Dollar deposits by banks two Working Days prior to the beginning of such Interest Period in the interbank eurodollar market for delivery on the first day of such Interest Period for a number of days comparable to the duration of such Interest Period and in an amount comparable to the amount of the Eurodollar Loan to be outstanding during such Interest Period, and (ii) with respect to Interest Periods of 12 or 24 months, the highest of the rates quoted to the Agent as the rate at which each Bank is offered Dollar deposits by banks two Working Days prior to the beginning of such Interest Period in the interbank eurodollar market for delivery on the first day of such Interest Period for a number of days comparable to the duration of such Interest Period and in an amount comparable to the amount of the Eurodollar Loan to be maintained by such Bank, to be outstanding during such Interest Period, divided by (b) a number equal to 1.00 minus the rate (expressed as a decimal fraction) of reserve requirement applicable on the date two Working Days prior to the beginning of such Interest Period (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto), as now and from time to time hereafter in effect, dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of such Board) maintained by a member bank of such System (such Eurodollar Rate to be rounded upwards, if necessary, to the next higher 1/100 of one percent). "Eurodollar Tranche" shall be the collective reference to Eurodollar Loans having the same Interest Period (whether or not originally made on the same day). "Event of Default" shall mean any of the events specified in subsection 10.1, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, event or act has been satisfied. PAGE 28 "Excess Cash" shall mean for any Fiscal Quarter, an amount equal to the difference between (i) the sum of (x) Gross Cash Receipts for such Fiscal Quarter plus (y) the aggregate principal amount of Temporary Working Capital Loans made during such Fiscal Quarter minus (ii) the sum of (x) the Cash Operating Expenses of the Partnership actually paid during such Fiscal Quarter plus (y) the amount of principal and interest payments actually or scheduled to be paid to the Banks by the Partnership during such Fiscal Quarter, other than any payments made pursuant to subsection 4.2 hereof. "Existing Assumed Documents" shall mean the collective reference to the documents and agreements as listed on Schedule 11 hereto which have been assumed as of December 31, 1994 pursuant to the Assumption Agreement. "Existing Collateral Documents" shall be the collective reference to the mortgages, security agreements and the like pursuant to which the Partnership granted collateral security for its obligations under the Existing Credit Agreement and related documents, as listed on Schedule 1 hereto. "Existing Credit Agreement" shall have the meaning assigned to such term in the fifth WHEREAS clause. "Existing Documents" shall be the collective reference to the Existing Credit Agreement and the Existing Collateral Documents. "Existing Eagle Mortgage" shall mean the First Preferred Ship Mortgage, made and dated August 4, 1982, by Diamond M Eagle, Ltd., a predecessor in interest to the Partnership, to Chemical, as amended by the First Amendment thereto dated April 26, 1988, and Amendment No. 2 to First Preferred Ship Mortgage dated November 12, 1992. "Existing Hunter Mortgage" shall mean the First Preferred Ship Mortgage, made and dated December 29, 1981, by Diamond M Hunter, Ltd., a predecessor in interest to the Partnership, to Chemical, as amended by the First Amendment thereto dated April 26, 1988, and Amendment No. 2 to First Preferred Ship Mortgage dated November 12, 1992. "Existing Intercreditor Agreement" shall mean the Amended and Restated Intercreditor and Subordination Agreement dated as of November 12, 1992 among the Agent, Atwood and Philadelphia Investment Corporation of Delaware in the capacities therein indicated. "Existing Letter Agreement" shall mean the Letter Agreement dated as of November 12, 1992 in the form of the document attached as Exhibit J to the Existing Credit Agreement. "Existing Liens" shall be the collective reference to the Liens granted to Chemical by the Partnership pursuant to the Existing Collateral Documents. PAGE 29 "Existing Restructure Security Agreement" shall mean the Amended and Restated Restructure Security Agreement dated as of November 12, 1992 between the Partnership and the Agent. "Existing Subordination Agreement" shall mean the Amended and Restated Subordination Agreement dated November 12, 1992 among Atwood, the Agent, the Partnership and Philadelphia Investment Corporation of Delaware. "Existing Term Notes" shall be the collective reference to the Term Notes referred to in, and defined under, the Existing Credit Agreement. "Existing Trust Indenture" shall mean the Amended and Restated Trust Indenture dated November 12, 1992 between the Partnership and Chemical. "Fiscal Quarter" shall mean each period beginning on January 1, April 1, July 1 and October 1 (each, a "Commencement Date") and ending on the day before the immediately following Commencement Date. "Fiscal Year" shall mean the 12-month period ending on September 30 of each year. Any designation of a particular Fiscal Year by reference to a calendar year shall mean the Fiscal Year ending during such calendar year. "Foreign Operating Accounts" shall be the collective reference to the operating accounts of the Partnership maintained with banks located in jurisdictions other than the United States of America or any political subdivision thereof. "Funding Agreement" shall mean the Third Amended and Restated Funding Agreement, dated as of the date hereof, among Atwood, the Partnership, and the Partners, as amended, supplemented or otherwise modified from time to time. "GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to time and applicable to the Partnership. "General Partner" shall mean, at any time, the general partner of the Partnership, at such time, which, as of the Effective Date, is AHC. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Gross Cash Receipts" shall mean for any period, the total cash receipts actually received by the Partnership during such period, whether from operation of the Vessels under Drilling Contracts, PAGE 30 ancillary services such as catering revenues, interest income from Cash Equivalents and other income items yielding cash such as proceeds from equipment sales or scrap Proceeds; provided that, Gross Cash Receipts shall not include the proceeds of any loans, capital contributions or other extensions of credit made by the Partners or Atwood to the Partnership to the extent permitted hereunder. "Gross Overhead" shall mean the sum of the following items, whether directly or indirectly incurred by, or allocated to, the Partnership: any general and administrative expenses, including, without limitation, personnel costs, such as salaries, benefit payments (including cash charges made in connection with employee incentive programs); insurance premiums; occupancy costs such as rent payments, property taxes, utilities, etc.; and other shore-based office and support services; provided that, Gross Overhead shall not include (a) costs of maintaining shore-based field office(s) and support services maintained exclusively in connection with, and for the benefit of, the Hunter Vessel or Eagle Vessel and allocated in accordance with the Management Agreements and (b) fees and expenses associated with the negotiation, preparation, execution and delivery of the Restructuring Documents or the Partnership Documents. "Hazardous Materials" shall mean any hazardous materials, hazardous wastes, hazardous constituents, hazardous or toxic substances, petroleum products (including crude oil or any fraction thereof), defined or regulated as such in or under any Environmental Law. "Hunter Mortgage" shall mean the Existing Hunter Mortgage as amended by the Hunter Mortgage Amendment, as the same may be amended, supplemented or otherwise modified from time to time. "Hunter Mortgage Amendment" shall mean the Amendment to the Hunter Mortgage, substantially in the form of Exhibit C-2, as amended, supplemented or otherwise modified from time to time. "Hunter Vessel" shall mean that certain semi-submersible offshore drilling unit named the "Hunter" (formerly known as the Diamond M Hunter), Official Number 642738. "Indebtedness" of a Person, at a particular date, shall mean the sum (without duplication) at such date of (a) indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which such Person is liable, as obligor, (b) obligations of such Person under any lease of property, the obligations under which are or in accordance with GAAP should be capitalized on a balance sheet of the Partnership, (c) obligations of such Person in respect of letters of credit, acceptances, or similar obligations issued or created for the account of such Person, and (d) trade accounts payable. "Intercreditor Agreement" shall mean the Second Amended and Restated Intercreditor and Subordination Agreement, dated as of the date hereof, substantially in the form of Exhibit K hereto, as amended, PAGE 31 supplemented or otherwise modified from time to time. "Interest Period" shall mean, with respect to the Eurodollar Loans: (a) initially, if any of the loans under the Existing Credit Agreement were Eurodollar Loans on the Effective Date, the period commencing on the Effective Date and ending on the last day of Interest Period under the Existing Credit Agreement with respect to such Eurodollar Loans; and (b) thereafter, each period commencing on, as the case may be, the last day of the next preceding Interest Period applicable to such Eurodollar Loans or the conversion date applicable to such Eurodollar Loans and ending three, six, twelve (if available) or twenty-four (if available) months thereafter, as selected by the Partnership in its notice of continuation as provided in subsection 3.3 or its notice of conversion as provided in subsection 3.3, as the case may be; provided that (A) if any Interest Period would otherwise end on a day which is not a Working Day, that Interest Period shall be extended to the next succeeding Working Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Working Day; (B) any Interest Period that would otherwise extend beyond the date of final payment of the Eurodollar Loans shall end on such date; (C) if the Partnership shall fail to give a notice of continuation as provided in subsection 3.3, the Partnership shall be deemed to have elected to continue all of the Eurodollar Loans as such and to have selected an Interest Period of three months with respect thereto; and (D) any Interest Period that begins on the last Working Day of a calendar month, or on a day for which there is no numerically corresponding day in the last calendar month in such Interest Period, shall end on the last Working Day of the last calendar month in such Interest Period. For purposes of determining the availability of Interest Periods in respect of Eurodollar Loans, such Interest Periods shall be deemed available if (a) each Bank quotes a rate to the Agent as provided in clause (a)(ii) of the definition of Eurodollar Rate and (b) none of the Banks shall have determined that the Eurodollar Rate determined by the Agent on the basis of such quotes will not adequately and fairly reflect the cost to such Bank of maintaining or funding its loans at the Eurodollar Rate for such Interest Period. If a requested Interest Period shall be unavailable in accordance with the foregoing sentence, the Partnership shall be deemed to have requested an Interest Period of three months. "Letter Agreement" shall mean the 1995 Letter Agreement, dated as of the date hereof, substantially in the form of Exhibit J hereto, as amended, supplemented or otherwise modified from time to time. "Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing PAGE 32 statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing). "Limited Partners" shall mean, at any time, the limited partners of the Partnership at such time, which, as of the Effective Date, are EOI and AODC. "Local Operating Account" shall mean each deposit account of the Partnership maintained in the United States or any political subdivision thereof in connection with payroll and other local petty cash needs. "Management Agreements" shall mean the collective reference to (i) the two Second Amended and Restated Rig Management Agreements, dated as of December 31, 1994, between the Partnership and Atwood, as amended, supplemented or modified from time to time, and any replacement(s) therefor, and (ii) any other rig management agreements relating to the operation of either or both of the Vessels. "Management Fees" shall have the meaning assigned to it in the Management Agreements. "Material Adverse Effect" shall mean a material adverse effect on (a) the business, operations, property, condition (financial or otherwise) or prospects of the Partnership, (b) the ability of the Partnership to perform its obligations under this Agreement or the Term Notes, or (c) the validity or enforceability of this Agreement or any of the Term Notes or any of the other Restructuring Documents or the rights or remedies of the Agent or the Banks hereunder or thereunder. "Maximum Rate" shall mean the maximum lawful non-usurious rate of interest (if any) which, under any law in effect and applicable to any Bank, is permitted to be charged by such Bank to the Partnership on the transactions evidenced by this Agreement and the Term Notes from time to time in effect, including changes in such Maximum Rate attributable to changes under such law which permit a greater rate of interest to be contracted for, charged, collected, received or taken as of the effective dates of such respective changes. "Minimum Payment" for any Fiscal Quarter shall mean the product of (a) the difference between (i) Gross Cash Receipts for such Fiscal Quarter minus (ii) the sum of (x) Cash Operating Expenses of the Partnership actually paid during such Fiscal Quarter plus (y) the amount of principal and interest payments actually or scheduled to be paid to the Banks by the Partnership during such Fiscal Quarter, other than any payments made or scheduled to be made pursuant to subsection 4.2 hereof multiplied by (b) 25%; provided, however, that in no event shall the Minimum Payment be a number which is less than zero. "Mortgage Amendments" shall be the collective reference to the Hunter Mortgage Amendment and the Eagle Mortgage Amendment. "Mortgages" shall be the collective reference to the (i) Eagle PAGE 33 Mortgage and (ii) Hunter Mortgage. "Multiemployer Plan" shall mean a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Non-Qualified Transferee" shall mean any Person which is not a Qualified Transferee. "Other Agreement" shall have the meaning assigned to such term in subsection 13.10. "Partner Mortgage Amendment" shall mean that certain Amendment No. 2 to Preferred Fleet Mortgage on the Hunter Vessel and the Eagle Vessel of even date herewith executed by the Partnership in favor of Atwood. "Partner Mortgages" shall mean the collective reference to each Atwood Security Document that constitutes a preferred mortgage on a Vessel. "Partners" shall be the collective reference to the General Partner and the Limited Partners. "Partnership" shall have the meaning assigned to such term in the preamble to this Agreement. "Partnership Account" shall mean the account maintained by and in the name of the Partnership as shall be identified from time to time by the Partnership to the Agent as the Partnership Account. "Partnership Account Setoff Letter" shall mean the Partnership Account Setoff Letter, between Chemical and the Partnership, substantially in the form of Exhibit O, as amended, supplemented or otherwise modified from time to time. "Partnership Advance Note" shall mean a Partnership Advance Note, as defined in the Funding Agreement. "Partnership Agreement" shall mean the Fourth Amended and Restated Agreement of Limited Partnership between the General Partner and the Limited Partners, dated as of the date hereof, as the same may be amended, supplemented or otherwise modified from time to time. "Partnership Documents" shall mean each of the agreements, instruments and documents listed on Schedule 2 hereto. "Partnership Group" shall have the meaning assigned to such term in subsection 12.3. "Person" shall mean an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. PAGE 34 "Plan" shall mean at a particular time, any employee benefit plan which is covered by ERISA and in respect of which the Partnership or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pro Rata Percentage" shall mean, at any time, for each Bank, the percentage equivalent of a fraction, the numerator of which is the then outstanding principal of such Bank's Term Note and the denominator of which is the aggregate then outstanding principal amount of all of the Term Notes. "Purchase Agreement" shall mean that certain Purchase and Sale Agreement dated as of December 31, 1994 between Atwood, AODC, AHC, AFC, EOI, the Partnership, Atwood Falcon I, Ltd., Philadelphia Investment Corporation of Delaware, Philadelphia Drilling Company and Philadelphia Falcon Drilling Corporation. "Qualified Account" shall mean an account maintained by and in the name of the Partnership in which the Banks shall have been granted a Lien and either (a) is maintained at one of the Banks or (b) with respect to which the Banks shall have received a Transfer Notice. "Qualified Transferee" shall mean any of the following which shall have satisfied the requirements of subsection 13.6(b): (a) a bank organized under the laws of the United States or any state thereof and having (x) a rating by Keefe, Bruyette & Woods or any successor thereof no less than the rating given by such institution to Chemical and in effect on the Effective Date and (y) capital and surplus aggregating at least $250,000,000; or (b) any Affiliate of Chemical, CoMac or TCB; or (c) any other financial institution, investment fund or other Person as Chemical shall, after soliciting the views of the Partnership and giving due consideration thereto, designate as a "Qualified Transferee", which designation shall not, upon a request therefore, be unreasonably withheld. "Reportable Event" shall mean any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. 2615. "Required Banks" shall mean (i) for purposes of amending, modifying and waiving subsections 8.1, 8.2, 8.3, 8.5, 8.6(b) through 8.6(g), 8.10, 9.9, 9.10, 9.11, 9.12, or 9.14, Banks having an aggregate Pro Rata Percentage not less than 51%; PAGE 35 (ii) for any other purpose, Banks having an aggregate Pro Rata Percentage no less than 70%, provided, that, if, after the Effective Date, each of two (2) Banks (other than Chemical) or Qualified Transferees transfers to any Non-Qualified Transferee such Bank's or Transferee's right to vote under this Agreement, the Mortgages or any other Restructuring Document, whether in connection with an assignment or participation of such Bank's or Transferee's interest in the Term Notes (or the indebtedness evidenced by the Term Notes) or otherwise, then, for purposes of this clause (ii) only, Chemical shall be deemed to have acquired such Bank's or Transferee's, as the case may be Pro Rata Percentage; and (iii) Notwithstanding anything to the contrary contained herein, if any of the following parties have acquired any Term Note or a beneficial interest therein, the vote of such party shall not be considered for purposes of determining Required Banks: Atwood, Helmerich & Payne, Inc., the Partnership or any Affiliate of the foregoing. For purposes of the definition of Required Banks, the Pro Rata Percentages of the Banks shall not be adjusted to take into account that any of the above parties is at such time a Bank or that any of such party's vote shall not be considered for purposes of Required Banks. "Requirement of Law" shall mean as to any Person, the partnership agreement, certificate of incorporation, by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Restructure Pledge Agreement" shall mean the Restructure Pledge Agreement, between the Agent and the Partnership, substantially in the form of Exhibit Q, as amended, supplemented or otherwise modified from time to time. "Restructure Security Agreement" shall mean the Second Amended and Restated Restructure Security Agreement, dated as of the Effective Date substantially in the form of Exhibit B, as amended, supplemented or otherwise modified from time to time. "Restructuring Documents" shall be the collective reference to this Agreement, the Term Notes, the Subordination Agreement, the Security Documents, the Letter Agreement, the Management Agreements, and the Funding Agreement. "Sale" shall have the meaning assigned to such term in the sixth "WHEREAS" clause of this Agreement. "Security Agreement Supplements" shall mean a Security Agreement Supplement substantially in the form of Exhibit B to the Restructure PAGE 36 Security Agreement. "Security Documents" shall be the collective reference to the Restructure Security Agreement, the Intercreditor Agreement, the Mortgage Amendments, the Trust Indenture and any Transfer Notices delivered to the Agent. "Senior Indebtedness" shall have the meaning assigned to such term in the Subordination Agreement. "Setoff Limitation Agreement" shall mean the Setoff Limitation Agreement, between the Agent, the Partnership and Atwood, substantially in the form of Exhibit S, as amended, supplemented or otherwise modified from time to time. "Single Employer Plan" shall mean any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "Subordinated Indebtedness" shall have the meaning assigned to such term in the Subordination Agreement. "Subordination Agreement" shall mean the Second Amended and Restated Subordination Agreement, dated as of the Effective Date, substantially in the form of Exhibit G, as amended, supplemented or otherwise modified from time to time. "Subsidiary" shall mean, as to any Person, a corporation of which shares of stock having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Partnership. "TCB" shall have the meaning assigned to such term in the Preamble. "Temporary Working Capital Loans" shall be the collective reference to the loans made by Atwood to the Partnership pursuant to subsection 2.5 of the Funding Agreement and evidenced by Temporary Working Capital Notes. "Temporary Working Capital Note" shall mean a Temporary Working Capital Note, as defined in the Funding Agreement. "Term Loans" shall mean the term loans made by the Banks to the Partnership evidenced by the Term Notes, which term loans are the loans made by the Banks (as defined herein) to the Partnership under the Existing Credit Agreement and evidenced by the Existing Term Notes in favor of the Banks (as defined herein). Although Atwood acted in the PAGE 37 capacity as a "Bank" under the Existing Credit Agreement as evidenced by the Existing Term Note in favor of Atwood, as of the date hereof, Atwood has contributed the Existing Term Note in its favor through AHC, AODC and EOI to the Partnership which has cancelled such Term Note as of the Effective Date. "Term Notes" shall have the meaning assigned to such term in subsection 3.1(b). "Terminated Documents" shall mean the collective reference to the documents and agreements as listed on Schedule 10 hereto which have been terminated as of either December 31, 1994 or March 31, 1995 as set forth in the Assumption Agreement. "Termination Date" shall mean March 31, 1998. "Transfer Notices" shall be the collective reference to the Transfer Notices, each substantially in the form of Exhibit A to the Restructure Security Agreement, which have either been previously delivered to the Agent pursuant to the terms of the Existing Credit Agreement or may be required to be executed and delivered from time to time by the Partnership pursuant to the terms of this Agreement. "Transferee" shall have the meaning assigned to such term in subsection 13.6(b). "TRLPA" shall mean the Texas Revised Limited Partnership Act, as in effect on the date hereof. "Trust Indenture" shall mean the Second Amended and Restated Trust Indenture, dated as of the Effective Date between the Partnership and Chemical, as Vessel Trustee, substantially in the form of Exhibit H, as amended, supplemented or otherwise modified from time to time. "Vessels" shall be the collective reference to the Eagle Vessel and the Hunter Vessel. "Working Day" shall mean any day on which dealings in foreign currencies and exchange between banks may be carried on in London, England and in New York, New York. 1.2 Other Definitional Provisions. (a) All terms defined herein shall have their respective defined meanings when used in the Term Notes or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in the Term Notes, any certificate or other document delivered pursuant hereto, accounting terms relating to the Partnership and its Subsidiaries not defined herein and accounting terms partly defined herein to the extent not defined, shall have the respective meanings given to them under GAAP and which are consistent with those used in the preparation of the financial statements referred to in subsections 6.1(f) and 8.1. PAGE 38 (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. SECTION 2. EXISTING LIENS; INDEBTEDNESS 2.1 Existing Liens. The Partnership hereby confirms and acknowledges that without the necessity of further action by any party, the Existing Liens (a) are unimpaired and continue to be fully perfected security interests in favor of the Agent and (b) continue to constitute collateral security for the Partnership's obligations to the Banks under this Agreement, the Term Notes and the other Restructuring Documents. 2.2 Existing Indebtedness. On and as of the Effective Date, and without the necessity of further action by any party, the Partnership's obligation to pay to the Banks the principal amount of the Term Loans outstanding on and after the Effective Date is hereby acknowledged and confirmed by the Partnership. 2.3 Existing Documents Superseded. On and as of the Effective Date, (a) (i) the Existing Credit Agreement shall be superseded by this Agreement, (ii) the Existing Trust Indenture shall be superseded by the Trust Indenture, (iii) the Existing Letter Agreement shall be superseded by the Letter Agreement, (iv) the Existing Intercreditor Agreement shall be superseded by the Intercreditor Agreement, (v) the Existing Subordination Agreement shall be superseded by the Subordination Agreement, and (vi) the Existing Restructure Security Agreement shall be superseded by the Restructure Security Agreement. (b) The Terminated Documents are hereby terminated and/or acknowledged to be terminated, as applicable, and shall be of no further force and effect. (c) The Banks acknowledge and consent to the assumption by Atwood and AODC of the Existing Assumed Documents. (d) Notwithstanding anything to the contrary contained herein, it is not the intention of any of the parties hereto that the amending and restating of the Existing Credit Agreement shall constitute a payment or discharge of such Indebtedness under the Term Notes. (e) On the date hereof, the Liens created by the Existing Collateral Documents shall be continued pursuant to the Restructure Security Agreement, the other Security Documents and the Mortgages. SECTION 3. THE LOANS 3.1 Term Loans and Term Notes. (a) The Term Loan made by each Bank shall mature in the number of installments having the amounts and dates determined pursuant to subsection 3.1(b), and shall bear interest on the PAGE 39 unpaid principal amount thereof from November 12, 1992 until payment or prepayment in full thereof in accordance with subsection 3.2. The Term Loans shall initially be Alternate Base Rate Loans and/or Eurodollar Loans in the same proportions as in effect under the Existing Credit Agreement on the Effective Date and, in the case of Eurodollar Loans, having the same initial Interest Period(s) as in effect on the Effective Date under the Existing Credit Agreement. (b) Subject to the provisions of subsection 5.1, the Term Loan made by each Bank shall be evidenced by a promissory note of the Partnership substantially in the form of Exhibit A (collectively, the "Term Notes") and payable to the order of such Bank. Each Term Note shall (i) be dated November 12, 1992, (ii) be in the original principal amount of the Term Loan made by each Bank, (iii) be stated to mature in (x) twenty-two (22) consecutive quarterly installments each of which shall be equal to such Bank's Pro Rata Percentage as on the date of each such payment in the amount of $750,000 and each of which shall be payable, on the last day of each March, June, September and December, commencing on the first such day to occur after November 12, 1992 and (y) a final payment in an amount equal to the then outstanding principal amount of the Term Note of such Bank on March 31, 1998 (as to each Bank, its "Balloon Payment"), (iv) bear interest for the period from the date thereof until paid in full at the applicable interest rate provided in, and payable as specified in, subsection 3.2, (v) be subject to optional and mandatory prepayment as provided in, and payable as specified in, Section 4, and (vi) be subject to the provisions hereof, including subsection 12.1. 3.2 Interest. (a) In accordance with subsection 3.3, the Partnership may elect to have all or any part of the principal amount of the Term Loans bear interest as either Eurodollar Loans or Alternate Base Rate Loans. The interest rate applicable to all or any portion of the Term Loan made by any Bank shall be applicable to a Pro Rata Percentage of the Term Loan made by each Bank. (b) (i) The Eurodollar Loans shall bear interest on the unpaid principal amount thereof for each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such Interest Period plus 3/4 of 1%. (ii) The Alternate Base Rate Loans shall bear interest for the period from and including the date thereof until maturity on the unpaid principal amount thereof at a rate per annum equal to the Alternate Base Rate. (c) If all or a portion of the principal amount of the Term Loans shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such amount, if Eurodollar Loans, shall be converted to Alternate Base Rate Loans at the end of the last Interest Period therefor for which the Agent shall have determined, on or prior to the date such unpaid principal amount became due, a Eurodollar Rate. Any such overdue principal amount shall bear interest at a rate per PAGE 40 annum which is 2% above the rate that would otherwise be applicable pursuant to subsection 3.2(b), from the date of such nonpayment until paid in full (both before and after judgment). (d) Interest on the Term Loans shall be payable quarterly in arrears on the last day of each March, June, September and December, commencing on the first such date to occur after November 12, 1992, upon prepayment in full or in part thereof, as provided in subsection 4.1(a), and upon final payment in full thereof. 3.3 Conversion Options; Minimum Amount of Loans. (a) The Partnership may elect from time to time to convert any Term Loans or part thereof from Eurodollar Loans to Alternate Base Rate Loans by giving the Agent at least three Business Days' prior irrevocable notice of such election, provided that any such conversion of Eurodollar Loans shall only be made on the last day of an Interest Period with respect thereto. The Partnership may elect from time to time to convert any Term Loans or part thereof from Alternate Base Rate Loans to Eurodollar Loans by giving the Agent at least three Working Days' prior irrevocable notice of such election. All or any part of such outstanding Eurodollar Loans and Alternate Base Rate Loans may, subject to the provisions of subsection 3.2(a), be converted as provided herein, provided that (i) no Term Loan or part thereof may be converted into a Eurodollar Loan when any Default or Event of Default has occurred and is continuing, (ii) partial conversions shall be in an aggregate principal amount of $500,000 or a whole multiple of $100,000 in excess thereof, and (iii) any such conversion may only be made if, after giving effect thereto, subsection 3.3(c) shall not have been contravened. (b) Any Eurodollar Loans may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Partnership with the notice provisions contained in subsection 3.3(a) which are applicable to the conversion of Loans to Loans of such type; provided, that no Eurodollar Loan may be continued as such when any Default or Event of Default has occurred and is continuing, but shall be automatically converted to an Alternate Base Rate Loan on the last day of the then current Interest Period with respect thereto. (c) All borrowings, conversions, payments, prepayments and selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the Loans comprising any Eurodollar Tranche shall not be less than $1,000,000. In no event may there be more than five (5) Eurodollar Tranches outstanding at any one time. SECTION 4. PREPAYMENTS; EXCESS CASH 4.1 Optional Prepayments. (a) The Partnership may on the last day of the relevant Interest Period if the Loans to be prepaid are in whole or in part Eurodollar Loans, or at any time and from time to time if the Loans to be prepaid are Alternate Base Rate Loans, prepay the Term Loans, in whole or in part, without premium or penalty, upon at least four Business Days' PAGE 41 irrevocable notice to the Agent specifying (x) the date and amount of prepayment, (y) whether the prepayment is of Eurodollar Loans or Alternate Base Rate Loans or a combination thereof, and if of a combination thereof, the amount of prepayment allocable to each. If such notice is given, the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid. Promptly upon receipt of any notice referred to above, the Agent shall inform each Bank. Except as provided in subsection 4.2(b) hereof, partial prepayments of the Term Loans shall be applied to installments of principal thereof in the inverse order of maturity. Partial prepayments shall be in an aggregate principal amount of $100,000, or a whole multiple thereof, and may only be made if, after giving effect thereto, subsection 3.3 shall not have been contravened; provided, however, there shall be no limit on the amount of the prepayment occurring upon the execution of this Agreement as a result of Atwood, in its prior capacity as a Bank under the Existing Credit Agreement, contributing $129,589.63 to the Partnership through AHC, representing its portion of the principal payment made by the Partnership on March 30, 1995 and the Partnership making a prepayment of such amount to the Banks. (b) The Partnership may at any time and from time to time, prepay any accrued and unpaid interest on the Term Loans, in whole or in part, without premium or penalty, upon at least four Business Days' irrevocable notice to the Agent specifying the date and amount of prepayment. If such notice is given, the payment amount specified therein shall be due and payable on the date specified therein. Promptly upon receipt of such notice the Agent shall inform each Bank. 4.2 Excess Cash. (a) Unless the principal of and interest on the Term Loans have been paid in full, on or before the day which is 30 days after the last Business Day of each Fiscal Quarter, the Partnership shall deliver to the Agent a certificate of the General Partner substantially in the form of Schedule 3 which sets forth the General Partner's calculation of Excess Cash for such Fiscal Quarter. The Partnership shall promptly thereafter apply and distribute Excess Cash for a Fiscal Quarter as follows: First, to the Agent, on behalf of the Banks, an amount equal to the Minimum Payment; and Second, to Atwood to be applied against the outstanding principal of and accrued interest on any Temporary Working Capital Loans made (x) during such Fiscal Quarter or (y) during the preceding three Fiscal Quarters; provided that, upon the occurrence and during the continuance of a Default, amounts otherwise distributable to Atwood pursuant to this clause Second, shall instead be promptly distributed to the Agent, on behalf of the Banks. Third, remaining Excess Cash for such Fiscal Quarter shall be divided as follows: (x) until the aggregate principal amount of the Term Loans shall be reduced to $20,000,000, 100% to the Agent, on behalf of the Banks, and (y) after the aggregate principal amount PAGE 42 of the Term Loans shall be reduced to $20,000,000, 60% to the Agent on behalf of the Banks and 40% to be retained by the Partnership. (b) Excess Cash received by the Agent pursuant to subsection 4.2(a) shall promptly be remitted by the Agent to the Banks based on their respective Pro Rata Percentages. Such payments shall be applied by each Bank to its Term Loan as follows: (i) first, to the extent not previously paid, to pay scheduled principal payment(s) due at the end of the two Fiscal Quarters immediately succeeding the Fiscal Quarter in respect of which such Excess Cash was calculated and (ii) second, after the principal payment(s) referred to in clause (i) above has (have) been paid in full, to the payment of principal outstanding under the Term Loans in the inverse order of maturity of the Term Loans. (c) Simultaneous with or after Excess Cash is distributed to the Agent pursuant to subsection 4.2(a), Excess Cash retained by the Partnership pursuant to such subsection may, subject to the below provisos and subsection 4.2(d) hereof, be loaned by the Partnership to Atwood; provided that, prior to making any such loans (i) Atwood shall have executed and delivered a note in favor of the Partnership substantially in the form of Exhibit P hereto to evidence such loans (and all future loans by the Partnership pursuant to this Section 4.2) (each an "Affiliate Note"); (ii) the Partnership shall have executed in favor of the Agent, for the ratable benefit of the Banks, the Restructure Pledge Agreement, substantially in the form of Exhibit Q hereto, and in connection therewith, shall have pledged and delivered to the Agent the Affiliate Note and taken such other action as shall be necessary or desirable so that the Agent shall have a first-priority Lien on such Affiliate Note; (iii) Atwood shall have granted the Banks a perfected security interest in such collateral as the Banks and Atwood shall then agree, (iv) the Partnership shall have delivered to the Agent executed counterparts by each of the parties thereto (other than the Agent) of (I) the Setoff Limitation Agreement, substantially in the form of Exhibit S hereto, and (II) the Atwood Acknowledgment, substantially in the form of Exhibit W, and (v) the Agent shall be satisfied that each of the documents described above shall have become effective and shall have such opinions of counsel as the Agent shall reasonably request regarding such documents and the Liens granted to the Agent pursuant thereto. (d) Anything contained herein to the contrary notwithstanding, upon the occurrence and during the continuance of a Default, amounts otherwise distributable to Atwood under subsections 4.2(a) and 4.2(c) shall instead be promptly distributed to the Banks to be applied as provided in subsection (b) above. (e) For purposes of the calculations to be made pursuant to subsection 4.2(a), the certificates required to be delivered by the Partnership pursuant to such subsection shall constitute prima facie evidence of the information set forth therein. PAGE 43 4.3 Application. Prepayments applied to the outstanding principal amount of the Term Loans shall be applied first, to the principal amount of Alternate Base Rate Loans, to the extent thereof, and then to Eurodollar Loans (in order of next maturing Interest Periods). All payments of principal of the Term Loans shall be permanent and may not be reborrowed. SECTION 5. GENERAL PROVISIONS APPLICABLE TO THE RESTRUCTURED OBLIGATIONS 5.1 Loan Accounts. The Agent shall maintain on its books and records loan accounts setting forth the amounts of principal, interest and other sums paid and payable by the Partnership from time to time hereunder with respect thereto. In case of any dispute, action or proceeding relating to the Term Loans, the entries in such loan accounts shall constitute a rebuttable presumption as to the amount thereof and as to such amounts paid and payable. In case of discrepancy between the entries in the Agent's books and records and the notations made by any Bank on its Term Note or on its books and records, there shall be a rebuttable presumption that the Agent's are correct. 5.2 Computation of Interest and Fees. (a) Interest in respect of the Term Loans and per annum fees shall be calculated on the basis of a 360 day year, in each case for the actual days elapsed. The Agent shall as soon as practicable (and in any event not less than two Working Days prior to the commencement of the relevant Interest Period) notify the Partnership of each determination of a Eurodollar Rate. Any change in the interest rate on the Term Loans resulting from a change in the Alternate Base Rate shall become effective as of the opening of business on the day on which such change in the Alternate Base Rate is announced. The Agent shall as soon as practicable notify the Partnership of the effective date and the amount of each such change. (b) Each determination of an interest rate by the Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Partnership in the absence of manifest error. 5.3 Inability to Determine Interest Rate. In the event that the Agent shall have determined (which determination shall be conclusive and binding upon the Partnership) that by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for any requested Interest Period, the Agent shall forthwith give telex or facsimile notice of such determination, confirmed in writing, to the Partnership at least one day prior to the last day of the then current Interest Period. If such notice is given (a) if Alternate Base Rate Loans were requested to have been converted to Eurodollar Loans, such Alternate Base Rate Loans shall instead be continued as Alternate Base Rate Loans and (b) the outstanding Eurodollar Loans, if any, shall be converted, on the last day of the then current Interest Period with respect thereto, to Alternate Base Rate Loans. Until such notice has been withdrawn by the Agent, the Partnership shall not have the right to convert Alternate Base Rate Loans to Eurodollar Loans. Promptly after the Agent shall once again be able to ascertain the Eurodollar Rate it shall notify the Partnership thereof. PAGE 44 5.4 Pro Rata Treatment and Payments. Each payment (including prepayments) to be made by the Partnership on account of principal and interest on the Term Loans (other than as provided in the preceding sentence) shall be made to the Agent for the account of the Banks according to their Pro Rata Percentage. All payments (including prepayments) to be made by the Partnership on account of principal, interest and fees shall be made without set off or counterclaim and shall be made to the Agent for the benefit of the appropriate Bank or Banks at the office of the Agent located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. The Agent shall promptly distribute any payments required hereunder to the appropriate Bank or Banks entitled thereto in accordance with this subsection 5.4. 5.5 Illegality. Notwithstanding any other provisions herein, if any law, rule or regulation or any change therein or in the interpretation or application thereof, shall make it unlawful for any Bank to maintain Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such Bank hereunder that its Term Loan may, at the election of the Partnership, bear interest at a rate per annum based on the Eurodollar Rate shall forthwith be suspended until the circumstances causing such suspension no longer exist and (b) such Bank's Eurodollar Rate Loans, if any, shall be converted automatically to Alternate Base Rate Loans at the end of the current Interest Period with respect thereto or at such earlier time as required by law. The Partnership shall promptly pay such Bank, upon its demand, any additional amounts necessary to compensate such Bank for any costs incurred by such Bank in making any conversion in accordance with this subsection 5.5 including, but not limited to, costs or expenses incurred or which such Bank may sustain by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund or maintain its Eurodollar Loans to the Partnership. A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by a Bank to the Partnership shall constitute prima facie evidence of the information set forth therein. 5.6 Requirements of Law. In the event that any law, rule or regulation or any change therein or in the interpretation or application thereof or compliance by any Bank with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority: (i) does or shall subject any Bank to any tax of any kind whatsoever with respect to this Agreement, any Term Note or any Eurodollar Loans made by it, or change the basis of taxation of payments to any Bank of principal, interest or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of such Bank or franchise taxes imposed on it by the jurisdiction under the laws of which such Bank is organized or by the jurisdiction of such Bank's lending office with respect thereto, plus penalties and interest thereon); or PAGE 45 (ii) does or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Bank which are not otherwise included in the determination of the Eurodollar Rate hereunder; or (iii) does or shall impose on such Bank any other condition; and the result of any of the foregoing is to increase the cost to such Bank of maintaining extensions of credit or to reduce any amount receivable hereunder, in each case, in respect of its Eurodollar Loans, then, in any such case, the Partnership shall promptly pay such Bank, upon its demand, any additional amounts (based upon a reasonable allocation thereof by such Bank to the transactions contemplated by this Agreement and affected by this subsection 5.6) necessary to compensate such Bank for such additional cost or reduced amount receivable which such Bank deems to be material as determined by such Bank with respect to such Eurodollar Loans. If any Bank becomes entitled to claim any additional amounts pursuant to this subsection 5.6, it shall promptly notify the Partnership of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by such Bank to the Partnership shall constitute prima facie evidence of the information set forth therein. This covenant shall survive the termination of this Agreement. 5.7 Indemnity. The Partnership shall indemnify and hold each Bank harmless from any loss or expense which such Bank may sustain or incur as a consequence of (a)(i) default by the Partnership in payment of the principal amount of or interest on any Eurodollar Loans of such Bank, (ii) default by the Partnership in converting or continuing Term Loans as Eurodollar Loans after the Partnership has given a notice in accordance with subsection 3.3(a), 3.3(b) or 3.3(c) or (iii) optional or mandatory prepayment of a Eurodollar Loan on a day which is not the last day of an Interest Period with respect thereto, in each case including, but not limited to, costs or expenses incurred or which such Bank may sustain by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund or maintain such Bank's Eurodollar Loans to the Partnership. 5.8 Capital Adequacy. In the event that any Bank shall have determined that the adoption of any law, rule or regulation regarding capital adequacy, or any change therein or in the interpretation or application thereof or compliance by such Bank with any request or directive regarding capital adequacy (whether or not having the force of law) from any central bank or Governmental Authority, does or shall have the effect of reducing the rate of return on such Bank's capital as a consequence of its obligations hereunder to a level below that which such Bank could have achieved but for such adoption, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by any amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank, the Partnership shall pay to such Bank such additional amount or amounts as are sufficient to compensate such Bank in the light of such circumstances, to the extent that such Bank reasonably determines such reduction in its rate PAGE 46 of return to be allocable to its Term Loan. A certificate as to such amount or amounts submitted to the Partnership by any Bank shall constitute prima facie evidence of the information set forth therein. 5.9 Payment of Additional Amounts. (a) Any additional amounts payable under subsection 5.5, 5.6, 5.7 or 5.8 to any Bank shall, for purposes of Section 4 hereof, be deemed interest on the Term Loan of such Bank. (b) If any Bank shall claim additional amounts pursuant to subsection 5.5, 5.6, 5.7 or 5.8, it shall use its best efforts (consistent with its internal policies and legal and regulatory restrictions) to change the jurisdiction of its lending office if such change would eliminate the amount of any such additional amounts which may thereafter accrue; provided that no such change shall be made, if in the reasonable judgment of such Bank, such change would be disadvantageous to it. SECTION 6. REPRESENTATIONS AND WARRANTIES 6.1 Representations and Warranties of the Partnership. In order to induce the Banks and the Agent to enter into this Agreement, the Partnership represents and warrants to the Agent that: (a) Partnership Existence; Compliance with Law. The Partnership is a Texas limited partnership duly existing pursuant to the TRLPA and has the power to carry on the business in which it is engaged and proposes to engage as outlined in the Partnership Agreement. The foregoing business of the Partnership lawfully may be carried on by the Partners in partnership. AHC, as General Partner under the Partnership Agreement, is empowered to execute this Agreement, the Term Notes, the Security Documents, the Assumption Agreement and each other Restructuring Document to which the Partnership is a party on behalf of the Partnership and thereby legally bind the Partnership. The Partnership is a "citizen of the United States" as defined in Section 2 of the Shipping Act, 1916, as amended. (b) Partnership Power; Authorization. The Partnership has the power, and has taken all necessary action (including, without limitation, action under the Partnership Agreement and the TRLPA), (i) to execute, deliver and perform its obligations under this Agreement, the Term Notes, the Security Documents, the Assumption Agreement and each other Restructuring Document to which it is a party, and to perform under the Mortgages and the Restructuring Documents to which it is a party, (ii) to assign, and grant to the Agent for the benefit of the Banks, a valid first security interest in, the collateral described in the Restructure Security Agreement, and (iii) to grant first preferred ship mortgages on the Vessels pursuant to the Mortgages. No consent, license, approval or authorization of, or registration or declaration with, any Person (including any Governmental Authority) is required in connection with (x) the execution and delivery of this Agreement, the Term Notes, the Security Documents, the Assumption PAGE 47 Agreement and the other Restructuring Documents to which it is a party or (y) the performance of the Mortgages and the Restructuring Documents to which it is a party (other than those required in connection with the Mortgages and filings under the Uniform Commercial Code with respect to the collateral described in the Restructure Security Agreement) or (z) the validity or enforceability against the Partnership of the Mortgages, the Assumption Agreement and the Restructuring Documents to which it is a party, except such consents, authorizations, licenses, approvals, registrations and declarations which have been obtained or made and are in full force and effect. (c) No Violation. Neither the execution and delivery of this Agreement, the Term Notes, the Security Documents, the Assumption Agreement and each other Restructuring Document to which the Partnership is a party nor the performance thereof or of the Mortgages does or will violate any Requirement of Law or any Contractual Obligation of the Partnership and, except for the Liens under the Mortgages and the Restructure Security Agreement, will not result in the creation or imposition of any Lien on any of the assets of the Partnership. (d) Enforceable Obligations. This Agreement has been, and the Assumption Agreement and each other Restructuring Document to which the Partnership is a party will be, duly executed and delivered on behalf of the Partnership, and, assuming the existence and requisite power and authority of, and the due authorization, execution and delivery by each of the other parties thereto, constitutes or will constitute a legal, valid and binding obligation of the Partnership enforceable against the Partnership in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. (e) No Material Litigation. There is no action, suit, investigation or proceeding (whether or not purportedly on behalf of the Partnership) pending or, to the knowledge of the Partnership, threatened (or any basis therefor known to the Partnership) which questions the validity of this Agreement, the Term Notes, the Assumption Agreement, the Security Documents or any other Restructuring Document to which the Partnership is a party or the Mortgages, or any action taken pursuant hereto or thereto, or which, if adversely determined, could have a material adverse effect upon the financial condition, business or operations of the Partnership. (f) Financial Condition. (i) The audited annual report previously delivered to the Agent of the Partnership containing a balance sheet of the Partnership as of September 30, 1994 and statement of earnings, partners' equity and changes in financial position of the Partnership for such fiscal year reported on by Arthur Andersen are complete and correct and fairly present the financial position of the Partnership as at such date and the results of its operations, changes in partners' equity and changes in financial position for the period then ended, all in accordance with GAAP applied on a consistent basis. PAGE 48 There are no material liabilities, direct, fixed or contingent, or any unusual forward or long-term commitments, of the Partnership which are not reflected therein or in the notes thereto. (ii) The unaudited quarterly report previously delivered to the Agent of the Partnership containing a balance sheet of the Partnership as of December 31, 1994 and statement of earnings, partners equity and changes in financial position of the Partnership for such fiscal quarter, certified by a principal financial or accounting officer of the General Partner, are complete and correct and fairly present the financial position of the Partnership as at such date and the results of its operations, changes in partners' equity and changes in financial position for the three-month period then ended (subject to normal year-end adjustments), all in accordance with GAAP applied on a consistent basis. There are no material liabilities, direct, fixed or contingent, or any unusual forward or long-term commitments, of the Partnership which are not reflected therein or in the notes thereto. (g) Taxes. The Partnership has filed all Federal and state income tax returns which are required to be filed, and has paid all taxes shown on said returns (except such taxes as are being contested in good faith by appropriate proceedings diligently prosecuted) and all assessments received by it to the extent that such taxes and assessments have become due. (h) Ownership of Property; Liens. The Partnership has good and marketable title to its properties and assets, subject to no Lien except such as are permitted under subsection 9.3. (i) ERISA. The Partnership is not an "employer" or a "substantial employer", as such terms are defined in Section 3(5) and 4001(a)(2), respectively, of the Employee Retirement Income Security Act of 1974, in respect of any plan described in Section 4021(a) of such Act. (j) Mortgages. (i) When each Mortgage Amendment has been duly executed by the Partnership and delivered to the Agent and duly recorded in the office listed on Schedule 4 hereto, each of the Mortgages will constitute a fully perfected "first preferred" mortgage on such Vessel in favor of the Agent for the benefit of the Banks named therein, having the effect and with the priority provided in the Ship Mortgage Act, 1920, as amended. (ii) [Intentionally Deleted] (k) Security Documents. The provisions of the Restructure Security Agreement are effective to create in favor of the Agent, for the benefit of the Banks, a legal, valid and enforceable Lien on all right, title and interest of the Partnership in the collateral described therein, except as enforceability may be limited by applicable PAGE 49 bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles; and assuming appropriately completed UCC-1 financing statements have been filed in each office listed on Schedule 5, the Restructure Security Agreement will constitute a fully perfected first Lien on all right, title and interest of the Partnership in the collateral described therein to the extent the Uniform Commercial Code is applicable thereto. (l) Regulation U. The Partnership is not engaged and will not engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect, and no part of the loans evidenced by the Term Notes has been used for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any such margin stock or to extend credit to, or invest in, others for the purpose of purchasing or carrying any such margin stock or to reduce or retire any indebtedness incurred for any such purpose. If requested by the Agent, the Partnership will furnish to the Agent a statement to the foregoing effect in conformity with the requirements of Federal Reserve Form U referred to in said Registration U. (m) Subsidiaries; Business. Except for two inactive Subsidiaries (each of which owns assets with a fair market value of no more than $1,000), and Deep Seas Drilling Pty Ltd., an Australian company, the Partnership has no Subsidiaries and its sole business is as set forth in Section 2.1 of the Partnership Agreement. (n) No Defaults. The Partnership is not in material default in the payment or performance of any of its obligations or in the performance of any Contractual Obligation to which it is a party or by which it or any of its assets may be bound, and no Default or Event of Default hereunder has occurred and is continuing. The Partnership is not in material default under any Requirement of Law binding upon or affecting it or by which any of its assets may be bound or affected, and no such Requirement of Law materially adversely affects the ability of the Partnership to carry out its business or the ability of the Partnership to perform its obligations under this Agreement, the Term Notes, the Assumption Agreement, the Security Documents, the Mortgages and each other Restructuring Document to which it is a party. (o) Investment Company Act. Neither the Partnership nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company" (as each of the quoted terms is defined or used in the Investment Company Act of 1940, as amended). (p) Public Utility Holding Company Act. Neither the Partnership nor any of its Subsidiaries is a "public utility company", or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a PAGE 50 "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. (q) Full Disclosure. The Partnership does not know of any fact (other than matters of an economic nature of general applicability) which it has not disclosed to the Agent or its representatives or in connection with discussions with the Agent or its representatives regarding the transactions contemplated hereby, which materially affects adversely the business, operations or properties of the Partnership, or the ability of the Partnership to perform and discharge its obligations under the Mortgages or the Restructuring Documents to which it is a party. (r) Environmental Matters. Each of the representations and warranties set forth in paragraphs (i) through (v) of this subsection is true and correct with respect to each parcel of real property owned or operated by the Partnership (the "Properties"), except to the extent that the facts and circumstances giving rise to any such failure to be so true and correct could not have a Material Adverse Effect: (i) The Properties do not contain, and have not previously contained, in, on, or under, including, without limitation, the soil and groundwater thereunder, any Hazardous Materials. (ii) The Properties and all operations and facilities at the Properties are in compliance with all Environmental Laws, and there is no Hazardous Materials contamination or violation of any Environmental Law which could interfere with the continued operation of any of the Properties or impair the fair saleable value of any thereof. (iii) Neither the Partnership nor any of its Subsidiaries has received any complaint, notice of violation, alleged violation, investigation or advisory action or of potential liability or of potential responsibility regarding environmental protection matters or permit compliance with regard to the Properties, nor is the Partnership aware that any Governmental Authority is contemplating delivering to the Partnership or to any of its Subsidiaries any such notice. (iv) Hazardous Materials have not been generated, treated, stored, disposed of, at, on or under any of the Properties, nor have any Hazardous Materials been transferred from the Properties to any other location. (v) There are no governmental, administrative actions or judicial proceedings pending or contemplated under any Environmental Laws to which the Partnership or any of its Subsidiaries is or will be named as a party with respect to the Properties, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any PAGE 51 Environmental Law with respect to any of the Properties. 6.2 Representations and Warranties of the General Partner. In order to induce the Agent and the Banks to enter into this Agreement, the General Partner by its signature below hereby represents and warrants to the Agent that: (a) Corporate Existence. The General Partner is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) Corporate Power; Authorization. The General Partner has full power and authority to execute this Agreement and has taken all necessary corporate action to authorize its execution of this Agreement, the Term Notes, the Security Documents, the Assumption Agreement, the Purchase Agreement and each other Restructuring Document to which it is a signatory. No consent, except for those that have been obtained, of any other party (including stockholders of the General Partner) and no consent, license, approval or authorization of, or registration or declaration with, any governmental body, authority, bureau or agency is required in connection with the execution and delivery of this Agreement, the Term Notes, the Security Documents, the Assumption Agreement, the Purchase Agreement and any other Restructuring Document to which the General Partner is a signatory or with respect to the performance of any thereof or of the Mortgages, except for those that have been obtained or made. (c) No Violation. The execution, delivery and performance of this Agreement, the Term Notes, the Security Documents and each other Restructuring Document to which the General Partner is a signatory, and the performance of the Mortgages, will not violate any provision of any applicable law or regulation or of any writ or decree of any court or governmental instrumentality or of the Certificate of Incorporation or By-Laws of the General Partner, and will not violate any provision of or cause a default under the Partnership Agreement or any Contractual Obligation to which the General Partner is a party or which purports to be binding upon the General Partner or upon any of its assets, and will not result in the creation or imposition of any Lien on any of the assets of the General Partner. (d) ERISA. No "prohibited transaction" (as defined in Section 406 of the ERISA or Section 4975 of the Code) or "accumulated funding deficiency" (as defined in Section 302 of ERISA) or Reportable Event has occurred with respect to any Plan. The present value of all benefits vested under all Single Employer Plans maintained by the General Partner or a Commonly Controlled Entity (based on those assumptions used to fund the Plans) did not, as of the last annual valuation date, which in the case of any one Plan was not earlier than January 1, 1987, exceed the value of the assets of the Plan allocable to such vested benefits. Neither the General Partner nor any Commonly Controlled Entity would become subject to any liability under ERISA if the General Partner or any such Commonly Controlled Entity were to withdraw completely from all PAGE 52 Multiemployer Plans as of the valuation date most closely preceding the date hereof. The General Partner will not, prior to the Effective Date, be an "employer" or a "substantial employer", as such terms are defined in Sections 3(5) and 4001(a)(2), respectively, of ERISA, in respect of any plan described in Section 4021(a) of ERISA. (e) Regulation U. The General Partner is not engaged nor will it engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect, and no part of the proceeds of any of the loans evidenced by the Term Notes have been used for the purpose, whether immediate, incidental or ultimate, of purchasing, or carrying any such margin stock or to extend credit to, or invest in, others for the purpose of purchasing or carrying any such margin stock or to reduce or retire any indebtedness incurred for any such purpose. If requested by the Agent, the General Partner will furnish to the Agent a statement to the foregoing effect in conformity with the requirements of Federal Reserve Form U-1 referred to in said Regulation U. (f) No Lien. The General Partner has not created a Lien on its interest in the Partnership. (g) No Defaults. The General Partner is not in material default in the payment or performance of any of its obligations or in the performance of any Contractual Obligation to which it is a party or by which it or any of its assets may be bound. SECTION 7. CLOSING AND CONDITIONS PRECEDENT 7.1 Closing. The closing (the "Closing") of the transactions contemplated hereby shall take place at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, commencing at 10:00 A.M., New York time, on April ____, 1995 or such other place or date as to which the Agent, the Banks and the Partnership shall agree. 7.2 Conditions Precedent. The conditions precedent to the Closing are set forth below. Each of the parties hereto expressly acknowledges that each of the following conditions is integral to the effectiveness of the agreements of the Agent and the Banks herein and that no such agreement shall be effective until the Effective Date and that any documents or instruments delivered at the Closing by the Agent or any Bank prior to the Effective Date in connection with or in furtherance of any such agreement shall be so delivered in escrow until each of the following conditions shall have been satisfied, the Effective Date Certificate has been delivered and the Effective Date shall have occurred: (a) Restructuring Agreements. This Agreement shall have been duly executed and delivered by each of the parties hereto, and each of PAGE 53 the following agreements, amendments or instruments shall have been duly executed and delivered by the respective parties thereto and shall not have been terminated and the conditions to the effectiveness of such agreements, amendments or instruments (to the extent provided therein to have occurred on or prior to the Effective Date) shall have been fulfilled: (i) the Restructure Security Agreement; (ii) the Mortgage Amendments; (iii) the Subordination Agreement; (iv) the Term Notes; (v) the Trust Indenture; (vi) the Letter Agreement; (vii) the Intercreditor Agreement; (viii) the Assumption Agreement; (ix) the Purchase Agreement; and (x) the Partner Mortgage Amendments. (b) Resolutions. The Agent shall have received resolutions, certified by the Secretary, Assistant Secretary or general partner, as the case may be, of each of the following corporations or limited partnerships, of the Board of Directors or partners (general and limited), as the case may be, of each of the following corporations or limited partnerships as to the following matters: (i) of the Partnership authorizing the execution, delivery and performance of the Assumption Agreement, the Restructuring Documents and the Partnership Documents, in each case, to which it is a party; (ii) of each of the Partners authorizing the execution, delivery and performance of the Assumption Agreement, the Partnership Documents and the Restructuring Documents, in each case, to which it is a party; and (iii) of Atwood authorizing the execution, delivery and performance of the Assumption Agreement, the Purchase Agreement, the Management Agreements, and the other Restructuring Documents to which it is a party. (iv) [Intentionally Omitted] (c) Incumbency Certificates. The Agent shall have received a PAGE 54 certificate of the Secretary or general partner, as the case may be, of each of the Partnership, each Partner and Atwood dated the Effective Date, and certifying as to the incumbency and signature of each officer of such corporation authorized to sign the documents and agreements to which such corporation or limited partnership is a party (and each instrument referred to in such documents and agreements), together with evidence of the incumbency and signature of such Secretary or the person signing on behalf of such general partner, as the case may be. (d) Partnership Documents. (i) The Agent shall have received a copy of each of the Partnership Documents (other than the Certificate of Limited Partnership of the Partnership), duly executed by each of the parties thereto, and each such Partnership Document shall (x) be in form and substance satisfactory to the Agent and (y) be certified to be complete and correct on and as of the Effective Date by the Vice President of the General Partner. (ii) The Agent shall have received copies of the Certificate of Limited Partnership of the Partnership, together with all exhibits, attachments, schedules and supplements thereto and certified by the Secretary of State of the State of Texas. (e) Term Notes. Each Bank shall maintain the original Term Note, in its favor dated November 12, 1992 and duly executed on behalf of the Partnership. (f) Financing Statements. Any documents (including, without limitation, financing statements) required to be filed under any of the Security Documents in order to create, in favor of the Agent, a perfected Lien on property with respect to which a Lien may be perfected by a filing under the Uniform Commercial Code shall have been executed and delivered to the Agent. (g) Vessel Documents. The Agent shall have received: (A) an original of each Mortgage Amendment, executed and acknowledged by the Partnership; (B) certified copies of the abstracts of title of the Eagle Vessel and the Hunter Vessel dated prior to the Effective Date (the date of which shall be acceptable to the Agent), indicating that each such Vessel is owned by the Partnership free and clear of all mortgages or other encumbrances other than as permitted by the Existing Hunter Mortgage and the Existing Eagle Mortgage; and (C) an original of the Trust Indenture, executed by the Partnership. (ii) [Intentionally Omitted] (h) Consents. The Agent shall have received true copies (in PAGE 55 each case certified as to authenticity by the General Partner of the Partnership) of all documents and instruments, including all consents, authorizations and filings, required or advisable under any Requirement of Law or by any Contractual Obligation of the Partnership, its Partners and Atwood in connection with the execution, delivery, performance, validity and enforceability of this Agreement, the other Restructuring Documents, the Partnership Documents or the transactions contemplated hereby or thereby, and the performance, validity and enforceability of the Mortgages, and all such documents, instruments, consents, authorizations and filings shall be satisfactory in form and substance to the Agent and be in full force and effect. (i) Evidence of Insurance. The Agent shall have received evidence satisfactory to it that all insurance required to be maintained pursuant to subsection 8.4 has been obtained and that such insurance policies shall comply with the provisions of subsection 8.4. (j) Legal Opinions. The Agent shall have received the following legal opinions, each dated the Effective Date: (i) an opinion of Griggs & Harrison, special counsel to the Partnership, substantially in the form of Exhibit E-1; (ii) an opinion of Griggs & Harrison, counsel to Atwood, AHC, AODC and EOI, substantially in the form of Exhibit E-2. (iii) [Intentionally Omitted] (k) Representations and Warranties. The representations and warranties contained in Section 6 and in each of the other Restructuring Documents shall be true and correct as of the Effective Date as if made on such date. (l) No Default. No event shall have occurred as of the Effective Date, or would result from the transactions contemplated to occur on the Effective Date, which constitutes a Default or Event of Default, assuming for purposes of this subsection 7.2(l) that the Effective Date has occurred. (m) Payment of Outstanding Amounts and Interest. The Partnership shall have paid (i) any amount in respect of which it received at least one Business Day prior to the Effective Date a request to pay such amount in accordance with subsection 13.5 of the Existing Credit Agreement, (ii) the principal and interest payment due on March 31, 1995 and the amount thereof otherwise payable to Atwood on account of its Existing Term Note shall have been paid to each Bank, pro rata, and (iii) the $225,000 fee referred to in that certain letter from the Agent dated March 27, 1995. (n) Management Agreements. The Agent shall have received a copy of the Management Agreements duly executed by Atwood and the Partnership. PAGE 56 (o) Financial Information. The Agent shall have received each of the financial statements referred to in subsection 6.1(f), which statements substantially conform to the requirements of such subsection and shall be in form and substance satisfactory to the Agent. (p) Terminated Documents. The Agent shall have received evidence satisfactory to it that the Terminated Documents have been terminated and that such documents are of no further force and effect. (q) Partnership Account Setoff Letter. The Agent shall have received a counterpart of the Partnership Account Setoff Letter acknowledged by the Partnership. (r) Additional Matters. All other documents that the Agent may reasonably request in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to the Agent and its counsel. 7.3 [Intentionally Omitted] SECTION 8. AFFIRMATIVE COVENANTS So long as the Term Loans remain outstanding and unpaid or any other amount is owing to the Agent or any Bank hereunder or under the other Restructuring Documents or the Mortgages, the Partnership shall: 8.1 Financial Statements and Certificates. Furnish to the Agent: (a) as soon as available, but in any event no later than January 31 of each year, the annual audit report of the Partnership containing a balance sheet of the Partnership as at the end of the immediately preceding fiscal year and statements of earnings, partners' equity and changes in financial position of the Partnership for such fiscal year, setting forth in each case in comparative form the figures for the previous year, reported on without qualification arising out of the scope of the audit by Arthur Andersen or other independent certified public accountants of recognized standing selected by the Partnership; (b) within 60 days after the end of each Fiscal Quarter of the Partnership, the unaudited balance sheet of the Partnership as at the end of such quarterly period and statements of earnings, partners' equity and changes in financial position of the Partnership for such quarter and for the portion of the fiscal year then ended, certified by a principal financial or accounting officer of the General Partner; and (c) promptly, such additional financial and other information as the Agent may from time to time reasonably request; all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein (except as PAGE 57 approved by such accountants or officer, as the case may be, and disclosed therein). 8.2 Certificates; Other Information. Furnish to the Agent: (a) concurrently with the delivery of the financial statements referred to in subsection 8.1(a) above, a certificate of the independent public accountants reporting on such statements, stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default except as specifically indicated; (b) concurrently with the delivery of the financial statements referred to in subsections 8.1(a), (b) and (c) above, a certificate of one of the principal financial officers of the General Partner stating that to the best of his knowledge the Partnership has observed and performed each and every covenant and agreement of the Partnership contained in the Restructuring Documents and the Mortgages and that no Event of Default or Default has occurred during the period covered by such financial statements or is then in existence, except as specifically indicated; (c) not later than the 30th day after the end of each Fiscal Quarter a certificate of one of the principal financial officers of the General Partner setting forth the Excess Cash calculations and distributions pursuant to subsection 4.2(a); such certificates to be in a form acceptable to the Agent completed; (d) as soon as available, but in any event not later than thirty (30) days after the end of each calendar month (i) a report of the operating status of each Vessel during such month, showing, among other things, the location of the Vessel, the day rate, if any, applicable thereto, the operator, if any, thereof and, if applicable, the stacking costs therefor, (ii) a report of the cash flow for each Vessel for such month and for the portion of the Fiscal Year then ended and (iii) a cash management report with respect to all amounts on deposit in the Partnership Account and all other bank accounts of the Partnership; (e) as soon as available, but in any event in accordance with the provisions of the Partnership Agreement, a copy of the Vessel utilization and day rate forecast for the next succeeding 6 months; (f) a copy of the Partnership's capital budget and an operating budget; (g) promptly, copies of the amendments, modifications and waivers permitted under subsection 9.13; and (h) within ten (10) Business Days after the same are executed, a copy of each Drilling Contract having a continuous term of one year or greater (without giving effect to any options). 8.3 Conduct of Business and Maintenance of Existence and Property. PAGE 58 Maintain all properties necessary in its business in good working order and condition; continue to engage in business of the same general type as now conducted by it and preserve, renew and keep in full force and effect its partnership status and take all reasonable action to maintain all rights, privileges, licenses, permits and franchises necessary in the normal conduct of its business; unless otherwise ordered by a court of competent jurisdiction, comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, have a Material Adverse Effect. 8.4 Maintenance of Insurance. (a) Maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks (but including in any event public liability insurance as has heretofore been maintained by the Partnership) as it is deemed prudent; (b) furnish to the Agent, upon written request, full information as to the insurance carried; and (c) at all times cause each Vessel to be insured to the extent required by Section 12 of the applicable Mortgage. All such insurance shall (i) contain a loss payable clause in favor of the Agent as its interest may appear, (ii) except with respect to war-risk insurance maintained by the Partnership, provide that no cancellation, reduction in amount or change of coverage thereof shall be effective until at least ten (10) days after receipt by the Agent of written notice thereof, (iii) name the Agent on behalf of the Banks as insured, but without liability for premiums, calls or assessments and (iv) contain a breach of warranty clause satisfactory to the Agent. 8.5 Inspection of Property; Books and Records; Discussions. (a) Keep proper books of records and account in which full, true and correct entries in conformity, in all material respects, with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and, upon reasonable prior notice, and at the risk and expense of each Bank, permit representatives of such Bank to visit and inspect any of its properties and examine and make abstracts from and photocopies of any of its books and records at any reasonable time and as often as may reasonably be desired, and to discuss the business, operations, properties and financial and other condition of the Partnership with the principal officers of the Partnership, with its independent certified public accountants and with its financial advisers. (b) Permit any independent review of the operations and corporate overhead of the Partnership that may be requested by the Agent and pay the cost of such review; provided, however, that (i) such a review shall not occur more than one time in any twelve-month period commencing after the Effective Date and (ii) the Partnership shall not be obligated to pay more than $10,000 in respect of any such review. (c) At the request of the Agent, promptly obtain at the expense of the Partnership an appraisal of one or both of the Vessels by an appraisal firm selected by the Agent; provided, however, that the Partnership shall only be obligated to pay for one appraisal per fiscal year per Vessel; provided further, that the Partnership's obligations under this subsection to pay for appraisals shall not exceed $35,000 per PAGE 59 fiscal year per Vessel. The Agent's right to require the Partnership to obtain an appraisal of one or both of the Vessels shall be independent of any appraisal rights provided Partners under the Partnership Documents. 8.6 Notices. Promptly give written notice to the Agent of: (a) the occurrence of any Default or Event of Default; (b) the occurrence of any default or event of default under any Contractual Obligation of the Partnership; (c) the occurrence of any damage to any Vessel in an amount exceeding $250,000; (d) any litigation, investigation or proceedings affecting the Partnership or any Vessel or any of the other assets of the Partnership which, if adversely determined, might have a Material Adverse Effect; (e) any dispute between the Partnership and any Governmental Authority or other party which might materially and adversely affect the normal business operations of the Partnership; (f) any material dispute or proceeding between or among any of the parties to the Partnership Agreement, any Drilling Contract or the Management Agreements or with any governmental agency if the same may materially adversely affect this Agreement or any other Restructuring Document, any Vessel, or the insurance on any Vessel; and (g) any material adverse change in the business, operations, property or financial or other condition of the Partnership not otherwise identified in a report, financial statement or other writing delivered to the Agent. Each notice pursuant to this subsection 8.6 shall be accompanied by a statement of the Partnership signed by a principal officer of the General Partner setting forth details of the occurrence referred to therein and stating what action the Partnership proposes to take with respect thereto. 8.7 Further Documents and Steps. The Partnership covenants and agrees that it will (i) at any time or from time to time, upon the written request of the Agent, execute and deliver, or use its best efforts to cause to be executed and delivered, such further documents including, without limitation, any additional consents by interested parties to the granting of the Liens for which the Security Documents and the Mortgages provide, and (ii) upon written request of the Agent, take such other steps, including, without limitation, filing, registering, recording, refiling, and re-recording any and all such documents as shall be in the opinion of the Agent necessary or desirable to obtain the full benefits of, and to perfect and protect the Liens created by the Security Documents and the Mortgages (except that, in no event shall the Partnership be required prior to the occurrence of an Event of Default, to obtain the consent of any obligor under any Drilling Contract to the granting PAGE 60 of a Lien thereon to the Agent), in order to create, preserve and protect the Liens granted to the Agent under the Security Documents and the Mortgages. 8.8 Indemnification. (a) The Partnership assumes liability for and agrees to pay, indemnify, protect, save and keep harmless the Agent and its directors, officers, employees and agents, successors and assigns from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs and expenses, including legal expense, of whatsoever kind and nature, imposed on, incurred by or asserted against the Agent, its directors, officers, employees, agents, successors or assigns, in any way relating to or arising out of the operation, charter, condition, sale, return or other disposition of the Vessels or any part thereof, including, without limitation, latent and other defects, whether or not discovered or discoverable by the Partnership or any other Person, claims for patent, trademark or copyright infringement, tort or damage claims of any kind and claims or penalties arising from any violation of the laws of any country or political subdivision thereof. (b) Notwithstanding any other exception provided for in this Agreement, the Partnership shall also pay when due, and the Partnership shall indemnify and hold the Agent and each Bank harmless from and against, all fees, taxes (whether sale, use, excise, personal property, income, gross receipts or other taxes), assessments and other governmental charges of whatever kind or character and however designated (together with any penalties, fines or interest thereon), upon or with respect to the Vessels, or upon or with respect to the purchase, ownership, delivery, possession, use, lease, charter, operation, return, sale or other disposition of the Vessels or the receipts or earnings arising therefrom except to the extent that the Partnership is in good faith contesting any such fee, tax, assessment or other charge and is, in accordance with GAAP, maintaining appropriate reserves for the accrual of any of the same; provided, that, if failure to pay timely any such fee, tax, assessment or other charge could result in the creation of a Lien on either Vessel, the Partnership shall first give the Agent, for the benefit of the Banks, such security as the Agent deems necessary to protect its interests hereunder. (c) The obligations contained in this subsection 8.8 shall continue in full force and effect notwithstanding the payment in full of all amounts owing to the Agent and the Banks hereunder or the termination of this Agreement for any reason whatsoever. 8.9 Maintenance of Vessels. The Partnership will maintain each Vessel in such condition as will entitle such Vessel to the highest classification and rating for vessels of the same age and type of the American Bureau of Shipping, or such other classification society of like standing which shall accept such Vessel for classification purposes. 8.10 Discharge of Obligations and Liabilities. The Partnership shall pay and discharge, at or before maturity, all its obligations and liabilities, including, without limitation, Cash Operating Expenses and tax liabilities, except where the same may be contested in good faith, and maintain, in PAGE 61 accordance with GAAP, appropriate reserves for the accrual of any of the same. For purposes hereof, payment of trade accounts payable at or before maturity shall mean payment thereof in accordance with the customary practice of the obligor thereon. 8.11 Additional Qualified Accounts. (a) On or before the date on which the Partnership shall deposit funds in any new domestic account, the Partnership shall deliver to the Agent a Security Agreement Supplement, appropriately completed and duly executed by the Partnership; (b) as promptly as practicable, but in any event within seven days after depositing funds in any new Foreign Operating Account, the Partnership shall deliver to the Agent a Security Agreement Supplement, appropriately completed and duly executed by the Partnership; and (c) The Partnership shall either (x) obtain a Transfer Notice in favor of the Banks with respect to the Partnership Account substantially in the form of Exhibit B to the Restructure Security Agreement or (y) maintain the Partnership Account at one of the Banks. 8.12 Drilling Contracts. Execute all Drilling Contracts, or cause all Drilling Contracts to be executed, in the name of the Partnership or an agent on behalf of the Partnership. 8.13 Environmental Laws. The Partnership shall: (a) comply with, and insure compliance by all tenants and subtenants, if any, with, all Environmental Laws and obtain and comply with and maintain, and insure that all tenants and subtenants obtain and comply with and maintain, any and all licenses, approvals, registrations or permits required by Environmental Laws, except to the extent that failure to do so could not have a Material Adverse Effect; (b) conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply with all lawful orders and directives of all Governmental Authorities respecting Environmental Laws, except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings could not have a Material Adverse Effect; and (c) defend, indemnify and hold harmless the Agent and the Banks, and their respective employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of or noncompliance with any Environmental Laws applicable to the real property owned or operated by the Partnership, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, attorney's and consultant's fees, investigation and laboratory fees, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross PAGE 62 negligence or willful misconduct of the party seeking indemnification therefor. SECTION 9. NEGATIVE COVENANTS So long as the Term Loans remain outstanding and unpaid or any other amount is owing to the Agent or the Banks hereunder or under the other Restructuring Documents or the Mortgages, the Partnership shall not: 9.1 Gross Overhead; Accounts; Subsidiaries. (a) Accrue or make any payments in respect of Gross Overhead. (b) At any time, maintain any cash or Cash Equivalents in any accounts other than (i) the Partnership Account, (ii) the Qualified Accounts, (iii) up to two other domestic bank accounts in which the aggregate amount on deposit shall not exceed $20,000 and (iv) Foreign Operating Accounts; provided that, the Partnership shall in good faith attempt to promptly obtain and deliver to the Agent Transfer Notices for each Foreign Operating Account, unless such Foreign Operating Account is maintained at one of the Banks, in which case no Transfer Notice shall be required with respect to such Account; provided further, that the Partnership shall not permit the aggregate amount of funds on deposit in Foreign Operating Accounts for which no Transfer Notices have been obtained and delivered to the Agent and which are not maintained at one of the Banks to exceed $1,000,000 in the aggregate for any five (5) consecutive Business Days. (c) Permit any Subsidiary in existence on the Effective Date (other than Deep Seas Drilling Pty Ltd.) to conduct any business or engage in any transaction (except a liquidation or dissolution) or own or possess property or assets having an aggregate fair market value in excess of $1,000. (d) Transfer funds to or maintain funds in any Foreign Operating Account other than as may be reasonably necessary to provide necessary working capital for operations in the jurisdiction where such Foreign Operating Account is being maintained. 9.2 Limitation on Indebtedness. Create, incur or assume after the Effective Date any Indebtedness, except: (a) Indebtedness constituting the Term Loans; (b) Indebtedness constituting trade accounts payable incurred in the ordinary course of business; and (c) Indebtedness of the Partnership to Atwood (i) evidenced by a Partnership Advance Note or (ii) for Temporary Working Capital Loans in an aggregate maximum outstanding amount at any one time of $2,000,000; provided that any such Indebtedness of the Partnership shall be subordinated to the repayment of the Term Loans pursuant to the PAGE 63 Subordination Agreement. 9.3 Limitation on Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: (a) Liens for taxes not due or due but not yet delinquent or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Partnership in conformity with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's, or other like Liens arising in the ordinary course of business and not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings and other nonconsensual Liens arising in the ordinary course of business and removed within 30 days of attachment or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Partnership; (f) the Liens created or permitted by the Security Documents and the Mortgages; and (g) [Intentionally Omitted] (h) Liens in favor of Atwood created by the Atwood Security Documents. 9.4 Limitation on Contingent Obligations. Create, incur or assume any Contingent Obligation, except Contingent Obligations incurred in the ordinary course of the Partnership's business (including, but not limited to, obligations incurred under Article 7 of the Partnership Agreement and obligations incurred in connection with subsection 9.3(d)). 9.5 Limitations on Fundamental Changes. Enter into any transaction of acquisition or merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, PAGE 64 sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets, or engage in any business or activity other than as contemplated by Section 2.1 of the Partnership Agreement. 9.6 Limitation on Sale of Assets. Convey, sell, lease, assign, transfer or otherwise dispose of, any of its property, business or assets (including, without limitation, receivables and leasehold interests) whether now owned or hereafter acquired except: (a) the Partnership may lease, as lessor, the Vessels pursuant to Acceptable Drilling Contracts; (b) the Partnership may lease, as lessee, any personal property in the ordinary course of business and for a term not exceeding 5 years; (c) subject to subsection 9.1(a), the Partnership may lease, as lessee, its principal office from Atwood provided that in accordance with subsection 9.11, such lease is on fair and reasonable terms no less favorable to the Partnership than it would obtain in a comparable arm's- length transaction with an unaffiliated Person; and (d) in any Fiscal Year, the Partnership may sell, in the ordinary course of its business, assets of the Partnership for an aggregate consideration of not more than $100,000 in the aggregate for such Fiscal Year; provided that, each such sale is an arms-length transaction for a purchase price of not less than the fair market value of the asset being sold, and such sale is to a Person that is not an Affiliate of the Partnership or of any Partner. 9.7 Limitation on Distributions. Make any distribution of its assets to the Partners or any Affiliate of the Partners (whether in the form of a loan, advance or otherwise) or repay any capital contributions of the Partners except that (a) the Partnership may make payments of the Management Fee to Atwood from time to time as described in Article 7 of the Partnership Agreement; provided that such payments may not be in cash and instead may only be evidenced by an increase in a Partnership Advance Note; (b) the Partnership may repay any Temporary Working Capital Loans in accordance with Section 4 hereof and with the Subordination Agreement; and (c) the Partnership may make such other payments to Atwood as are contemplated by subsection 4.2. 9.8 Limitation on Capital Expenditures. Make (by way of the acquisition of securities of a Person or otherwise) any expenditures in respect of the purchase or other acquisition of fixed or capital assets except (i) any capital expenditure representing the reinvestment of insurance proceeds in assets similar to those in respect of which the Partnership or any PAGE 65 Subsidiary has received such proceeds, provided, that such proceeds are so reinvested as soon as practicable after receipt thereof, (ii) capital expenditures representing the replacement of drill pipe for the Vessels in an aggregate amount not to exceed $1,000,000 in any three of the Partnership's Fiscal Years and (iii) other capital expenditures in an aggregate amount not to exceed $1,200,000 in any of the Partnership's Fiscal Years. 9.9 Limitation on Investments, Loans and Advances. Make any advance, loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of, or make any other investment in, any Person except: (a) extensions of trade credit in the ordinary course of business; (b) investments in Cash Equivalents; and (c) advances, loans or extensions of credit permitted by Section 9.7(b) hereof. 9.10 Limitations on Optional Payments of Indebtedness. Make any optional payment, prepayment or redemption of the principal of any Indebtedness except any such payment or prepayment of the Term Loans and except for the prepayment of trade accounts payable during each calendar year in an aggregate amount which is not, when compared to the total trade accounts payable for such year, material. 9.11 Transactions with Affiliates. Enter into or suffer to exist any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service (but excluding the Management Agreement, the Funding Agreement and the other Partnership Documents), with any Affiliate of the Partnership or of any Partner unless such transactions are otherwise permitted under this Agreement or are in the ordinary course of the Partnership's business and are upon fair and reasonable terms no less favorable to the Partnership than it would obtain in a comparable arm's length transaction with a Person not so related to the Partnership. 9.12 Sale and Leaseback. Enter into any arrangement with any Person providing for the leasing by the Partnership of real or personal property which has been or is to be sold or transferred by the Partnership to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Partnership or such Subsidiary. 9.13 Modification of Certain Agreements. Amend, modify or waive any of the provisions of (x) the Assumption Agreement or the Purchase Agreement or (y) the Funding Agreement, the Management Agreement, or any other Partnership Document, including, without limitation, changing the identity of the general partner of the Partnership, if such amendment, modification or waiver would (i) relieve any Partner or Atwood of any required payment or contribution to the Partnership, (ii) increase any required payment or distribution from the PAGE 66 Partnership to any Partner or Atwood, (iii) result in a default under any Security Document, (iv) result in the failure of the Partnership to perform its obligations under the Restructuring Documents, the Mortgages or the Partnership Documents, in each case to which it is a party or (v) have a material adverse effect on (x) the business, operations, assets, financial or other condition of the Partnership, or (y) the ability of the Partnership to perform its obligations under the Restructuring Documents, the Mortgages or the Partnership Documents, in each case to which it is a party or (z) the rights, powers and privileges of the Agent, the Trustee or any Bank under the Restructuring Documents and the Mortgages. 9.14 Treatment of Property, Business and Assets. Other than in the ordinary course of business as conducted over a period of time, cause or permit any of the property, business or assets of the Partnership to be operated in any manner contrary to any material Requirement of Law, or abandon any of such property, business or assets. SECTION 10. EVENTS OF DEFAULT 10.1 Events of Default. The occurrence and continuance of the following shall constitute Events of Default: (a) The Partnership shall fail to pay (i) any principal of the Term Loans when due in accordance with the terms hereof or (ii) any other amount payable hereunder (including interest on the Term Loans), within five (5) days after any such amount becomes due and payable in accordance with the terms hereof; or (b) Any representation or warranty made or deemed made by the Partnership or any Partner in this Agreement or in any other Restructuring Document or the Mortgages or in any certificate, financial or other statement furnished by the Partnership pursuant hereto or thereto shall prove to have been incorrect in any material respect on or as of the date made or deemed made and the Agent or any Bank shall have been adversely affected by such incorrect representation or warranty; or (c) The Partnership shall default in the observance or performance of any of the covenants or agreements contained in subsection 8.4, or in Section 9, or default in any material respect in the observance or performance of any of the covenants or agreements in any Drilling Contract (after giving effect to any grace period provided by such Drilling Contract) or any party to any of the Security Documents or the Mortgages shall fail to perform the provision of any of the Security Documents or the Mortgages, as the case may be; or (d) The Partnership shall default in the observance or performance of any other agreement contained in this Agreement, and such default shall continue unremedied for a period of 30 days; or (e) (i) The Partnership shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization PAGE 67 or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Partnership shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Partnership any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 90 days; or (iii) there shall be commenced against the Partnership any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 90 days from the entry thereof; or (iv) the Partnership shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii) or (iii) above; or (v) the Partnership shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (f) One or more judgments or decrees shall be entered by a court of competent jurisdiction against the Partnership involving in the aggregate a liability (not paid or fully covered by insurance) of $1,000,000 or more and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (g) (i) The Mortgages, any of the Restructuring Documents or the Partnership Agreement shall cease, in any case, to be in full force and effect; (ii) any party to such documents (excluding the Agent or the Banks) shall seek to disaffirm its obligations thereunder; (iii) Atwood or any Partner shall fail to perform the provisions of the Partnership Agreement, or the Funding Agreement and such failure (w) would relieve any Partner or Atwood of any required payment or contribution to the Partnership, (x) would increase any required payment or distribution from the Partnership to any Partner or Atwood, (y) would result in a default under any Security Document or Mortgage or (z) adversely affects the ability of the Partnership to perform its obligations under the Restructuring Documents or the Mortgages to which it is a party and remains unremedied for a period of 15 days; or (iv) Atwood shall cease to be the operator of either Vessel or AHC shall cease to be the General Partner; or (h) The Partnership shall (i) default in the payment when due of more than $500,000 principal amount of any Indebtedness (other than the Term Notes) referred to in clauses (a) and (b) of the definition thereof and the passage of any grace periods, or (ii) default in the performance or observance of any other term, condition or agreement contained in any PAGE 68 such obligation referred to in clause (i) immediately above or in any agreement relating thereto if the effect of such default is to cause, or permit the holder or holders of such obligation (or a trustee on behalf of such holder or holders) to cause, such obligation to become due prior to its stated maturity; or (i) Any Vessel or all or any substantial part of the property of the Partnership as a whole shall be condemned, seized or otherwise appropriated, or custody or control of such property shall be assumed by any Government Authority and shall be retained for a period of 30 days or more; provided, however, that if the taken property is covered by valid insurance against such taking in an amount sufficient to pay all principal, interest and fees owing to the Banks under this Agreement, such occurrence will not constitute an Event of Default; provided, however, nothing herein shall supersede the requirements of Section 10.1(a); or (j) An event of default shall occur and be continuing under any of the Security Documents or the Mortgages; or (k) Any event or condition shall occur which causes the liquidation or dissolution of the Partnership; or (l) The Partnership shall not deposit in the Partnership Account on or before the Fifth Business Day following each Fiscal Quarter, an amount, if any, which assuming such amount, if any, had been so deposited on the last day of such Fiscal Quarter, would cause the amounts on deposit therein or credited thereto to equal at least $2,000,000; or (m) (i) The Partnership shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Banks, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, or (v) any other event or condition shall occur or exist, with respect to a Plan; and in each case in clauses (i) through (v) above, such event or condition, together with all other such events or conditions, if any, could subject the Partnership to any tax, penalty or other liabilities in the aggregate material in relation to the business, operations, property or financial or other condition of the Partnership. (n) The Agent shall not have received within seven (7) Business Days of the Effective Date (i) an original of each Mortgage Amendment bearing evidence of recordation by the relevant U.S. Coast Guard Vessel PAGE 69 Documentation Office, (ii) certified copies of the abstracts of title of the Vessels, indicating that each such Vessel is owned by the Partnership free and clear of all mortgages or other encumbrances other than the relevant Amended Mortgage and the Partner Mortgages. SECTION 11. REMEDIES 11.1 Remedies Upon an Event of Default. Upon the occurrence of an Event of Default then, and in any such event: (a) If such event is an Event of Default specified in clause (i) or (ii) of subsection 10.1(e), automatically the Term Loans (with accrued interest thereon) and all other amounts accrued and owing under this Agreement and the Term Notes shall immediately become due and payable. (b) If such event is any Event of Default other than an Event of Default specified in clause (i) or (ii) of subsection 10.1(e), the Agent may, upon the request of the Required Banks and by notice of default to the Partnership, declare the Term Loans (with accrued interest thereon) and all other amounts accrued and owing under this Agreement and the Term Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable. (c) Upon the request of the Required Banks, the Agent may immediately exercise any remedies available to the Agent under the Security Documents and the Mortgages (including, without limitation, foreclosing on the Eagle Vessel and the Hunter Vessel pursuant to the Mortgages). 11.2 Notices. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. Upon the occurrence of an Event of Default, the Agent shall use reasonable efforts to notify the Partnership and Atwood of the occurrence thereof provided, the failure to deliver such notice shall not affect the ability of the Agent to exercise any remedies provided herein, in the Security Documents and in the Mortgages. SECTION 12. THE AGENT 12.1 Appointment. Each Bank hereby irrevocably designates and appoints Chemical Bank as the Agent of such Bank under this Agreement, the Security Documents and the Mortgages and each such Bank irrevocably authorizes Chemical Bank, as the Agent for such Bank, to take such action on its behalf under the provisions of this Agreement and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Restructuring Documents and the Mortgages, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary PAGE 70 relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Agent. The Agent shall hold all security under the Security Documents and the Mortgages for the ratable benefit of the Banks unless otherwise specifically provided in such documents. 12.2 Delegation of Duties. The Agent may execute any of its duties under this Agreement, the Restructuring Documents and the Mortgages by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in- fact selected by it with reasonable care. 12.3 Exculpatory Provisions. Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement, the Mortgages or any other Restructuring Documents (except for its or such Person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Banks for any recitals, statements, representations or warranties made by the Partnership, Atwood, the Partners, or any Affiliate of any of the foregoing entities (collectively, the "Partnership Group")) or any officer thereof contained in this Agreement, the Mortgages or any other Restructuring Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement, the Mortgages or any other Restructuring Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, the Mortgages or any other Restructuring Document or for any failure of any member of the Partnership Group to perform its obligations under this Agreement, the Mortgages or any other Restructuring Document or Partnership Document. The Agent shall not be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, the Mortgages or any other Restructuring Document, or to inspect the properties, books or records of any member of the Partnership Group. 12.4 Reliance by Agent. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any Term Note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to any member of the Partnership Group), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Term Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer in respect thereof shall have been filed with the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement, the Mortgages or any other Restructuring Document unless it shall first receive such advice or concurrence of the Banks as it deems appropriate or it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking PAGE 71 or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement, the Mortgages and any other Restructuring Document in accordance with a request of the Required Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Banks and their successors and assigns. 12.5 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Agent has received notice from a Bank or a member of the Partnership Group referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give notice thereof to the Banks. The Agent shall take such action with respect to such Default or Event of Default as shall be required hereunder and as may be directed by Chemical; provided that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Banks. 12.6 Non-Reliance on Agent and Other Lenders. Each Bank expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of any member of the Partnership Group, shall be deemed to constitute any representation or warranty by the Agent to any Bank. Each Bank represents to the Agent that it has, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Partnership and made its own decision to enter into this Agreement. Each Bank also represents that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, the Mortgages and any other Restructuring Document, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Partnership. Except for notices, reports and other documents expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of any member of the Partnership Group which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 12.7 Indemnification. The Banks agree to indemnify the Agent in its capacity as such (to the extent not reimbursed by the Partnership and without limiting the obligation of the Partnership to do so) ratably according to the Pro Rata Percentages from and against any and all liabilities, obligations, PAGE 72 losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following any payment on the Term Loans) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement, the Mortgages or any other Restructuring Document, or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent under or in connection with any of the foregoing (each payment made by a Lender pursuant to the foregoing provisions of this subsection 12.7 being hereinafter referred to as an "Indemnification Payment"); provided that no Bank shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the payment of the Term Loans and all other amounts payable hereunder. 12.8 Agent in Its Individual Capacity. The Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the members of the Partnership Group as though the Agent were not the Agent hereunder. With respect to its Term Loans and Term Note, the Agent shall have the same rights and powers under this Agreement as any Bank and may exercise the same as though it were not the Agent, and the terms "Bank" and "Banks" shall include the Agent in its individual capacity. 12.9 Successor Agent. The Agent may resign as Agent upon 10 days' notice to the Banks. If the Agent shall resign as Agent under this Agreement, then Chemical shall appoint from among the other Banks a successor agent for the Banks which successor agent shall be approved by the Partnership, whereupon such successor agent shall succeed to the rights, powers and duties of the Agent, and the term "Agent" shall mean such successor agent effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Term Notes. After any retiring Agent's resignation hereunder as Agent, the provisions of this subsection 12.9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. SECTION 13. MISCELLANEOUS 13.1 Amendments and Waivers. (a) Neither this Agreement, the Mortgages, any other Restructuring Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. (b) Except as set forth in subsection 13.1(c), the Agent may, and at the request of the Required Banks shall, from time to time, enter into written amendments, supplements or modifications hereto for the purpose of adding any provisions to this Agreement, the Mortgages or the other Restructuring Documents or changing in any manner the rights of the Banks or of the Partnership hereunder or thereunder or waiving, on PAGE 73 such terms and conditions as may be specified in such instrument, any of the requirements of this Agreement, the Mortgages or the other Restructuring Documents or any Default or Event of Default and its consequences. (c) No amendment, modification or waiver referred to in subsection 13.1(b) shall: (i)(1) extend the maturity of any Term Note or any installment thereof, or (2) reduce the rate or extend the time of payment of interest thereon, or (3) reduce the principal amount of any of the foregoing, or (4) amend, modify or waive any provision of this subsection or (5) amend, modify or waive (i) any provision of this Agreement relating to (x) calculations of interest or (y) payments or prepayments of principal or interest (including any definitions, other than the definition of "Alternate Base Rate", relating thereto), (ii) the definitions of "Required Banks" or "Qualified Transferees", or (iii) subsections 11.1(a) or 13.6, of this Agreement or definitions used therein for purposes thereof, or (6) consent to the assignment or transfer by the Partnership of its rights and obligations under this Agreement, or (7) release the Lien of the Agent or the Trustee on any collateral granted under the Security Documents and the Mortgages or amend, modify or waive any insurance provisions contained therein, or (8) amend or modify, the definitions of "Senior Indebtedness" or "Subordinated Indebtedness", or consent to payments or offsets contrary to the terms of the Subordination Agreement or (9) amend, modify or waive the provisions of any Restructuring Document or Mortgage to subordinate any of the Liens created thereby in favor of the Agent or the Trustee or (10) amend, modify or waive the provisions of any Restructuring Document or Mortgage to permit the sale by the Partnership to any Person of either Vessel unless (i) the proposed cash sale price for such Vessel is no less than an amount equal to 65% of the then outstanding principal of and interest on the Term Loans and (ii) after consummation of such proposed sale, the Partnership would continue to own at least one Vessel or (11) waive compliance with any of the conditions precedent specified in subsection 7.2 (other than those specified in subsection 7.2(j), in each case without the written consent of all the Banks; or (ii) amend, modify or waive any provision of Section 12 without the written consent of the then Agent. (d) Any such waiver and any such amendment, supplement or modification shall be binding upon the Partnership, the Banks, the Agent, all future assignees of the Term Loans and all future holders of the Term Notes and the other obligations hereunder. In the case of any waiver, the Partnership and the Banks shall be restored to their former position and rights hereunder and under the outstanding Term Loans, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or PAGE 74 other Default or Event of Default, or impair any right consequent thereon. 13.2 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by facsimile transmission), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when actually delivered or, in the case of notice by facsimile transmission, when received and telephonically confirmed, addressed as follows in the case of the Partnership and the Agent and, in the case of the Banks, addressed to the addresses set forth on the signature pages hereto, or to such other address as may be hereafter notified by the respective parties hereto: The Partnership: Atwood Deep Seas, Ltd. 15835 Park Ten Place Drive Houston, Texas 77084 Attention: James M. Holland Telecopy: (713) 492-0345 Telephone Confirmation: (713) 492-2929 The Agent: Chemical Bank 270 Park Avenue New York, New York 10017 Attention: Charles O. Freedgood Telecopy: 212-661-8396 Telephone Confirmation: 212-270-7730 13.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Agent or any Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 13.4 Survival of Representations and Warranties. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement. 13.5 Payment of Expenses and Taxes. (a) The Partnership agrees (i) to pay or reimburse the Agent for all its out-of-pocket costs and expenses incurred in connection with the development, preparation, execution, delivery, filing, recording, administration, modification, restatement or amendment of this Agreement, the Mortgages and each of the other Restructuring Documents and any other documents prepared in connection herewith and therewith, and the consummation of the transactions contemplated hereby and thereby (including, without limitation, the fees and disbursements of Simpson Thacher & Bartlett and Gilmartin, Poster & Shafto, counsel for the Agent), and (ii) to pay or reimburse the Agent for all its out-of-pocket costs and expenses incurred in connection with the enforcement or preservation of any rights under this PAGE 75 Agreement, each of the other Restructuring Documents, the Mortgages and any such other documents (including, without limitation, the fees and disbursements of Simpson Thacher & Bartlett and/or such other counsel as the Agent may select); provided, however, the parties acknowledge and agree that Philadelphia Investment Corporation of Delaware has agreed to pay the above amounts incurred in connection with the execution of this Second Amended and Restated Master Loan Restructuring Agreement and the documents executed in connection therewith, including without limitation, a fee to the Agent in the amount of $225,000.00. (b) The Partnership further agrees to pay, indemnify, and hold the Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the Mortgages, each of the other Restructuring Documents and any such other documents. (c) A request for payment under subsection 13.5(b) shall be accompanied by supporting documentation thereof, identifying with reasonable specificity the basis for and the amount of such costs and expenses. The agreements in this subsection 13.5 shall survive repayment of the Term Loans and all other amounts payable hereunder. 13.6 Successors and Assigns; Participations; Purchasing Banks. (a) This Agreement shall be binding upon and inure to the benefit of the Partnership, the Banks, the Agent, all future holders of the Term Notes and their respective successors and assigns, except that the Partnership may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Bank. (b) Any Bank may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Term Loan owing to such Bank, any Term Note held by such Bank, or any other interest of such Bank hereunder and under the other Restructuring Documents and the Mortgages. In the event of any such sale by a Bank of participating interests to a Participant, such Bank's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Bank shall remain solely responsible for the performance thereof, such Bank shall remain the holder of any such Term Note for all purposes under this Agreement, the other Restructuring Documents and the Mortgages, and the Partnership and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement, the other Restructuring Documents and the Mortgages. The Partnership agrees that if amounts outstanding under this Agreement and the Term Notes are due or unpaid, or shall have been declared or shall have PAGE 76 become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement and any Term Note to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement or any Term Note, provided that such Participant shall only be entitled to such right of setoff if it shall have agreed in the agreement pursuant to which it shall have acquired its participating interest to share with the Banks the proceeds thereof as provided in subsection 13.7. The Partnership also agrees that each Participant shall be entitled to the benefits of subsections 5.7, 5.8 and 13.5 with respect to its participation in the Term Loans outstanding from time to time; provided, that no Participant shall be entitled to receive any greater amount pursuant to such subsections than the transferor Bank would have been entitled to receive in respect of the amount of the participation transferred by such transferor Bank to such Participant had no such transfer occurred. (c) Any Bank may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to any Bank or any affiliate thereof and, with the consent of the Partnership and the Agent (which in each case shall not be unreasonably withheld), to one or more additional banks or financial institutions ("Purchasing Banks") all or any part of its rights and obligations under this Agreement and the Term Notes pursuant to a Loan Transfer Supplement, substantially in the form of Exhibit I, executed by such Purchasing Bank, such transferor Bank (and, in the case of a Purchasing Bank that is not then a Bank or an affiliate thereof, by the Partnership and the Agent) and delivered to the Agent for its acceptance and recording in the Register. Upon such execution, delivery, acceptance and recording, from and after the Transfer Effective Date determined pursuant to such Loan Transfer Supplement, (x) the Purchasing Bank thereunder shall be a party hereto and, to the extent provided in such Loan Transfer Supplement, have the rights and obligations of a Bank hereunder, and (y) the transferor Bank thereunder shall, to the extent provided in such Loan Transfer Supplement, be released from its obligations under this Agreement (and, in the case of a Loan Transfer Supplement covering all or the remaining portion of a transferor Bank's rights and obligations under this Agreement, such transferor Bank shall cease to be a party hereto). Such Loan Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Bank. On or prior to the Transfer Effective Date determined pursuant to such Loan Transfer Supplement, the Partnership, at its own expense, shall execute and deliver to the Agent in exchange for the surrendered Term Note a new Term Note to the order of such Purchasing Bank in an amount equal to the amount of the Term Loans to be made by it pursuant to such Loan Transfer Supplement and, if the transferor Bank has remained a Bank hereunder, new Term Notes to the order of the transferor Bank in an amount equal to the amount of the Term Loans retained by it hereunder. Such new Term Notes shall be dated the Effective Date and shall otherwise be in the form of the Term Notes replaced thereby. The Term Notes surrendered by PAGE 77 the transferor Bank shall be returned by the Agent to the Partnership marked "cancelled". (d) The Agent shall maintain at its address referred to in subsection 13.2 a copy of each Loan Transfer Supplement delivered to it and a register (the "Register") for the recordation of the names and addresses of the Banks of, and principal amount of the Term Loans owing to, each Bank from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Partnership, the Agent and the Banks may treat each Person whose name is recorded in the Register as the owner of the Term Loan recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Partnership or any Bank at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a Loan Transfer Supplement executed by a transferor Bank and Purchasing Bank (and, in the case of a Purchasing Bank that is not then a Bank or an affiliate thereof, by the Partnership and the Agent) together with payment to the Agent of a registration and processing fee of $3,000, the Agent shall (i) promptly accept such Loan Transfer Supplement (ii) on the Transfer Effective Date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Banks and the Partnership. (f) The Partnership authorizes each Bank to disclose to any Participant or Purchasing Bank (each, a "Transferee") and any prospective Transferee any and all financial information in such Bank's possession concerning the Partnership and its affiliates which has been delivered to such Bank by or on behalf of the Partnership pursuant to this Agreement or which has been delivered to such Bank by or on behalf of the Partnership in connection with such Bank's credit evaluation of the Partnership and its affiliates prior to becoming a party to this Agreement. (g) If, pursuant to this subsection, any interest in this Agreement or any Term Note is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any state thereof, the transferor Bank shall cause such Transferee, concurrently with the effectiveness of such transfer, (i) to represent to the transferor Bank (for the benefit of the transferor Bank, the Agent and the Partnership) that under applicable law and treaties no taxes will be required to be withheld by the Agent, the Partnership or the transferor Bank with respect to any payments to be made to such Transferee in respect of the Term Loans, (ii) to furnish to the transferor Bank (and, in the case of any Purchasing Bank registered in the Register, the Agent and the Partnership) either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such Transferee claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder) and (iii) to agree (for the benefit of the transferor Bank, the Agent and the Partnership) to provide the transferor Bank (and, in the case of any PAGE 78 Purchasing Bank registered in the Register, the Agent and the Partnership) a new Form 4224 or Form 1001 upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such Transferee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. (h) Nothing herein shall prohibit any Bank from pledging or assigning any Term Note to any Federal Reserve Bank in accordance with applicable law. 13.7 Adjustments; Set-off. (a) If any Bank (a "benefitted Bank") shall at any time receive any payment of all or part of its Term Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in clause (e) of Section 10.1, or otherwise) in a greater proportion than any such payment to and collateral received by any other Bank, if any, in respect of such other Bank's Term Loans, or interest thereon, such benefitted Bank shall purchase for cash from the other Banks such portion of each such other Bank's Term Loan, or shall provide such other Banks with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Bank to share the excess payment or benefits of such collateral or proceeds ratably with each of the Banks; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Bank, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Partnership agrees, to the extent it may do so under applicable law, that each Bank so purchasing a portion of another Bank's Term Loan may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Bank were the direct holder of such portion. (b) [Intentionally Deleted] (c) In addition to any rights and remedies of the Banks provided by law, each Bank shall have the right, without prior notice to the Partnership, any such notice being expressly waived by the Partnership to the extent permitted by applicable law, upon the occurrence of any Event of Default and acceleration of the obligations owing in connection with this Agreement, to set-off and apply against any indebtedness, whether matured or unmatured, of the Partnership to such Bank, any amount owing from such Bank to the Partnership at, or at any time after, the occurrence of such Event of Default and acceleration of the obligations owing in connection with this Agreement. Each Bank agrees promptly to notify the Partnership and the Agent after any such set-off and application made by such Bank, provided that the failure to give such notice shall not affect the validity of such set-off and application. 13.8 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts and all PAGE 79 of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Partnership and the Agent. 13.9 GOVERNING LAW. THIS AGREEMENT AND THE TERM NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 13.10 Interest. It is the intent of the Banks and the Partnership in the execution and performance of this Agreement, all matters incidental and related hereto, the other Restructuring Documents and the Mortgages or any agreement or instrument executed in connection herewith or therewith or with any Indebtedness of the Partnership to the Banks to remain in strict compliance with all laws applicable to the Banks from time to time in effect, including, without limitation, usury laws. In furtherance hereof, each Bank and the Partnership stipulate and agree that none of the terms and provisions contained in or pertaining to this Agreement or in the other Restructuring Documents, the Mortgages or any other agreement or instrument ("Other Agreement") executed in connection herewith or with any Indebtedness of the Partnership to such Bank shall be construed to create a contract to pay for the use, forbearance or detention of money with interest at a rate or in an amount in excess of the Maximum Rate for such Bank or maximum amount of interest permitted to be charged by such Bank under all laws in effect and applicable to the Bank. For purposes of this Agreement and the Term Note held by any Bank, "interest" shall include the aggregate of all amounts which constitute or are deemed to constitute interest under the respective laws in effect and applicable to such Bank that are contracted for, chargeable, receivable (whether received or deemed to have been received) or taken under this Agreement or such Term Note or any Other Agreement. The Partnership shall never be required to pay to any Bank unearned interest hereunder or on the Term Note held by any Bank or any Other Agreement and shall never be required to pay interest hereunder or on the Term Note held by any Bank or any Other Agreement at a rate or in an amount in excess of the Maximum Rate for such Bank or maximum amount of interest that may be lawfully charged by such Bank under any law which is in effect and applicable to such Bank, and the provisions of this paragraph shall control over all other provisions of this Agreement and the Term Notes or any Other Agreement which may be in apparent conflict herewith. If the effective rate or amount of interest which would otherwise be payable under this Agreement or the Term Note held by a Bank or any Other Agreement, or all of them, would exceed the Maximum Rate for such Bank or the maximum amount of interest such Bank or any holder of such Term Note or any Other Agreement is allowed by the relevant Applicable Law to charge, contract for, take or receive, or in the event such Bank or such holder or any Other Agreement shall charge, contract for, take or receive monies that are deemed to constitute interest which could, in the absence of this provision, increase the effective rate or amount of interest payable under this Agreement or the Term Notes or any Other Agreement, or all of them, to a rate or amount in excess of that permitted to be charged, contracted for, taken or received under the Applicable Laws then in effect with respect to such Bank, then the principal amount of the Term Note held by such Bank or the obligations of the Partnership to such Bank under this Agreement, such Term Note or any Other Agreement or the amount of interest which would otherwise be PAGE 80 payable to or for the account of such Bank under this Agreement or the Term Note held by such Bank or any Other Agreement, or all of them, shall be reduced to the maximum amount allowed under said Applicable Laws as now or hereafter construed by the courts having jurisdiction, and all such monies so charged, contracted for, or received that are deemed to constitute interest in excess of the Maximum Rate for such Bank or maximum amount of interest permitted by the relevant Applicable Laws shall be immediately returned to or credited to the account of the Partnership upon such determination. All amounts paid or agreed to be paid in connection with the indebtedness arising pursuant to this agreement and/or evidenced by the Term Note held by any Bank which would under any Applicable Law in effect and applicable to such Bank be deemed "interest" shall, to the extent permitted by such applicable law, be amortized, prorated, allocated and spread throughout the full term of this Agreement and such Term Note, as applicable. 13.11 Submission To Jurisdiction; Waivers. The Partnership hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement, the Term Notes, the other Restructuring Documents and the Mortgages to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Partnership at its address set forth in subsection 13.2 or at such other address of which the Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this subsection any special, exemplary, punitive or consequential damages. 13.12 No Third Party Beneficiary. Nothing herein contained shall be construed to confer upon any other party, other than the Banks or any Transferee(s), the rights of a third party beneficiary. No reference to Liens PAGE 81 permitted in subsection 9.3 shall be deemed to constitute a recognition or acceptance by the Partnership or any Bank for the benefit of the holders of such Liens, as to the validity, subsistence or priority of such Liens. 13.13 Severability. The invalidity of any one or more covenants, phrases, clauses, sentences or paragraphs of this Agreement shall not affect the remaining portions of this Agreement or any part hereof, and in case of any such invalidity, this Agreement shall be construed as if such invalid covenants, phrases, clauses, sentences or paragraphs had not been inserted. 13.14 Entire Agreement. This Agreement, the Mortgages and the other Restructuring Documents constitute the entire agreement among the parties hereto and thereto as to the subject matter hereof and thereof and supersede any previous agreement, oral or written, as to such subject matter. 13.15 Limited Liability. Notwithstanding anything contained herein to the contrary, each of the Agent and the Banks acknowledges and agrees that, except for any obligations of a Partner resulting from the breach of any agreement, covenant, representation or warranty made by such Partner in this Agreement, the Mortgages or any other Restructuring Document (other than made in such Partner's capacity as signatory for the Partnership), each Partner shall never be held personally liable on any of the obligations contained herein or in the Term Notes, it being the intention of the parties that the sole remedy of the Agent and the Banks in enforcing the liability hereunder and under the Term Notes shall be limited to the Partnership, the Vessels, the properties, assets and cash flow of the Partnership and any other collateral security therefor, and no action shall be brought to charge the Partners personally. 13.16 Decisions By Banks. The Partnership, General Partner and each Bank understand and agree that there are no agreements, understandings, or representations by any Bank of any kind as to what such Bank will or will not do should an Event of Default occur under this Agreement. In deciding to execute and deliver this Agreement rather than pursuing other remedies and recourses available to it, each Bank has determined in its sole discretion and for its own reasons what it believes is in the best interest of such Bank at this time. Should any Event of Default hereunder occur, it is expected that each Bank would at that time similarly determine in its sole discretion and for its own reasons what action to take or not to take at that time. Such actions may involve, to the extent permitted hereunder or by operation of law, declaration of a default, acceleration of the Term Loan, realization upon collateral, filing of a lawsuit, filing of petitions in bankruptcy, restructuring of the Term Loan, or any other actions. The Partnership understands and agrees that it is not relying upon any representation by anyone associated with or representing any Bank that such Bank will, at the time of an Event of Default, or at any other time, waive, negotiate, "come back to the table" to discuss, or take or refrain from taking any action with respect to any Event of Default or any other aspect of this Agreement. The Partnership understands that the executive management of each Bank has relied upon the truthfulness of the representations contained in this subsection 13.16 in deciding whether or not to authorize execution of this Agreement by PAGE 82 the Bank. 13.17 Confidential Communications and Materials. If at any time a member of the Partnership Group shall also be a Bank hereunder, the Agent and the other Banks that are not members of the Partnership Group shall be authorized and permitted to exclude any such Bank that is a member of the Partnership Group from any and all Confidential Communications and withhold from any such Bank any and all Confidential Materials. Each Bank that is a member of the Partnership Group shall be deemed to have consented that, notwithstanding any duties on or of Agent or any Bank that may be imposed by or implied under this Agreement, the Mortgages or any other Restructuring Document, such Bank may be excluded from participating in any Confidential Communications and denied any Confidential Materials. "Confidential Communications" means communications of any kind or type, between or among Agent or any of the Banks, including but not limited to written communications, telephone conversations and personal meetings, the subject of which includes any information from which the Agent or the Banks (other than any Bank that is a member of the Partnership Group) would ordinarily seek to exclude the Partnership. "Confidential Materials" means any written information or other tangible materials that Agent or the Banks (other than any Bank that is a member of the Partnership Group) would ordinarily wish to withhold from the Partnership. "Confidential Communications" and "Confidential Materials" include, but are not limited to, communications and materials respecting strategies in dealing with the Partnership, consideration of remedies and other options available to the Agent or the Banks upon any Default and an analysis of the legal and financial position of the Partnership, Agent, the Banks and/or any other Person. 13.18 Acknowledgments. The Partnership hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the Notes and the other Restructuring Documents; (b) neither the Agent nor any Bank has any fiduciary relationship to the Partnership and the relationship between the Agent and the Banks, on the one hand, and the Partnership, on the other hand, is solely that of debtor and creditor; and (c) no joint venture exists among the Banks or among the Partnership and the Banks. 13.19 WAIVERS OF JURY TRIAL. THE PARTNERSHIP, THE AGENT AND THE BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OTHER RESTRUCTURING DOCUMENT OR MORTGAGE AND FOR ANY COUNTERCLAIM THEREIN. PAGE 83 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. ATWOOD DEEP SEAS, LTD. By: ATWOOD HUNTER CO., General Partner By: /s/ James M. Holland James M. Holland Vice President Address: Same as Subsection 13.2 CHEMICAL BANK, as Agent and as a Bank By: /s/ Charles O. Freedgood Name: Charles O. Freedgood Title: Vice President Address: Same as subsection 13.2 TEXAS COMMERCE BANK, NATIONAL ASSOCIATION By: /s/ James A. Flynn Name: James A. Flynn Title: Vice President Texas Commerce Bank National Association 712 Main Street Houston, Texas 77001 Attn.: Telecopy: Telephone Confirmation: COMAC PARTNERS By: /s/ Paul J. Coughlin Name: Paul J. Coughlin Title: General Partner Address: EX-10.5 4 PAGE 70 EXHIBIT 10.5 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into and executed on this 14th day of February, 1995 by and between ATWOOD FALCON I, LTD. ("Seller") and ATWOOD OCEANICS PACIFIC LTD. ("Buyer"), effective December 31, 1994 (the "Effective Date"). R E C I T A L S: WHEREAS, Seller owns and operates a U.S. flag, semi-submersible drilling Vessel (Official No. 653713) known as "Falcon" (the "Vessel") and other assets that support the drilling operations of the Vessel (all of which is herein referred to as the "Business"); and WHEREAS, Buyer desires to purchase and receive from Seller, and Seller desires to sell and assign to Buyer, any and all of the tangible and intangible assets, contracts, and any other assets used or involved in the operation of Seller's Business. NOW, THEREFORE, in consideration of and subject to the mutual agreements, terms and conditions herein contained, the parties hereto agree as follows: 1. Purchase and Sale of Assets. (a) Assets Conveyed. Upon the terms and subject to all of the conditions herein and the performance by each of the parties hereto of their respective obligations hereunder, Buyer hereby agrees to purchase from Seller, and Seller hereby agrees to sell and deliver to Buyer, on the Closing Date (as defined below), any and all of the properties and assets used or involved in Seller's Business, including, without limitation, the following (collectively the "Assets"): (i) The Vessel and all property and other tangible assets used in the Business, including those described or referred to in Exhibit A attached hereto and made part of this Agreement ("Vessel Assets"); and (ii) All leases, contracts, arrangements, understandings, bareboat or other charters, or agreements relating to the hire, use or operation of the Vessel Assets or in the operation of the Business, including those listed on Exhibit B attached hereto and made a part of this Agreement ("Contracts"); and (iii) All licenses, permits, consents, authorizations and orders of governmental or regulatory authorities as are necessary to carry on the Business as is presently being conducted, including those listed on Exhibit C attached hereto and made a part of this Agreement to the extent assignable ("Licenses and Permits"); and PAGE 71 (iv) Any and all other assets, whether tangible or intangible, used in the Business, including all intangible assets essential to or used in the operation of the Business. (b) Limitation on Assignment. Notwithstanding anything herein contained to the contrary, this Agreement shall not constitute nor require any assignment to Buyer of any claim, lease, easement, permit, license, contract or other right if an attempted assignment of the same without the consent of any third party would constitute a breach thereof, unless and until such consent shall have been obtained. In the case of any Asset which cannot effectively be transferred to Buyer without the consent of any governmental agency or authority or any other person, Seller and Buyer will each use all reasonable efforts to obtain such consents promptly and to enter into such reasonable arrangements which as closely as possible give Buyer the benefits of such matters. 2. Closing. The closing of the purchase and sale of the Assets (the "Closing") shall take place at the offices of Griggs & Harrison, at 10:00 a.m. (Houston time) on March 31, 1995, or at such other place, date and time as the parties may agree (the "Closing Date"). 3. Consideration. Subject to the terms and conditions of this Agreement, and in full consideration for the conveyance, transfer and delivery of the Assets and Business of Seller to Buyer as provided herein, Buyer shall pay to Seller the following consideration: (a) Cash. The cash sums of (i) TEN MILLION SEVEN HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($10,750,000.00) payable by wire transfer of immediately available funds on the Closing Date ("Cash Consideration") and (ii) ONE MILLION NINETY-FIVE THOUSAND AND NO/100 DOLLARS ($1,095,000.00) (both (i) and (ii) shall be collectively referred to as the "Cash Consideration"). (b) Term Notes. Buyer shall issue three promissory notes to Seller ("Note Consideration") as follows: (i) promissory note in the original principal amount of THREE MILLION AND NO/100 DOLLARS ($3,000,000.00) payable on or before December 31, 1998 plus interest at a rate of six percent (6%) per annum with acceleration provisions upon a Change of Control, among other things, all as defined and set forth therein, which promissory note is in the form of Exhibit D-1 attached hereto, and (ii) promissory note in the original principal amount of THIRTEEN MILLION SEVEN HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($13,750,000.00) payable on or before December 31, 2010, plus interest at a rate of nine percent (9%) per annum and (iii) promissory note in the original principal amount of ONE MILLION NINETY FOUR THOUSAND AND NO/100 DOLLARS ($1,094,000.00) payable on or before December 31, 2010, plus interest at a rate of nine percent (9%) per annum. (c) Assumption. Buyer agrees to assume and fulfill Seller's unfulfilled contractual obligations and certain other liabilities and obligations as set out in Section 5 hereof ("Assumptions"). PAGE 72 (d) Guaranty of Atwood Oceanics, Inc. The Partnership agrees to use its best efforts to cause Atwood Oceanics, Inc. to execute a Guaranty Agreement ("Guaranty") guaranteeing the $3,000,000.00 promissory note comprising a portion of the Note Consideration. The Guaranty shall be in the form of Exhibit D-2 attached hereto. (e) Working Capital. Buyer and Seller agree that the total working capital of the Partnership as of the Effective Date is TWO MILLION ONE HUNDRED EIGHTY-NINE THOUSAND AND NO/100 DOLLARS ($2,189,000.00) which is reflected as part of the Purchase Price in clauses (a)(ii) and (b)(iii) above. The amounts payable (and the Assumptions) in paragraphs (a) through (c) herein shall be collectively referred to as (the "Purchase Price"). 4. Allocation. The Parties understand and agree that the Purchase Price shall be allocated to comply with Section 1060 of the Internal Revenue Code of 1986, as amended. 5. Obligations Assumed by Buyer. (a) Assumed. Buyer agrees to assume, perform and discharge (i) the unperformed and unfulfilled executory contracts, lease obligations, and ongoing obligations of the Business accruing from the Effective Date all as specifically set forth in Exhibit B hereto, and (ii) all accounts payable and accrued liabilities which are reflected on that certain Analysis of Liabilities at December 31, 1994 attached hereto as Exhibit E. (b) Excluded. Except as set out in paragraph 5(a), Buyer will not assume and will not discharge or be liable for any debts, liabilities, or obligations of Seller. 6. Representations and Warranties by Seller. As a material inducement to Buyer to execute and perform its obligations under this Agreement, Seller hereby represents and warrants to Buyer as follows, which representations and warranties shall survive the execution and delivery of this Agreement and the closing of the transactions contemplated hereby for a period of two (2) years from the Effective Date: (a) Partnership Existence. Seller is a limited partnership, duly organized and validly existing under the laws of the State of Texas and has all the requisite power and authority to sell the assets of the Business as it is presently being conducted, to enter into this Agreement, and to carry out and perform the terms and provisions of this Agreement. (b) Assets. Exhibits A, B and C to this Agreement contain a true and correct list of all assets used or required to be used in the Business. (c) Asset Condition. To the extent required by applicable law to be operative, the disclaimers of certain warranties contained in this paragraph are "conspicuous" disclaimers for the purposes of any applicable law, rule, or order. SELLER HEREBY EXPRESSLY DISCLAIMS PAGE 73 AND NEGATES ANY REPRESENTATION OR WARRANTY, EXPRESSED, IMPLIED, AT COMMON LAW, BY STATUTE, OR OTHERWISE, RELATING TO THE CONDITION OF THE VESSEL ASSETS, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED OR EXPRESSED WARRANTY OF MERCHANTABILITY, OR OF SEAWORTHINESS, OR VALUE, OF DESIGN, OR OF FITNESS FOR A PARTICULAR PURPOSE OR USE, OR OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS. SELLER AND BUYER AGREE THAT THE VESSEL ASSETS SHALL BE SOLD BY SELLER TO BUYER "AS IS, WHERE IS". (d) Documentation. As of the date of this Agreement, the Vessel is duly and lawfully documented under the laws and flag of the United States. Between the date of this Agreement and the Closing hereof, Seller will comply with and satisfy the provisions of the shipping laws of the United States so that the Vessel shall be allowed to be documented under the flag of the Republic of Panama upon conveyance to Buyer at Closing. (e) Litigation. There are no actions, suits, or proceedings pending or threatened against Seller which might hinder in any way this Agreement or affect any of Seller's properties or rights, at law or in equity or before any federal, state, municipal, or other governmental agency or instrumentality, domestic or foreign, nor is Seller aware of any facts which to its knowledge might result in any such action, suit, or proceeding. Seller is not in default with respect to any order or decree of any court or of any such governmental agency or instrumentality which might hinder in any way this Agreement. (f) Enforceable Obligations. Seller is not in violation of any of its executory contracts and ongoing business obligations to the extent such a violation would have a material adverse impact on Seller's ability to fully perform its obligations under this Agreement. Seller is not in material violation of any term or provision of its charter or bylaws, or any mortgage, indenture, contract, agreement, instrument, judgment, decree, order, statute, rule or regulation the violation of which would have a material adverse impact on Seller's ability to fully perform its obligations under this Agreement. The execution and delivery of and performance under and compliance with this Agreement will not result in a material violation of or be in conflict with or constitute a default under any such term or provision or result in the creation of any mortgage, lien, encumbrance, or charge upon any of the properties or assets of Seller pursuant to any such term or provision. (g) Title. Seller has good and indefeasible title to the Assets being sold to Buyer pursuant to this Agreement, free and clear of any and all mortgages, security interests, liens, claims, debts, charges or encumbrances (except as expressly assumed herein). (h) Contracts and Agreements. To the best of Seller's knowledge and subject to obtaining reasonable approvals, Seller's ability to assign all executory contracts required to operate the Business, including without limitation, those Assets described or referred to in Exhibit B hereto, on terms no less favorable than those in PAGE 74 effect with Seller, is not subject to any lease, mortgage, pledge, lien, charge, security interest, encumbrance, non-compete agree- ment, reserved interests of prior owners (including shareholders and employees or prior owners), restrictions on assignment, or any other restriction whatsoever. (i) Claims. Seller has no knowledge or any claim or reason to believe that performance under the contracts to be assumed is or may be infringing or otherwise acting adversely to the rights of any person under or in respect to any patent, trademark, service mark, trade name, copyright, license, or other similar intangible right. Seller is not obligated under any liability whatever to make any payments by way of royalties, fees, or otherwise to any owner or licensee of or other claimant to the patent, trademark, trade name, copyright, or other intangible asset with respect to the use thereof or in connection with the conduct of the Business or otherwise. (j) True Statements. No representation or warranty by Seller in this Agreement or in any writing attached hereto, contains or will contain any untrue statement of material fact or omits or will omit to state any material fact required to make the statements herein or therein contained not misleading. 7. Representations and Warranties by Buyer. As a material inducement to Seller to execute and perform its obligations under this Agreement, Buyer hereby represents and warrants to Seller as follows, which representations and warranties shall survive the execution and delivery of this Agreement and the closing of the transactions contemplated hereby for a period of two (2) years from the Effective Date: (a) Corporate Existence. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the Cayman Islands and has all the authority to acquire the assets of the business as it is presently being conducted and to enter into this Agreement, and to carry out and perform the terms and provisions of this Agreement. (b) Litigation. There are no actions, suits, or proceedings pending or threatened against Buyer which might hinder in any way this Agreement or affect any of Buyer's properties or rights, at law or in equity or before any federal, state, municipal, or other governmental agency or instrumentality, domestic or foreign, nor is Buyer aware of any facts which to its knowledge might result in any such action, suit, or proceeding. Buyer is not in default with respect to any order or decree of any court or of any such governmental agency or instrumentality which might hinder in any way this Agreement. (c) Enforceable Obligations. Buyer is not in material violation of any term or provision of its charter or bylaws, or any mortgage, indenture, contract, agreement, instrument, judgment, decree, order, statute, rule or regulation the violation of which would have a material adverse impact on Buyer's ability to fully perform its obligations under this Agreement. PAGE 75 (d) True Statements. No representation or warranty by Buyer in this Agreement or in any writing attached hereto, contains or will contain any untrue statement of material fact or omits or will omit to state any material fact required to make the statements herein or therein contained not misleading. 8. Covenants. In addition to the rights and obligations of Buyer and Seller set forth elsewhere in this Agreement, Buyer and Seller covenant and agree as follows: (a) Broker's Fees. Buyer represents that it has incurred no obligation or liability, contingent or otherwise, for brokers' or finders' fees with respect to the matters provided for in this Agreement which will be the responsibility of Seller. Seller represents that it has incurred no obligation or liability, contingent or otherwise, for brokers' or finders' fees with respect to the matters provided for in this Agreement which will be the responsibility of Buyer. (b) Government Approval. Promptly following the execution of this Agreement, Seller shall make all required filings with and prepare all applications to the United States Department of Transportation, Maritime Administration, Vessel Transfer Office, as may be necessary or appropriate for the sale of the Vessel to Buyer, the deletion of the Vessel from U.S. documentation and the enrollment of the Vessel under Panamanian flag and registry. Buyer shall cooperate with Seller and use its best efforts to assist Seller in its undertakings with respect to such filings and applications. Buyer agrees to comply in all respects with the terms and conditions imposed by the Department of Transportation as set forth in its Approval Notice and Agreement. (c) Damage to the Vessel. If, after the date of this Agreement and before the Closing Date, there occurs any casualty, accident or damage to the Vessel involving an amount in excess of $25,000.00, Seller will provide written notice thereof to Buyer. At Buyer's request, Seller shall repair any such damage at Seller's sole expense. Notwithstanding the preceding provisions of this Section 8(c), if the casualty, accident or damage will require more than thirty (30) days to repair, or if the Vessel has suffered a total or constructive total loss, Buyer shall have the right to terminate this Agreement upon written notice to that effect addressed to Seller. 9. Conditions to Buyer's Obligations. The obligations of Buyer to effect the transactions contemplated by this Agreement are subject to the following conditions: (a) Conveyance Documents. Seller shall have executed and delivered a General Conveyance, Bill of Sale, Assignment and Assumption Agreement. (b) Bill of Sale. Seller shall have executed and delivered a Panamanian Bill of Sale for the Vessel. PAGE 76 (c) Certificates. Seller shall have delivered to Buyer Certificates of Existence and other documentation as Buyer may reasonably require to confirm Seller's status. (d) Authorization. Buyer and Seller shall have received all written authorization and approvals required by any applicable laws, rules or regulations including, without limitation, the consent of the United States Department of Transportation, Maritime Administration, Vessel Transfer Office, pursuant to Section 9 of the Shipping Act. (e) Other Documents. Seller shall have executed and delivered such other and further documents and instruments as may be reasonably necessary to give full effect to this Agreement. (f) Simultaneous Closings. Simultaneous with the Closing hereunder, (i) Seller shall dissolve in accordance with that certain Dissolution Agreement dated of even date herewith and distribute any remaining assets, the Cash Consideration and the Note Consideration to its partners and (ii) Atwood Oceanics Drilling Company shall have purchased the limited partnership interest of Philadelphia Drilling Company in Atwood Deep Seas, Ltd. (g) Certificate of Deletion. Seller shall have delivered to Buyer either (i) a Certificate of Deletion issued by the U.S. Coast Guard indicating that the Vessel has been deleted from U.S. documentation, or (ii) a letter from Seller advising that it has forwarded to the Coast Guard all documents and instruments required for the deletion of the Vessel from U.S. documentation, including a written request that the Coast Guard delete the Vessel from documentation, the original Certificate of Documentation covering the Vessel, the Transfer Order issued by the United States Department of Transportation, Maritime Administration, Vessel Transfer Office, satisfaction of any liens covering the Vessel, and copies of the Bill of Sale covering the Vessel. (h) Representations and Warranties. All representations and warranties of Seller shall be true and correct as of the Closing Date. 10. Conditions to Seller's Obligations. The obligations of Seller to effect the transactions contemplated by this Agreement are subject to the following conditions: (a) Payment of Purchase Price. Buyer shall have paid the Purchase Price for the Assets to Seller. (b) Guaranty. Atwood Oceanics, Inc. shall have executed and delivered the Guaranty. (c) Bill of Sale. Buyer shall have executed and delivered the General Conveyance, Bill of Sale, Assignment and Assumption Agreement. (d) Authorization. Buyer and Seller shall have received all written authorization and approvals required by any applicable laws, rules PAGE 77 or regulations including, without limitation, the consent of the United States Department of Transportation, Maritime Administration, pursuant to Section 9 of the Shipping Act. (e) Other Documents. Buyer shall have executed and delivered such other and further documents and instruments as may be reasonably necessary to give full effect to this Agreement. (f) Simultaneous Closings. Simultaneous with the Closing hereunder, (i) Seller shall dissolve in accordance with that certain Dissolution Agreement dated of even date herewith and distribute any remaining assets, the Cash Consideration and the Note Consideration to its partners and (ii) Atwood Oceanics Drilling Company shall have purchased the limited partnership interest of Philadelphia Drilling Company in Atwood Deep Seas, Ltd. (g) Representations and Warranties. All representations and warranties of Buyer shall be true and correct as of the Closing Date. 11. Conduct of Business Prior to the Closing Date. Seller further agrees that from the date of this Agreement through the Closing Date, except as contemplated by Section 8(b) hereof or as approved by Buyer in writing, Seller shall not do any of the following: (a) make any change in the conduct of the Business; (b) enter into any transaction other than in the ordinary course of business; (c) dispose of any of the Assets, except in the ordinary course of business; (d) subject any of the Assets to a lien or other encumbrance, except in the ordinary course of business; (e) waive any right of substantial value relating to or affecting the Assets; (f) enter into any agreement or make any undertaking which could be violated, or create obligations which could be accelerated, as a result of changes or developments or the absence of changes or developments in, the Business, Assets, earnings, operations or condition, financial or otherwise, of Seller; or (g) in any manner whatsoever transfer any interest in Seller to any person. 12. Post-Closing Obligations of Seller. Promptly after the Closing Date, Seller shall: (a) Possession. Take all such steps as may be requisite to put Buyer in actual possession, operation, and control of the Assets on the Closing Date of this Agreement. PAGE 78 (b) Consents to Assignment. Furnish to Buyer all consents, waivers, and releases then in Seller's possession relating to or permitting the sale and assignment of any Asset and seek to obtain any other consent necessary to transfer any Asset to Buyer. 13. Further Assurances. From time to time after the Closing Date at the request of Buyer, Seller shall execute and deliver to Buyer such other instruments of assumption and take such other action and Buyer may reasonably require of Seller to assist Buyer in acquiring full, clear title to the Assets. 14. Taxes. (a) Income Taxes. Seller shall assume responsibility for, and shall bear and pay, all federal income taxes, state income taxes, and other similar taxes on gross income, net income, or gross receipts (including any applicable interest or penalties) incurred or imposed with respect to the conveyance by Seller to Buyer of the Assets pursuant to this Agreement. (b) Ad Valorem Taxes. Seller shall be responsible for, and shall bear and pay, all ad valorem, property, and similar taxes and assessments (including any applicable penalties and interest) assessed against the Assets by any taxing authority for any period prior to the Effective Date. Buyer shall assume responsibility for, and shall bear and pay, all ad valorem, property, and similar taxes and assessments (including any applicable penalties and interest) assessed against the Assets by any taxing authority for any period that begins on or after the Effective Date. 15. Indemnification. (a) Indemnity by Seller. Seller shall and hereby agrees to indemnify, hold harmless, and defend Buyer by counsel mutually acceptable to Buyer and Seller at all times from and after Effective Date against and in respect to Damages (as defined below) for a period of two (2) years from the Effective Date. As used herein, "Damages" shall include any claims, actions, demands, losses, costs, expenses, liabilities (joint or several), penalties, and damages, including reasonable consulting fees incurred in investi- gation or in attempting to avoid the same or oppose the imposition thereof, resulting to Buyer from (a) any inaccurate representation made by Seller in or under this Agreement; (b) breach of any of the representations and warranties made by Seller in or under this Agreement; and (c) breach or default in the performance by Seller of any of the covenants to be performed by it hereunder. In no event shall Buyer or its affiliates enter into any settlement of any of the above without Seller's prior written consent. Seller shall be entitled to join in the defense of any of the foregoing, at its cost, by counsel of its choice. (b) Indemnity by Buyer. Buyer shall and hereby agrees to indemnify, hold harmless, and defend Seller, by counsel mutually acceptable to Seller and Buyer, at all times from and after the Effective Date against and in respect to Damages (as defined below) for a PAGE 79 period of two (2) years from the Effective Date. As used herein, "Damages" shall include any claims, actions, demands, losses, costs, expenses, liabilities (joint or several), penalties, and damages, including reasonable consulting fees incurred in investi- gation or in attempting to avoid the same or oppose the imposition thereof, resulting to Seller from (a) any inaccurate represen- tation made by Buyer in or under this Agreement; (b) breach of any of the representations and warranties made by Buyer in or under this Agreement; and (c) breach or default in the performance by Buyer of any of the covenants to be performed by it hereunder. In no event shall Seller enter into any settlement of any of the above without Buyer's prior written consent. Buyer shall be entitled to join in the defense of any of the foregoing, at its cost, by counsel of its choice. 16. Termination (a) Termination by Mutual Consent. This Agreement may be terminated at any time prior to the Closing Date by the mutual consent of Buyer and Seller. (b) Buyer's Termination on Failure of Closing Condition. This Agreement may be terminated by Buyer at any time after March 31, 1995 if by such date, the conditions set forth in Sections 9 and 11 shall not have been fulfilled or waived, provided however, that Buyer shall have made a good faith effort to satisfy all of its conditions as set forth in Section 10. (c) Seller's Termination on Failure of Closing Condition. This Agreement may be terminated by Seller at any time after March 31, 1995 if by such date, the conditions set forth in Section 10 hereof shall not have been fulfilled or waived, provided however, that Seller shall have made a good faith effort to satisfy all of its conditions as set forth in Sections 9 and 11. (d) Termination for Other Reasons. This Agreement may be terminated at any time prior to the Closing Date by Buyer if any investigation of the Business by Buyer after the date hereof, or any information or any other document delivered to Buyer after the date hereof, shall have revealed any facts or circumstances which, when taken as a whole, are likely to adversely affect the Business or Seller's financial condition, assets, liabilities (absolute, contingent or otherwise), reserves, business, operations or prospects. 17. Attorneys Fees. In the event that any party brings an action to enforce any provisions of this Agreement, then the reasonable costs and attorney's fees of the prevailing party shall be reimbursed by the other party. 18. Miscellaneous (a) Expenses. Each of the parties shall bear all expenses incurred by it in connection with this Agreement and in consummation of the transactions contemplated hereby and in preparation thereof. PAGE 80 (b) Amendment and Waiver. This Agreement may be amended or modified at any time and in all respects, or any provision may be waived by an instrument in writing executed by Buyer and Seller. (c) Notices. Any notice required to be given pursuant to this Agreement shall be in writing, which shall include, without limitation, telex, telecopy or other electronic transmission reduced to written form. Notice given by telex, telecopy or other electronic transmission shall be deemed to have been given and received when sent. Notice by mail shall be deemed to have been given and received three (3) calendar days after the day first deposited in the United States mail, certified mail, first class postage prepaid, return receipt requested, and as addressed as shown below. Notice by overnight service shall be deemed to have been given and received the next delivery day. Notices shall be given to the following addresses, unless changed in writing by the respective addressee: (i) If to Seller: Atwood Falcon I, Ltd. 15835 Park Ten Place Drive P. O. Box 218350 Houston, Texas 77218 Telephone: (713) 492-2929 Facsimile: (713) 492-0345 Attention: Mr. James M. Holland with a copy to: Philadelphia Falcon Drilling Corporation One Beaver Valley Road P. O. Box 15047 Wilmington, Delaware 19850 Telecopy: (302) 479-6618 Attention: President and CIGNA International Finance Inc. S-215 900 Cottage Grove Road Hartford, Connecticut 06152-2215 Telecopy: (203) 726-8885 Attention: Secretary PAGE 81 (ii) If to Buyer: Atwood Oceanics Pacific, Ltd. 15835 Park Ten Place Drive P. O. Box 218350 Houston, Texas 77218 Telephone: (713) 492-2929 Facsimile: (713) 492-0345 Attention: Mr. James M. Holland or at such other address as shall be given in writing by any party to the other parties hereto. (d) Arbitration and Dispute Resolution. Any dispute controversy or claim arising out of or relating to this Agreement shall be finally settled by binding arbitration in Houston, Texas in accordance with the Commercial Arbitration rules of the American Arbitration Association in effect on the date of this Agreement and judgment upon the award may be entered in any court having jurisdiction thereof. (e) Governing Law. It is the intention of the parties that the laws of Texas should govern the validity of this Agreement, the construction of its terms, and the interpretation of the rights and duties of the parties. (f) Section and Other Headings. Section, paragraph, and other headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. (g) Counterpart Execution. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. (h) Parties of Interest. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of, and be enforceable by, Seller and Buyer and their successors and permitted assigns. (i) Integrated Agreement. This Agreement and the documents contemplated herein constitutes the entire understanding and agreement between the parties hereto with respect to the subject matter hereof, and there are no agreements, understandings, restrictions, representations or warranties between such parties other than those set forth herein or therein, all other agreements and understandings being superseded hereby. (j) Bulk Sales Law. Buyer hereby waives compliance by Seller with the provisions of any bulk sales laws applicable to this transaction, if any, and Seller hereby agrees to indemnify Buyer for any claims and demands of whatever nature (other than the liabilities PAGE 82 expressly assumed by Buyer under this Agreement) asserted against Buyer by any creditor of Seller for noncompliance by Seller or Buyer with any Bulk sales laws or similar laws which may be applicable to the sale or transfer of the Assets hereunder. IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written and effective as of December 31, 1994. BUYER: ATWOOD OCEANICS PACIFIC LTD. By:/s/ James M. Holland James M. Holland Director SELLER: ATWOOD FALCON I, LTD. By ATWOOD FALCON CO., its General Partner By:/s/ James M. Holland James M. Holland Vice President AGREED AND CONSENTED this 14th day of February 1995: ATWOOD FALCON CO. By: /s/ James M. Holland James M. Holland Vice President PHILADELPHIA FALCON DRILLING CORPORATION By CIGNA International Finance Inc., its Agent By: /s/ David S. Scheibe Name: David S. Schiebe Title: Vice President EX-10.6 5 PAGE 81 EXHIBIT 10.6 PURCHASE AND SALE AGREEMENT This Purchase and Sale Agreement (the "Agreement") entered into as of February 14, 1995, effective December 31, 1994 (the "Effective Date)" by and among PHILADELPHIA INVESTMENT CORPORATION OF DELAWARE, a Delaware corporation ("PICD"); PHILADELPHIA DRILLING COMPANY, a Delaware corporation ("Seller"); PHILADELPHIA FALCON DRILLING CORPORATION, a Delaware corporation and affiliate of Seller ("PFDC"); ATWOOD OCEANICS DRILLING COMPANY, a Texas corporation ("Buyer"); ATWOOD OCEANICS, INC., a Texas corporation ("Atwood") and the wholly owning parent of Buyer; ATWOOD FALCON CO., a Delaware corporation and affiliate of Buyer ("AFC"); ATWOOD HUNTER CO., a Delaware corporation and affiliate of Buyer ("AHC"); EAGLE OCEANICS, INC., a Texas corporation and affiliate of Buyer ("Eagle"); ATWOOD DEEP SEAS, LTD., a Texas limited partnership ("Deep Seas, Ltd." or the "Partnership") comprised of Eagle Oceanics, Inc., Atwood Hunter Co. and PDC; and ATWOOD FALCON I, LTD. ("Falcon, Ltd."), a Texas limited partnership comprised of AFC and PFDC. R E C I T A L S : WHEREAS, Seller owns a fifty percent (50%) limited partnership interest in Deep Seas, Ltd. ("Deep Seas LP Interest"); WHEREAS, Atwood is the holder of one promissory note from Deep Seas, Ltd. as further described in Section 1.01(a) as the Atwood PAN; WHEREAS, PICD is the holder of two promissory notes from Deep Seas, Ltd. as further described in Section 1.01(b) as the PICD PANS; WHEREAS, PICD desires to contribute the PICD PANS to Deep Seas, Ltd. as an equity contribution, and Atwood desires to contribute the Atwood PAN to Deep Seas, Ltd. as an equity contribution, all on the terms and subject to the conditions set forth herein; WHEREAS, Seller desires to sell, transfer, and assign the Deep Seas LP Interest to Buyer, and Buyer desires to purchase the Deep Seas LP Interest from Seller and assume certain of Seller's obligations under the Ancillary Agreements on the terms and subject to the conditions set forth herein; WHEREAS, PFDC, as an affiliate of Seller and a limited partner in Falcon, Ltd., and PICD as the wholly owning parent of Seller, have entered into certain of the Ancillary Agreements, as defined in Section 1.03 hereof to facilitate the Deep Seas, Ltd. financing and to promote the consistent operations of Deep Seas, PAGE 82 Ltd. and Falcon Ltd., in consideration of the relationships between Seller and PICD and PFDC; WHEREAS, Falcon, Ltd. is dissolving as of the Effective Date hereunder and will cease to exist; WHEREAS, upon Seller's sale of the Deep Seas LP Interest herein and the dissolution of Falcon, Ltd., PICD and PFDC are no longer willing to facilitate Deep Seas, Ltd. in such a manner; WHEREAS, the parties hereunder have agreed to assume, amend or terminate Seller's, PFDC's and PICD's obligations under the Ancillary Agreements, as appropriate; and WHEREAS, in connection with and incident to the purchase and sale of the Deep Seas LP Interest, Seller, PFDC and PICD desire to transfer, and Buyer and Atwood desire to assume, certain rights, obligations and liabilities of Seller, PFDC and PICD with respect to the Partnership, upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the premises and of the respective covenants, agreements, representations, and warranties hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: I. PRE-CLOSING PURCHASE AND SALE; ASSUMPTION OF LIABILITIES 1.01. Pre-Closing Actions. At the Closing (as defined in Section 1.05 hereof) and subject to the terms and conditions hereinafter set forth, the following actions shall be deemed to have occurred immediately prior to the Effective Date: (a) Atwood shall contribute and deliver to AHC and shall cause AHC to contribute and deliver to Deep Seas, Ltd. as an additional contribution to capital pursuant to the Partnership Agreement the certain Partnership Advance Note dated April 26, 1988 with an Allonge thereto dated September 26, 1990 and a Second Allonge thereto dated February 1, 1991 made by Deep Seas, Ltd. payable to the order of Atwood ("Atwood PAN") in an original principal amount of $10,000,000 plus any accrued interest as set forth in such note, and all collateral security therefor, as increased from time to time to reflect additional advances made by Atwood to Deep Seas, Ltd., including without limitation accrual of management fees. The Atwood PAN had an outstanding balance of $19,883,503.48 on the Effective Date. (b) PICD shall contribute and deliver to Seller which shall PAGE 83 contribute and deliver to Deep Seas, Ltd., as an additional contribution to capital pursuant to the Partnership Agreement those certain promissory notes as follows: (i) Senior Partnership Advance Note dated April 26, 1988 with an Allonge thereto dated September 26, 1990 and Second Allonge thereto dated February 1, 1991 ("Senior PICD PAN") made by Deep Seas, Ltd. payable to the order of PICD in the original principal amount of $1,037,500 with a balance on the Effective Date of $4,194,235.15, and (ii) Partnership Advance Note dated April 26, 1988 with an allonge thereto dated September 26, 1990 and Second Allonge thereto dated February 1, 1991 made by Deep Seas, Ltd. payable to the order of PICD (Junior PICD PAN") in an original principal amount of $10,000,000 plus any accrued interest as set forth in each such note, and all collateral security therefor as increased from time to time to reflect additional advances made by PICD to Deep Seas, Ltd. (the Senior PICD PAN and the Junior PICD PAN are collectively referred to herein the "PICD PANS"). The Junior PICD PAN has a balance outstanding on the Effective Date of $13,784,566.45. 1.02. Purchase of Deep Seas LP Interest. Subject to the terms and conditions hereinafter set forth, the following actions shall occur at the Closing (as defined in Section 1.05 hereof): (a) Seller shall sell, transfer, assign, and deliver to Buyer, and Buyer shall purchase from Seller, all as of the Effective Date, the Deep Seas LP Interest, free and clear of any and all liens and encumbrances. Seller shall deliver to Buyer a certificate evidencing the Deep Seas LP Interest accompanied by Assignment and Assumption Agreements transferring the Deep Seas LP Interest. (b) Buyer shall deliver to Seller the Cash Consideration, as defined in Section 1.04 hereof, for such Deep Seas LP Interest in immediately available funds by wire transfer to a bank account to be designated by Seller. 1.03. Assumption of Liabilities. In addition to the Cash Consideration as defined in Section 1.04 hereof, to be paid for the transfer of the Deep Seas LP Interest to Buyer, Buyer and Atwood as appropriate, agree to assume at the Closing from the Effective Date, and thereafter to pay, perform and discharge all liabilities and obligations of Seller, PFDC and PICD under the notes, instruments, agreements and undertakings described in Schedule 2 hereto (the "Assumed Ancillary Agreements") (the "Ancillary Agreements" are set forth on Schedule 1 hereto). Concurrently with such assumption, Seller, PFDC or PICD, as PAGE 84 appropriate, shall assign all of its rights, privileges and powers under the Assumed Ancillary Agreements to Buyer, AFC or Atwood as appropriate. Additionally, all of the parties hereto agree to mutually terminate at the Closing certain agreements and undertakings of Seller, PICD, PFDC and the other parties thereto described in Schedule 3 hereto (the "Terminated Ancillary Agreements"). PICD shall pay all costs and fees through the Closing Date arising out of the assignment, assumption or termination of the Ancillary Agreements hereunder (other than fees of Buyer's counsel). 1.04. Consideration. In consideration for the transfer of the Deep Seas LP Interest by Seller to Buyer at the Closing: Buyer shall (i) pay to Seller the amount of ONE MILLION TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($1,250,000.00); (ii) pay to Seller the amount of ONE HUNDRED EIGHTY THOUSAND AND NO/100 DOLLARS ($180,000.00) which is agreed to be one-half of the working capital of the Partnership on the Effective Date (clauses (i) and (ii) shall be referred to herein as (the "Cash Consideration")); and (iii) assume from Seller, PFDC and PICD the obligations under the Assumed Ancillary Agreements in the manner contemplated by Section 1.03 above, and thereafter pay, perform and discharge such obligations under the Assumed Ancillary Agreements. 1.05. Closing Place and Date. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Griggs & Harrison, 1301 McKinney, Suite 3200, Houston, Texas 77010, at 10:00 A.M., Houston time, on March 31, 1995, or if all conditions of Closing set forth in Article IV hereof have earlier been satisfied or waived, at such time within five (5) business days after all such conditions shall be satisfied or waived as the parties hereto may mutually agree upon (the "Closing Date"). II. REPRESENTATIONS AND WARRANTIES 2.01. Representations and Warranties of Seller, PICD and PFDC. PICD, PFDC and Seller jointly and severally represent and warrant to Buyer and Atwood as of the date of this Agreement and on the Effective Date, as follows: (a) Organization, Good Standing, Power. Each of PICD, PFDC and Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware with all requisite corporate power and authority to enter into and perform its obligations under this Agreement. (b) Authorization. The execution, delivery, and performance of this Agreement have been duly authorized PAGE 85 by all requisite corporate action of each of PICD, PFDC and Seller. This Agreement is a legal, valid, and binding obligation of each of PICD, PFDC and Seller, enforceable against each in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, and similar laws affecting creditors' rights generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (c) Title. PDC shall transfer to Buyer at Closing, title to the Deep Seas LP Interest, free and clear of all liens, pledges, encumbrances, charges, claims, security interests, and any other adverse claims. (d) No Conflicts. Neither the execution, delivery, or performance of this Agreement by Seller, PFDC and PICD, nor the consummation of the transactions contemplated hereby by Seller, PFDC and PICD (i) will constitute a violation of or default under, or conflict with, any note, bond, mortgage, indenture, deed of trust, lease, license agreement, or other instrument or obligation to which each Seller, PFDC or PICD is a party or by which Seller, PFDC or PICD is bound, or constitute a violation of, or conflict with, any provision of Seller's, PFDC's or PICD's respective Certificate of Incorporation or Bylaws or any order, writ, injunction, decree, statute, rule, or regulation of any governmental, administrative, or regulatory body applicable to Seller, PFDC or PICD or (ii) will require any consent, approval, notice, or filing with respect to any of the foregoing. (e) Finders and Brokers. PICD, or its designated representatives, has engaged Simmons & Company International to assist and advise PICD in connection with the sale of the Deep Seas LP Interest. PICD will be responsible for all fees of Simmons & Company International and in this connection, and hereby indemnifies and agrees to hold Buyer, AFC and Atwood harmless from any liability for any commission, fee, or expense payable to Simmons & Company International in this connection. Except as provided above, no person, firm, or corporation has or will have, as a result of any act or omission by Seller, PICD or PFDC, any valid right, interest, or claim against or upon Buyer, AFC or Atwood for any commission, fee, or other compensation as a finder or broker, or in any similar capacity, in connection with the transactions contemplated by this Agreement. PAGE 86 (f) The PICD PANS. (i) PICD is the owner and holder of the PICD PANS and the indebtedness evidenced thereby; (ii) on the Effective Date, the principal and all accrued interest, if applicable, balances outstanding on the PICD PANS was $4,194,235.15 for the Senior PICD PAN and $13,784,566.45 for the Junior PICD PAN; and (iii) the PICD PANS are not presently assigned, mortgaged or hypothecated to any other party, provided however, immediately prior to Closing they will be contributed by PICD to PDC to contribute to Deep Seas, Ltd. as of the Effective Date. (g) No Defaults. Neither Seller, PFDC nor PICD is in violation of any term or provision of the Certificate or Agreement of Limited Partnership of Deep Seas, Ltd. (the "Partnership Agreement") of any other of the Ancillary Agreements to which each of them is a party. 2.02. Representations and Warranties of Buyer and Atwood. Buyer, AFC, AHC, Eagle and Atwood jointly and severally represent and warrant to Seller, PFDC and PICD as of the date of this Agreement and as of the Effective Date, as follows: (a) Organization, Good Standing, Power. Each of Buyer, Atwood and Eagle is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas with all requisite corporate power and authority to enter into and perform its obligations under this Agreement. Each of AFC and AHC is a corporation duly organized, validly existing and in good standing under the laws of Delaware. (b) Authorization. The execution, delivery, and performance of this Agreement have been duly authorized by all necessary corporate action of each of Buyer, AFC, AHC, Eagle and Atwood. This Agreement is a legal, valid, and binding obligation of each of Buyer, AFC, AHC, Eagle and Atwood, enforceable against Buyer, AFC, AHC, Eagle and Atwood in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, and similar laws affecting creditors' rights generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (c) No Conflicts. Neither the execution, delivery, or performance of this Agreement by Buyer, AFC, AHC, Eagle and Atwood, nor the consummation of the transactions contemplated hereby by Buyer, AFC, AHC, Eagle and Atwood, will constitute a violation of or default PAGE 87 under, or conflict with, any note, bond, mortgage, indenture, deed of trust, lease, license, agreement, or other instrument or obligation to which Buyer, AFC or Atwood is a party or by which Buyer, AFC, AHC, Eagle or Atwood is bound or constitute a violation of or conflict with any provision of Buyer's, AFC's, AHC's, Eagle's or Atwood's Articles of Incorporation, Bylaws, or similar corporate document, or any order, writ, injunction, decree, statute, rule, or regulation of any governmental, administrative or regulatory body applicable to Buyer, AFC, AHC, Eagle or Atwood or will require any consent, approval, notice, or filing with respect to the foregoing. (d) The Atwood PAN. (i) Atwood is the owner and holder of the Atwood PAN and the indebtedness evidenced thereby; (ii) on the Effective Date, the principal balance outstanding and all accrued interests on the Atwood PAN was $19,883,503.48; and (iii) the Atwood PAN is not presently assigned, mortgaged or hypothecated provided, however, immediately prior to Closing it will be contributed by Atwood to AHC, general partner of Deep Seas, Ltd., which will contribute the Atwood PAN to Deep Seas, Ltd. as of the Effective Date. (e) Purchase of Deep Seas LP Interest Without View to Distribution. The Deep Seas LP Interest is being purchased by Buyer for its own account for investment and not for the purpose of, or with a view to, the resale or distribution thereof. Buyer acknowledges that the sale of the Deep Seas LP Interest hereunder has not been registered under the Securities Act of 1933, as amended, and that no further sales thereof can be made unless registration or exemption from registration under such Act is available. (f) Finders and Brokers. No person, firm, or corporation has or will have, as a result of any act or omission by Buyer, AFC, AHC, Eagle or Atwood, any valid right, interest, or claim against or upon Seller, PFDC or PICD for any commission, fee, or other compensation as a finder or broker, or in any similar capacity, in connection with the transactions contemplated by this Agreement. (g) Qualified Person. Buyer is a Qualified Person as defined in Section 13.8 of the Partnership Agreement. III. COVENANTS PENDING CLOSING PAGE 88 From the date hereof until the earlier of the Closing Date or the termination of this Agreement pursuant to Article V hereof, PICD, Seller, PFDC, Buyer, AFC and Atwood agree and covenant as follows: 3.01. Satisfaction of Closing Conditions. Each of Buyer, AFC, AHC, Eagle, Atwood, PICD, PFDC and Seller shall use all reasonable efforts to bring about the satisfaction of the conditions of Closing specified in Article IV hereof as they relate to such party, and otherwise to consummate this Agreement and the transactions contemplated hereby. Each of Buyer, AFC, AHC, Eagle, Atwood, PICD, PFDC and Seller will cooperate and furnish such information as may reasonably be required in order to obtain any necessary consents or approvals of third parties to such consummation, including without limitation consents required pursuant to the Ancillary Agreements. 3.02. No Sale or Encumbrance of Deep Seas LP Interest. Seller and PICD shall not sell, transfer, pledge, or encumber, or agree to sell, transfer, pledge, or encumber, the Deep Seas LP Interest or the PICD PANS except pursuant to this Agreement. 3.03. Operations. Seller shall continue to hold Deep Seas LP Interest in the ordinary course of business at all times on or prior to the Closing Date, except as otherwise described or contemplated herein and except in circumstances as to which Buyer shall concur in writing. By way of amplification and not limitation, except as provided in the preceding sentence, Seller shall not cause the Partnership on or prior to the Closing Date to: (a) Amend its certificate or agreement of limited partnership; (b) Except as otherwise described herein or contemplated hereby, commit or omit to do any act or omission which would cause a breach of any agreement, contract, or commitment, which breach would have a material adverse effect on the financial condition, results of operations, or business of the Partnership; (c) Violate any law, statute, rule, governmental regulation, or order, which violation would have a material adverse effect on the financial conditions, results of operations, or business of the Partnership; 3.04. Press Releases. Atwood, AFC, Buyer, PICD, PFDC and Seller shall consult with each other with regard to all publicity or releases proposed to be issued by any of them at or prior to the Closing concerning this Agreement or the transactions contemplated hereby. Neither Atwood, AFC, AHC, Eagle, Buyer, PICD, PFDC nor Seller shall issue any press release PAGE 89 or other public statement relating to the transactions contemplated hereby without the prior consent of the others, except as otherwise required by law (in which event copies shall be furnished to the other prior to, or contemporaneously with, the dissemination thereof). IV. CONDITIONS OF CLOSING 4.01. Buyer, AFC, AHC, Eagle and Atwood Conditions. The obligations of Buyer, AFC, AHC, Eagle and Atwood under this Agreement are subject, at their option, to compliance by Seller, PFDC and PICD in all material respects with the covenants to be performed by Seller, PFDC and PICD, respectively, as set forth in Article III hereof, the contribution of the PICD PANS pursuant to Section 1.01 hereof, the delivery of Deep Seas LP Interest to Buyer pursuant to Section 1.02 hereof, and to the satisfaction of the following conditions: (a) Each of Seller, PFDC and PICD shall have delivered a certificate to Buyer, dated as of the Closing Date, stating that the representations and warranties made by Seller, PFDC and PICD in Section 2.01 hereof are true and correct as of the Closing Date. (b) (i) No action or proceeding shall have been instituted before a court or other governmental body by any person, governmental agency, or public authority to restrain or prohibit the transactions contemplated by this Agreement; and (ii) no governmental agency shall have given notice to the effect that consummation of the transactions contemplated by this Agreement would constitute a violation of any law or that it intends to commence proceedings to restrain consummation of the transactions contemplated hereby. (c) Atwood, AFC, AHC, Eagle and Buyer shall have received from Mr. Joel W. Messing, counsel to Seller, PFDC and PICD, an opinion dated as of the Closing Date in substantially the form of that attached hereto as Exhibit A. (d) All necessary consents (in form and substance satisfactory to Seller and Buyer) to the transaction contemplated hereby required to have been obtained from the parties to the Ancillary Agreements, the Partnership Agreement and the Amended and Restated Master Loan Restructuring Agreement ("ARMLRA") dated November 12, 1992 by and among Deep Seas, Ltd., Texas Commerce Bank National Association, Federal Deposit Insurance Corporation, Chemical Bank and Atwood (and PAGE 90 any assignee thereof) shall have been obtained and PICD shall have paid the reasonable fees and expenses of counsel to Chemical Bank, as Agent, in connection therewith. (e) Simultaneous with the Closing hereunder (i) Falcon, Ltd. shall have sold its assets to Atwood Oceanics Pacific Ltd. and (ii) Falcon, Ltd. shall have dissolved and distributed its assets in accordance with that certain Partnership Dissolution Agreement dated of even date herewith, effective December 31, 1994. (f) The Terminated Ancillary Agreements shall be terminated without liability to the parties thereunder. 4.02. Seller Conditions. The obligations of Seller, PFDC and PICD under this Agreement are subject, at its option, to compliance by Buyer, AFC, AHC, Eagle and Atwood in all material respects with the covenants to be performed by Buyer, AFC, AHC, Eagle and Atwood as set forth in Article III hereof, the contribution of the Atwood PAN pursuant to Section 1.01 hereof, the assumption of the Assumed Ancillary Agreements and the payment of the Cash Consideration pursuant to Sections 1.03 and 1.04, respectively, and to the satisfaction of each of the following conditions: (a) Each of Buyer, AFC, AHC, Eagle and Atwood shall have delivered a certificate to Seller, dated as of the Closing Date, stating that the representations and warranties made by Buyer, AFC, AHC, Eagle and Atwood under this Agreement are true and correct as of the Closing Date. (b) (i) No action or proceeding shall have been instituted before a court or other governmental body by any person, governmental agency, or public authority to restrain or prohibit the transactions contemplated by this Agreement; and (ii) no governmental agency shall have given notice to the effect that consummation of the transactions contemplated by this Agreement would constitute a violation of any law or that it intends to commence proceedings to restrain consummation of the transactions contemplated hereby. (c) PICD, PFDC and Seller shall have received from Griggs & Harrison, P.C., counsel to Buyer, AFC, AHC, Eagle and Atwood, an opinion dated as of the Closing Date in substantially the form attached hereto as Exhibit B. (d) All necessary consents (in form and substance satisfactory to Seller and Buyer) to the transactions contemplated hereby required to have been obtained from PAGE 91 the parties to the Ancillary Agreements, the Partnership Agreement and ARMLRA (or any assignee thereof) shall have been obtained. (e) Simultaneous with the Closing hereunder (i) Falcon, Ltd. shall have sold its assets to Atwood Oceanics Pacific Ltd. and (ii) Falcon, Ltd. shall have dissolved and distributed its assets in accordance with that certain Partnership Dissolution Agreement dated of even date herewith, effective December 31, 1994. (f) The Assumed Ancillary Agreements shall be assumed by Buyer, AFC, AHC, Eagle or Atwood, as appropriate. (g) The Terminated Ancillary Agreements shall be terminated as of the Effective Date without liability to the parties thereunder. 4.03. Conditions Satisfied. If the Closing takes place, all conditions precedent thereto shall be deemed to have been waived or satisfied. V. TERMINATION 5.01. Events of Termination. This Agreement may be terminated on or prior to the Closing Date as follows, and in no other manner: (a) By mutual written agreement of Buyer and Seller; or (b) By Buyer, AFC, AHC, Eagle or Atwood by written notice to Seller, PFDC and PICD, if the conditions set forth in Section 4.01 hereof shall not have been complied with or performed in any material respect, or by Seller or PICD by written notice to Buyer, AFC, AHC, Eagle and Atwood, if the conditions set forth in Section 4.02 hereof shall not have been complied with or performed in any material respect, and, in either case, such noncompliance or nonperformance shall not have been cured or eliminated (or by its nature cannot be cured or eliminated) on or before March 31, 1995 or such later date, if any, as Seller, PFDC and PICD and Buyer, AFC, AHC, Eagle and Atwood may agree to in writing. 5.02. Effect of Termination; Expenses. In the event that this Agreement shall be terminated pursuant to Section 5.01 hereof, all further obligations of the parties hereto under this Agreement (other than pursuant to this Section 5.02) shall terminate without further liability or obligation of either party PAGE 92 to the other party hereunder. Except as specifically set forth in Section 1.03 hereof, each party hereto will pay all costs and expenses incident to its negotiation and preparation of this Agreement and to its performance of and compliance with all provisions hereof to be performed or complied with by such party, including the fees, expenses, and disbursements of its counsel and accountants and any fees or disbursements payable to brokers or other entities retained by or on behalf of such party. VI. OTHER COVENANTS OF THE PARTIES 6.01. Indemnification by Buyer, AFC, AHC, Eagle and Atwood. Buyer, AFC, AHC, Eagle and Atwood, jointly and severally, agree for a period of two (2) years after the Closing Date to indemnify, defend and hold Seller, PFDC and PICD harmless from and against any and all losses, liabilities, claims, demands, lawsuits, damages, costs and expenses (including reasonable attorneys' fees and disbursements) of every kind, nature and description (collectively, "Claims") as to which Seller, PFDC or PICD has given Buyer or Atwood notice, sustained by Seller, PFDC or PICD, based upon, arising out of or otherwise in respect of (i) the material inaccuracy of any representation or warranty, or the breach of any covenant or agreement of Buyer or Atwood contained in this Agreement; and (ii) Buyer's, AFC's, AHC's, Eagle's or Atwood's performance or non-performance after the Closing of, or under, any Assumed Ancillary Agreement. The foregoing indemnifications are given solely for the purpose of protecting Seller, PFDC and PICD and shall not be deemed to be extended to, or interpreted in a manner to confer any benefit, right or cause of action upon, any third party and nothing contained in this Section 6.01 shall expand or enlarge any representation, warranty, covenant, agreement or other undertaking of Buyer, AFC, AHC, Eagle or Atwood, or limit or restrict any exception to or disclaimer of any such representation, warranty, covenant, agreement or undertaking, made or provided for elsewhere in this Agreement. 6.02. Indemnification by Seller. Seller, PFDC and PICD, jointly and severally, agree for a period of two (2) years after the Closing Date to indemnify, defend and hold Buyer, AFC, AHC, Eagle and Atwood harmless from and against any and all Claims as to which Buyer, AFC, AHC, Eagle or Atwood has given Seller, PFDC or PICD notice, sustained by Buyer, AFC, AHC, Eagle or Atwood, based upon, arising out of or otherwise in respect of (i) the material inaccuracy of any representation or warranty, or the breach of any covenant or agreement of Seller, PFDC or PICD contained in this Agreement; and (ii) Seller's, PFDC's or PICD's performance or nonperformance prior to the Closing of, or under, any Assumed Ancillary Agreement transferred to Buyer, AFC, AHC, Eagle or Atwood hereunder. The foregoing indemnifications are PAGE 93 given solely for the purpose of protecting Buyer, AFC and Atwood and shall not be deemed to be extended to, or interpreted in a manner to confer any benefit, right or cause of action upon, any third party and nothing contained in this Section 6.02 shall expand or enlarge any representation, warranty, covenant, agreement or other undertaking of Seller, PFDC and PICD, or limit or restrict any exception to or disclaimer of any such representation, warranty, covenant, agreement or undertaking, made or provided for elsewhere in this Agreement. 6.03. Expiration of Representations, Warranties and Covenants. Notwithstanding anything in Sections 6.01 or 6.02 to the contrary, and except as provided in this sentence, the representations and warranties set forth in Sections 2.01 and 2.02 hereof shall expire and terminate two years after the Closing Date, following which date no party may bring an action or notify the other of a Claim with respect thereto under this Agreement or otherwise. VII. MISCELLANEOUS 7.01. Notices. Any notice, communication, request, reply, or advice (hereinafter a "notice") in this Agreement provided or permitted to be given or made by either party to the other party hereunder must be in writing (including by facsimile transmission) and may be given or served by depositing the same in the United States mail, postage prepaid, and registered or certified with return receipt requested, by delivering the same in person to the person or entity to be notified, by sending the same by a recognized courier service for next day delivery, or by facsimile transmission when received and electronically confirmed. Notice deposited in the mail in the manner hereinabove described shall be effective on the third business day after such deposit. Notice given in any other manner permitted hereunder shall be effective upon receipt. For purposes of notice, the addresses of the parties shall be as follows: If to Buyer, AFC, AHC, Eagle or Atwood: Atwood Oceanics, Inc. 15835 Park Ten Place Drive P.O. Box 218350 Houston, Texas 77218 Telecopy: (713) 492-0345 Attention: Mr. James M. Holland PAGE 94 With a copy to: Griggs & Harrison 1301 McKinney, Suite 3200 Houston, Texas 77010-3033 Telecopy: (713) 651-1944 Attention: Suzanne B. Kean, Esq. or to such other addresses as to which Buyer may have advised Seller in writing. If to Seller, PFDC or PICD: One Beaver Valley Road P. O. Box 15047 Wilmington, Delaware 19850 Telecopy: (302) 479-6618 Attention: President With a copy to: CIGNA International Finance Inc. S-215 900 Cottage Grove Road Hartford, Connecticut 06152-2215 Telecopy: (203) 726-8885 Attention: Secretary or to such other addresses as to which the Seller may have advised Buyer in writing. 7.02. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas. 7.03. Headings. Section and other headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 7.04. Waivers. Except as otherwise provided herein, the failure by any party to enforce any of its rights hereunder shall not be deemed to be a waiver of such rights, unless such waiver is an express written waiver which has been signed by the waiving party. Waiver of any one breach shall not be deemed to be a waiver of any other breach of the same or any other provisions hereof. PAGE 95 7.05. Complete Agreement. This Agreement and the Schedules and Exhibits hereto constitute the entire understanding and agreement between the parties hereto with respect to the subject matter hereof, and there are no agreements, understandings, restrictions, representations, or warranties between such parties other than those set forth herein or therein, all other agreements and understandings being superseded hereby. 7.06. Successors and Assigns. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and permitted assigns. This Agreement may not be transferred or assigned by either party without the prior written consent of the other party, and shall not be construed to confer upon or to give any person other than the parties hereto any rights or remedies under or by reason of this Agreement. 7.07. Amendments; Severability. The parties hereto may amend, modify, or supplement this Agreement or any Schedule or Exhibit hereto only in such manner as may be mutually agreed upon in writing and executed by the parties hereto. Any provision hereof which is prohibited by or unlawful or unenforceable under the applicable law of any jurisdiction shall as to such jurisdiction be ineffective, without affecting any other provision of this Agreement, or shall be deemed to be severed or modified to conform with such law, and the remaining provisions of this Agreement shall remain in full force, provided that the purpose of this Agreement thereby can be effected. 7.08. Gender and Number. All personal pronouns used in this Agreement shall include the other gender and the neuter gender, and the singular shall include the plural, and vice versa, whenever and as often as may be appropriate. 7.09. Counterparts. This Agreement may be executed in one or more counterparts and by different parties in separate counterparts, with the same effect as if all parties hereto had executed the same document. Each counterpart so executed and delivered shall be deemed to be an original, and all such counterparts shall be construed together and shall constitute one and the same Agreement. PAGE 96 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. PHILADELPHIA INVESTMENT CORPORATION OF DELAWARE By CIGNA International Finance Inc., its Agent By: /s/ David S. Scheibe Name: David S. Scheibe Title: Vice President PHILADELPHIA DRILLING COMPANY By CIGNA International Finance Inc., its Agent By: /s/ David S. Scheibe Name: David S. Scheibe Title: Vice President PHILADELPHIA FALCON DRILLING COMPANY By CIGNA International Finance Inc., its Agent By:/s/ David S. Scheibe Name: David S. Scheibe Title: Vice President ATWOOD OCEANICS DRILLING COMPANY By: /s/ James M. Holland James M. Holland Vice President ATWOOD OCEANICS, INC. By: /s/ James M. Holland PAGE 97 James M. Holland Vice President ATWOOD FALCON CO. By: /s/ James M. Holland James M. Holland Vice President ATWOOD HUNTER CO. By: /s/ James M. Holland James M. Holland Vice President EAGLE OCEANICS, INC. By: /s/ James M. Holland James M. Holland Vice President ATWOOD DEEP SEAS, LTD. By Atwood Hunter Co., its General Partner By: /s/ James M. Holland James M. Holland Vice President ATWOOD FALCON I, LTD. By Atwood Falcon Co., its General Partner By: /s/ James M. Holland James M. Holland Vice President EX-13.1 6 PAGE 96 EXHIBIT 13.1 THE COMPANY Atwood Oceanics, Inc. is engaged in the business of international offshore drilling of exploratory and developmental oil and gas wells and related support, management and consulting services. Presently, the Company owns and operates a modern fleet of seven mobile offshore rigs and one modular platform rig, as well as manages the operations of two operator-owned platform rigs in Northwest Australia. The Company also owns a fifty percent interest in an Australian company which has a term contract for the design, construction and operation of a new generation platform rig. The Company supports its operations from headquarters in Houston and affiliated offices in Australia, Malaysia, and Indonesia. FINANCIAL HIGHLIGHTS (In thousands) 1995 1994 FOR THE YEAR REVENUES FROM CONTRACT DRILLING AND MANAGEMENT $ 72,231 $ 65,975 NET INCOME 7,060 6,209 CAPITAL EXPENDITURES (including investment in joint venture) 25,692 6,722 RIG UTILIZATION 99% 99% AT YEAR END CASH AND SECURITIES HELD FOR INVESTMENT 37,922 41,047 PROPERTY AND EQUIPMENT 91,427 82,845 TOTAL ASSETS 152,853 153,460 TOTAL SHAREHOLDERS' EQUITY 94,892 85,959 Page 97 TO OUR SHAREHOLDERS AND EMPLOYEES: Operating results for 1995 represent the second consecutive year of profitability, with net income of $7.1 million being the Company's best financial performance since 1983. The key factor in the Company achieving profitable results has been its ability to maintain high equipment utilization. Excluding the SOUTHERN CROSS (which has not been placed in service), the Company has achieved 99 percent equipment utilization in both 1994 and 1995. Contract revenues increased nine percent from $66.0 million in 1994 to $72.2 million in 1995, while earnings before depreciation, interest and taxes increased by 36 percent from 1994. These improvements in operating results over the last two years were achieved without significant improvement in dayrate levels. Although the Company to-date has achieved its results without significant underlying improvements in its market areas, there are positive factors influencing the worldwide drilling market which could enhance dayrates, revenues and profitability in 1996 and beyond. Worldwide demand for semisubmersibles has increased as major oil companies turn to deeper water in their search for new discoveries. Virtually all third and fourth- generation semisubmersible rigs are currently under contract. Utilization rates in the Asia/Pacific market should begin to rise as drilling activity increases, and as rigs are relocated to areas such as the North Sea, the Gulf of Mexico and West Africa, which require greater water-depth capabilities and currently offer higher dayrates. The Company is currently exploring opportunities that could result in contracting one or more of its four semisubmersibles at higher margins during 1996. Engineering studies have recently been undertaken which established the feasibility of upgrading the water depth and variable deck load capabilities of the Company's four semisubmersibles. The ATWOOD FALCON, ATWOOD EAGLE and ATWOOD HUNTER have been offered for 3,000 ft. water-depth work and the ATWOOD SOUTHERN CROSS is being offered for work in 2,000 ft. water depths. Additionally, preliminary engineering will be undertaken during 1996 with regard to upgrading the jack-up VICKSBURG to extended reach cantilever mode, increased water-depth capability and enhanced performance and drilling characteristics. Currently, the Company's three active semisubmersibles have contract commitments which should keep those units employed at improving dayrate levels until the third or fourth quarter of fiscal year 1996. The RICHMOND has a contract extension until March 1996 with an increase in dayrate. Current contract commitments for the SEAHAWK and VICKSBURG should keep those units fully employed through fiscal year 1996. RIG 19, which is expected to remain occupied on its current platform until the fourth quarter of fiscal year 1996, is also under consideration for ongoing work in its current operating area. The Goodwyn 'A' and North Rankin 'A' management contracts have progressed satisfactorily; it is anticipated that Phase I of the Goodwyn 'A' drilling program will be completed sometime during fiscal year 1996. Fabrication and onshore commissioning of RIG 200 has been successfully Page 98 completed on time and within budgeted cost levels. Due to delays in platform construction outside the Company's control, RIG 200 drilling operations are currently not scheduled to commence until early calendar 1997. We are optimistic that agreement will be reached for a dayrate to commence January 1996 for the delay period which will contribute to the Company's 1996 financial results. In keeping with the Company's commitment to the safety and quality of its operations, there has been significant planning and effort during 1995 focusing on the enhancement of the Company's fleetwide quality-based management systems and preparation of safety cases for its mobile offshore drilling units operating in Australian waters. This work is currently proceeding on schedule and implementation should proceed during 1996. We believe that significant progress has been made during 1995 in enhancing the Company's value. We remain committed to continuing this momentum of improvement through 1996 and beyond. Accordingly, we extend our appreciation to our shareholders and employees whose support is so important to those efforts. /s/ John R. Irwin John R. Irwin Page 99 Atwood Oceanics, Inc. and Subsidiaries FIVE YEAR FINANCIAL REVIEW
At or For the Years Ended September 30, (In thousands, except per share amounts, fleet data and ratios) 1995 1994 1993 1992 1991 STATEMENTS OF OPERATIONS DATA: Operating revenues $72,231 $65,975 $51,775 $44,772 $54,476 Drilling costs and general and administrative expenses (55,311) (48,652) (41,797) (40,144) (51,141) OPERATING MARGIN, before adjustment for minority interest 16,920 17,323 9,978 4,628 3,335 Depreciation (11,134) (13,618) (13,045) (15,398) (15,123) Interest expense (2,936) (2,892) (3,067) (3,523) (4,795) Minority interest in loss of Partnerships 908 3,303 4,821 4,862 6,034 OPERATING INCOME (LOSS) 3,758 4,116 (1,313) (9,431) (10,549) Other income 5,174 2,819 2,470 3,092 3,857 Write-down of drilling vessels and other assets --- --- --- (17,000) --- Tax benefit (provision) (1,872) (726) (2,948) 2,402 (350) NET INCOME (LOSS) $ 7,060 $ 6,209 $(1,791) $(20,937) $(7,042) PER SHARE DATA: Net earnings (loss) $ 1.07 $ .94 $ (.27) $(3.18) $(1.07) Weighted average shares outstanding 6,591 6,582 6,582 6,582 6,594 FLEET DATA: Number of rigs owned or managed, at end of period 10 9 10 9 9 Utilization rate 99% 99% 88% 75% 81% BALANCE SHEETS DATA: Cash and securities held for investment $37,922 $41,047 $35,044 $33,877 $45,535 Working capital 13,761 25,171 14,703 12,236 29,389 Net property and equipment 91,427 82,845 90,150 98,033 113,635 Total assets 152,853 153,460 149,853 65,942 188,283 Total long-term debt 39,319 53,294 58,409 63,016 64,032 Shareholders' equity 94,892 85,959 79,750 81,541 102,478 Ratio of current assets to current liabilities 1.67 2.89 2.24 1.68 4.02 (The Company has not paid any cash dividends on its common stock.)
Page 100 OFFSHORE DRILLING OPERATIONS MAXIMUM PERCENTAGE OF WATER NAME OF RIG TYPE OF RIG 1995 REVENUES YEAR BUILT DEPTH DRILLING RIGS WHOLLY OR PARTIALLY OWNED ATWOOD FALCON THIRD-GENERATION 15% 1983 2,500 FT. SEMISUBMERSIBLE ATWOOD HUNTER THIRD-GENERATION 14% 1981 1,500 FT. SEMISUBMERSIBLE ATWOOD EAGLE THIRD-GENERATION 21% 1982 2,500 FT. SEMISUBMERSIBLE SEAHAWK SECOND-GENERATION 15% 1974/1992 N/A SEMISUBMERSIBLE TENDER ASSIST VICKSBURG JACK-UP 7% 1976 300 FT RIG-19 MODULAR PLATFORM 10% 1988 N/A RICHMOND SUBMERSIBLE 7% 1982 75 FT. ATWOOD SECOND-GENERATION 0% 1976 1,500 FT SOUTHERN CROSS SEMISUBMERSIBLE RIG-200 MODULAR 0% UNDER N/A PLATFORM CONSTR- UCTION
CONTRACT STATUS NAME OF RIG LOCATION CUSTOMER AT NOVEMBER 21, 1995 ATWOOD FALCON MALAYSIA/ CARIGALI- Drilling the third of THAILAND TRITON four firm wells (with JOINT OPERATING three option well.) DEVELOPMENT COMPANY AREA SDB BHD ATWOOD HUNTER MALAYSIA ESSO Drilling the 38th of 44 PRODUCTION firm wells (with eight MALAYSIA, INC. option wells). ATWOOD EAGLE WESTERN WEST Drilling the first of AUSTRALIA AUSTRALIA two firm wells (with PETROLEUM one option well). PTY. LTD. SEAHAWK MALAYSIA ESSO Term contract (estimated PRODUCTION completion 1997). MALAYSIA, INC. VICKSBURG AUSTRALIA WESTERN MINING Under contract until CORPORATION February 1997, subject LIMITED to early termination under certain limited circumstances (with a one year option). RIG-19 AUSTRALIA ESSO Term contract (estimated AUSTRALIA completion august 1996). LIMITED RICHMOND UNITED STATES SHELL Drilling the second of OFFSHORE, three firm wells (have INC. received letter of intent to extend the contract term by three months from completion of the third well). ATWOOD AUSTRALIA (NOT PLACED Idle while the Company SOUTHERN CROSS IN SERVICE pursues future contract opportunities. RIG-200 UNITED STATES ESSO Term contract. AUSTRALIA LIMITED
PAGE 101
MAXIMUM PERCENTAGE OF WATER NAME OF RIG TYPE OF RIG 1995 REVENUES YEAR BUILT DEPTH MANAGEMENT/LABOR CONTRACTS GOODWYN 'A' MODULAR PLATFORM 10% N/A N/A NORTH RANKIN 'A' MODULAR PLATFORM 1% N/A N/A
CONTRACT STATUS AT NAME OF RIG LOCATION CUSTOMER NOVEMBER 21, 1995 GOODWYN 'A' AUSTRALIA WOODSIDE Term contract (estimated OFFSHORE completion mid-1996. PETROLEUM PTY. LTD. ("WOODSIDE") NORTH RANKIN 'A' AUSTRALIA WOODSIDE Term contract (estimated completion mid-1996.
Page 102 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Fiscal Year 1995 Versus Fiscal Year 1994 Fiscal year 1995 was the second consecutive year in which the Company had 99 percent utilization of its equipment. Contract revenues in 1995 increased 9 percent to $72.2 million from $66.0 million. This increase is primarily attributable to increases in revenues from the EAGLE and GOODWYN 'A' of $3.1 million and $5.1 million, respectively, offset somewhat by a $1.7 million decrease in revenues from NORTH RANKIN 'A'. An analysis of fleet utilization of wholly owned rigs and contract revenues by rig for fiscal year 1995 and 1994 are as follows:
FLEET UTILIZATION OF WHOLLY OWNED RIGS 1995 1994 Idle Rig Utilization Idle Rig Utilization Days Percentage Days Percentage Falcon --- 100% --- 100% Hunter --- 100% --- 100% Eagle 15 96% 11 97% Seahawk --- 100% --- 100% Vicksburg --- 100% --- 100% Rig-19 --- 100% --- 100% Richmond 14 96% --- 100% Average for year 99% 99%
CONTRACT REVENUES BY RIG In millions Variance Increase 1995 1994 (Decrease) Falcon $ 10.9 $11.1 $ (.2) Hunter 10.2 10.2 --- Eagle 15.1 12.0 3.1 Seahawk 10.8 10.9 (.1) Vicksburg 4.9 4.4 .5 Rig-19 7.1 6.9 .2 Richmond 5.0 5.5 (.5) Goodwyn 'A' 7.3 2.2 5.1 North Rankin 'A' .9 2.6 (1.7) Other --- .2 (.2) $ 72.2 $66.0 $ 6.2
The FALCON started fiscal year 1995 working in Korea; however, in the second quarter of the year, the rig was relocated to China, and during the last quarter, it was relocated to the Malaysia/Thailand Joint Development Area. The reduced revenues during the relocation periods account for the Page 103 small decrease in revenues with respect to the FALCON. The HUNTER has worked continuously in Malaysia for the same customer since April 1993. During the first quarter of fiscal year 1994, the EAGLE was relocated from Malaysia to the Australia/Indonesia "Zone of Cooperation", where the rig worked continuously until it was moved in the middle of September 1995 to sheltered water to undergo certain planned surveys and repairs. Even with four more days of idle time in 1995, revenues for the EAGLE were higher due to the rig working at a higher dayrate level in 1995 compared to 1994. Relatively long-term, stable contracts for the SEAHAWK, VICKSBURG and RIG- 19 continue to provide consistency to these operations. The $500,000 increase in VICKSBURG revenues is due to an increase in the dayrate in February 1995. In August 1995, the RICHMOND was moved to sheltered water to undergo certain planned surveys and repairs. This required downtime accounts for the RICHMOND's decrease in revenues. During 1994, the Company received a standby fee related to GOODWYN 'A' while awaiting commencement of drilling operations, which commenced during the first quarter of 1995. The Company receives substantially higher revenues from GOODWYN 'A' during drilling operations, resulting in an increase of revenues in 1995 over 1994. The reduction in revenues from NORTH RANKIN 'A" is due to the Company providing less labor services to this operation in 1995. Contract drilling and management costs increased from $44.3 million in 1994 to $50.8 million in 1995 (an increase of 15 percent). This increase is primarily attributable to increased costs on the EAGLE and GOODWYN 'A'. An analysis of contract drilling and management costs by rig is as follows:
In millions Variance Increase 1995 1994 (Decrease) Falcon $ 6.4 $7.0 $ (.6) Hunter 7.2 7.0 .2 Eagle 12.7 9.9 2.8 Seahawk 5.9 6.1 (.2) Vicksburg 3.0 2.2 .8 Rig-19 5.1 4.6 .5 Richmond 4.1 3.6 .5 Goodwyn 'A' 5.2 1.5 3.7 North Rankin 'A' .6 1.8 (1.2) Other .6 .6 --- $ 50.8 $44.3 $ 6.5
The reduction in FALCON costs is due to the rig working a portion of 1994 in Australia where costs are significantly higher than in most countries of Southeast Asia. The HUNTER's costs have been relatively unchanged due to its stable contract status. Cost increases for the EAGLE are attributed to the EAGLE working the entire year in the Australia/Indonesia "Zone of Cooperation" where costs are higher than in Malaysia and to costs incurred in performing certain required surveys and repairs during the last two weeks of September 1995. In 1994, the VICKSBURG and RIG-19 received some personnel tax refunds which accounts for the increase in costs as no such refunds were received in 1995. Like the EAGLE, the RICHMOND had to undergo certain surveys and repairs in August 1995 which accounts for its operating Page 104 cost increases. The increase in GOODWYN 'A' operating costs directly relates to the commencement of drilling operations. Even though the Company does not own this facility, the Company does provide personnel and other operating support services. The decline in NORTH RANKIN "A' costs is due to a reduction in personnel services provided to this operation. When the Company acquired the remaining 50 percent interest in the FALCON, HUNTER and EAGLE, it did so on the basis that these facilities are "state- of-the-art" drilling rigs and will remain long-term productive assets. Effective January 1, 1995, management increased its estimated depreciable lives on these rigs by an additional five years. An analysis of depreciation expense by rig is as follows:
In millions 1995 1994 Falcon, Hunter and Eagle $ 7.1 $ 9.9 Seahawk 2.3 2.2 Rig-19 1.2 1.2 Richmond .3 --- Other .2 .3 $ 11.1 $13.6 In 1995, the Company sold 33,000 shares of Mobil Corporation common stock at a realized gain of $2.4 million. The Company continues to own 32,000 shares of Mobil common stock. Foreign tax expense increased from $500,000 in 1994 to $1.6 million in 1995, which accounts for the increase in the provision for income taxes. Fiscal Year 1994 Versus Fiscal Year 1993 Contract revenues in 1994 increased 27 percent from contract revenues in 1993. This increase is primarily attributable to higher utilization of the FALCON, HUNTER and RICHMOND, coupled with a full year of operations of the SEAHAWK and the relocation of the EAGLE from Malaysia to Australia, where the dayrate level is higher. Analysis of fleet utilization and contract revenues by rig for fiscal years 1994 and 1993 are as follows:
FLEET UTILIZATION 1994 1993 Idle Rig Utilization Idle Rig Utilization Days Percentage Days Percentage Falcon --- 100% 105 71% Hunter --- 100% 110 70% Eagle 11 97% --- 100% Seahawk --- 100% --- 100% Vicksburg --- 100% --- 100% Rig-19 --- 100% --- 100% Richmond --- 100% 149 59% Average for year 99% 88%
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CONTRACT REVENUES BY RIG In millions Variance Increase 1994 1993 (Decrease) Falcon $11.1 $10.5 $ .6 Hunter 10.2 6.9 3.3 Eagle 12.0 9.2 2.8 Seahawk 10.9 6.3 4.6 Vicksburg 4.4 4.4 --- Rig-19 6.9 6.4 .5 Richmond 5.5 3.8 1.7 Goodwyn 'A' 2.2 1.7 .5 North Rankin 'A' 2.6 --- 2.6 Other .2 2.6 (2.4) Total $66.0 $ 51.8 $14.2
Page 106 The FALCON started fiscal year 1994 working in Australia; however, in the second quarter of the year, the rig was relocated to Malaysia, and during the last quarter, it was relocated to Korea. Even though the FALCON was 100 percent utilized in 1994, its revenues did not reflect any significant increase over 1993 because the rig was relocated to work in Malaysia and Korea where dayrate levels are lower than in Australia due to lower operating costs. The HUNTER worked the entire year in Malaysia. During the first quarter of fiscal year 1994, the EAGLE was relocated from Malaysia to the Australia/Indonesia "Zone of Cooperation". The impact of higher dayrate levels for the EAGLE more than offset the slight reduction in rig utilization in 1994 compared to 1993. The SEAHAWK has worked continuously since its commencement of operations in February 1993. Relatively long-term stable contracts for the VICKSBURG and RIG-19 have provided consistency to these operations. The RICHMOND has worked continuously since March 1993. In 1994, the Company commenced providing labor services to the North Rankin 'A' platform rig. In October 1993, the Company sold its forty percent interest in an Indian joint venture company, realizing a gain of $201,000. The termination of the Company's involvement in India primarily accounts for the $2.4 million decline in other contract revenues. Increases in rig utilization, coupled with a full year of operations of the SEAHAWK and the relocation of the EAGLE to the "Zone of Cooperation" accounts for the 18 percent increase in contract drilling and management costs in 1994 compared to 1993. An analysis of contract drilling and management costs by rig is as follows:
In millions Variance Increase 1994 1993 (Decrease) Falcon $ 7.0 $ 7.9 $ (.9) Hunter 7.0 6.3 .7 Eagle 9.7 6.1 3.6 Seahawk 6.1 4.1 2.0 Vicksburg 2.2 2.8 (.6) Rig-19 4.6 4.3 .3 Richmond 3.6 2.7 .9 Other 4.1 3.5 .6 Total $44.3 $37.7 $ 6.6
Because of increased labor costs, operating costs in Australia are significantly higher than in Malaysia. Hence, the relocation of the FALCON out of Australia and the EAGLE out of Malaysia affected the level of drilling costs for these two rigs. The increase in drilling costs for the HUNTER is due to its 100 percent utilization in 1994 compared to 70% in 1993. Likewise, the increase in RICHMOND's drilling cost is due to increased utilization. The SEAHAWK had a full year of operations in 1994 compared to approximately eight months in 1993 which accounts for its increase in drilling costs. An analysis of depreciation expense by rig is as follows: Page 107
In millions 1994 1993 Falcon, Hunter and Eagle $ 9.9 $10.1 Seahawk 2.2 1.4 Rig-19 1.2 1.2 Other .3 .3 $ 13.6 $13.0
The Company's effective income tax rate for 1994 and 1993 was 10 percent and 255 percent, respectively. The high tax rate in 1993 was primarily due to the write-off of certain tax refund claims to foreign tax expense. Page 108 LIQUIDITY AND CAPITAL RESOURCES In 1995, the Company acquired the remaining 50 percent interest in the FALCON, HUNTER and EAGLE (third generation semisubmersibles) for a combined aggregate price of approximately $36 million. Currently, virtually all fourth and third generation semisubmersible rigs are under contract, especially those rigs that can drill in water depths in excess of 2,500 feet. The FALCON, HUNTER and EAGLE are capable of drilling in water depths of 2,500, 1,500 and 2,500 feet, and can be upgraded to drill in water depths up to 4,000 feet. In 1996, the Company will pursue profitable rig upgrade opportunities which, if successful, could require an upgrade investment of between $10 and $15 million per rig to drill in 3,000 feet of water and a significantly higher investment to reach 4,000 feet water depth drilling capacity. The SOUTHERN CROSS (a second-generation semisubmersible), which was purchased by the Company in 1993, remains idle in Australia as the Company continues to pursue a future contract opportunity. Before this unit can be placed in service, an additional capital investment, estimated to range from $6 to $30 million depending upon the extent of modification, will be required. This rig can be upgraded to drill in water depths up to 2,000 feet. The Company and Helmerich & Payne, Inc. (H&P), current owner of 24 percent of the Company's common stock, is in the process of completing the joint construction in the United States of a new generation platform rig (named "Rig-200"). Rig-200 was originally scheduled to commence operating offshore Australia in early 1996; however, due to certain delays unrelated to the Company's and H&P's activities, the rig will remain stacked in the United States for up to one year before being transported to Australia. Under terms of the rig contract, a holding rate is payable during any delay period. At September 30, 1995, the Company had invested approximately $8.2 million in this project with a remaining commitment of approximately $4 million. At September 30, 1995, the Company continued to have $22.4 million invested in United States treasury bonds with maturities in the years 2000 and 2001 and $1.5 million invested in equity securities. At November 21, 1995, these investments had an aggregate market value of approximately $28 million. In 1995, the Company adopted Statement of Financial Accounting Standards No. 115, ("SFAS") Accounting for Certain Investments in Debt and Equity Securities; which had an immaterial effect on the consolidated balance sheet and had no effect on reporting earnings. The Company's portfolio of accounts receivable is comprised of major international corporate entities with stable payment experiences. Thus, the Company continues to experience no difficulties in receivable collections and anticipates no problems in collecting the $13.4 million of accounts receivable at September 30, 1995. At September 30, 1995, long-term notes payable consist of $36.3 million payable to a bank group which is secured by preferred mortgages on the HUNTER and EAGLE and an unsecured $3 million term note. In conjunction with the acquisition of the remaining 50 percent interest in the FALCON, HUNTER and EAGLE, approximately $6 million of long-term notes payable to the limited partner were cancelled; and, approximately $8 million of the Page 109 bank group debt owned by the Company was contributed as equity in the rigs, with a corresponding reduction in outstanding bank group debt. The bank debt is being repaid in quarterly installments of $750,000, with a balloon payment of $29.7 million payable in March 1998. The Company has a $10 million short-term line of credit (used to satisfy short-term working capital requirements) with a bank, the outstanding balance of which was $1.5 million as of September 30, 1995. As of September 30, 1995, the Company, under the provision of SFAS No. 109, had net current deferred tax assets of $1.2 million (after applying a valuation reserve of $6.7 million) and net noncurrent deferred tax liabilities of $1.3 million, including $.7 million relating to unrealized holding gains. Working capital at September 30, 1995 was $13.8 million which is $11.4 million lower than at September 30, 1994. This reduction in working capital in 1995 is attributable to capital additions. Currently, the Company continues to have all of its drilling equipment (except the SOUTHERN CROSS which has not been placed in service) under contract. The key factor in the Company's profitable operating results in 1995 and 1994 was its ability to maintain a high level of equipment utilization. Based upon current contract commitments and market outlook, the Company anticipates that it will be able to maintain a high level of equipment utilization in 1996. Future enhancement of operating results in the immediate term will depend upon continuing improvements in dayrate levels, obtaining a contract for the SOUTHERN CROSS and possible upgrades of existing equipment. PAGE 110 Atwood Oceanics, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS
September 30, (In thousands) 1995 1994 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 11,984 $ 16,119 Accounts receivable 13,425 13,915 Current maturities of long-term note receivable --- 400 Inventories of materials and supplies, 4,904 4,194 at lower of average cost or market 1,200 1,800 Deferred tax assets 2,753 2,044 Prepaid expenses 34,266 38,472 Total Current Assets SECURITIES HELD FOR INVESTMENT: Held-to-maturity, at amortized cost 22,422 22,451 Available-for-sale, at fair value 3,516 2,477 in 1995 25,938 24,928 LONG-TERM NOTE RECEIVABLE, net of current maturities --- 5,985 PROPERTY AND EQUIPMENT, at cost: Drilling vessels, equipment and drill pipe 174,989 187,525 Investment in joint venture 8,182 310 Other 4,569 4,169 187,740 192,004 Less - accumulated depreciation 96,313 109,159 Net Property and Equipment 91,427 82,845 DEFERRED COSTS AND OTHER ASSETS 1,222 1,230 $152,853 $153,460
The accompanying notes are an integral part of these consolidated financial statements. Page 111 Atwood Oceanics, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS
September 30, (In thousands, except share data) 1995 1994 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term notes $ 3,750 $ 3,000 payable 1,500 --- Short-term note payable 6,260 3,728 Accounts payable 8,995 6,573 Accrued liabilities 20,505 13,301 Total Current Liabilities LONG-TERM NOTES PAYABLE, net of current maturities 35,569 50,294 DEFERRED CREDITS: Income taxes 1,334 1,650 Other 553 639 1,887 2,289 MINORITY INTEREST IN PARTNERSHIPS --- 1,617 SHAREHOLDERS' EQUITY: Preferred stock, no par value; 1,000,000 shares authorized, none outstanding --- --- Common stock, $1 par value; 10,000,000 shares authorized with 6,629,000 and 6,582,000 issued and outstanding in 1995 and 1994, respectively 6,629 6,582 Paid-in capital 54,771 54,273 Net unrealized holding gain on available- for-sale securities 1,328 --- Retained earnings 32,164 25,104 Total Shareholders' Equity 94,892 85,959 $152,853 $153,460
The accompanying notes are an integral part of these consolidated financial statements. Page 112 Atwood Oceanics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS
For Years Ended September 30, (In thousands, except per share amounts) 1995 1994 1993 REVENUES: Contract drilling $71,452 $ 63,640 $ 50,083 Contract management 779 2,335 1,692 72,231 65,975 51,775 COSTS AND EXPENSES: Contract drilling 50,241 42,799 36,380 Contract management 585 1,529 1,314 Depreciation 11,134 13,618 13,045 General and administrative 4,485 4,324 4,103 66,445 62,270 54,842 OPERATING INCOME (LOSS) 5,786 3,705 (3,067) OTHER INCOME (EXPENSE) Interest expense (2,936) (2,892) (3,067) Investment income 2,804 2,819 2,470 Realized gain on sale of securities 2,370 --- --- 2,238 (73) (597) INCOME (LOSS) BEFORE MINORITY INTEREST AND INCOME TAXES 8,024 3,632 (3,664) MINORITY INTEREST IN LOSS OF PARTNERSHIPS 908 3,303 4,821 INCOME BEFORE INCOME TAXES 8,932 6,935 1,157 PROVISION FOR INCOME TAXES 1,872 726 2,948 NET INCOME (LOSS) $ 7,060 $ 6,209 $ (1,791) EARNINGS (LOSS) PER COMMON SHARE $ 1.07 $ .94 $ (.27) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 6,591 6,582 6,582
The accompanying notes are an integral part of these consolidated financial statements. Page 113 Atwood Oceanics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
For Years Ended September 30, (In thousands) 1995 1994 1993 CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss) $ 7,060 $ 6,209 $ (1,791) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 11,134 13,618 13,045 Amortization of deferred items 429 531 (104) Deferred federal income tax benefit (400) (150) --- Write off of foreign tax refund claims --- --- 1,736 Gain on sale of securities (2,370) --- --- Gain on sale of equity in Indian joint venture --- (201) --- Minority interest in loss of partnerships (908) (3,303) (4,821) Changes in assets and liabilities: Decrease (increase) in accounts receivable 490 (3,147) 5,009 Increase (decrease) in accounts payable 2,532 670 (3,057) Increase in accrued liabilities 2,422 731 1,870 Other (1,192) (358) (1,078) 12,137 8,391 12,600 Net Cash Provided by Operating Activities 19,197 14,600 10,809 CASH FLOW FROM INVESTING ACTIVITIES: Proceeds from sale of securities 3,343 --- --- Capital expenditures (4,545) (6,412) (5,302) Proceeds from sale of equity in Indian joint venture --- 1,300 --- Investment in joint venture (7,872) (310) --- Acquisition of interest in partnerships (13,275) --- --- Payments received on notes receivable 202 404 1,948 Net Cash Used by Investing Activities (22,147) (5,018) (3,354) CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from exercises of stock options 545 --- --- Principal payments on long-term notes (3,130) (3,000) (3,000) Net advances by (payments to) limited partner (100) (550) 1,773 Proceeds (repayment) of short-term note payable 1,500 --- (5,000) Net Cash Used by Financing Activities (1,185) (3,550) (6,227) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,135) 6,032 1,228 CASH AND CASH EQUIVALENTS, at beginning of period 16,119 10,087 8,859 CASH AND CASH EQUIVALENTS, at end of period $ 11,984 $16,119 $10,087 __________________________ Supplemental disclosure of cash flow information: Cash paid during the year for domestic and $ 1,558 $ 1,657 $ 1,038 foreign income taxes Cash paid during the year for interest $ 2,552 $ 2,380 $ 2,793
The accompanying notes are an integral part of these consolidated financial statements. Page 114 Atwood Oceanics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Common Stock Paid-in Unrealized Retained (In thousands) Shares Amount Capital Holding Gain Earnings September 30, 1992 6,582 $6,582 $54,273 $ --- $ 20,686 Net loss --- --- --- --- (1,791) September 30, 1993 6,582 6,582 54,273 --- 18,895 Net income --- --- --- --- 6,209 September 30, 1994 6,582 6,582 54,273 --- 25,104 Unrealized holding gain --- --- --- 1,328 --- Exercises of employees' stock options 47 47 498 --- --- Net income --- --- --- --- 7,060 September 30, 1995 6,629 $ 6,629 $54,771 $ 1,328 $ 32,164 ---------------------- Preferred stock, no par value, of 1,000,000 shares was authorized in 1975 and no shares have been issued. The accompanying notes are an integral part of these consolidated financial statements. Page 115 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Board of Directors of Atwood Oceanics, Inc.: We have audited the accompanying consolidated balance sheets of Atwood Oceanics, Inc. (a Texas corporation) and subsidiaries as of September 30, 1995 and 1994, and the related consolidated statements of operations, cash flows and changes in shareholders' equity for each of the three years in the period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Atwood Oceanics, Inc. and subsidiaries as of September 30, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Houston, Texas November 21, 1995 Page 116 Atwood Oceanics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation - The consolidated financial statements include the accounts of Atwood Oceanics, Inc. ("AOI") and all of its wholly owned domestic and foreign subsidiaries (all of such entities being collectively referred to herein as the "Company"). Prior to December 31, 1994, AOI owned a 50 percent interest in two Texas Limited Partnerships, Atwood Deep Seas, Ltd. ("Deep Seas") and Atwood Falcon I, Ltd. ("Falcon Ltd."), the accounts of which were included in the Company's consolidated financial statements. The limited partner's interest in the net assets and loss of the two partnerships was reflected in the Company's financial statement as "minority interest in partnerships". (See Note 2 regarding AOI's acquisition of the minority partner's interest.) All significant intercompany accounts and transactions have been eliminated in consolidation. Foreign exchange - The U.S. dollar is the functional currency for all areas of operations of the Company. Accordingly, monetary assets and liabilities denominated in foreign currency are translated to U.S. dollars at the rate of exchange in effect at the end of the year, items of income and expense are translated at average monthly rates, and property and equipment and other amounts are translated at historical rates. Gains and losses on foreign currency transactions and translations are included in drilling costs in the consolidated statements of operations. The Company incurred foreign exchange losses of $155,000, $417,000 and $140,000 in 1995, 1994 and 1993, respectively. Depreciation, maintenance and retirement policies - Depreciation is provided on the straight-line method over the following estimated useful lives of the various classifications of assets: Years Drilling vessels and related equipment 8-15 Drill pipe 3 Furniture and Other 3-10 Maintenance, repairs and minor replacements are charged against income as incurred; major replacements and betterments are capitalized and depreciated over the remaining useful life of the asset as determined upon completion of the work. The cost and related accumulated depreciation of assets sold, retired or otherwise disposed are removed from the accounts at the time of disposition, and any resulting gain or loss is reflected in the consolidated statements of operations for the applicable period. Deferred costs - The Company defers and amortizes the costs of moving a drilling vessel to a Page 117 new area on a straight-line basis over the life of the applicable drilling contract. There were no unamortized mobilization costs at September 30, 1995 or 1994. The Company defers the cost of scheduled drydocking and the cost is charged to expense over the period to the next scheduled drydocking (normally 30 months). Federal income taxes - The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes". Under SFAS No. 109, deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. Page 118 Revenue recognition - The Company accounts for drilling and management contracts using the percentage of completion method of accounting, under which revenues are recognized on a daily basis as earned. Cash and cash equivalents - Cash and cash equivalents consist of cash in banks and certificates of deposit which mature within three months of the date of purchase. Receivables - Based upon the Company's historical collection of accounts receivable, the Company has not established an allowance for doubtful accounts. Investments - Investments in held-to-maturity securities are stated at the amortized cost at the balance sheet date. The Company has the ability and intent to hold such securities to maturity. At September 30, 1995, investments in available-for-sale securities are carried at fair value with the net unrealized holding gain included in shareholders' equity. At September 30, 1994, such securities were carried at the lower of cost or market. Earnings (Loss) per common share - Earnings (loss) per common share was computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during each period. The dilutive effect of stock options is immaterial. Reclassifications - Certain reclassifications have been made to 1994 and 1993 financial statements to conform to the 1995 classifications. NOTE 2 - ACQUISITION OF LIMITED PARTNER'S INTEREST IN THREE SEMISUBMERSIBLE DRILLING VESSELS Effective as of December 31, 1994, the Company acquired one third- generation semisubmersible drilling rig, the FALCON, from Falcon Ltd. and the other 50 percent limited partner's interest in Deep Seas which owned two third-generation semisubmersible drilling rigs, the HUNTER and the EAGLE. By combination of approximately $13 million of cash remitted, the issuance of a $3 million note and the assumption of approximately $20 million of long-term notes payable to a bank group (previously consolidated), which aggregates to approximately $36 million, the Company became the sole owner of the three semisubmersible rigs. Since the Company's consolidated balance sheet prior to the acquisition of the limited partner's interest reflected 100 percent of the historical cost basis of the HUNTER, EAGLE and FALCON, 50 percent of the historical cost basis of these rigs (approximately $51 million) and the related accumulated Page 119 depreciation (approximately $23 million) were retired from the balance sheet, with the historical cost basis increased by the Company's $36 million acquisition price of the limited partner's interest. In conjunction with the acquisition, approximately $5 million of long-term notes payable to the limited partner by Deep Seas were cancelled. Also, the approximately $8 million portion of Deep Seas bank group debt owned by AOI, with an approximate discounted basis of $6 million, was contributed as equity in Deep Seas with a corresponding reduction in outstanding Deep Seas bank group debt. (See Note 6.) The effect on the Company's balance sheet of the above transactions is as follows: Page 120
(In millions) Increase (decrease) in assets: Cash $ (13) Long-term notes receivable (6) Property and Equipment - Drilling vessels, equipment and drill pipe - Removal of limited partner's historical cost basis (51) - Reduction in accumulated depreciation related to 23 historical cost 36 - Acquisition price of 50 percent limited partner's interest (2) - Discount on long-term note receivable 6 contributed as equity in Deep Seas $ (13) Net decrease in consolidated assets Decrease (increase) in liability: Note issued in conjunction with acquisition $ (3) Cancellation of liabilities to limited partner 8 Reduction in bank group debt 8 Net decrease in consolidated liabilities $ 13
NOTE 3 - SECURITIES HELD FOR INVESTMENT Effective October 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities ("SFAS No. 115"); which had an immaterial effect on the consolidated balance sheet and had no effect on reported earnings. All of the Company's investments in equity securities are classified as "available-for-sale" and accordingly, are reflected in the September 30, 1995 Consolidated Balance Sheet at fair value, with the aggregate unrealized gain, net of related deferred tax liability, included in shareholders' equity. All of the Company's investments in United States Treasury Bonds (which mature in 2000 and 2001) are classified as "held-to- maturity" and accordingly, are reflected in the September 30, 1995 Consolidated Balance Sheet at amortized cost. SFAS No. 115 may not be applied to prior periods, therefore the Company's marketable securities portfolio at September 30, 1994 is reported in the Consolidated Balance Sheet at amortized cost. An analysis of the Company's investments in marketable securities at September 30, 1995 and 1994 is as follows:
(In thousands) Amortized Unrealized Fair Cost Gain Value 1995 - Equity Securities $ 1,504 $ 2,012 $ 3,516 United States Treasury Bonds 22,422 2,204 24,626 $ 23,926 $ 4,216 $ 28,142 1994 - Equity Securities $ 2,477 $ 2,981 $ 5,458 United States Treasury Bonds 22,451 819 23,270 $ 24,928 $ 3,800 $ 28,728
During 1995, 33,000 shares of Mobil Corporation common stock were sold at a realized gain of $2.4 million. The Company used the specific identification method in determining the basis of the securities sold. There were no sales of marketable securities in fiscal year 1994. At November 21, 1995, the fair value of equity securities was $3.8 million and the fair value of the treasury bonds was $24.9 million resulting in combined unrealized gains of $4.8 million at such date. NOTE 4 - PROPERTY AND EQUIPMENT In October 1993, the Company purchased for $1.5 million the SOUTHERN CROSS, a semisubmersible built in 1976 which has been idle in Australia since the end of 1992. For the rig to be placed in service, additional capital investment (estimated to range from $6 to $30 million depending upon extent of modification) will be required. At September 30, 1995 the Company had incurred approximately $1.1 million in additional costs related to evaluating and preparing the rig for possible utilization alternatives. The Company has received unsolicited purchase offers for the rig that have been significantly in excess of the rig's current cost basis. The vessel will remain idle in Australia for an indefinite period of time as the Company pursues future profitable contract opportunities. When the Company acquired its initial interest in the HUNTER, EAGLE and FALCON in 1990, estimated useful lives for these rigs of ten years were adopted for depreciation purposes. However, since these facilities remain "state-of-the art" drilling rigs and since the Company acquired the 50 percent limited partner's interest on the basis that these rigs will remain long-term productive assets, effective January 1, 1995 management increased its estimated lives on these rigs by an additional five years. The effect of the change in depreciable lives was an approximate $3 million reduction in depreciation for 1995. In 1995, the Company adopted the Financial Accounting Standards Board Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The adoption had no impact on the Company's financial statements. NOTE 5 - INVESTMENT IN JOINT VENTURE In August 1994, Atwood Oceanics West Tuna Pty. Ltd ("West Tuna"), an Australian company owned 50 percent by the Company and 50 percent by Helmerich & Payne, Inc. ("H&P") (current owner of 24 percent of the Company's outstanding common stock), was awarded a term contract for the design, construction and operation of a new generation platform rig. The Company and H&P entered into a joint venture agreement to construct the rig whereby H&P would manage the design, construction, testing and mobilization of the new rig; and the Company would manage the initial installation and daily operations of the new rig. The rig (named "Rig-200") is under construction in the United States and is currently undergoing various acceptance testing procedures. Rig-200 was originally scheduled to commence operating offshore Australia in early 1996; however, due to project delays in Australia unrelated to the Company's and H&P's activities, West Tuna has been advised to delay shipment of the rig to Australia until early 1997. Under terms of the contract, a holding rate is payable during any delay period. A holding rate (the amount of which is currently under negotiation) should commence on or before January 1, 1996. The rig is currently scheduled to commence operations in offshore Australia in early 1997. Page 123 NOTE 6 - NOTES PAYABLE Long-Term Notes Payable - A summary of long-term notes payable is as follows:
(In thousands) 1995 1994 Notes payable to bank group by Deep Seas, bearing interest (market adjustable) at approximately 7 percent per annum at September 30, 1995 $ 36,319 $ 47,375 Term note, bearing interest at 6 percent per annum 3,000 --- Notes payable to limited partner by Deep Seas: Non-interest bearing, net of $3.2 million discount in 1994 --- 800 Bearing interest at prime rate --- 5,119 39,319 53,294 Less - current maturities 3,750 3,000 $ 35,569 $ 50,294
Principal payments on the bank group debt are $750,000 per quarter, with a balloon payment of $29.7 million payable in March 1998. The bank group's collateral for the long-term notes consists principally of preferred mortgages on the HUNTER and EAGLE. The loan documents with the bank group prohibit the cash payment of management fees, partnership profits and certain other cost disbursements by Deep Seas prior to the time the notes are paid in full. There is also an annual limit on the amount of capital expenditures that can be incurred by Deep Seas. In 1995, Deep Seas obtained a waiver from the Bank Group with respect to expenditures which exceeded the capital expenditures limit. A portion of the purchase price of the limited partner's interest included the issuance of a $3 million unsecured note payable in four annual $750,000 installments. Effective December 31, 1994, all notes payable to the limited partner were cancelled in conjunction with the Company's purchase of the limited partner's interest. The maturities of long-term debt are as follows: (In thousands) YEAR AMOUNT 1996 $ 3,750 1997 3,750 1998 31,069 1999 750 $39,319 Short-Term Note Payable - At September 30, 1995, the Company has a $ 10 million short-term line of credit with a bank that is secured by the pledge of a portion of the Company's U.S. treasury bonds. This line of credit is used to satisfy short-term working capital requirements. At September 30, 1995, $1.5 million, bearing interest at 6 percent (with maturity on October 23, 1995) was borrowed under this line of credit. The maturity date has subsequently been extended to December 14, 1995. NOTE 7 - INCOME TAXES Domestic and foreign income (loss) before income taxes and minority interest for the three years in the period ended September 30, 1995 are as follows:
(In thousands) 1995 1994 1993 Domestic income (loss) $ 6,237 $ (2,869) $ (149) Foreign income (loss) 1,787 6,501 (3,515) $ 8,024 $ 3,632 $ (3,664)
The provision (benefit) for domestic and foreign taxes on income consists of the following:
(In thousands) 1995 1994 1993 Current domestic provision $ 700 $ 400 $ 460 Deferred domestic benefit (400) (150) --- Current foreign provision 1,572 476 2,488 $ 1,872 $ 726 $ 2,948
Effective October 1, 1993, the Company adopted the provision of SFAS No. 109, "Accounting for Income Taxes". As of October 1, 1993, there was no cumulative effect of the accounting change for income taxes reflected in the Company's statement of operations. The components of the deferred income tax assets (liabilities) as of September 30, 1995 and 1994 are summarized as follows:
(In thousands) September 30, 1995 1994 Deferred tax assets - Net operating loss carryforwards $ 4,570 $ 9,090 Investment tax credit carryforwards 3,620 4,290 Foreign tax credits carryforwards --- 1,810 Book reserves 1,730 1,370 Difference in book and tax basis of equipment 5,590 (200) 15,510 16,360 Deferred tax liabilities - Income recognized for tax in excess of book 7,870 8,400 Deferred charges 430 140 Unrealized holding gains on available-for-sale securities 684 --- 8,984 8,540 Net deferred tax assets before valuation allowance 6,526 7,820 Valuation allowances (6,660) (7,670) Net deferred tax asset (liability) (134) 150 Net current deferred tax assets 1,200 1,800 Net noncurrent deferred tax liabilities (1,334) (1,650) Net deferred tax asset (liability) $ (134) $ 150
U.S. deferred taxes have not been provided on foreign earnings totaling $8.8 million which are permanently invested abroad. Foreign tax credits totaling approximately $1.2 million are available to reduce the U.S. taxes on such amounts. The differences between the statutory and the effective income tax rate are as follows:
1995 1994 1993 Statutory income tax rate 34% 34% 34% Increase (decrease) in tax rate resulting from - Foreign tax rate differentials 11 (18) --- Book depreciation on partnerships' assets with no tax basis --- 19 113 Foreign taxes not creditable against domestic income taxes --- --- 96 Investment tax credits (10) (14) 23 Change in valuation allowance (10) --- --- Financial income not subject to domestic income taxes (1) (2) (16) Other, net (3) (9) 5 Effective income tax rate 21% 10% 255%
At September 30, 1995, the Company had approximately $1.0 million in investment tax credits (which commence expiration in 1997) available to reduce future tax obligations. The Company also has available approximately $12 million in net operating loss carryforwards (which expire in the years 2000 through 2003) and approximately $3 million in investment tax credits (which expire primarily in 1997 and 1998). These tax attributes are subject to various limitations, thereby restricting their availability to reduce future tax obligations. Page 128 As the result of the Company's unsuccessful efforts to collect $3.4 million of previously paid foreign taxes considered refundable, the receivable for these taxes was written-off in the fourth quarter of 1993. Legal action is currently being pursued; however, it will take several years to ultimately resolve this issue. This additional foreign income tax expense, after adjustment for minority interest, added $1.7 million ($.25 per share) to the Company's fiscal year 1993 net loss. For several years, the Company has pursued legal action to collect certain tax refund claims in India. As a result of favorable court decisions in India, and upon the Company providing a letter of guarantee, the Company received a tax refund in 1994 of $639,000 (net of taxes on interest and other related expense), which is reflected in the balance sheet as other deferred credits, pending ultimate resolution of the issue by the Indian High Court. NOTE 8 - CAPITAL STOCK The Company has a stock option plan ("Stock Plan") under which non- qualified and incentive stock options may be granted to officers and key employees through December 5, 2000. The maximum number of shares of common stock that may be granted under the Stock Plan is 330,000. The Company also has options outstanding to purchase 28,250 shares (at prices ranging from $12.25 to $14.75 per share) under an incentive stock option plan ("Incentive Plan") which expired for future grant purposes on November 17, 1991. Under the Stock Plan, the Compensation Committee of the Board of Directors determines the option exercise period, which cannot be less than six months or more than ten years from the date of grant, and the option prices, which cannot be less than the fair market value on the date of the grant. The rights to exercise options under the Stock Plan currently vest over a period of five years and do not expire until ten years after the date of grant. At September 30, 1995, there were 75,500 shares available for grant under the Stock Plan. Total option activity for the years ended September 30, 1995, 1994 and 1993 was as follows:
1995 1994 1993 Number Weighted- Number Weighted- Number Weighted- of Average of Average of Average Options Exercise Options Exercise Options Exercise Price Price Price Outstanding, beginning of year 254,500 $12.19 258,800 $12.44 242,300 $14.00 Granted 32,000 13.13 44,000 13.38 54,000 10.75 Exercised (46,400) 11.75 --- --- --- --- Forfeited --- --- (18,000) 12.79 (13,000) 15.00 Expired --- --- (30,300) 16.25 (24,500) 23.25 Outstanding, end of year 240,100 12.29 254,500 12.19 258,800 12.44 Exercisable, end of year 79,987 $12.12 58,300 $12.48 45,905 $14.30
NOTE 9 - RETIREMENT PLAN The Company has a contributory retirement plan (the "Plan") under which qualified participants may make contributions of up to 5% of their compensation, as defined (the basic contribution). The Company makes a contribution to the Plan equal to twice the basic contribution. Company contributions vest 100 percent to each participant beginning with the fourth year of participation. If a participant terminates his employment before becoming fully vested, the unvested portion is credited to the Company's account and can be used only to offset Company contribution requirements. The Company used $112,000 of forfeitures in 1995 and $195,000 of forfeitures in 1993 to reduce its cash contribution requirements which resulted in actual contributions of $637,000 in 1995 and $477,000 in 1993. In 1994, the Company made cash contributions of $702,000 and did not utilize any forfeitures to reduce its contribution requirements. As of September 30, 1995, there remains approximately $80,000 of contribution forfeitures which can be utilized to reduce future Company cash contribution requirements. NOTE 10 - COMMITMENTS The terms of some drilling contracts require that the Company provide standby letters of guarantee. To support these requirements and the Indian tax guarantee, the Company has a $3 million unsecured short-term line of credit with a bank. At September 30, 1995, the Company had approximately $1 million in commitments relating to standby letters of guarantee. NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS Due to the short maturity of these instruments, the carrying values of cash and cash equivalents, accounts receivable, short-term note payable, accounts payable and accrued liabilities included in the accompanying Consolidated Balance Sheets approximated fair value. Since the $36.3 million notes payable to the bank group has a market adjustable interest rate, the carrying value of this instrument approximates fair value. Although the $3 million term note has a fixed 6 percent interest rate at September 30, 1995, it also approximates fair value. The Company's only financial instruments at September 30, 1995 with a fair value different from carrying value are marketable securities; the difference of which is shown in Note 3. Page 130 NOTE 12 - CONCENTRATION OF MARKET AND CREDIT RISK All of the Company's customers are in the oil and gas offshore exploration and production industry. This industry concentration has the potential to impact the Company's overall exposure to market and credit risks, either positively or negatively, in that the Company's customers could be affected by similar changes in economic, industry or other conditions. However, the Company believes that the credit risk posed by this industry concentration is offset by the creditworthiness of the Company's customer base. The Company's portfolio of accounts receivable is comprised of major international corporate entities and government organizations with stable payment experience. Historically, the Company's uncollectible accounts receivable have been immaterial, and typically, the Company does not require collateral for its receivables. Contract drilling revenues for 1995 include $24,811,000, $16,000,000 and $7,482,000 in revenues received from three individual companies. Drilling revenues for 1994 include $24,777,000 and $6,683,000 in revenues received from two individual companies. Drilling revenues for 1993 include $19,972,000 and $5,329,000 in revenues received from two individual companies. NOTE 13 - OPERATIONS BY GEOGRAPHIC AREAS The Company is engaged in offshore contract drilling. The contract drilling operations consist of contracting Company owned or managed offshore drilling equipment primarily to major oil and gas exploration companies. Operating income (loss) is contract revenues less operating expenses. In computing operating income (loss) for each geographic area, none of the following items were considered: investment income or gains on sale of securities, general corporate expenses, interest expense, minority interest in loss of partnerships and domestic and foreign income taxes. Identifiable assets are those assets that are used by the Company in operations in each geographic area. General corporate assets are principally investments in marketable securities. Page 131 A summary of revenues, operating income (loss) and identifiable assets by geographic areas is as follows:
(In thousands) 1995 1994 1993 CONTRACT REVENUES: United States $ 4,981 $ 5,483 $ 3,842 Australia 35,314 31,192 23,497 Southeast Asia 31,936 28,935 22,004 India/Middle East --- 365 2,432 $ 72,231 $ 65,975 $ 51,775 OPERATING INCOME (LOSS) United States $ (603) $ 1,160 $ 602 Australia 6,562 6,013 1,671 Southeast Asia 4,318 902 (1,968) India/Middle East (6) (46) 731 General corporate expense (4,485) (4,324) (4,103) $ 5,786 $ 3,705 $ (3,067) IDENTIFIABLE ASSETS: United States $ 22,599 $ 19,132 $ 10,890 Australia 42,143 39,182 43,386 Southeast Asia 62,166 63,024 62,470 India/Middle East 7 9 1,361 General corporate 25,938 32,113 31,746 $152,853 $ 153,460 $ 149,853
NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly results for fiscal years 1995 and 1994 are as follows: QUARTERS ENDED
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, (In thousands, except per share amounts) 1995 Revenues $ 18,306 $ 18,314 $ 18,548 $ 17,063 Income before income taxwa 1,933 2,132 3,912 955 Net income 1,743 1,287 3,191(a) 839 Earnings per common share .26 .20 .48 .13 1994 Revenues $ 15,858 $ 16,519 $ 16,761 $ 16,837 Income before income taxes 1,883 1,553 1,661 1,838 Net income 1,600 1,305 1,626 1,678 Earnings per common share .24 .20 .25 .25 (a) The Company sold 33,000 shares of Mobil Corporation common stock which resulted in a $2.4 million positive effect on 1995 third quarter results. DIRECTORS ROBERT W. BURGESS (3) Senior Vice President CIGNA Investment Division CIGNA Companies Bloomfield, Connecticut GEORGE S. DOTSON (1, 2, 3) Vice President Helmerich & Payne, Inc. President Helmerich & Payne, International Drilling Co. Tulsa, Oklahoma W. H. HELMERICH, III Chairman Helmerich & Payne, Inc. Tulsa, Oklahoma HANS HELMERICH (1, 3) President, Chief Executive Officer Helmerich & Payne, Inc. Tulsa, Oklahoma JOHN R. IRWIN (1) President, Chief Executive Officer Atwood Oceanics, Inc. Houston, Texas WILLIAM J. MORRISSEY (2) Bank Executive, Retired Elkhorn, Wisconsin (1) Executive Committee (2) Audit Committee (3) Compensation Committee ANNUAL MEETING The annual meeting of stockholders will be held on February 8, 1996 at the Company's principal office: 15835 Park Ten Place Drive, Houston, Texas. A formal notice of the meeting together with a proxy statement and form of proxy will be mailed to stockholders about January 12, 1996. Page 133 OFFICERS JOHN R. IRWIN President, Chief Executive Officer JAMES M. HOLLAND Senior Vice President and Secretary GLEN P. KELLEY Vice President - Contracts and Administration LARRY P. TILL Vice President - Operations TRANSFER AGENT AND REGISTRAR Liberty Bank & Trust of Oklahoma City, N.A. P. O. Box 25848 100 N. Broadway, 7th Floor (73102) Oklahoma City, OK 73125 FORM 10-K A copy of Form 10-K as filed with the Securities and Exchange Commission, is available free on request by writing to: Secretary, Atwood Oceanics, Inc. P. O. Box 218350 Houston, Texas 77218 STOCK PRICE INFORMATION - Atwood Oceanics, Inc. stock is traded over-the-counter with the NASDAQ/NMS Symbol "ATWD". No cash dividends on common stock were paid in fiscal year 1994 or 1995, and none are anticipated in the foreseeable future. As of September 30, 1995, there were over 400 beneficial owners of the common stock of Atwood Oceanics, Inc. As of November 21, 1995, the closing sale price of the common stock of Atwood Oceanics, Inc., as reported by NASDAQ, was $16 7/8 per share. The following table sets forth the range of high and low closing sale prices per share of common stock as reported by NASDAQ for the periods indicated. 1994 1995 QUARTERS ENDED LOW HIGH LOW HIGH December 31 10 3/4 12 12 5/8 14 1/4 March 31 11 13 12 1/2 14 3/8 June 30 12 1/2 14 13 5/8 16 1/2 September 12 1/2 14 7/8 15 1/4 22 3/8 Page 135 APPENDIX The following graphic and image information in the form of "Bar Charts" are located in the Annual Report immediately following "Highlights". BAR CHART - CONTRACT REVENUES ($ MILLIONS) 1991 1992 1993 1994 1995 $58.3 $47.9 $51.8 $66.0 $72.2 BAR CHART - EARNINGS, BEFORE DEPRECIATION, INTEREST AND TAXES ($ MILLIONS) 1991 1992 1993 1994 1995 $4.3 $4.3 $9.3 $15.3 $20.8 BAR CHART - OPERATING CASH FLOW ($ MILLIONS) 1991 1992 1993 1994 1995 $1.2 $2.9 $8.1 $16.8 $14.9 BAR CHART - NET INCOME (LOSS) ($ MILLIONS) 1991 1992 1993 1994 1995 $(7.0) $(20.9) $(1.8) $6.2 $7.1 BAR CHART - CAPITAL EXPENDITURES ($ MILLIONS) 1991 1992 1993 1994 1995 $5.2 $15.5 $5.3 $6.4 $25.7 BAR CHART - CASH AND AVAILABLE FOR SALE SECURITIES ($ MILLIONS) 1991 1992 1993 1994 1995 $45.5 $33.9 $35.0 $41.0 $37.9
EX-21.1 7 PAGE 125 EXHIBIT 21.1 SUBSIDIARY COMPANIES AND STATE OR JURISDICTION OF INCORPORATION Atwood Drilling Inc. Delaware 100% All Oceans Drilling B.V. Netherlands 100% Atwood Falcon Co. Delaware 100% Atwood Hunter Co. Delaware 100% Atwood Oceanics Australia Pty. Ltd. Australia 100% Atwood Oceanics Drilling Company Texas 100% Atwood Oceanics Drilling Pty. Ltd. Australia 100% Atwood Oceanics International, S.A. Panama 100% Atwood Oceanics (M) Sdn. Bhd. Malaysia 100% Atwood Oceanics (NZ) Limited New Zealand 100% Atwood Oceanics Pacific Limited Cayman Island 100% B.W.I. twood Oceanics Platforms Pty. Ltd. Australia 100% Atwood Oceanics Services Singapore 100% Atwood Oceanics Service Pty. Ltd. Australia 100% Atwood Oceanics West Tuna Pty. Ltd. Australia 50% Aurora Offshore Services GmbH Germany 100% Clearways Drilling (M) Sdn. Bhd. Malaysia 30% Clearways Offshore Development Drilling Sdn. Bhd. Malaysia 30% Deep Seas Drilling Pty. Ltd. Australia 100% Eagle Oceanics, Inc. Texas 100% Oceandrill (M) Sdn. Bhd. Malaysia 90% PT Pentawood Offshore Drilling Indonesia 80% Swiftdrill, Inc. Texas 100% Swiftdrill Nigeria Limited Nigeria 60% EX-23.1 8 PAGE 126 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated November 21, 1995, incorporated by reference in this Form 10- K, into the Company's previously filed Registration Statement No. 33-39993 on Form S-3 and previously filed Registration Statement Nos. 33-36921 and 33- 522065 on Form S-8. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Houston, Texas December 21, 1995 EX-27.1 9
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMMATION EXTRACTED FROM THE FINANCIAL STATEMENTS DESCRIBED IN ITEM 14 OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000008411 ATWOOD OCEANICS, INC. 1,000 YEAR YEAR SEP-30-1995 SEP-3-1994 OCT-01-1994 OCT-01-1993 SEP-30-1995 SEP-30-1994 11,984 16,119 25,938 24,928 13,425 20,300 0 0 4,904 4,194 34,266 38,472 187,740 192,004 96,313 109,159 152,853 153,460 20,505 13,301 35,569 50,294 6,629 6,582 0 0 0 0 56,009 54,273 152,853 153,460 72,231 66,176 77,405 68,794 55,311 48,652 55,311 48,652 11,134 13,618 0 0 2,936 2,892 8,932 6,935 1,872 726 7,060 6,209 0 0 0 0 0 0 7,060 6,209 1.07 .94 1.07 .94
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